EXHIBIT 99
LYONDELL CHEMICAL COMPANY
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- --------------------------
MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA 2001 2000 2001 2000
- ------------------------------------------ ------ ------ ------ ------
SALES AND OTHER OPERATING REVENUES $ 750 $ 975 $2,509 $3,087
OPERATING COSTS AND EXPENSES:
Cost of sales 633 793 2,149 2,514
Selling, general and administrative expenses 32 51 112 139
Research and development expense 8 6 24 27
Amortization of goodwill
and other intangible assets 25 28 75 81
Unusual charges 78 - - 78 - -
----- ----- ------ ------
776 878 2,438 2,761
----- ----- ------ ------
Operating income (loss) (26) 97 71 326
Interest expense (95) (114) (292) (403)
Interest income 4 10 15 39
Other income (expense), net (4) 14 (2) 8
Gain on sale of assets - - 46 - - 590
----- ----- ------ ------
Income (loss) before equity investments,
income taxes and extraordinary items (121) 53 (208) 560
----- ----- ------ ------
INCOME (LOSS) FROM EQUITY INVESTMENTS:
Equistar Chemicals, LP (24) 35 (48) 140
LYONDELL-CITGO Refining LP 48 42 116 48
Other (7) 6 (7) 11
----- ----- ------ ------
17 83 61 199
----- ----- ------ ------
Income (loss) before income
taxes and extraordinary items (104) 136 (147) 759
Provision for (benefit from) income taxes (37) 3 (50) 244
----- ----- ------ ------
Income (loss) before extraordinary items (67) 133 (97) 515
Extraordinary loss on extinguishment
of debt, net of income taxes - - - - - - (30)
----- ----- ------ ------
NET INCOME (LOSS) $ (67) $ 133 $ (97) $ 485
===== ===== ====== ======
BASIC EARNINGS PER SHARE:
Income (loss) before extraordinary items $(.57) $1.13 $ (.82) $ 4.38
===== ===== ====== ======
Net income (loss) $(.57) $1.13 $ (.82) $ 4.13
===== ===== ====== ======
DILUTED EARNINGS PER SHARE:
Income (loss) before extraordinary items $(.57) $1.13 $ (.82) $ 4.37
===== ===== ====== ======
Net income (loss) $(.57) $1.13 $ (.82) $ 4.12
===== ===== ====== ======
See Notes to Consolidated Financial Statements.
1
LYONDELL CHEMICAL COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
MILLIONS OF DOLLARS, EXCEPT PAR VALUE DATA 2001 2000
- ------------------------------------------ ------ ------
ASSETS
Current assets:
Cash and cash equivalents $ 222 $ 260
Accounts receivable, net 386 508
Inventories 368 392
Prepaid expenses and other current assets 96 49
Deferred tax assets 232 136
------ ------
Total current assets 1,304 1,345
------ ------
Property, plant and equipment, net 2,374 2,429
Investments and long-term receivables:
Investment in PO joint ventures 690 621
Investment in Equistar Chemicals, LP 550 599
Receivable from LYONDELL-CITGO Refining LP 229 229
Investment in LYONDELL-CITGO Refining LP 33 20
Other investments and long-term receivables 123 137
Goodwill, net 1,115 1,152
Other assets 529 515
------ ------
Total assets $6,947 $7,047
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 296 $ 401
Current maturities of long-term debt 10 10
Other accrued liabilities 398 323
------ ------
Total current liabilities 704 734
------ ------
Long-term debt, less current maturities 3,836 3,844
Other liabilities 498 441
Deferred income taxes 784 702
Commitments and contingencies
Minority interest 170 181
Stockholders' equity:
Preferred stock, $.01 par value, 80,000,000 shares
authorized, none outstanding - - - -
Common stock, $1.00 par value, 250,000,000 shares
authorized, 120,250,000 shares issued 120 120
Additional paid-in capital 854 854
Retained earnings 328 504
Accumulated other comprehensive loss (272) (258)
Treasury stock, at cost, 2,687,080 and 2,689,667 shares, respectively (75) (75)
------ ------
Total stockholders' equity 955 1,145
------ ------
Total liabilities and stockholders' equity $6,947 $7,047
====== ======
See Notes to Consolidated Financial Statements.
2
LYONDELL CHEMICAL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
MILLIONS OF DOLLARS 2001 2000
- ------------------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (97) $ 485
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on sale of assets - - (590)
Depreciation and amortization 199 219
Deferred income taxes (15) 75
Unusual charges 78 - -
Extraordinary items - - 30
Equity in loss of affiliated companies 55 - -
Decrease (increase) in accounts receivable 127 (134)
Decrease (increase) in inventories 22 (28)
(Decrease) increase in accounts payable (101) 44
Net change in other working capital accounts (34) (2)
Other, net (48) (62)
------- -------
Net cash provided by operating activities 186 37
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets, net of cash sold - - 2,445
Contributions and advances to affiliates (108) (28)
Expenditures for property, plant and equipment (52) (78)
Distributions from affiliates in excess of earnings 30 - -
------- -------
Net cash (used in) provided by investing activities (130) 2,339
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (8) (2,064)
Dividends paid (79) (79)
Other (7) (18)
------- -------
Net cash used in financing activities (94) (2,161)
------- -------
Effect of exchange rate changes on cash - - (6)
------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (38) 209
Cash and cash equivalents at beginning of period 260 307
------- -------
Cash and cash equivalents at end of period $ 222 $ 516
======= =======
See Notes to Consolidated Financial Statements.
3
LYONDELL CHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments, consisting only of normal, recurring
adjustments considered necessary for a fair presentation, have been included.
For further information, refer to the consolidated financial statements and
notes thereto for the year ended December 31, 2000 included in the Lyondell
Chemical Company ("Lyondell") 2000 Annual Report on Form 10-K pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. Certain amounts
from prior periods have been reclassified to conform to the current period
presentation.
2. UNUSUAL CHARGES
During the third quarter 2001, Lyondell recorded a charge of $78 million
associated with its decision to exit the aliphatic diisocyanates ("ADI")
business. The decision reflected the limited ongoing strategic value of the ADI
business and its poor competitive position. The decision involves the shutdown
of Lyondell's ADI manufacturing unit at the Lake Charles, Louisiana facility,
which also produces toluene diisocyanate ("TDI"). The action includes a 20%
reduction of the Lake Charles workforce, including all ADI positions and some
TDI positions at the site as well as ADI-related research and sales positions at
other locations. The $78 million charge included $51 million to adjust the
carrying values of the ADI assets to their net realizable value, and accrued
liabilities of $23 million for exit costs and $4 million for severance and other
employee-related costs for nearly 100 employee positions that are being
eliminated. Through September 30, 2001, there were no payments against the
accrued liabilities.
3. GAIN ON SALE OF ASSETS
On March 31, 2000, Lyondell completed the sale of the polyols business and
ownership interests in its U.S. propylene oxide ("PO") manufacturing operations
to Bayer AG and Bayer Corporation (collectively "Bayer") for approximately $2.45
billion. Lyondell recorded a pretax gain on the sale of $544 million during the
first quarter 2000. In the third quarter 2000, the final settlement of working
capital with Bayer and resolution of certain estimated liabilities resulted in
the recording of an additional pretax gain on the sale of $46 million.
As part of the asset sale, Lyondell accrued liabilities of $53 million for
employee severance, relocation and other employee benefits, covering
approximately 850 employees. The affected employees were generally terminated
on or about April 1, 2000, with a limited number providing transition services
through mid-2001. During the third quarter 2000, Lyondell reduced the accrued
liability by $25 million due to a reduction in the number of affected employees
and significantly lower than expected payments of severance and other benefits.
Payments of $27 million for severance, relocation and other employee benefits
were made through September 30, 2001. Lyondell expects to settle the remainder
of the liability of less than $1 million by the end of 2001.
4
4. EQUITY INTEREST IN EQUISTAR CHEMICALS, LP
Lyondell has a 41% joint venture ownership interest in Equistar Chemicals, LP
("Equistar"), while Millennium Chemicals Inc. ("Millennium") and Occidental
Petroleum Corporation ("Occidental") each have a 29.5% joint venture ownership
interest. As a partnership, Equistar is not subject to federal income taxes.
Summarized financial information for Equistar follows:
SEPTEMBER 30, DECEMBER 31,
MILLIONS OF DOLLARS 2001 2000
- ------------------- ------------- ------------
BALANCE SHEETS
Total current assets $1,312 $1,332
Property, plant and equipment, net 3,731 3,819
Goodwill, net 1,061 1,086
Other assets 338 345
------ ------
Total assets $6,442 $6,582
====== ======
Current maturities of long-term debt $ 104 $ 90
Other current liabilities 597 653
Long-term debt, less current maturities 2,234 2,158
Other liabilities 150 141
Partners' capital 3,357 3,540
------ ------
Total liabilities and partners' capital $6,442 $6,582
====== ======
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ---------------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
STATEMENTS OF INCOME
Sales and other operating revenues $1,351 $1,955 $4,724 $5,712
Cost of sales 1,328 1,779 4,573 5,111
Other operating costs and expenses 57 67 207 195
------ ------ ------ ------
Operating income (loss) (34) 109 (56) 406
Interest expense, net (46) (45) (137) (134)
Other income (expense), net 1 (1) 7 (1)
------ ------ ------ ------
Income (loss) before extraordinary item (79) 63 (186) 271
Extraordinary loss on
extinguishment of debt (3) - - (3) - -
------ ------ ------ ------
Net income (loss) $ (82) $ 63 $ (189) $ 271
====== ====== ====== ======
SELECTED CASH FLOW INFORMATION
Depreciation and amortization $80 $78 $239 $230
Expenditures for property, plant and equipment 32 33 85 81
Lyondell's "Income (loss) from equity investments" in Equistar as presented in
the consolidated statements of income consists of Lyondell's share of Equistar's
net income (loss) plus the accretion of the difference between Lyondell's
investment and its underlying equity in Equistar's net assets.
5
5. EQUITY INTEREST IN LYONDELL-CITGO REFINING LP
Lyondell has a 58.75% participation interest in LYONDELL-CITGO Refining LP
("LCR"), while CITGO Petroleum Corporation ("CITGO") has a 41.25% participation
interest. As a partnership, LCR is not subject to federal income taxes. Net
income before depreciation expense for the period is allocated to the partners
based upon participation interests. Depreciation expense is allocated to the
partners based upon contributed assets. Summarized financial information for
LCR follows:
SEPTEMBER 30, DECEMBER 31,
MILLIONS OF DOLLARS 2001 2000
- ------------------- ------ ------
BALANCE SHEETS
Total current assets $ 292 $ 310
Property, plant and equipment, net 1,321 1,319
Other assets 64 67
------ ------
Total assets $1,677 $1,696
====== ======
Notes payable $ - - $ 450
Other current liabilities 434 417
Long-term debt 450 - -
Loans payable to partners 264 264
Other liabilities 62 57
Partners' capital 467 508
------ ------
Total liabilities and partners' capital $1,677 $1,696
====== ======
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ --------------------------
2001 2000 2001 2000
------ ------ ------ ------
STATEMENTS OF INCOME
Sales and other operating revenues $ 850 $1,177 $2,692 $2,937
Cost of sales 744 1,077 2,419 2,781
Selling, general and administrative expenses 16 18 44 46
----- ------ ------ ------
Operating income 90 82 229 110
Interest expense, net (10) (16) (41) (44)
----- ------ ------ ------
Income before extraordinary item 80 66 188 66
Extraordinary loss on
extinguishment of debt (2) - - (2) - -
----- ------ ------ ------
Net income $ 78 $ 66 $ 186 $ 66
===== ====== ====== ======
SELECTED CASH FLOW INFORMATION
Depreciation and amortization $ 26 $ 28 $ 81 $ 84
Expenditures for property, plant and equipment 30 11 59 46
6. EXTRAORDINARY ITEMS
During the first and second quarters of 2000, Lyondell retired debt in the
principal amount of $999 million and $1.05 billion, respectively, prior to
maturity. During the first quarter 2000, unamortized debt issuance costs and
amendment fees of $17 million, less a tax benefit of $6 million, were written
off and reported as an extraordinary loss on extinguishment of debt. During the
second quarter 2000, Lyondell wrote off $21 million of unamortized debt issuance
costs and amendment fees and paid call premiums of $8 million. The total of $29
million, less a tax benefit of $10 million, was reported as an extraordinary
loss on extinguishment of debt in the second quarter 2000.
6
7. INVENTORIES
The components of inventories consisted of the following:
SEPTEMBER 30, DECEMBER 31,
MILLIONS OF DOLLARS 2001 2000
- ------------------- ------------- ------------
Finished goods $ 292 $ 301
Work-in-process 8 7
Raw materials 34 51
Materials and supplies 34 33
----- -----
Total inventories $ 368 $ 392
===== =====
8. PROPERTY, PLANT AND EQUIPMENT, NET
The components of property, plant and equipment, at cost, and the related
accumulated depreciation consisted of the following:
SEPTEMBER 30, DECEMBER 31,
MILLIONS OF DOLLARS 2001 2000
- ------------------- ------ ------
Land $ 10 $ 10
Manufacturing facilities and equipment 2,593 2,580
Construction in progress 113 95
------ ------
Total property, plant and equipment 2,716 2,685
Less accumulated depreciation 342 256
------ ------
Property, plant and equipment, net $2,374 $2,429
====== ======
9. LONG-TERM DEBT
In September 2001, Lyondell amended its credit facility making certain financial
ratio requirements less restrictive. As a result of the September 2001
amendment, the margin used to calculate the variable interest rate increased by
0.50% per annum. Lyondell had previously obtained an amendment to the credit
facility and the financial ratio requirements in March 2001.
Long-term debt consisted of the following:
SEPTEMBER 30, DECEMBER 31,
MILLIONS OF DOLLARS 2001 2000
- ------------------- ------------- ------------
Term Loan B $ 192 $ 193
Term Loan E 828 835
Senior Secured Notes, Series A due 2007, 9.625% 900 900
Senior Secured Notes, Series B due 2007, 9.875% 1,000 1,000
Senior Subordinated Notes due 2009, 10.875% 500 500
Debentures - due 2005, 9.375% 100 100
Debentures - due 2010, 10.25% 100 100
Debentures - due 2020, 9.8% 224 224
Other 2 2
------ ------
Total long-term debt 3,846 3,854
Less current maturities 10 10
------ ------
Long-term debt, net $3,836 $3,844
====== ======
Lyondell's credit facility required Lyondell to issue $470 million of
subordinated notes, or more junior securities, by June 2002. The requirement
was eliminated in May 2001 as a result of Lyondell achieving a specified total
debt to adjusted EBITDA ratio, as provided in the credit facility, as of
December 31, 2000.
7
10. DERIVATIVE FINANCIAL INSTRUMENTS
As of January 1, 2001, Lyondell adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities. Under SFAS No. 133, all derivative
instruments are recorded on the balance sheet at fair value. Currently,
Lyondell uses only cash flow hedges. Gains or losses from changes in the fair
value of the derivative used in a cash flow hedge are deferred in accumulated
other comprehensive income, to the extent the hedge is effective, and
subsequently reclassified to earnings to offset the impact of the forecasted
transaction.
Lyondell's Board of Directors has authorized Lyondell to enter into certain
hedge transactions, but does not permit speculative positions. Lyondell
formally documents all relationships between hedging instruments and hedged
items, as well as its risk management objectives and strategy for undertaking
the hedge. This process includes specific identification of the hedging
instrument and the hedge transaction, the nature of the risk being hedged and
the method for assessing the hedging instrument's effectiveness. Both at the
inception of the hedge and on an ongoing quarterly basis, Lyondell assesses
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in cash flows of hedged items.
During 2000, Lyondell entered into foreign currency forward contracts to hedge
foreign exchange exposures related to euro-denominated capital commitments on
the PO-11 construction project. At December 31, 2000, forward contracts in the
notional amount of 134 million euros, or approximately $125 million, were
outstanding. Based on quoted market prices, the fair market value of these
derivative instruments at December 31, 2000 represented an asset of nearly $1
million. On January 1, 2001, in accordance with the transition provisions of
SFAS No. 133, Lyondell recorded an after-tax gain of less than $1 million as a
transition adjustment in accumulated other comprehensive income, representing
the cumulative effect of an accounting change (see Note 12).
During the second quarter 2001, Lyondell entered into additional foreign
currency forward contracts in the notional amount of 86 million euros to hedge
foreign exchange exposures related to euro-denominated capital commitments on
the PO-11 construction project for the year 2002 (see Note 11). In addition,
Lyondell entered into price swap contracts with Occidental Energy Marketing,
Inc., a subsidiary of Occidental Petroleum Corporation, covering 37.8 million
gallons of unleaded gasoline to hedge the cost of butane, a key raw material of
MTBE.
As of September 30, 2001, the notional amounts of outstanding foreign currency
forward contracts, which mature from October 2001 through December 2002, totaled
136 million euros, or approximately $124 million at September 30, 2001 exchange
rates. The contracts were recognized at their fair value on September 30, 2001,
resulting in an unrealized pretax gain of $4 million, all of which was deemed
effective and, therefore, a $3 million after tax gain was recognized in
accumulated other comprehensive income. The $3 million gain recorded in
accumulated other comprehensive income is expected to be reclassified from
October 2001 through December 2002 and included in plant construction costs. As
of September 30, 2001, price swap contracts covering 42 million gallons of
unleaded gasoline, which mature from October 2001 through December 2001, were
outstanding. The contracts were recognized at their fair value on September 30,
2001, resulting in an unrealized pretax gain of $4 million of which 90% was
deemed effective and recognized in accumulated other comprehensive income. The
ineffective portion, which was less than $1 million, was recorded as a component
of cost of sales in the consolidated statements of income. The $2 million
after-tax gain related to the effective portion of the $4 million pretax gain
was recorded in accumulated other comprehensive income and is expected to be
reclassified to the consolidated statements of income from October 2001 through
December 2001.
8
The following table summarizes activity included in accumulated other
comprehensive income ("AOCI") related to the after-tax impact of the effective
portion of the fair value of derivative instruments for the three and nine
months ended September 30, 2001:
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
MILLIONS OF DOLLARS 2001 2001
- ------------------- --------------- ------------
Gain (loss):
Balance at beginning of period $(4) $- -
--- ----
January 1, 2001 transition adjustment,
recognition of December 31, 2000 gain - - - -
Unrealized gains on derivative instruments 8 3
Reclassification of realized losses on
maturing derivative instruments:
To plant construction cost 1 2
To earnings - - - -
--- ----
Net change in AOCI for the period 9 5
--- ----
Unrealized gain on derivative instruments included
in AOCI at September 30, 2001 $ 5 $ 5
=== ====
11. COMMITMENTS AND CONTINGENCIES
Bayer Claim--In June 2001, Bayer AG delivered a notice of claim to Lyondell in
relation to its March 2000 purchase of Lyondell's polyols business, asserting
various claims relating to alleged breaches of representations and warranties
related to condition of the business and assets. The notice of claim seeks
damages in excess of $100 million. Lyondell will vigorously contest the claims
and does not expect the resolution of the claims to result in any material
adverse effect on its business, financial condition, results of operations or
liquidity. The agreement governing the transaction with Bayer provides a formal
dispute resolution process, the final step of which would be binding arbitration
in Houston, Texas.
Capital Commitments--Lyondell has commitments, including those related to
capital expenditures, all made in the normal course of business. At September
30, 2001, major capital commitments included Lyondell's 50% share of those
related to the construction of a world-scale PO facility, known as PO-11, in The
Netherlands and a major expansion of a TDI facility in France. Lyondell's
outstanding commitments on these two projects totaled approximately $151 million
as of September 30, 2001.
Leases--During the third quarter 2000, construction began on a new butanediol
("BDO") facility in Europe known as BDO-2. Construction is being financed by a
third party lessor. Upon completion in the second quarter of 2002, a subsidiary
of Lyondell will lease the facility under an operating lease for a term of five
years. Lyondell may, at its option, purchase the facility at any time up to the
end of the lease term for an amount equal to the unrecovered construction costs
of the lessor, as provided in the transaction documents. If Lyondell does not
exercise the purchase option, the facility will be sold and Lyondell will pay
the lessor a termination fee to the extent the sales price is less than the
residual value of the facility, as provided in the transaction documents. The
residual value at the end of the lease term is estimated at approximately 206
million euros, or $188 million using September 30, 2001 exchange rates. In the
transaction documents for BDO-2, Lyondell agreed to comply with certain
financial and other covenants that are substantially the same as those contained
in the credit facility. A breach of those covenants could result in, among
other things, Lyondell having to pay the project costs incurred to date. In
September 2001 and March 2001, Lyondell amended the transaction documents
consistent with the related amendments to its credit facility. See Note 9 for a
discussion of the amendments to the credit facility.
9
TDI Agreements--In January 1995, ARCO Chemical Company ("ARCO Chemical") entered
into a tolling agreement and a resale agreement with Rhodia covering the entire
TDI output of Rhodia's two plants in France, which have a combined average
annual capacity of approximately 264 million pounds. Lyondell is currently
required to purchase an average minimum of 212 million pounds of TDI per year
under the agreements. The aggregate purchase price is a combination based on
plant cost and market price. In the second quarter 2000, Lyondell entered into
a series of arrangements with Rhodia to expand the capacity at the Pont de Claix
plant, which provides TDI to Lyondell under the tolling agreement. The
expansion will add approximately 105 million pounds of average annual capacity
at the Pont de Claix plant, resulting in a total average annual capacity of
approximately 269 million pounds, which is scheduled to be available in December
2001. After the completion of the expansion, all of the TDI that Lyondell
receives from Rhodia will come from the Pont de Claix plant, which is designed
to have a more efficient cost structure. Lyondell's average minimum TDI
purchase commitment under the revised tolling agreement will be 197 million
pounds of TDI per year and will be extended through 2016. The resale agreement,
covering output at the Lille plant, will expire December 31, 2001.
Crude Supply Agreement--Under the Crude Supply Agreement, PDVSA Petroleo, S.A.
("PDVSA Oil"), an affiliate of CITGO and of Petroleos de Venezuela, S.A.
("PDVSA"), the national oil company of the Republic of Venezuela, is required to
sell, and LCR is required to purchase, 230,000 barrels per day of extra heavy
crude oil. This constitutes approximately 86% of the refinery's refining
capacity of 268,000 barrels per day of crude oil. By letter dated April 16,
1998, PDVSA Oil informed LCR that the Venezuelan government, through the
Ministry of Energy and Mines, had instructed that production of certain grades
of crude oil be reduced. The letter stated that PDVSA Oil declared itself in a
force majeure situation and that PDVSA Oil would reduce deliveries of crude oil.
Such reductions in deliveries were purportedly based on announced OPEC
production cuts. LCR began receiving reduced deliveries of crude oil from PDVSA
Oil in August 1998, amounting to 195,000 barrels per day in that month. LCR was
advised by PDVSA Oil in May 1999 of a further reduction in the deliveries of
crude oil supplied under the Crude Supply Agreement to 184,000 barrels per day,
effective May 1999.
On several occasions since then, PDVSA Oil has further reduced crude oil
deliveries, although it made payments under a different provision of the Crude
Supply Agreement in partial compensation for such reductions. Subsequently,
PDVSA Oil unilaterally increased deliveries of crude oil to LCR to 195,000
barrels per day effective April 2000, to 200,000 barrels per day effective July
2000 and to 230,000 barrels per day effective October 2000.
By letter dated February 9, 2001, PDVSA Oil informed LCR that the Venezuelan
government, through the Ministry of Energy and Mines, had instructed that
production of certain grades of crude oil be reduced effective February 1, 2001.
The letter stated that PDVSA Oil declared itself in a force majeure situation,
but did not announce any reduction in crude oil deliveries to LCR. Although
some reduction in crude oil delivery may be forthcoming, it is unclear as to the
level of reduction, if any, which may be anticipated. LCR has consistently
contested the validity of PDVSA Oil's and PDVSA's reductions in deliveries under
the Crude Supply Agreement and, specifically, Lyondell, on behalf of LCR, has
disputed the existence and validity of the purported force majeure situation
declared by the February 9, 2001 letter.
PDVSA has announced that it intends to renegotiate the Crude Supply Agreements
that it has with all third parties, including LCR. However, they have confirmed
that they expect to honor their commitments if a mutually acceptable
restructuring of the Crude Supply Agreement is not achieved. The breach or
termination of the Crude Supply Agreement would require LCR to purchase all or a
portion of its crude oil feedstocks in the merchant market, would subject LCR to
significant volatility and price fluctuations and could adversely affect LCR
and, therefore, Lyondell.
LCR Debt--On July 20, 2001, LCR obtained new credit facilities consisting of a
$450 million term loan and a $70 million revolving credit facility, both of
which mature in January 2003. These new facilities replaced similar facilities,
which matured September 15, 2001, and will be used for working capital and
general business purposes.
10
Cross Indemnity Agreement--In connection with the 1988 transfer of assets and
liabilities to Lyondell from Atlantic Richfield Company ("ARCO"), now wholly
owned by BP p.l.c., Lyondell agreed to assume certain liabilities arising out of
the operation of Lyondell's integrated petrochemicals and refining business
prior to July 1, 1988. In connection with the transfer of such liabilities,
Lyondell and ARCO entered into an agreement, updated in 1997 ("Revised Cross-
Indemnity Agreement"), whereby Lyondell agreed to defend and indemnify ARCO
against certain uninsured claims and liabilities which ARCO may incur relating
to the operation of Lyondell prior to July 1, 1988, including certain
liabilities which may arise out of pending and future lawsuits. For current and
future cases related to Lyondell's products and operations, ARCO and Lyondell
bear a proportionate share of judgment and settlement costs according to a
formula that allocates responsibility based upon years of ownership during the
relevant time period. Under the Revised Cross-Indemnity Agreement, Lyondell
will assume responsibility for its proportionate share of future costs for waste
site matters not covered by ARCO insurance.
In connection with the acquisition of ARCO Chemical, Lyondell succeeded,
indirectly, to a cross indemnity agreement with ARCO whereby ARCO Chemical
indemnified ARCO against certain claims or liabilities that ARCO may incur
relating to ARCO's former ownership and operation of the businesses of ARCO
Chemical, including liabilities under laws relating to the protection of the
environment and the workplace, and liabilities arising out of certain
litigation. As part of the agreement, ARCO indemnified ARCO Chemical with
respect to claims or liabilities and other matters of litigation not related to
the ARCO Chemical business.
Indemnification Arrangements Relating to Equistar--Lyondell, Millennium
Petrochemicals and certain subsidiaries of Occidental have each agreed to
provide certain indemnifications to Equistar with respect to the petrochemicals
and polymers businesses contributed by the partners. In addition, Equistar
agreed to assume third party claims that are related to certain pre-closing
contingent liabilities that are asserted prior to December 1, 2004 as to
Lyondell and Millennium Petrochemicals, and May 15, 2005 as to certain
Occidental subsidiaries, to the extent the aggregate thereof does not exceed $7
million to each partner, subject to certain terms of the respective asset
contribution agreements. As of September 30, 2001, Equistar had incurred
approximately $5 million under the $7 million indemnification basket with
respect to the business contributed by Lyondell. Equistar also agreed to assume
third party claims that are related to certain pre-closing contingent
liabilities that are asserted for the first time after December 1, 2004 as to
Lyondell and Millennium Petrochemicals, and for the first time after May 15,
2005 as to certain Occidental subsidiaries. As of September 30, 2001,
Equistar, Lyondell, Millennium Petrochemicals and certain subsidiaries of
Occidental amended the asset contribution agreements governing these
indemnification obligations to clarify the treatment of, and procedures
pertaining to the management of, certain claims arising under the asset
contribution agreements. Lyondell believes that these amendments do not
materially change the asset contribution agreements.
Environmental--Lyondell's policy is to be in compliance with all applicable
environmental laws. Lyondell is subject to extensive environmental laws and
regulations concerning emissions to the air, discharges to surface and
subsurface waters and the generation, handling, storage, transportation,
treatment and disposal of waste materials. Some of these laws and regulations
are subject to varying and conflicting interpretations. Lyondell cannot
accurately predict future developments, such as increasingly strict
environmental laws and inspection and enforcement policies, as well as higher
compliance costs arising therefrom, which might affect the handling,
manufacture, use, emission or disposal of products, other materials or hazardous
and non-hazardous waste.
Lyondell is also subject to certain assessment and remedial actions at the LCR
refinery under the Resource Conservation and Recovery Act ("RCRA"). In
addition, Lyondell has negotiated an order with the Texas Natural Resource
Conservation Commission ("TNRCC") for assessment and remediation of groundwater
and soil contamination at the LCR refinery. Lyondell also has liabilities under
RCRA and various state and foreign government regulations related to five
current plant sites and three former plant sites.
Lyondell is currently contributing funds to the clean up of two waste sites
located near Houston, Texas under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), as amended, and the Superfund
Amendments and Reauthorization Act of 1986. Lyondell has also been named, along
with several other companies, as a potentially responsible party for a third
CERCLA site near Houston, Texas. In addition, Lyondell is involved in
administrative proceedings or lawsuits relating to a minimal number of other
CERCLA sites. Lyondell estimates, based upon currently available information,
that potential loss contingencies associated with the latter CERCLA sites,
individually and in the aggregate, are not significant.
11
As of September 30, 2001, Lyondell's environmental liability for future
assessment and remediation costs at the above-mentioned sites totaled $26
million. The liabilities per site range from less than $1 million to $12
million and are expected to be incurred over the next two to seven years. In
the opinion of management, there is currently no material estimable range of
loss in excess of the amount recorded for these sites. However, it is possible
that new information about the sites for which the accrual has been established,
new technology or future developments such as involvement in other CERCLA, RCRA,
TNRCC or other comparable state or foreign law investigations, could require
Lyondell to reassess its potential exposure related to environmental matters.
The eight-county Houston/Galveston region has been designated a severe non-
attainment area for ozone by the U.S. Environmental Protection Agency ("EPA").
As a result, the TNRCC has submitted a plan to the EPA to reach and demonstrate
compliance with the ozone standard by November 2007. Ozone is a product of the
reaction between volatile organic compounds ("VOCs") and nitrogen oxides ("NOx")
in the presence of sunlight, and is a principal component of smog. The proposed
plans for meeting the ozone standard focus on significant reductions in NOx
emissions. NOx emission reduction controls must be installed at LCR's refinery
and each of Lyondell's two facilities and Equistar's six facilities in the
Houston/Galveston region during the next several years, well in advance of the
2007 deadline. Compliance with the provisions of the plan will result in
increased capital investment during the next several years and higher annual
operating costs for Equistar, Lyondell and LCR. Lyondell estimates that
aggregate related capital expenditures could total between $400 million and $500
million for Lyondell, Equistar and LCR before the 2007 deadline. Lyondell's
share of such expenditures could total between $65 million and $80 million, and
Lyondell's proportionate share of Equistar's and LCR's expenditures could total
between $160 million and $195 million. The timing and amount of these
expenditures are subject to regulatory and other uncertainties, as well as
obtaining the necessary permits and approvals. Lyondell has been actively
involved with a number of organizations to help solve the ozone problem in the
most cost-effective manner and, in January 2001, Lyondell and an organization
composed of industry participants filed a lawsuit against the TNRCC to encourage
adoption of their alternative plan to achieve the same air quality improvement
with less negative economic impact on the region. In June 2001, the parties
entered into a consent order with respect to the lawsuit. Pursuant to the
consent order, the TNRCC agreed to review, by June 2002, the scientific data for
ozone formation in the Houston/Galveston region. In October 2001, the EPA
approved the TNRCC plan. However, if the TNRCC scientific review supports the
industry group proposal, the TNRCC has agreed to revise the NOx emission
reduction requirements set forth in its original plan. Any revisions will have
to be approved by the EPA. Such revisions of the NOx emission reduction
requirements would reduce the estimated capital investments required by
Lyondell, Equistar and LCR to comply with the plans for meeting the ozone
standard.
In the United States, the Clean Air Act Amendments of 1990 set minimum levels
for oxygenates, such as methyl tertiary butyl ether ("MTBE"), in gasoline sold
in areas not meeting specified air quality standards. However, while studies by
federal and state agencies and other organizations have shown that MTBE is safe
for use in gasoline, is not carcinogenic and is effective in reducing automotive
emissions, the presence of MTBE in some water supplies in California and other
states due to gasoline leaking from underground storage tanks and in surface
water from recreational water craft has led to public concern that MTBE may, in
certain limited circumstances, affect the taste and odor of drinking water
supplies, and thereby lead to possible public concerns.
Certain federal and state governmental initiatives have sought either to rescind
the oxygenate requirement for reformulated gasoline or to restrict or ban the
use of MTBE. Such actions, to be effective, would require (i) a waiver of the
state's oxygenate mandate, (ii) Congressional action in the form of an amendment
to the Clean Air Act or (iii) replacement of MTBE with another oxygenate such as
ethanol, a more costly, untested and less widely available additive. California
has twice sought a waiver of its oxygenate mandate. California's request was
denied by both the Clinton Administration and the Bush Administration.
California is challenging the denial in court. At the federal level, a blue
ribbon panel appointed by the EPA issued its report on July 27, 1999. That
report recommended, among other things, reducing the use of MTBE in gasoline.
During 2000, the EPA announced its intent to seek legislative changes from
Congress to give the EPA authority to ban MTBE over a three-year period. Such
action would only be granted through amendments to the Clean Air Act.
Additionally, the EPA is seeking a ban of MTBE utilizing rulemaking authority
contained in the Toxic Substance Control Act. It would take at least three
years for such a rule to issue. In January 2001, however, senior policy
analysts at the U.S. Department of Energy presented a study stating that banning
MTBE would create significant economic risk. The study did not identify any
benefits from banning MTBE. Additionally, in early 2001, after a thorough
evaluation of MTBE
12
conducted in connection with proposed amendments to the 1998 European Council
directive on gasoline and diesel fuel specifications, the European Union
concluded that the use of MTBE in gasoline does not present a health risk to the
community or a risk to the environment, and decided not to restrict the use of
MTBE in the European Union. The EPA initiatives mentioned above or other
governmental actions could result in a significant reduction in Lyondell's MTBE
sales. Lyondell has developed technologies to convert tertiary butyl alcohol
("TBA") into alternate gasoline blending components should it be necessary to
reduce MTBE production in the future.
The Clean Air Act specified certain emissions standards for vehicles beginning
in the 1994 model year and required the EPA to study whether further emissions
reductions from vehicles were necessary starting no earlier than the 2004 model
year. In 1998, the EPA concluded that more stringent vehicle emission standards
were needed and that additional controls on gasoline and diesel were necessary
to meet these emission standards. New standards for gasoline were finalized in
1999 and will require refiners to produce a low sulfur gasoline by 2004, with
final compliance by 2006. A new "on-road" diesel standard was adopted in
January 2001 and will require refiners to produce ultra low sulfur diesel by
June 2006, with some allowance for a conditional phase-in period that could
extend final compliance until 2009. Lyondell estimates that these standards
will result in increased capital investment for LCR, totaling between $175
million to $225 million for the new gasoline standards and $250 million to $300
million for the new diesel standard, between now and the implementation dates.
Lyondell's share of LCR's capital expenditures would be between $250 million and
$300 million. In addition, these standards could result in higher operating
costs for LCR. Equistar's olefins fuel business may also be impacted if these
standards increase the cost for processing fuel components.
General--Lyondell is involved in various lawsuits and proceedings. Subject to
the uncertainty inherent in all litigation, management believes the resolution
of these proceedings will not have a material adverse effect upon the financial
position or liquidity of Lyondell.
In the opinion of management, any liability arising from the matters discussed
in this note is not expected to have a material adverse effect on the financial
position or liquidity of Lyondell. However, the adverse resolution in any
reporting period of one or more of these matters discussed in this note could
have a material impact on Lyondell's results of operations for that period
without giving effect to contribution or indemnification obligations of co-
defendants or others, or to the effect of any insurance coverage that may be
available to offset the effects of any such award.
13
12. STOCKHOLDERS' EQUITY
Basic and Diluted Earnings Per Share--Basic earnings per share ("EPS") for
income (loss) before extraordinary items for the periods presented are computed
based upon the weighted average number of shares outstanding for the periods.
Diluted earnings per share for income (loss) before extraordinary items include
the effect of outstanding stock options issued under the 1999 Long-Term
Incentive Plan and the Executive Long-Term Incentive Plan.
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------------------------------------
2001 2000
-------------------------------- -------------------------------
THOUSANDS OF SHARES SHARES EPS SHARES EPS
- ------------------- -------------- ------------ ------------- -------------
Basic 117,563 $(.57) 117,556 $1.13
Dilutive effect of options - - - - 165 - -
------- ----- ------- -----
Diluted 117,563 $(.57) 117,721 $1.13
======= ===== ======= =====
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------------------------------------
2001 2000
-------------------------------- -------------------------------
THOUSANDS OF SHARES SHARES EPS SHARES EPS
- ------------------- -------------- ------------ ------------- -------------
Basic 117,563 $(.82) 117,556 $4.38
Dilutive effect of options - - - - 252 (.01)
------- ----- ------- -----
Diluted 117,563 $(.82) 117,808 $4.37
======= ===== ======= =====
Comprehensive Income--Comprehensive income (loss) consisted of the following:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ----------------------------
MILLIONS OF DOLLARS 2001 2000 2001 2000
- ------------------- -------- -------- -------- --------
Net income (loss) $ (67) $ 133 $ (97) $ 485
----- ----- ----- -----
Other comprehensive income (loss):
Unrealized gains on derivative instruments 9 - - 5 - -
Foreign currency translation gain (loss) 79 (97) (19) (236)
----- ----- ----- -----
Total other comprehensive income (loss) 88 (97) (14) (236)
----- ----- ----- -----
Comprehensive income (loss) $ 21 $ 36 $(111) $ 249
===== ===== ===== =====
14
13. SEGMENT AND RELATED INFORMATION
Lyondell has four reportable segments in which it operates: (i) intermediate
chemicals and derivatives; (ii) petrochemicals; (iii) polymers; and (iv)
refining. Lyondell's methanol business is not a reportable segment and is
included in "Other" below. Summarized financial information concerning
reportable segments is shown in the following table:
INTERMEDIATE
CHEMICALS
AND
MILLIONS OF DOLLARS DERIVATIVES PETROCHEMICALS POLYMERS REFINING OTHER TOTAL
- ------------------- ------------- -------------- --------- -------- ------ --------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001:
Sales and other operating revenues $ 750 $ - - $ - - $ - - $ - - $ 750
Operating income (loss) (26) (26)
Interest expense (95) (95)
Interest income 4 4
Other expense, net (4) (4)
Income (loss) from equity investments (1) 12 (11) 48 (31) 17
Income (loss) before income
taxes and extraordinary items (104)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000:
Sales and other operating revenues $ 975 $ - - $ - - $ - - $ - - $ 975
Operating income 97 97
Interest expense (114) (114)
Interest income 10 10
Other income, net 14 14
Gain on sale of assets 46 46
Income (loss) from equity investments 2 84 (19) 42 (26) 83
Income before income taxes and extraordinary items 136
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001:
Sales and other operating revenues $2,509 $ - - $ - - $ - - $ - - $2,509
Operating income 71 71
Interest expense (292) (292)
Interest income 15 15
Other expense, net (2) (2)
Income (loss) from equity investments - - 92 (57) 116 (90) 61
Income (loss) before income
taxes and extraordinary items (147)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000:
Sales and other operating revenues $3,087 $ - - $ - - $ - - $ - - $3,087
Operating income 326 326
Interest expense (403) (403)
Interest income 39 39
Other income, net 8 8
Gain on sale of assets 590 590
Income (loss) from equity investments 8 264 (41) 48 (80) 199
Income before income taxes and extraordinary items 759
15
The following table presents the details of "Income (loss) from equity
investments" as presented above in the "Other" column for the periods indicated:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
MILLIONS OF DOLLARS 2001 2000 2001 2000
- ------------------- ------ ------ ------ ------
Equistar items not allocated to petrochemicals
and polymers:
Principally general and administrative
expenses and interest expense, net $ (25) $ (30) $ (74) $ (83)
Unusual charges - Port Arthur shutdown - - - - (9) - -
Income (loss) from equity investment
in Lyondell Methanol Company, L.P. (6) 4 (7) 3
----- ----- ----- -----
Total--Other $ (31) $ (26) $ (90) $ (80)
===== ===== ===== =====
14. PURCHASE OF ARCO CHEMICAL COMPANY
In connection with the July 28, 1998 acquisition of ARCO Chemical, Lyondell
accrued liabilities for costs associated with the delay of construction of the
PO-11 plant, vesting of certain key manager benefits pursuant to a change of
control provision, severance costs for the involuntary termination of certain
headquarters employees and relocation costs for moving personnel to Lyondell's
Houston headquarters. The total accrued liability for these items was
approximately $255 million at the date of acquisition. Lyondell subsequently
revised the portion of the estimated liabilities for penalties and cancellation
charges related to the PO-11 lump-sum construction contract and related
commitments. Based on the final negotiated terms, Lyondell reduced the accrued
liability by $13 million in 1999 and by $8 million in 2000. In addition, during
2000 Lyondell finalized the portion of the accrued liability related to employee
costs and reduced the liability by $10 million. The benefit in 2000 from the
accrual reversal was substantially offset by other acquisition-related costs.
Through September 30, 2001, Lyondell had paid and charged approximately $214
million against the accrued liability. The remaining $10 million of the accrued
liability relates to PO-11 commitments and will be paid periodically through the
first quarter 2003.
15. SUPPLEMENTAL GUARANTOR INFORMATION
ARCO Chemical Technology Inc. ("ACTI"), ARCO Chemical Technology L.P. ("ACTLP")
and Lyondell Chemical Nederland, Ltd. ("LCNL") are guarantors (collectively
"Guarantors") of the $500 million senior subordinated notes and $1.9 billion
senior secured notes issued by Lyondell in May 1999. LCNL, a Delaware
corporation, is a wholly owned subsidiary of Lyondell that operates, through
wholly owned foreign subsidiaries, a chemical production facility in Rotterdam,
The Netherlands. ACTI is a Delaware corporation, which holds the investment in
ACTLP. ACTLP is a Delaware limited partnership, which holds and licenses
technology to other Lyondell affiliates and to third parties. Separate
financial statements of the Guarantors are not considered to be material to the
holders of the senior subordinated notes and senior secured notes. The
following condensed consolidating financial information present supplemental
information for the Guarantors as of September 30, 2001 and December 31, 2000
and for the three and nine months ended September 30, 2001 and 2000.
16
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
BALANCE SHEET
AS OF SEPTEMBER 30, 2001
NON- CONSOLIDATED
MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL
- ------------------- -------- ---------- ---------- ------------ ------------
Total current assets $1,071 $ 233 $ - - $ - - $1,304
Property, plant and equipment, net 1,832 542 - - - - 2,374
Investments and
long-term receivables 3,863 422 882 (3,542) 1,625
Goodwill, net 714 401 - - - - 1,115
Other assets 462 67 - - - - 529
------ ------- ---- ------- ------
Total assets $7,942 $ 1,665 $882 $(3,542) $6,947
====== ======= ==== ======= ======
Current maturities of long-term debt $ 10 $ - - $- - $ - - $ 10
Other current liabilities 454 241 (1) - - 694
Long-term debt,
less current maturities 3,836 - - - - - - 3,836
Other liabilities 441 57 - - - - 498
Deferred income taxes 650 134 - - - - 784
Intercompany liabilities (assets) 1,426 (1,363) (63) - - - -
Minority interest 170 - - - - - - 170
Stockholders' equity 955 2,596 946 (3,542) 955
------ ------- ---- ------- ------
Total liabilities and
stockholders' equity $7,942 $ 1,665 $882 $(3,542) $6,947
====== ======= ==== ======= ======
BALANCE SHEET
AS OF DECEMBER 31, 2000
NON- CONSOLIDATED
MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL
- ------------------- -------- ---------- ---------- ------------ ------------
Total current assets $1,103 $ 242 $ - - $ - - $1,345
Property, plant and equipment, net 1,863 566 - - - - 2,429
Investments and
long-term receivables 3,644 413 920 (3,371) 1,606
Goodwill, net 738 414 - - - - 1,152
Other assets 450 61 - - 4 515
------ ------- ---- ------- ------
Total assets $7,798 $ 1,696 $920 $(3,367) $7,047
====== ======= ==== ======= ======
Current maturities of long-term debt $ 10 $ - - $- - $ - - $ 10
Other current liabilities 501 223 - - - - 724
Long-term debt,
less current maturities 3,844 - - - - - - 3,844
Other liabilities 382 59 - - - - 441
Deferred income taxes 562 140 - - - - 702
Intercompany liabilities (assets) 1,173 (1,245) 68 4 - -
Minority interest 181 - - - - - - 181
Stockholders' equity 1,145 2,519 852 (3,371) 1,145
------ ------- ---- ------- ------
Total liabilities and
stockholders' equity $7,798 $ 1,696 $920 $(3,367) $7,047
====== ======= ==== ======= ======
17
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)--(CONTINUED)
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
NON- CONSOLIDATED
MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL
- ------------------- -------- ---------- ---------- ------------ ------------
Sales and other operating revenues $612 $195 $ - - $(57) $750
Cost of sales 558 132 - - (57) 633
Selling, general and
administrative expenses 30 2 - - - - 32
Research and development expense 8 - - - - - - 8
Amortization of goodwill
and other intangible assets 20 5 - - - - 25
Unusual charges 78 - - - - - - 78
---- ---- ---- ---- ----
Operating income (loss) (82) 56 - - - - (26)
Interest income (expense), net (94) 1 2 - - (91)
Other income (expense), net (21) 17 - - - - (4)
Income (loss) from equity investments 68 (1) 19 (69) 17
Intercompany income (expense) (15) 18 (2) (1) - -
Provision for (benefit from)
income taxes (51) 33 8 (27) (37)
---- ---- ---- ---- ----
Net income (loss) $(93) $ 58 $ 11 $(43) $(67)
==== ==== ==== ==== ====
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
NON- CONSOLIDATED
MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL
- ------------------- -------- ---------- ---------- ------------ ------------
Sales and other operating revenues $ 812 $232 $ - - $ (69) $ 975
Cost of sales 699 163 - - (69) 793
Selling, general and
administrative expenses 50 2 (1) - - 51
Research and development expense 6 - - - - - - 6
Amortization of goodwill
and other intangible assets 21 7 - - - - 28
----- ---- ----- ----- -----
Operating income 36 60 1 - - 97
Interest income (expense), net (108) 1 3 - - (104)
Other income (expense), net 37 (23) - - - - 14
Gain on sale of assets 46 - - - - - - 46
Income from equity investments 118 - - 81 (116) 83
Intercompany income (expense) (21) 27 (4) (2) - -
Provision for income taxes (1) 11 19 (26) 3
----- ---- ----- ----- -----
Net income $ 109 $ 54 $ 62 $ (92) $ 133
===== ==== ===== ===== =====
18
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)--(CONTINUED)
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
NON- CONSOLIDATED
MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL
- ------------------- -------- ---------- ---------- ------------ ------------
Sales and other operating revenues $2,104 $633 $ - - $(228) $2,509
Cost of sales 1,959 418 - - (228) 2,149
Selling, general and
administrative expenses 103 9 - - - - 112
Research and development expense 24 - - - - - - 24
Amortization of goodwill
and other intangible assets 61 14 - - - - 75
Unusual charges 78 - - - - - - 78
------ ---- ----- ----- ------
Operating income (loss) (121) 192 - - - - 71
Interest income (expense), net (288) 2 9 - - (277)
Other income (expense), net 86 (88) - - - - (2)
Income (loss) from equity investments 152 (1) 61 (151) 61
Intercompany income (expense) (53) 62 (8) (1) - -
Provision for (benefit from)
income taxes (76) 57 21 (52) (50)
------ ---- ----- ----- ------
Net income (loss) $ (148) $110 $ 41 $(100) $ (97)
====== ==== ===== ===== ======
STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
NON- CONSOLIDATED
MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL
- ------------------- -------- ---------- ---------- ------------ ------------
Sales and other operating revenues $2,645 $ 701 $ - - $(259) $3,087
Cost of sales 2,252 521 - - (259) 2,514
Selling, general and
administrative expenses 134 5 - - - - 139
Research and development expense 27 - - - - - - 27
Amortization of goodwill
and other intangible assets 59 22 - - - - 81
------ ----- ---- ----- ------
Operating income 173 153 - - - - 326
Interest income (expense), net (376) 1 11 - - (364)
Other income (expense), net 110 (102) - - - - 8
Gain on sale of assets 599 (9) - - - - 590
Income from equity investments 271 - - 191 (263) 199
Intercompany income (expense) (140) 153 (11) (2) - -
Provision for income taxes 204 62 62 (84) 244
------ ----- ---- ----- ------
Income before extraordinary item 433 134 129 (181) 515
Extraordinary item, net of taxes (30) - - - - - - (30)
------ ----- ---- ----- ------
Net income $ 403 $ 134 $129 $(181) $ 485
====== ===== ==== ===== ======
19
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)--(CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
NON- CONSOLIDATED
MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL
- ------------------- -------- ---------- ---------- ------------ ------------
Net income (loss) $(148) $110 $ 41 $(100) $ (97)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 166 33 - - - - 199
Unusual charges 78 - - - - - - 78
Net changes in working
capital and other (23) (70) (1) 100 6
----- ---- ---- ----- -----
Net cash provided by
operating activities 73 73 40 - - 186
----- ---- ---- ----- -----
Contributions and advances
to affiliates 38 (71) (75) - - (108)
Expenditures for property,
plant and equipment (46) (6) - - - - (52)
Distributions from affiliates
in excess of earnings (5) - - 35 - - 30
----- ---- ---- ----- -----
Net cash used in
investing activities (13) (77) (40) - - (130)
----- ---- ---- ----- -----
Repayments of long-term debt (8) - - - - - - (8)
Dividends paid (79) - - - - - - (79)
Other (7) - - - - - - (7)
----- ---- ---- ----- -----
Net cash used in
financing activities (94) - - - - - - (94)
----- ---- ---- ----- -----
Effect of exchange rate
changes on cash (4) 4 - - - - - -
----- ---- ---- ----- -----
Decrease in cash
and cash equivalents $ (38) $- - $- - $ - - $ (38)
===== ==== ==== ===== =====
20
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)--(CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
NON- CONSOLIDATED
MILLIONS OF DOLLARS LYONDELL GUARANTORS GUARANTORS ELIMINATIONS LYONDELL
- ------------------- -------- ---------- ---------- ------------ ------------
Net income $ 403 $ 134 $ 129 $(181) $ 485
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities:
(Gain) loss on sale of assets (599) 9 - - - - (590)
Depreciation and amortization 175 44 - - - - 219
Extraordinary item 30 - - - - - - 30
Net changes in working
capital and other 193 (372) (109) 181 (107)
------- ----- ----- ----- -------
Net cash provided by (used in)
operating activities 202 (185) 20 - - 37
------- ----- ----- ----- -------
Proceeds from sale of assets,
net of cash sold 2,281 164 - - - - 2,445
Contributions and advances
to affiliates 3 (11) (20) - - (28)
Expenditures for property,
plant and equipment (59) (19) - - - - (78)
------- ----- ----- ----- -------
Net cash provided by
investing activities 2,225 134 (20) - - 2,339
------- ----- ----- ----- -------
Repayments of long-term debt (2,064) - - - - - - (2,064)
Dividends paid (79) - - - - - - (79)
Other (18) - - - - - - (18)
------- ----- ----- ----- -------
Net cash used in
financing activities (2,161) - - - - - - (2,161)
------- ----- ----- ----- -------
Effect of exchange rate
changes on cash (51) 45 - - - - (6)
------- ----- ----- ----- -------
Increase (decrease) in
cash and cash equivalents $ 215 $ (6) $ - - $ - - $ 209
======= ===== ===== ===== =======
21