FIRST QUARTER 2002
ANALYST CONFERENCE CALL
MAY 2, 2002
Slide 1 - LOGO
Introduction - Good morning and thank you for participating in Millennium
Chemicals analyst conference call and welcome to those participants on the
Internet. Today we will cover results for the first quarter and our outlook.
Speakers include Jack Lushefski, our SVP and Chief Financial Officer; and
myself, Mickey Foster, VP of Corporate and Investor Relations.
As we announced in the invitation to this conference call, you can view the
slides and listen to our presentation live by accessing our website
(www.millenniumchem.com) and clicking on the Investor Relations icon.
The slides available to our Internet participants are meant as an enhancement
tool and they contain information which is either in our press release or which
we will discuss during this presentation.
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Slide 2 - DISCLAIMER
Before we start, our lawyers asked me to preface with our safe harbor legal
statement: The statements made on this conference call relating to matters that
are not historical facts, are forward looking statements. Our forward-looking
statements are present expectations and actual events and results may differ
materially due to the impact of factors such as industry cyclicality, general
economic conditions, production capacity, competitive products and prices and
other risks and uncertainties detailed in the Company's SEC filings. Please note
we disclaim any obligation to update our forward-looking statements.
Jack will begin and cover the financials. Next, I will cover TiO[u]2, acetyls,
specialty chemicals and Equistar. Then we will be glad to answer questions.
Jack....
Thanks Mickey
I would now like to review some details of Millennium's reported results for the
first quarter and our financial position at the end of March 2002.
Slide 3 - (EBITDA)
Millennium reported consolidated pro forma EBITDA OF $34 million for the first
quarter of 2002 which was $43 million less than the $77 million reported for the
first quarter of 2001 and $3 million less than that reported for the fourth
quarter of 2001. EBITDA was equal to or lower than first quarter levels last
year for all business segments, including Equistar. Comparisons of first quarter
2002 EBITDA to fourth quarter 2001 levels were slightly favorable for all wholly
owned segments, but lower for our share of Equistar. For our wholly owned
business segments, in the aggregate, this was the first quarterly sequential
improvement in EBITDA since the last quarter of 2000. Mickey will discuss
individual business segment performance when I complete my comments.
Slide 4 - (Financial Summary)
Moving to Millennium's financial summary for the first quarter ... the Financial
Summary slide provides abbreviated Income Statements to arrive at normalized
earnings, which exclude certain unusual items.
o Operating income was $11 million, down considerably from the first quarter
of last year when $30 million was earned, but better than the fourth
quarter of 2001 when we broke even at the operating income line.
o First quarter net interest expense was $21 million, equal to the first
quarter of 2001 and down $1 million from the expense level of the fourth
quarter of 2001. Average net debt levels during the first quarter this year
were the same as average net debt levels during the first quarter last
year.
o Equistar's operations, on an after interest basis, generated a loss of $39
million for Millennium in the first quarter of 2002, compared to a loss of
$18 million in the first quarter of 2001 and $29 million for the fourth
quarter of last year.
o The net loss for the quarter was $31 million or 49 cents per share versus a
net loss of $7 million or 11 cents per share for the first quarter last
year.
o The net loss for the first quarter of 2002 on this slide excludes our
write-off of goodwill reported as the cumulative effect of an accounting
change.
o The net loss in quarter one last year of $7 million excludes reorganization
and plant closure charges recorded in the first quarter last year of $8
million, net of tax benefits.
Slide 5 - (Net Income and EPS)
Moving to slide 5 ... this slide provides a reconciliation from our reported net
loss to the normalized figures I provided and discussed on slide 4. You can see
that our goodwill write-off was the only unusual item in the first quarter this
year.
Slide 6 - (Net Debt)
Let's move to a discussion of our balance sheet and cash flow. Net debt at the
end of the quarter as shown on slide 6 is $1.12 billion, a balance that is $49
million higher than our net debt balance at beginning of the quarter. Equity has
been reduced during the quarter due to our net loss and the one-time write-off
of goodwill. Our net debt-to-total capital percentage is 67% at the end of the
quarter, up about 12 percentage points from the end of 2001 due primarily to the
change in accounting for goodwill.
We were in compliance with the covenants in our credit agreement at the end of
the first quarter.
Slide 7 - (Cash Flow)
Turning to our cash flow summary on slide 7 ... Cash used for capital spending
remained at a very low rate as we continue to defer all but the most critical or
short payback discretionary projects.
o Trade working capital, defined as accounts receivable plus inventories less
accounts payable, increased during the quarter and was a use of $55 million
in cash.
o Accounts receivable decreased during the quarter as we completed a European
accounts receivable securitization program near the end of the quarter
which provided $43 million used to repay borrowings under our revolving
credit facility. Absent that transaction, accounts receivable would have
increased by about $40 million as volumes improved in all businesses from
the very depressed sales levels at the end of last year.
o We were successful with our efforts to reduce inventories and that
reduction provided cash. Trade payables declined due to our inventory
reduction, low levels of capital spending and seasonal purchasing patterns.
o The use of cash for other assets and liabilities also relates to the timing
of payments for items such as insurance, payroll related costs and
materials.
o We did not receive a distribution from Equistar during the quarter and net
debt increased $49 million. Distributions from Equistar are not expected in
2002.
Slide 8 - (SD&A Costs)
Turning to slide 8 ... We are very pleased with our employees efforts to control
SD&A costs. Those costs in quarter one are 47 percent lower than the first
quarter of 2001. As you can see from the graph, our spending levels for the
first quarter of this year are considerably less than spending levels for the
two year history presented.
In closing ... With this challenging business environment persisting, our
employees are focusing on cost control and capital efficiency as a high
priority. All of our intense efforts will continue and are part of our business
plan for the remainder of 2002.
Now, I'll turn it over to Mickey who will discuss some details about performance
in our business segments and at Equistar.
Slide 9 - TiO[u]2 EBITDA
Thanks Jack. The Titanium Dioxide (TiO[u]2) segment reported first quarter
EBITDA of $30 million, compared to $49 million in the first quarter last
year and similar to the $28 million reported in the fourth quarter of 2001.
Slide 10 - GLOBAL INDEXED - PRICE AND VOLUME
In U.S. dollar terms, the worldwide average first quarter price (red line) was
down 16 percent from the same quarter last year and down 6 percent from last
year's fourth quarter. In local
currencies, average first quarter prices were 14 percent lower than last year's
first quarter and down 6 percent from the prior quarter. Price increases have
been announced by Millennium and most major producers effective March 1, 2002.
Millennium's global price increases, which range from 5 to 8 percent, were
announced in order to begin the restoration of margins that have become
unacceptably poor after more than a year of excessive price decreases in all
global market regions. Successful implementation of these increases is dependent
upon the continuation of the pattern of increases in customer demand experienced
in the first quarter. Contracts with Millennium's large-volume TiO[u]2 customers
include periods of price protection. Therefore, the benefits of such price
increases may not be fully realized by Millennium until the third quarter.
First quarter TiO[u]2 sales volume (yellow line) of 151,000 metric tons was down
3 percent from the first quarter of last year and up 15 percent from last year's
depressed fourth quarter levels. First quarter sales volumes declined 3 percent
from the first quarter last year primarily due to more selective sales to the
U.S. paper markets following the indefinite idling of the sulfate-process
manufacturing facility at Hawkins Point, Maryland at the end of the third
quarter last year. Volumes were up sequentially in the three months of the first
quarter of 2002 partially due to customer restocking and buying ahead of price
increases. In addition, April sales volume continued strong with liquidation of
inventories and prices gradually increasing.
Slide 11 - TiO[u]2 OPERATING RATES
The first quarter's TiO[u]2 operating rate was 80 percent of annual nameplate
capacity of 690,000 metric tons compared to 88 percent of annual nameplate
capacity of 712,000 metric tons in last year's first quarter, and 82 percent of
annual nameplate capacity of 690,000 metric tons in last year's fourth quarter.
Slide 12 - TiO[u]2 MANUFACTURING COSTS
Manufacturing cost per ton in the first quarter of 2002 was down 10 percent from
last year's first quarter and down 2 percent from last year's fourth quarter.
Slide 13 - TiO[u]2 OUTLOOK
Earnings should improve slightly in the second quarter over the first quarter as
sales volume should increase seasonally due to the North American and European
coatings season and global TiO[u]2 price increases should be gradually realized.
Slide 14 - ACETYLS HIGHLIGHTS
The Acetyls segment reported first quarter EBITDA of ($4) million compared to $2
million in the first quarter last year and ($7) million in last year's fourth
quarter. The first
quarter results were negatively impacted by $7 million due to unfavorable
fixed-price natural gas purchase positions. These positions expired in March
of 2002.
VAM prices in the first quarter were down 35 percent compared to the first
quarter last year and down 8 percent from last year's fourth quarter due to
cost-based price reductions and weak global economic conditions. Acetic acid
prices in the first quarter decreased 31 percent from the comparable period last
year and were down 8 percent from last year's fourth quarter for similar
reasons.
Slide 15 - ACETYLS OUTLOOK
Acetyls profitability should improve in the second quarter over the first
quarter with the absence of higher cost fixed-price natural gas purchase
positions and expected moderate improvement in sales volume.
In mid-March, all major acetyls producers announced price increases for both VAM
and acetic acid effective April 1, 2002, citing rising feedstock costs and
unacceptable margins. In North America, price increases of 2[c] per pound for
VAM and acetic acid were announced. In addition to the April 1 price increases,
yesterday Acetyls announced another price increase for VAM of 60 Euros per
metric ton in Europe, $50 per metric ton in Asia and in Latin America effective
May 1. In Europe, 50 Euros per metric ton for VAM, and in Asia $50 per metric
ton for VAM were announced. In addition to the April 1 price increases,
yesterday acetyls announced another price increase for VAM of 60 Euros in
Europe, $50 in Asia and in Latin America effective May 1.
Slide 16 - SPECIALTY CHEMICALS HIGHLIGHTS
The Specialty Chemicals segment reported first quarter EBITDA of $6 million,
which was flat with the first quarter of last year and an improvement over the
$3 million reported in last year's fourth quarter. Sales volume was down 22
percent from last year's first quarter and up seasonally 4 percent from last
year's fourth quarter.
Average selling prices increased 19 percent compared to last year's first
quarter and increased 18 percent from last year's fourth quarter. The improved
overall product mix in the first quarter of 2002 contributed to the higher
average sales price. The price of crude sulfate turpentine, the key raw
material, remained unchanged from last year's first quarter and fourth quarter.
Slide 17 - SPECIALTY CHEMICALS OUTLOOK
Second quarter of 2002 results should be comparable to the first quarter of
2002. The market for fragrance chemicals has improved, but remains competitive.
New product development efforts continue, with a new coolant and a new flavor
chemical launched in the first quarter.
Slide 18 - EQUISTAR HIGHLIGHTS
Millennium's 29.5 percent stake in Equistar generated a first quarter
post-interest equity loss of ($39) million compared to ($24) million of equity
loss in the first quarter of last year and a ($29) million equity loss in last
year's fourth quarter.
Compared to the fourth quarter of 2001, sales volume for olefins increased 7
percent in the first quarter of 2002 due to improved demand following aggressive
industry inventory reductions that characterized the fourth quarter of 2001.
However, the benefits of increased demand were offset by a significant reduction
in ethylene margins. During the first quarter of 2002, ethylene prices declined
in an environment of rising feedstock and energy costs. In addition, certain
fixed-price natural gas and natural gas liquid supply contracts, which were
entered into in early 2001, resulted in costs that were approximately $33
million higher than market-based contracts would have been for the same period.
Compared to the fourth quarter of 2001, the polymers business benefited from
improved margins, as falling ethylene prices more than offset lower polyethylene
prices. The polymers business also benefited from volume improvements of 3
percent in the quarter.
Slide 19 - EQUISTAR OUTLOOK
Most of the fixed price natural gas contracts expired at the end of the first
quarter of 2002. Prices for most of Equistar's products are expected to improve
in the second quarter, but feedstock costs remain volatile. April orders suggest
US demand is running ahead of the historical seasonal increase usually
experienced for these markets. It is
too early to determine whether the increased volume is resulting from
fundamental demand or inventory re-building ahead of market price increases.
Slide 20 - LOGO
Thanks, and now I'd like to open it up for questions and answers.
If you were unable to hear the entire call playback will be available until
this Friday, May 3, by calling 706-645-9291, reservation #3782913 and you
can access the speech and slides on the Internet at
http://www.millenniumchem.com. Thanks for listening, and if you have
further questions please call.