SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
[X] Annual Report
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001
OR
[ ] Transition report pursuant to Section 15(d) of the
Securities Exchange Act of 1934
Commission File Number 33-26867
LYONDELL CHEMICAL COMPANY 401(K) AND SAVINGS PLAN
(Title of the Plan)
LYONDELL CHEMICAL COMPANY
1221 McKinney Street
Suite 700
Houston, Texas 77010
(Name and address of principal executive
office of the issuer of the securities)
LYONDELL CHEMICAL COMPANY 401(K) AND SAVINGS PLAN
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants 2
Financial Statements:
Statements of Net Assets Available for Benefits 3
Statement of Changes in Net Assets Available for Benefits 4
Notes to Financial Statements 5
Supplemental Schedules are not required at the plan level and have been omitted.
1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Benefits Administrative Committee of the
Lyondell Chemical Company 401(k) and Savings Plan:
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Lyondell Chemical Company 401(k) and Savings Plan (the "Plan") at
December 31, 2001 and 2000, and the changes in net assets available for benefits
for the year ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Plan's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
June 28, 2002
2
LYONDELL CHEMICAL COMPANY 401(K) AND SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
-------------------------------------
2001 2000
---------------- -----------------
ASSETS
Investments, at fair value:
Investment in Lyondell Chemical, Equistar Chemicals,
and Lyondell-Citgo Plans Master Trust $ 314,869,841 $ 331,555,509
------------- -------------
Net assets available for benefits $ 314,869,841 $ 331,555,509
============= =============
See Notes to Financial Statements
3
LYONDELL CHEMICAL COMPANY 401(K) AND SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
For the year ended December 31, 2001
Participant Nonparticipant Plan
Directed Directed Total
----------- -------------- -----
Contributions:
Employer $ -- $10,985,484 $ 10,985,484
Participant 14,491,947 -- 14,491,947
Rollover 1,427,059 -- 1,427,059
------------ ----------- ------------
Total 15,919,006 10,985,484 26,904,490
------------ ----------- ------------
Investment loss:
Lyondell Chemical, Equistar Chemicals,
and Lyondell-Citgo Plans Master Trust (23,443,417) (1,663,524) (25,106,941)
------------ ----------- ------------
Net investment loss (23,443,417) (1,663,524) (25,106,941)
------------ ----------- ------------
Benefits paid to participants (20,651,775) (1,976,027) (22,627,802)
------------ ----------- ------------
Loan activity:
Participant borrowings 1,283,496 (1,283,496) --
Participant repayments (1,183,732) 1,183,732 --
------------ ----------- ------------
Net loan activity 99,764 (99,764) --
------------ ----------- ------------
Transfer activity:
Net transfers from (to) Equistar Chemicals, LP
Savings and Investment Plan 4,660,418 (171,755) 4,488,663
Net transfers from (to) LYONDELL-CITGO
Refining Company Ltd. 401(K) and Savings
Plan for Non-Represented Employees 115,038 (12,981) 102,057
Net transfers between investment options 2,415,230 (2,415,230) --
Other transfers, net 260,396 (706,531) (446,135)
------------ ----------- ------------
Net transfer activity 7,451,082 (3,306,497) 4,144,585
------------ ----------- ------------
Net (decrease) increase (20,625,340) 3,939,672 (16,685,668)
Net assets available for benefits:
Beginning of period 281,261,111 50,294,398 331,555,509
------------ ----------- ------------
End of period $260,635,771 $54,234,070 $314,869,841
============ =========== ============
See Notes to Financial Statements
4
LYONDELL CHEMICAL COMPANY 401(K) AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. Description of Plan
General-The Lyondell Chemical Company 401(k) and Savings Plan ("Plan") is a
defined contribution plan for employees and vested former employees of Lyondell
Chemical Company ("Lyondell" or "Company"). It is subject to the provisions of
the Employee Retirement Income Security Act of 1974 ("ERISA"). Participants
should refer to the plan document for a complete description of the Plan.
Contributions-Participants are allowed to contribute from 1 percent to 14
percent of their base pay to the Plan through pre-tax payroll deductions
("Elective Deferrals") and from 1 percent to 10 percent of their base pay
through after-tax payroll deductions ("Savings Contributions"). Lyondell makes
matching contributions to the eligible participant's account at the rate of 160
percent of the Elective Deferrals up to a maximum Company contribution of 8
percent of the participant's eligible base pay, with the exception of the
represented employees at the Company's Lake Charles, Louisiana Facility who
receive a Company contribution equal to 100 percent of the Elective Deferrals up
to a maximum Company contribution of 4 percent of the participant's eligible
base pay. Participants are eligible for Company contributions after completing
twelve months of credited company service. All contributions and earnings
thereon are fully vested and nonforfeitable. All earnings are allocated to
individual participant accounts on the basis of the units held in the investment
fund.
Investment Election-All participant assets are held in trust. Participant
contributions and earnings thereon ("Participant Directed") are invested by the
Trustee (see Plan Administration below) in accordance with the options selected
by each participant. The Plan does not own specific securities or other assets
in the trust, but has an ownership interest in each underlying selected fund
within the trust. Contributions to, withdrawals from and transfers between
investment options by the participants are appropriately charged or credited to
each underlying fund.
When investing in Lyondell common stock, the participant may designate that the
common stock be held either in the Lyondell Common Stock - Dividend Payout Fund
("ESOP") portion of the Plan (an employee stock ownership plan under Section
4975(e)(7) of the Internal Revenue Code) or in the Lyondell Common Stock -
Dividend Reinvestment Fund ("non-ESOP stock fund"). Dividends on common stock
held in the non-ESOP stock fund are reinvested in Lyondell common stock and held
in the participant's plan account. Dividends on common stock held in the ESOP
are payable to the participant as allowed by the Plan. All Company matching
contributions ("Nonparticipant Directed") are used to purchase Lyondell common
stock in the ESOP and may only be transferred to other investment options under
certain limited circumstances, as defined in the Plan.
Employees of the former Atlantic Richfield Company ("ARCO") and the former ARCO
Chemical Company who became employees of Lyondell had the assets attributable to
their participation in the ARCO Capital Accumulation Plan II and ARCO Chemical
Company Capital Accumulation Plan (which assets included ARCO common stock)
transferred to the Plan. On April 18, 2000, pursuant to the terms of a merger
agreement between BP Amoco p.l.c. ("BP") and ARCO, each share of outstanding
common stock of ARCO was converted into the right to receive 1.64 BP American
Depository Shares ("BP ADS") or, subject to the timely receipt of elections
therefore, 9.84 BP Ordinary Shares. In addition, ARCO common stock was delisted
from the exchanges on which it had been listed.
Withdrawals and Borrowings-If a participant terminates employment for any
reason, the participant's account balance will be distributed upon attainment of
age 65 or anytime the participant makes application to receive the funds prior
to age 65. If the participant's account balance is $5,000 or less, the
participant's account balance will be distributed as soon as practicable.
5
LYONDELL CHEMICAL COMPANY 401(K) AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Plan permits withdrawals of Elective Deferrals under certain hardship
conditions as defined by the Plan and granted by the Benefits Administrative
Committee. Savings Contributions may be withdrawn in total or partial amounts as
defined by the Plan.
Withdrawals are made in a lump sum cash payment, although a participant may
elect to receive Lyondell common stock or BP ADS to the extent assets are held
in the form of such stock. Distributions upon retirement or termination have
generally been in Lyondell common stock or BP ADS to the extent assets were held
in the form of such stock, and in cash to the extent invested in any other
investment funds maintained under the Plan.
The Plan provides for employees to borrow up to 50 percent of their account
balance, as defined by the Plan and subject to a minimum and maximum borrowing
level. The interest rate currently charged for loans is a fixed rate equal to
the average prime rate reported in The Wall Street Journal as of the last
business day of the month preceding the date the loan application was received
by the Benefits Administrative Committee, subject to a 6% maximum while a
participant is on military leave of absence. The loans are secured by the
balance in the participant's account and bear interest rates ranging from 5.0
percent to 9.5 percent. Repayment periods range from one to five years for
general loans and one to ten years for residential loans and are paid ratably
through monthly payroll deductions. Repaid principal and interest are added to
investment funds according to the current investment elections of the
participant. The loans are carried at their face amount.
Plan Administration-The Plan is administered by the Lyondell Benefits
Administrative Committee. Fidelity Retirement Services Company (FIRSCO) is the
Plan's recordkeeper. Plan assets are maintained in the Lyondell Chemical,
Equistar Chemicals, and Lyondell-Citgo Plans Master Trust ("Master Trust") under
the custody of Fidelity Management Trust Company ("Trustee"). The Trustee makes
payments as authorized by the Plan. Lyondell pays administrative expenses of the
Plan.
Termination Provision-Although it has not expressed any intent to do so,
Lyondell has the right to terminate the Plan at any time subject to the
provisions of ERISA. In the event of Plan termination, all participants will be
fully vested in their accounts and all assets of the Plan will continue to be
held for distribution to participants as provided in the Plan.
2. Summary of Significant Accounting Policies
Basis of Accounting-The financial statements of the Plan are prepared using the
accrual method of accounting.
Investment Valuation and Income Recognition-The Plan's investments are stated at
fair value. Quoted market prices are used to value investments. Investment funds
are valued at net asset value as of the last business day of the periods
presented, which is the fair value of all securities held plus accruals for
dividend income and interest income. Short-term and certain other investments
are valued at cost, which approximates fair value. Purchases and sales of
securities are accounted for on the trade date. Gains or losses on the sale or
distribution of securities are computed on an average cost basis. Dividend
income is accrued on the ex-dividend date and interest income is accrued as
earned. The net appreciation or depreciation in the fair value of investments,
which consist of the realized gains or losses and the unrealized appreciation or
depreciation on those investments, is included in "Investment income (loss)" in
the Statement of Changes in Net Assets Available for Benefits.
Payment of Benefits-Benefit payments to participants are recorded upon
distribution.
Use of Estimates-The preparation of the Plan's financial statements in
conformity with generally accepted accounting principles in the United States of
America requires the Plan's management to make significant estimates
6
LYONDELL CHEMICAL COMPANY 401(K) AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS--(Continued)
and assumptions that affect the reported amounts of net assets available for
benefits at the date of the financial statements and the changes in net assets
available for benefits during the reporting period and, when applicable,
disclosures of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Risks and Uncertainties-The Master Trust provides for various investment options
in any combination of stocks, bonds and mutual funds. Investment securities are
exposed to various risks, such as market and credit risks. Due to the level of
risk associated with certain investment securities, it is at least reasonably
possible that changes in the values of investment securities will occur in the
near term and that such changes could materially affect the amounts reported in
the Statement of Net Assets Available for Benefits.
3. Tax Status
The Plan is a qualified plan under Sections 401(a) and (k) of the Internal
Revenue Code of 1986, as amended ("Code") and is a qualified employee stock
ownership plan under Section 4975(e)(7) of the Code. The Benefits Administrative
Committee believes that the Plan, as currently designed and operated, is in
compliance with the applicable requirements of the Code. Accordingly, no
provision is made for federal income taxes.
4. Lyondell Chemical, Equistar Chemicals, and Lyondell-Citgo Plans Master Trust
The Master Trust was established on March 15, 1999 and is a pooled investment
trust composed of the beneficial interests of certain participating defined
contribution plans of Lyondell, Equistar Chemicals, LP and LYONDELL-CITGO
Refining LP, all of which are related entities.
Net assets available for benefits of the Master Trust were as follows:
December 31,
-----------------------
2001 2000
------ ------
ASSETS
Investments, at fair value:
Participant directed investments:
Mutual funds $ 564,457,348 $ 620,947,954
Common stock 140,099,083 168,898,164
Participant loans receivable, at cost 41,337,383 45,711,733
Money market funds 17,469,248 58,163
Nonparticipant directed investments:
Common stock 54,234,070 50,294,398
-------------- -------------
Total investments 817,597,132 885,910,412
Other receivables 39,636 498,769
-------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS $ 817,636,768 $ 886,409,181
============== =============
Plan percentage 38.51% 37.40%
============== =============
7
LYONDELL CHEMICAL COMPANY 401(K) AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS--(Continued)
Changes in net assets available for benefits of the Master Trust for the year
ended December 31, 2001 are presented below.
Participant Nonparticipant Trust
Directed Directed Total
----------- -------------- -----
Contributions:
Employer $ 20,603,377 $10,985,484 $ 31,588,861
Participant 41,516,445 -- 41,516,445
Rollover 3,014,356 -- 3,014,356
------------- ----------- -------------
Total 65,134,178 10,985,484 76,119,662
------------- ----------- -------------
Investment income (loss):
Interest income 9,591,939 261,170 9,853,109
Dividend income 3,040,316 761,643 3,801,959
Net depreciation in the fair
value of investments (100,660,736) (2,686,337) (103,347,073)
------------- ----------- -------------
Net investment loss (88,028,481) (1,663,524) (89,692,005)
------------- ----------- -------------
Benefits paid to participants (52,457,637) (1,976,027) (54,433,664)
------------- ----------- -------------
Loan activity:
Participant borrowings 1,283,496 (1,283,496) --
Participant repayments (1,183,732) 1,183,732 --
------------- ----------- -------------
Net loan activity 99,764 (99,764) --
------------- ----------- -------------
Transfer activity:
Net transfers from (to) Equistar Chemicals, LP
Savings and Investment Plan 171,755 (171,755) --
Net transfers from (to) LYONDELL-CITGO
Refining Company Ltd. 401(K) and Savings
Plan for Non-Represented Employees 12,981 (12,981) --
Intra-plan transfers 2,415,230 (2,415,230) --
Other transfers, net (59,875) (706,531) (766,406)
------------- ----------- -------------
Net transfer activity 2,540,091 (3,306,497) (766,406)
------------- ----------- -------------
Net (decrease) increase (72,712,085) 3,939,672 (68,772,413)
Net assets available for benefits:
Beginning of period 836,114,783 50,294,398 886,409,181
------------- ----------- -------------
End of period $ 763,402,698 $54,234,070 $ 817,636,768
============= =========== =============
5. Related-Party Transactions
Certain Plan investments are shares of mutual funds managed by Fidelity
Management and Research Company. Fidelity Management Trust Company is the
trustee as defined by the Plan and, therefore, these transactions qualify as
party-in-interest transactions. Lyondell pays the costs of administering the
Plan. These related party transactions are permissible under provisions of
ERISA.
8
LYONDELL CHEMICAL COMPANY 401(K) AND SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Subsequent Events
Effective April 1, 2002 the Plan was amended and the following changes were
made:
o Reduction of the match on elective deferrals from $1.60 per dollar up to 5%
(maximum 8% match) to dollar for dollar up to 6% (maximum 6% match).
o Immediate eligibility for Company-matching contributions.
o Flexibility to immediately sell Company-matching contributions of Lyondell
common stock at the participants' discretion.
o Ability to choose payout or reinvestment of dividends on Lyondell ESOP
stock.
o Increased elective deferrals allowed from 14% to up to 50% (up to federal
limits).
o Additional "catch-up" elective deferrals allowed for employees age 50 and
older (up to federal limits).
o Hardship withdrawal contribution suspension decreased from 12 months to 6
months.
o Rollovers accepted from any qualified plan and certain IRAs in which an
employee previously participated.
o Three-year vesting on Company-matching contributions for employees hired on
or after April 1, 2002.
9
LYONDELL CHEMICAL COMPANY 401(K) AND SAVINGS PLAN
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the Plan) have duly caused this annual
report to be signed on its behalf by the undersigned hereunto duly authorized.
LYONDELL CHEMICAL COMPANY
401(K) AND SAVINGS PLAN
By: /s/ Allen C. Holmes
-------------------------------------------
ALLEN C. HOLMES
Chairman, Benefits Administrative Committee
Date: June 28, 2002
10
EXHIBIT INDEX
Sequentially
Exhibit Numbered Page
No. Exhibit Where Located
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23 Consent of PricewaterhouseCoopers LLP 12
11