EXHIBIT 99.3
LYONDELL CHEMICAL COMPANY
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
Millions of dollars, except per share data 2002 2001 2002 2001
------------------------------------------ ------ ------ ------ ------
Sales and other operating revenues $ 843 $ 893 $ 1,517 $ 1,742
Operating costs and expenses:
Cost of sales 724 770 1,313 1,531
Selling, general and administrative expenses 46 42 86 83
Research and development expense 8 8 15 16
Amortization of goodwill -- 7 -- 15
------- ------- ------- -------
778 827 1,414 1,645
------- ------- ------- -------
Operating income 65 66 103 97
Interest expense (94) (98) (187) (197)
Interest income 3 4 5 11
Other income (expense), net (4) (1) (3) 2
------- ------- ------- -------
Loss before equity investments
and income taxes (30) (29) (82) (87)
------- ------- ------- -------
Income (loss) from equity investments:
Equistar Chemicals, LP (5) (2) (50) (24)
LYONDELL-CITGO Refining LP 39 41 66 68
Other (2) 3 (5) --
------- ------- ------- -------
32 42 11 44
------- ------- ------- -------
Income (loss) before income taxes 2 13 (71) (43)
Provision for (benefit from) income taxes -- 9 (18) (13)
------- ------- ------- -------
Net income (loss) $ 2 $ 4 $ (53) $ (30)
======= ======= ======= =======
Basic and diluted earnings (loss) per share $ .02 $ .04 $ (.45) $ (.25)
======= ======= ======= =======
See Notes to Consolidated Financial Statements.
1
LYONDELL CHEMICAL COMPANY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Millions of dollars, except par value data 2002 2001
- ------------------------------------------ -------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 215 $ 146
Accounts receivable, net 360 352
Inventories 312 316
Prepaid expenses and other current assets 57 116
Deferred tax assets 23 277
------- -------
Total current assets 967 1,207
------- -------
Property, plant and equipment, net 2,382 2,293
Investments and long-term receivables:
Investment in PO joint ventures 740 717
Investment in Equistar Chemicals, LP 472 522
Receivable from LYONDELL-CITGO Refining LP 229 229
Investment in LYONDELL-CITGO Refining LP 71 29
Other investments and long-term receivables 88 122
Goodwill, net 1,120 1,102
Other assets, net 437 482
------- -------
Total assets $ 6,506 $ 6,703
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 341 $ 319
Current maturities of long-term debt 6 7
Other accrued liabilities 232 233
------- -------
Total current liabilities 579 559
------- -------
Long-term debt 3,831 3,846
Other liabilities 589 583
Deferred income taxes 578 790
Commitments and contingencies
Minority interest 158 176
Stockholders' equity:
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 141 247
Accumulated other comprehensive loss (269) (397)
Treasury stock, at cost, 2,685,080 and 2,687,080 shares, respectively (75) (75)
------- -------
Total stockholders' equity 771 749
------- -------
Total liabilities and stockholders' equity $ 6,506 $ 6,703
======= =======
See Notes to Consolidated Financial Statements.
2
LYONDELL CHEMICAL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months
ended June 30,
------------------
Millions of dollars 2002 2001
- ------------------- ----- -----
Cash flows from operating activities:
Net loss $ (53) $ (30)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization 123 132
Losses from equity investments 55 25
Deferred income taxes 16 (23)
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 23 75
Inventories 11 (6)
Accounts payable (2) (106)
Prepaid expenses and other current assets 60 (46)
Other assets and liabilities (28) (45)
----- -----
Net cash provided by (used in) operating activities 205 (24)
----- -----
Cash flows from investing activities:
Expenditures for property, plant and equipment (12) (40)
Contributions and advances to affiliates (57) (40)
Distributions from affiliates in excess of earnings -- 11
----- -----
Net cash used in investing activities (69) (69)
----- -----
Cash flows from financing activities:
Dividends paid (53) (53)
Repayment of long-term debt (16) (5)
Other -- (3)
----- -----
Net cash used in financing activities (69) (61)
----- -----
Effect of exchange rate changes on cash 2 (1)
----- -----
Increase (decrease) in cash and cash equivalents 69 (155)
Cash and cash equivalents at beginning of period 146 260
----- -----
Cash and cash equivalents at end of period $ 215 $ 105
===== =====
See Notes to Consolidated Financial Statements.
3
LYONDELL CHEMICAL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Preparation
The accompanying consolidated financial statements are unaudited and have been
prepared from the books and records of Lyondell Chemical Company ("Lyondell") in
accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X
for interim financial information. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles 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, 2001 included in the Lyondell 2001 Annual Report on Form 10-K. Certain
amounts from prior periods have been reclassified to conform to the current
period presentation.
2. Accounting Changes
Effective January 1, 2002, Lyondell implemented Statement of Financial
Accounting Standards ("SFAS") No. 141, Business Combinations, SFAS No. 142,
Goodwill and Other Intangible Assets, and SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Implementation of SFAS No. 141 and
SFAS No. 144 did not have a material effect on the consolidated financial
statements of Lyondell.
Upon implementation of SFAS No. 142, Lyondell reviewed its goodwill for
impairment and concluded that goodwill is not impaired. However, Equistar
Chemicals, LP ("Equistar") (see Note 3) reviewed its goodwill for impairment and
concluded that the entire balance was impaired, resulting in a $1.1 billion
charge to Equistar's earnings. The conclusion was based on a comparison to
Equistar's indicated fair value, using multiples of EBITDA (earnings before
interest, taxes, depreciation and amortization) for comparable companies as an
indicator of fair value. Lyondell's 41% share of the Equistar charge was offset
by a corresponding reduction in the excess of Lyondell's 41% share of Equistar's
partners' capital over the carrying value of Lyondell's investment in Equistar.
Consequently, there was no net effect of the impairment on Lyondell's earnings
or investment in Equistar.
As a result of implementing SFAS No. 142, Lyondell's pretax earnings in 2002 and
subsequent years will be favorably affected by $30 million annually because of
the elimination of Lyondell's goodwill amortization. The following table
presents Lyondell's reported net income (loss) for all periods presented as
adjusted to eliminate goodwill amortization expense.
For the three months ended For the six months ended
June 30, June 30,
------------------------------- -------------------------------
Millions of dollars 2002 2001 2002 2001
- ------------------- -------------- -------------- -------------- --------------
Reported net income (loss) $ 2 $ 4 $ (53) $ (30)
Add back: goodwill amortization, net of tax - - 5 - - 11
------ ------ -------- --------
Adjusted net income (loss) $ 2 $ 9 $ (53) $ (19)
====== ====== ======== ========
Basic and diluted earnings per share:
Reported net income (loss) $ .02 $ .04 $ (.45) $ (.25)
Add back: goodwill amortization, net of tax - - .04 - - .09
------ ------ -------- --------
Adjusted net income (loss) $ .02 $ .08 $ (.45) $ (.16)
====== ====== ======== ========
In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. The primary impact of the statement
on Lyondell will be the classification of losses that result from the early
extinguishment of debt as a charge to income before extraordinary items.
Reclassification of prior period losses that were originally reported as
extraordinary items also will be required. Application of the statement will be
required in 2003. See Note 16.
4
In July 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal
Activities. SFAS No. 146 addresses the recognition, measurement, and reporting
of costs associated with exit and disposal activities, including restructuring
activities, essentially codifying prior accounting guidance on these matters.
SFAS No. 146 will be effective for activities initiated after December 31, 2002.
Early application is permitted. Lyondell does not expect adoption of SFAS No.
146 to have any impact on the consolidated financial statements of Lyondell,
Equistar or LYONDELL-CITGO Refining LP ("LCR").
3. Equity Interest in Equistar Chemicals, LP
Lyondell's operations in the petrochemicals and polymers segments are conducted
through its joint venture ownership interest in Equistar. Lyondell currently has
a 41% interest in Equistar, while Millennium Chemicals Inc. ("Millennium") and
Occidental Petroleum Corporation ("Occidental") each have a 29.5% interest.
Because the partners jointly control certain management decisions, Lyondell
accounts for its investment in Equistar using the equity method of accounting.
Lyondell has entered into an agreement to purchase Occidental's interest in
Equistar (see Note 15). As a partnership, Equistar is not subject to federal
income taxes. Summarized financial information for Equistar follows:
June 30, December 31,
Millions of dollars 2002 2001
- -------------------- -------- ------------
BALANCE SHEETS
Total current assets $ 1,188 $ 1,226
Property, plant and equipment, net 3,615 3,705
Goodwill, net - - 1,053
Other assets 347 324
------- --------
Total assets $ 5,150 $ 6,308
======= ========
Current maturities of long-term debt $ 4 $ 104
Other current liabilities 598 557
Long-term debt 2,331 2,233
Other liabilities 187 177
Partners' capital 2,030 3,237
------- --------
Total liabilities and partners' capital $ 5,150 $ 6,308
======= ========
For the three months ended For the six months ended
June 30, June 30,
----------------------------- ------------------------------
2002 2001 2002 2001
------------- -------------- ------------- -------------
STATEMENTS OF INCOME
Sales and other operating revenues $ 1,462 $ 1,600 $ 2,598 $ 3,373
Cost of sales 1,390 1,522 2,552 3,245
Selling, general and administrative expenses 50 55 99 111
Amortization of goodwill - - 9 - - 17
Unusual charges - - - - - - 22
------- ------- --------- --------
Operating income (loss) 22 14 (53) (22)
Interest expense, net (50) (45) (102) (91)
Other income, net - - 1 1 6
------- ------- --------- --------
Loss before cumulative effect of accounting change (28) (30) (154) (107)
Cumulative effect of accounting change - - - - (1,053) - -
------- ------- --------- --------
Net loss $ (28) $ (30) $ (1,207) $ (107)
======= ======= ========= =========
SELECTED CASH FLOW INFORMATION
Depreciation and amortization $ 75 $ 81 $ 150 $ 159
Expenditures for property, plant and equipment 14 29 29 53
5
As of January 1, 2002, as part of the implementation of SFAS No. 142, the entire
unamortized balance of Equistar's goodwill was determined to be impaired.
Accordingly, Equistar's earnings in the first quarter 2002 were reduced by $1.1
billion. Lyondell's 41% share of the charge for impairment of Equistar's
goodwill was offset by a corresponding reduction in the difference between
Lyondell's investment in Equistar and its underlying equity in Equistar's net
assets (see Note 2).
Lyondell's loss from its investment in Equistar as presented in the Consolidated
Statements of Income consists of Lyondell's share of Equistar's loss before the
cumulative effect of the accounting change and the accretion of the remaining
difference between Lyondell's investment and its underlying equity in Equistar's
net assets.
4. Equity Interest in LYONDELL-CITGO Refining LP
Lyondell's refining segment operations are conducted through its joint venture
ownership interest in LCR. Lyondell has a 58.75% interest in LCR, while CITGO
Petroleum Corporation ("CITGO") has a 41.25% interest. Because the partners
jointly control certain management decisions, Lyondell accounts for its
investment in LCR using the equity method of accounting. As a partnership, LCR
is not subject to federal income taxes. Summarized financial information for LCR
follows:
June 30, December 31,
Millions of dollars 2002 2001
- ------------------- ------ ------
BALANCE SHEETS
Total current assets $ 283 $ 230
Property, plant and equipment, net 1,332 1,343
Other assets 91 97
------ ------
Total assets $1,706 $1,670
====== ======
Notes payable $ 10 $ 50
Current maturities of long-term debt 450 --
Other current liabilities 388 335
Long-term debt -- 450
Loans payable to partners 264 264
Other liabilities 81 79
Partners' capital 513 492
------ ------
Total liabilities and partners' capital $1,706 $1,670
====== ======
For the three months ended For the six months ended
June 30, June 30,
-------------------------------- ------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- -------------
STATEMENTS OF INCOME
Sales and other operating revenues $ 838 $ 932 $ 1,545 $ 1,842
Cost of sales 754 837 1,400 1,675
Selling, general and administrative expenses 14 14 26 28
------- ------- ------- -------
Operating income 70 81 119 139
Interest expense, net (7) (15) (15) (31)
------- ------- ------- -------
Net income $ 63 $ 66 $ 104 $ 108
======= ======= ======= =======
SELECTED CASH FLOW INFORMATION
Depreciation and amortization $ 30 $ 27 $ 59 $ 55
Expenditures for property, plant and equipment 20 18 42 29
LCR's $450 million term loan and $70 million revolving credit facility mature in
January 2003. Management has initiated the refinancing process and, based on
previous experience in refinancing LCR's debt and the current conditions of the
financial markets, anticipates that this debt can be refinanced prior to its
maturity.
6
Lyondell's income from its investment in LCR as presented in the Consolidated
Statements of Income consists of Lyondell's share of LCR's net income and the
accretion of the difference between Lyondell's investment and its underlying
equity in LCR's net assets.
5. Unusual Charges
During the second half of 2001, Lyondell recorded a pretax charge of $63 million
associated with its decision to exit the aliphatic diisocyanates ("ADI")
business. The $63 million charge included $45 million to adjust the carrying
values of the ADI assets to their net realizable value and accrued liabilities
of $15 million for exit costs and $3 million for severance and other
employee-related costs for nearly 100 employee positions that were eliminated.
Payments of $5 million for exit costs and $2 million for severance and other
employee-related costs were made through June 30, 2002, resulting in a remaining
accrued liability of $11 million.
6. Inventories
Inventories consisted of the following components at:
June 30, December 31,
Millions of dollars 2002 2001
- ------------------- -------- ------------
Finished goods $ 236 $ 262
Work-in-process 6 5
Raw materials 37 19
Materials and supplies 33 30
----- -----
Total inventories $ 312 $ 316
===== =====
7. Property, Plant and Equipment, Net
The components of property, plant and equipment, at cost, and the related
accumulated depreciation were as follows at:
June 30, December 31,
Millions of dollars 2002 2001
- ------------------- -------- ------------
Land $ 12 $ 10
Manufacturing facilities and equipment 2,801 2,529
Construction in progress 123 113
------- -------
Total property, plant and equipment 2,936 2,652
Less accumulated depreciation 554 359
------- -------
Property, plant and equipment, net $ 2,382 $ 2,293
======= =======
Depreciation and amortization are summarized as follows:
For the three months ended For the six months ended
June 30, June 30,
----------------------------- ------------------------------
2002 2001 2002 2001
------------ --------------- --------------- -------------
Millions of dollars
- --------------------
Property, plant and equipment $ 32 $ 30 $ 63 $ 60
Investment in PO joint venture 7 7 15 15
Goodwill - - 7 - - 15
Debt issuance costs 4 4 8 7
Turnaround expense 5 4 8 8
Software costs 3 3 5 3
Other intangibles 12 12 24 24
------- ------- ------ ------
$ 63 $ 67 $ 123 $ 132
======= ======= ====== ======
7
8. Long-Term Debt
Long-term debt consisted of the following at:
June 30, December 31,
Millions of dollars 2002 2001
- ------------------- -------- ------------
Term Loan E due 2006 $ 619 $ 634
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 Secured Notes due 2008, 9.5% 393 393
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 1 2
------- -------
Total long-term debt 3,837 3,853
Less current maturities 6 7
------- -------
Long-term debt, net $ 3,831 $ 3,846
======= =======
See Note 16 for a discussion of Lyondell's debt offering and amendments to its
credit facility, the indentures related to its senior notes and related
documents, occurring subsequent to June 30, 2002.
9. Lease Commitments
Lyondell's operating lease commitments as of December 31, 2001 are described in
Note 15 to the Consolidated Financial Statements included in the
Lyondell 2001 Annual Report on Form 10-K. In addition, in July 2002, Lyondell
began leasing a new butanediol ("BDO") production facility in Europe, known as
BDO-2, under an operating lease with an initial term of 5 years. Construction of
the facility was completed in June 2002 and was financed by an unaffiliated
entity that had been established for the purpose of serving as lessor with
respect to this facility. Future minimum annual lease payments under the
operating lease, amounting to $16 million per year using June 30, 2002 exchange
rates and interest rates, are equivalent to interest on the final construction
costs, including interest incurred on the construction costs during
construction. The interest rate specified in the lease is based on EURIBOR plus
3.75%.
Lyondell may, at its option, renew the lease for four additional five-year terms
or may purchase the facility at any time during the lease terms at the lessor's
cost of construction. If Lyondell does not exercise the purchase option before
the end of the last renewal period, the facility will be sold. In the event the
sales proceeds are less than the lessor's construction costs, Lyondell will pay
the difference to the lessor, but not more than the guaranteed residual value.
The guaranteed residual value currently is estimated at 172 million euros, or
$170 million, using June 30, 2002 exchange rates. Under the transaction
documents related to BDO-2, Lyondell is subject to certain financial and other
covenants that are substantially the same as those contained in Lyondell's
credit facility. See Note 16.
8
10. Derivative Financial Instruments
The following table summarizes activity included in accumulated other
comprehensive loss ("AOCL") related to the after-tax impact of the effective
portion of the fair value of derivative instruments used as cash flow hedges:
For the three months ended For the six months ended
June 30, June 30,
------------------------- ------------------------
Millions of dollars 2002 2001 2002 2001
- ------------------- ----------- ---------- ---------- ----------
Gain (loss):
Beginning balance $ (3) $ (4) $ (2) $ - -
Net gains (losses) 3 - - 2 (4)
Reclassification of net (gains) losses
to earnings - - - - - - - -
------ ------ ------ ------
Net change in AOCL for the period 3 - - 2 (4)
------ ------ ------ ------
Net accumulated loss at June 30 $ - - $ (4) $ - - $ (4)
====== ====== ====== ======
The transition adjustment resulting from the adoption of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as of January 1,
2001 was insignificant.
11. Commitments and Contingencies
Bayer Claim--On April 30, 2002, Lyondell and Bayer settled the claims of Bayer
in relation to its March 2000 purchase of Lyondell's polyols business. Lyondell
had received notice of these claims in June 2001, which had alleged various
breaches of representations and warranties related to the condition of the
business and assets and which had sought damages in excess of $100 million. The
settlement included new or amended commercial agreements between the parties,
generally relating to the existing propylene oxide ("PO") partnership between
Bayer and Lyondell. As a whole, the new or amended agreements provide new
business opportunities and value for both parties over the next five to ten
years. Concurrent with the settlement, Lyondell made a $5 million
indemnification payment to Bayer. The settlement, including the indemnification
payment, had no net effect on Lyondell's financial position or results of
operations.
Capital Commitments--Lyondell has various commitments related to capital
expenditures, all made in the normal course of business. At June 30, 2002, major
capital commitments primarily consisted of Lyondell's 50% share of those related
to the construction of a world-scale PO facility, known as PO-11, in The
Netherlands. Lyondell's share of the outstanding commitments, which are funded
through contributions and advances to affiliates, totaled $104 million as of
June 30, 2002.
Construction Lease--During the third quarter 2000, construction began on the
BDO-2 production facility in Europe. Construction was completed in June 2002 and
Lyondell leased the facility under an operating lease, beginning in July 2002.
See Note 9.
Crude Supply Agreement--Under the Crude Supply Agreement ("CSA"), PDVSA
Petroleo, S.A. ("PDVSA Oil") 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 LCR's refinery capacity of 268,000 barrels per day of crude
oil. In April 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. PDVSA Oil declared itself in a force
majeure situation and subsequently reduced 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.
On several occasions since then, PDVSA Oil further reduced crude oil deliveries,
although it made payments under a different provision of the CSA in partial
compensation for such further reductions. Subsequently, PDVSA Oil unilaterally
began increasing deliveries of crude oil to LCR in April 2000, and ultimately
returned to the contract level of 230,000 barrels per day effective October
2000.
9
During 2001, PDVSA Oil declared itself in a force majeure situation, but did not
reduce crude oil deliveries to LCR in 2001. In January 2002, PDVSA Oil again
declared itself in a force majeure situation and stated that crude oil
deliveries could be reduced by up to 20.3% beginning March 1, 2002. Beginning in
March 2002, deliveries of crude oil to LCR were reduced to approximately 198,000
barrels per day, reaching a level of 190,000 barrels per day during the second
quarter 2002. The recent political uncertainty in Venezuela has not affected
crude oil deliveries, the CSA or related matters to date, and the long-term
effects of these events, if any, are not yet clear.
LCR has consistently contested the validity of the reductions in deliveries
under the CSA. The parties have different interpretations of the provisions of
the contracts concerning the delivery of crude oil. The contracts do not contain
dispute resolution procedures, and the parties have been unable to resolve their
commercial dispute. As a result, on February 1, 2002, LCR filed a lawsuit
against PDVSA Oil and its parent company, Petroleos de Venezuela, S.A.
("PDVSA"), in connection with the January 2002 force majeure declaration, as
well as the claimed force majeure from April 1998 to September 2000.
In 1999, PDVSA announced its intention to renegotiate its crude supply
agreements with all third parties, including LCR. In light of PDVSA's announced
intent, there can be no assurance that PDVSA Oil will continue to perform its
obligations under the CSA. However, it has confirmed that it expects to honor
its commitments if a mutually acceptable restructuring of the CSA is not
achieved. From time to time, the Company and PDVSA have had discussions covering
both a restructuring of the CSA and a broader restructuring of the LCR
partnership. Lyondell is unable to predict whether changes in either arrangement
will occur. The breach or termination of the CSA, or reduction in supply
thereunder, would require LCR to purchase all or a portion of its crude oil
feedstocks in the merchant market, could subject LCR to significant volatility
and price fluctuations and could adversely affect LCR and, therefore, Lyondell.
Cross Indemnity Agreement--In connection with the transfer of assets and
liabilities 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 Company ("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 June 30, 2002, Equistar had expensed nearly all
of 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
subsidiaries of Occidental.
10
Environmental Remediation--As of June 30, 2002, Lyondell's environmental
liability for future remediation costs at its plant sites and a limited number
of Superfund sites totaled $22 million. The liabilities per site range from less
than $1 million to $11 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 investigations by regulatory agencies, could require Lyondell to
reassess its potential exposure related to environmental matters.
Clean Air Act--The eight-county Houston/Galveston region has been designated a
severe non-attainment area for ozone by the U.S. Environmental Protection Agency
("EPA"). Emission reduction controls for nitrogen oxides ("NOx") 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.
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 direct share of such expenditures could total between
$65 million and $80 million. Lyondell's current proportionate share of
Equistar's expenditures could total between $85 million and $105 million, and
Lyondell's proportionate share of LCR's expenditures could total between $75
million and $95 million. The timing and amount of these expenditures are subject
to regulatory and other uncertainties, as well as obtaining the necessary
permits and approvals. In January 2001, Lyondell and an organization composed of
industry participants filed a lawsuit to encourage adoption of an alternative
plan to achieve the same air quality improvement with less negative economic
impact on the region. Adoption of the alternative plan, as sought by the
lawsuit, would be expected to reduce the estimated capital investments for NOx
reductions required by Lyondell, Equistar and LCR to comply with the standards.
Recently proposed revisions by the regulatory agencies would change the required
NOx reduction levels from 90% to 80%. However, any potential resulting savings
from this proposed revision could be offset by the costs of stricter proposed
controls over volatile organic compounds, or VOCs. Lyondell, Equistar and LCR
are still assessing the impact of these proposed revisions and there can be no
guarantee as to the ultimate capital cost of implementing any final plan
developed to ensure ozone attainment by the 2007 deadline.
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. 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 about the use of MTBE. Certain federal and state
governmental initiatives in the U.S. have sought either to rescind the oxygen
requirement for reformulated gasoline or to restrict or ban the use of MTBE. On
April 25, 2002, the U.S. Senate passed its version of an omnibus energy bill,
which, among other things, would ban the use of MTBE as a fuel oxygenate. The
Senate bill is not law and needs to be reconciled with the U.S. House of
Representatives' omnibus energy bill, which was passed in July 2001 and which
would not ban the use of MTBE. Lyondell's North American MTBE sales represented
approximately 27% of its total 2001 revenues. Lyondell does not expect these
initiatives to have a significant impact on MTBE margins or volumes in 2002.
Should it become necessary or desirable to significantly reduce MTBE production,
Lyondell would need to make capital expenditures to add the flexibility to
produce alternative gasoline blending components at its U.S.-based MTBE plants.
The profit margins on such alternative gasoline blending components could be
lower than those historically realized on MTBE.
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. In 1998, the EPA concluded that
additional controls on gasoline and diesel fuel 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 and $225 million for
the new gasoline standards and between $250 million and $300 million for the new
diesel standard, between now and the implementation dates. Lyondell's
proportionate 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 business may also be impacted if these standards
increase the cost for processing fuel components.
11
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 on the financial
position, liquidity or results of operations 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 the 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.
12. Earnings Per Share
Basic earnings per share for the periods presented are computed based upon the
weighted average number of shares outstanding for the periods. Diluted earnings
per share include the effect of outstanding stock options issued under the 1999
Long-Term Incentive Plan and the Executive Long-Term Incentive Plan. These stock
options were antidilutive in the six-month periods ended June 30, 2002 and 2001.
Net income (loss) per share ("EPS") data is as follows:
For the three months ended
June 30,
-------------------------------------------------
2002 2001
---------------------- -----------------------
Thousands of shares Shares EPS Shares EPS
- ------------------- --------- --------- ---------- ---------
Basic 117,565 $ .02 117,563 $ .04
Dilutive effect of options 764 - - 398 - -
------- ------- ------- -------
Diluted 118,329 $ .02 117,961 $ .04
======= ======= ======= =======
For the six months ended
June 30,
-------------------------------------------------
2002 2001
---------------------- -----------------------
Thousands of shares Shares EPS Shares EPS
- ------------------- --------- --------- ---------- ---------
Basic 117,565 $ (.45) 117,563 $ (.25)
Dilutive effect of options - - - - - - - -
------- ------- ------- -------
Diluted 117,565 $ (.45) 117,563 $ (.25)
======= ======= ======= =======
See Note 16 for discussion of common stock issued subsequent to June 30, 2002
and Note 15 for discussion of additional common stock expected to be issued.
13. Comprehensive Income (Loss)
The components of the comprehensive income (loss) were as follows:
For the three months ended For the six months ended
June 30, June 30,
----------------------------- ---------------------------
Millions of dollars 2002 2001 2002 2001
- ------------------- ------------ ------------- ------------ ------------
Net income (loss) $ 2 $ 4 $ (53) $ (30)
------ -------- -------- --------
Other comprehensive income (loss):
Foreign currency translation 139 (48) 122 (98)
Derivative instruments 3 - - 2 (4)
Minimum pension liability - - - - 4 - -
------ -------- -------- --------
Total other comprehensive income (loss) 142 (48) 128 (102)
------ -------- -------- --------
Comprehensive income (loss) $ 144 $ (44) $ 75 $ (132)
====== ======== ======== ========
12
14. Segment and Related Information
Lyondell operates in four reportable segments: (i) intermediate chemicals and
derivatives; (ii) petrochemicals; (iii) polymers; and (iv) refining. Lyondell's
entire $1.1 billion balance of goodwill is allocated to the intermediate
chemicals and derivatives segment. 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 June 30, 2002:
Sales and other operating revenues $ 843 $ - - $ - - $ - - $ - - $ 843
Operating income 65 65
Interest expense (94) (94)
Interest income 3 3
Other expense, net (4) (4)
Income (loss) from equity investments -- 32 (11) 39 (28) 32
Income before income taxes 2
For the three months ended June 30, 2001:
Sales and other operating revenues $ 893 $ - - $ - - $ - - $ - - $ 893
Operating income 66 66
Interest expense (98) (98)
Interest income 4 4
Other expense, net (1) (1)
Income (loss) from equity investments -- 33 (9) 41 (23) 42
Income before income taxes 13
For the six months ended June 30, 2002:
Sales and other operating revenues $ 1,517 $ - - $ - - $ - - $ - - $ 1,517
Operating income 103 103
Interest expense (187) (187)
Interest income 5 5
Other expense, net (3) (3)
Income (loss) from equity investments -- 23 (19) 66 (59) 11
Loss before income taxes (71)
For the six months ended June 30, 2001:
Sales and other operating revenues $ 1,742 $ - - $ - - $ - - $ - - $ 1,742
Operating income 97 97
Interest expense (197) (197)
Interest income 11 11
Other income, net 2 2
Income (loss) from equity investments 1 80 (46) 68 (59) 44
Loss before income taxes (43)
13
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 six months ended
June 30, June 30,
------------------------------- ----------------------------
Millions of dollars 2002 2001 2002 2001
- ------------------- -------------- ------------- ------------ ------------
Equistar items not allocated to segments:
Principally general and administrative
expenses and interest expense, net $ (26) $ (26) $ (54) $ (49)
Unusual charges - - - - - - (9)
Other (2) 3 (5) (1)
--------- ------- -------- --------
Total--Other $ (28) $ (23) $ (59) $ (59)
========= ======= ======== ========
The methanol operations of Lyondell Methanol Company, L.P. ("LMC") are not a
reportable segment and, through April 30, 2002, were included in the "Other"
column. Effective May 1, 2002, LMC became a wholly owned subsidiary of Lyondell
and the methanol results are included in the intermediate chemicals and
derivatives segment from that date. The effect of consolidating the LMC
operations, which previously had been accounted for using the equity method, was
not material.
15. Proposed Transactions with Occidental
Early in 2002, Lyondell and Occidental agreed in principle to Lyondell's
acquisition of Occidental's 29.5% interest in Equistar and to Occidental's
acquisition of an equity interest in Lyondell. On June 3, 2002, Millennium
advised Lyondell and Occidental that it would not participate, under its formal
right of first offer, in the acquisition of Occidental's Equistar interest and,
accordingly, Occidental and Lyondell signed definitive documentation on July 8,
2002. Closing of the transactions is subject to certain conditions, including
approval by Lyondell's shareholders. Lyondell's special shareholder meeting is
scheduled for August 21, 2002. Lyondell anticipates that these transactions will
close by September 1, 2002. However, there can be no assurance that the proposed
transactions will be completed.
16. Subsequent Events
In early July 2002, Lyondell completed debt and equity offerings, as well as
amendments to its credit facility, to the transaction documents related to the
BDO-2 facility and to the indentures related to its senior notes.
Lyondell issued $278 million principal amount of 11.125% senior secured notes
due 2012, using proceeds of $204 million to prepay $200 million of the principal
amount outstanding under Term Loan E of the credit facility and a $4 million
prepayment premium. The remaining net proceeds, after discount and fees, of
approximately $65 million will be used for working capital and general corporate
purposes. Lyondell also issued 8.28 million shares of common stock, receiving
net proceeds of $110 million that will be used for working capital and general
corporate purposes.
The amended and restated credit facility extended the maturity of the revolving
credit facility from July 2003 to June 2005, reduced the size of the revolving
credit facility from $500 million to $350 million, made certain financial ratio
requirements less restrictive, made the covenant limiting acquisitions more
restrictive and added a covenant limiting certain non-regulatory capital
expenditures. The BDO-2 transaction documents were also amended to incorporate
the revised covenants from the credit facility. Also, after receiving consents
from the holders of the senior secured and senior subordinated notes, Lyondell
amended the indentures related to those notes. The principal indenture amendment
removed a limitation that restricted payment of Lyondell's current $0.90 per
share annual dividend to a specified number of shares. As a result of the
amendment, the $0.90 per share annual dividend can be paid on all current and
future common shares outstanding. Lyondell paid fees totaling $17 million
related to the amendments.
14
As a result of the early retirement of a portion of Term Loan E, and the
amendment and restatement of the credit facility, Lyondell will recognize the $4
million prepayment premium and the writeoff of unamortized debt issuance costs
of $7 million, or a total of $7 million after tax, as an extraordinary charge on
early debt retirement in the third quarter 2002. See also Note 2.
17. Deferred Tax Assets
The deferred tax assets classified as current assets decreased by $254 million
during the first half of 2002. The reduction primarily represented a change in
the timing of anticipated realization of the tax benefits of domestic net
operating loss carryforwards. These benefits, which are expected to be realized
within the next few years, have been reclassified from current assets to net
long-term liabilities on the consolidated balance sheet. There was no change in
management's expectation that these deferred tax assets will be fully realized.
18. Supplemental Guarantor Information
ARCO Chemical Technology Inc. ("ACTI"), ARCO Chemical Technology L.P. ("ACTLP")
and Lyondell Chemical Nederland, Ltd. ("LCNL") are guarantors, jointly and
severally, (collectively "Guarantors") of the $278 million senior secured notes
issued in July 2002 (see Note 16), the $393 million senior secured notes, the
$500 million senior subordinated notes and the $1.9 billion senior secured
notes. LCNL, a Delaware corporation, is a wholly owned subsidiary of Lyondell
that owns a Dutch subsidiary that operates a chemical production facility near
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 secured notes and senior subordinated notes. The following
condensed consolidating financial information present supplemental information
for the Guarantors as of June 30, 2002 and December 31, 2001 and for the
three-month and six-month periods ended June 30, 2002 and 2001.
15
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
BALANCE SHEET
As of June 30, 2002
Non- Consolidated
Millions of dollars Lyondell Guarantors Guarantors Eliminations Lyondell
- ------------------- -------------- -------------- -------------- -------------- --------------
Total current assets $ 520 $ 180 $ 267 $ -- $ 967
Property, plant and equipment, net 897 567 918 -- 2,382
Investments and
long-term receivables 7,338 472 1,481 (7,691) 1,600
Goodwill, net 453 420 247 -- 1,120
Other assets 334 90 13 -- 437
------- ------- ------- ------- -------
Total assets $ 9,542 $ 1,729 $ 2,926 $(7,691) $ 6,506
======= ======= ======= ======= =======
Current maturities of long-term debt $ 6 $ -- $ -- $ -- $ 6
Other current liabilities 375 101 97 -- 573
Long-term debt,
less current maturities 3,830 -- 1 -- 3,831
Other liabilities 524 46 19 -- 589
Deferred income taxes 359 153 66 -- 578
Intercompany liabilities (assets) 3,677 (1,125) (2,550) (2) --
Minority interest -- -- 158 -- 158
Stockholders' equity 771 2,554 5,135 (7,689) 771
------- ------- ------- ------- -------
Total liabilities and
stockholders' equity $ 9,542 $ 1,729 $ 2,926 $(7,691) $ 6,506
======= ======= ======= ======= =======
BALANCE SHEET
As of December 31, 2001
Non- Consolidated
Millions of dollars Lyondell Guarantors Guarantors Eliminations Lyondell
- ------------------- -------------- -------------- -------------- -------------- --------------
Total current assets $ 781 $ 132 $ 294 $ -- $ 1,207
Property, plant and equipment, net 915 516 862 -- 2,293
Investments and
long-term receivables 7,007 461 1,537 (7,386) 1,619
Goodwill, net 453 389 260 -- 1,102
Other assets 344 88 50 -- 482
------- ------- ------- ------- -------
Total assets $ 9,500 $ 1,586 $ 3,003 $(7,386) $ 6,703
======= ======= ======= ======= =======
Current maturities of long-term debt $ 7 $ -- $ -- $ -- $ 7
Other current liabilities 391 73 88 -- 552
Long-term debt 3,844 -- 2 -- 3,846
Other liabilities 515 55 13 -- 583
Deferred income taxes 611 133 46 -- 790
Intercompany liabilities (assets) 3,383 (1,101) (2,282) -- --
Minority interest -- -- 176 -- 176
Stockholders' equity 749 2,426 4,960 (7,386) 749
------- ------- ------- ------- -------
Total liabilities and
stockholders' equity $ 9,500 $ 1,586 $ 3,003 $(7,386) $ 6,703
======= ======= ======= ======= =======
16
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)--(Continued)
STATEMENTS OF INCOME
For the Three Months Ended June 30, 2002
Non- Consolidated
Millions of dollars Lyondell Guarantors Guarantors Eliminations Lyondell
- ------------------- -------------- -------------- -------------- -------------- --------------
Sales and other operating revenues $ 584 $ 210 $ 462 $(413) $ 843
Cost of sales 599 188 350 (413) 724
Selling, general and
administrative expenses 29 5 12 -- 46
Research and development expense 8 -- -- -- 8
----- ----- ----- ----- -----
Operating income (loss) (52) 17 100 -- 65
Interest income (expense), net (94) 2 1 -- (91)
Other income (expense), net (18) 15 (1) -- (4)
Income from equity investments 153 -- 32 (153) 32
Intercompany income (expense) (37) 8 31 (2) --
Provision for (benefit from) income
taxes (12) 10 42 (40) --
----- ----- ----- ----- -----
Net income (loss) $ (36) $ 32 $ 121 $(115) $ 2
===== ===== ===== ===== =====
STATEMENTS OF INCOME
For the Three Months Ended June 30, 2001
Non- Consolidated
Millions of dollars Lyondell Guarantors Guarantors Eliminations Lyondell
- ------------------- -------------- -------------- -------------- -------------- --------------
Sales and other operating revenues $ 618 $ 200 $ 435 $(360) $ 893
Cost of sales 618 141 371 (360) 770
Selling, general and
administrative expenses 26 5 11 -- 42
Research and development expense 8 -- -- -- 8
Amortization of goodwill
and other intangible assets 2 3 2 -- 7
----- ----- ----- ----- -----
Operating income (loss) (36) 51 51 -- 66
Interest income (expense), net (97) -- 3 -- (94)
Other income (expense), net (23) (44) 66 -- (1)
Income from equity investments 160 -- 42 (160) 42
Intercompany income (expense) (43) 16 32 (5) --
Provision for (benefit from) income
taxes (6) 4 53 (42) 9
----- ----- ----- ----- -----
Net income (loss) $ (33) $ 19 $ 141 $(123) $ 4
===== ===== ===== ===== =====
17
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)--(Continued)
STATEMENTS OF INCOME
For the Six Months Ended June 30, 2002
Non- Consolidated
Millions of dollars Lyondell Guarantors Guarantors Eliminations Lyondell
- ------------------- -------------- -------------- -------------- -------------- --------------
Sales and other operating revenues $ 1,053 $ 375 $ 813 $ (724) $ 1,517
Cost of sales 1,059 336 642 (724) 1,313
Selling, general and
administrative expenses 55 8 23 - - 86
Research and development expense 15 - - - - - - 15
------- -------- -------- --------- -------
Operating income (loss) (76) 31 148 - - 103
Interest income (expense), net (189) 4 3 - - (182)
Other income (expense), net (28) 19 6 - - (3)
Income from equity investments 218 - - 11 (218) 11
Intercompany income (expense) (29) 20 49 (40) - -
Provision for (benefit from) income
taxes (26) 18 55 (65) (18)
------- -------- -------- --------- -------
Net income (loss) $ (78) $ 56 $ 162 $ (193) $ (53)
======== ========= ======== ========= ========
STATEMENTS OF INCOME
For the Six Months Ended June 30, 2001
Non- Consolidated
Millions of dollars Lyondell Guarantors Guarantors Eliminations Lyondell
- ------------------- -------------- -------------- -------------- -------------- --------------
Sales and other operating revenues $ 1,212 $ 437 $ 841 $ (748) $ 1,742
Cost of sales 1,187 290 802 (748) 1,531
Selling, general and
administrative expenses 51 7 25 - - 83
Research and development expense 16 - - - - - - 16
Amortization of goodwill
and other intangible assets 6 5 4 - - 15
------- -------- -------- ------- -------
Operating income (loss) (48) 135 10 - - 97
Interest income (expense), net (194) 1 7 - - (186)
Other income (expense), net (40) (105) 147 - - 2
Income from equity investments 242 - - 44 (242) 44
Intercompany income (expense) (73) 44 69 (40) - -
Provision for (benefit from) income
taxes (35) 24 86 (88) (13)
------- -------- -------- ------- -------
Net income (loss) $ (78) $ 51 $ 191 $ (194) $ (30)
======= ======== ======== ======= =======
18
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)--(Continued)
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2002
Non- Consolidated
Millions of dollars Lyondell Guarantors Guarantors Eliminations Lyondell
- ------------------- -------------- ------------- -------------- -------------- --------------
Net income (loss) $ (78) $ 56 $ 162 $(193) $ (53)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 62 18 43 -- 123
Net changes in working
capital and other 151 (8) (161) 153 135
----- ----- ----- ----- -----
Net cash provided by
operating activities 135 66 44 (40) 205
----- ----- ----- ----- -----
Expenditures for property,
plant and equipment (8) (1) (3) -- (12)
Contributions and advances
to affiliates (3) (21) (33) -- (57)
----- ----- ----- ----- -----
Net cash used in
investing activities (11) (22) (36) -- (69)
----- ----- ----- ----- -----
Dividends paid (53) (1) (39) 40 (53)
Repayment of long-term debt (15) -- (1) -- (16)
----- ----- ----- ----- -----
Net cash used in
financing activities (68) (1) (40) 40 (69)
----- ----- ----- ----- -----
Effect of exchange rate
changes on cash -- (8) 10 -- 2
----- ----- ----- ----- -----
Increase (decrease) in cash
and cash equivalents $ 56 $ 35 $ (22) $-- $ 69
===== ===== ===== ===== =====
19
CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)--(Continued)
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2001
Non- Consolidated
Millions of dollars Lyondell Guarantors Guarantors Eliminations Lyondell
- ------------------- -------------- ------------- -------------- -------------- --------------
Net income (loss) $ (78) $ 51 $ 191 $ (194) $ (30)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 68 23 41 - - 132
Net changes in working
capital and other 32 (56) (256) 154 (126)
-------- -------- --------- --------- --------
Net cash provided by
(used in) operating
activities 22 18 (24) (40) (24)
-------- -------- --------- --------- --------
Expenditures for property,
plant and equipment (14) (4) (22) - - (40)
Contributions and advances
to affiliates - - (30) (10) - - (40)
Distributions from affiliates
in excess of earnings - - - - 11 - - 11
-------- -------- --------- --------- --------
Net cash used in
investing activities (14) (34) (21) - - (69)
-------- -------- --------- --------- --------
Dividends paid (53) - - (40) 40 (53)
Repayments of long-term debt (5) - - - - - - (5)
Other (3) - - - - - - (3)
-------- -------- --------- --------- --------
Net cash used in
financing activities (61) - - (40) 40 (61)
-------- -------- --------- --------- --------
Effect of exchange rate
changes on cash - - (1) - - - - (1)
-------- -------- --------- --------- --------
Increase (decrease) in
cash and cash equivalents $ (53) $ (17) $ (85) $ - - $ (155)
======== ======== ========= ========= ========
20