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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended March 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 333-17961
ARISTECH CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 25-1534498
(State of Incorporation) (I.R.S. Employer Identification Number)
600 Grant Street, Pittsburgh, Pennsylvania 15219-2704
(Address of principal executive offices)
Tel. No. (412) 433-2747
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES[X] NO [ ]
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 1997
----- -----------------------------
Common shares, $.01 stated value 14,908 shares
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ARISTECH CHEMICAL CORPORATION
SEC FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Income 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 4
Selected Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Income
(Dollars in Millions)
Three Months Ended
March 31,
----------------------
1997 1996
------ ------
Sales $226.3 $242.0
Operating Costs:
Cost of sales 192.8 182.4
Selling, general and administrative expenses 13.0 11.4
Depreciation and amortization 12.1 11.8
------ ------
Total Operating Costs 217.9 205.6
------ ------
Operating Income 8.4 36.4
Loss on Disposal of Assets -- (3.9)
Other Expense (.9) (.2)
Interest Income -- .4
Interest Expense (5.6) (11.0)
------ ------
Income Before Provision for Taxes on Income 1.9 21.7
Provision for Taxes on Income .9 9.2
------ ------
Net Income $ 1.0 $ 12.5
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The accompanying notes are an integral part of these financial statements.
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ARISTECH CHEMICAL CORPORATION
Consolidated Balance Sheets
(Dollars in Millions)
March 31, December 31,
1997 1996
--------- ------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and equivalents $ 1.2 $ 1.9
Receivables (less allowance for doubtful accounts
of $.6 for March 31, 1997 and December 31, 1996) 119.3 110.2
Inventories 106.1 113.1
Other current assets 1.9 2.1
------- -------
Total Current Assets 228.5 227.3
Property, plant and equipment, net of accumulated
depreciation 606.1 598.0
Excess cost over assets acquired 171.3 172.6
Deferred income taxes 1.5 1.5
Other assets 13.7 14.4
------- -------
Total Assets $1021.1 $1013.8
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 73.0 $ 69.0
Payroll and benefits payable 10.6 12.0
Accrued taxes 9.5 13.1
Deferred income taxes .7 .7
Short-term borrowings 49.0 40.4
Long-term debt due within one year .1 .1
Other current liabilities 18.0 17.2
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Total Current Liabilities 160.9 152.5
Long-term debt-related parties 168.3 160.3
Long-term debt-other 149.6 149.6
Deferred income taxes 164.7 164.7
Other liabilities 31.2 33.1
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Total Liabilities 674.7 660.2
Common stock ($.01 par value, 20,000 shares authorized,
14,908 shares issued at March 31, 1997 and December 31, 1996) -- --
Additional paid-in capital 378.8 378.8
Retained deficit (32.4) (25.2)
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Total Stockholders' Equity 346.4 353.6
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Total Liabilities and Stockholders' Equity $1021.1 $1013.8
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The accompanying notes are an integral part of these financial statements.
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ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Cash Flows
(Dollars in Millions)
(UNAUDITED)
Three Months Ended
March 31,
----------------------
1997 1996
------ ------
Cash Flows from Operating Activities:
Net Income $ 1.0 $ 12.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 10.8 10.5
Amortization of excess cost over assets acquired 1.3 1.3
Loss on disposal of assets -- 3.9
Increase in accounts receivable (9.1) (12.8)
Decrease in inventories 7.0 1.3
Decrease in accounts payable
and other current liabilities (8.5) (7.8)
All other (.6) 1.7
------- ------
Net Cash Provided by Operating Activities 1.9 10.6
Cash Flows From Investing Activities:
Capital expenditures (19.2) (10.6)
Maturity of short-term investment -- 17.0
------- ------
Net Cash Provided by (Used in) Investing Activities (19.2) 6.4
Cash Flows From Financing Activities:
Short-term debt increase 8.6 5.3
Repayment of long-term debt (100.0) (38.0)
Proceeds from issuance of long-term debt 108.0 17.0
Dividends -- (1.3)
------- ------
Net Cash Provided by (Used in) Financing Activities 16.6 (17.0)
Net Decrease in Cash and Equivalents (.7) --
Cash and Equivalents, Beginning of Period 1.9 .4
------- ------
Cash and Equivalents, End of Period $ 1.2 $ .4
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The accompanying notes are an integral part of these financial statements.
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ARISTECH CHEMICAL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Aristech
Chemical Corporation (the "Company") and its wholly and majority owned
subsidiaries. Investments in other entities over which the Company
exercises significant influence are carried on the equity basis. All
intercompany accounts and transactions have been eliminated.
In 1997 the Company adopted Statement of Position ("SOP") 96-1,
"Environmental Remediation Liabilities". The adoption of SOP 96-1 did
not have a material effect on the consolidated financial statements.
In the opinion of management, the unaudited financial information
reflects all adjustments necessary to fairly state the results of
operations and the changes in financial position for such interim
periods. Such adjustments are of a normal recurring nature.
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
2. NATURE OF OPERATIONS
The Company's operations are conducted in one business segment, the
production and marketing of chemical and polymer products. The major
chemical products include phenol, acetone, bisphenol-A, aniline,
phthalic anhydride, 2-ethylhexanol and plasticizers. Major polymer
products include polypropylene and acrylic sheet. Approximately 80% of
the total sales are of products which are considered commodity
chemicals. The Company's products are generally sold for further
processing by manufacturers of automotive components, construction
materials and consumer products.
The Company's product line provides it with a diverse revenue base.
The Company does not derive significant revenue from any single
customer. International sales are made primarily to Japan, Canada and
Taiwan.
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ARISTECH CHEMICAL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. INVENTORIES
Inventories consist of the following at March 31, 1997 and
December 31, 1996:
(In millions) 1997 1996
------ ------
Raw materials $ 25.6 $ 24.8
Finished products 62.1 70.8
Supplies and sundry items 18.4 17.5
------ ------
Total Inventory $106.1 $113.1
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4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at March 31,
1997 and December 31, 1996:
(In millions) 1997 1996
------ -----
Land $ 13.8 $ 13.8
Buildings 37.2 36.8
Machinery and equipment 811.4 793.0
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Total property, plant and equipment 862.4 843.6
Less accumulated depreciation 256.3 245.6
------ ------
Net property, plant and equipment $606.1 $598.0
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5. DEBT
Interest March 31, December 31,
(In millions) Maturity Rates 1997 1996
-------- --------- ------ -----
Term Loan - MC 2002 Variable $ -- $100.0
Revolving Loan - MIC 2002 Variable 156.0 48.0
6 7/8% Notes 2006 6.875% 148.9 148.9
Note payable to Avonite
stockholder 2006 Variable 11.2 11.2
Priority Promissory Note 2006 Variable 1.1 1.1
Industrial Revenue Bond 2008 Variable .6 .6
Capital lease obligations 1997-1999 .2 .2
------ ------
318.0 310.0
Less amount due within one year .1 .1
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Total $317.9 $309.9
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ARISTECH CHEMICAL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. DEBT (CONTINUED)
On March 3, 1997, the $100.0 million Mitsubishi Corporation (MC) Term
Loan was prepaid in its entirety using proceeds from the Mitsubishi
International Corporation (MIC) Revolving Loan by increasing the
commitment amount of the facility to $250.0 million. The guarantee fee
payable to MC has been reduced to .1875% per annum for guaranteed
loans effective March 3, 1997, and thereafter.
6. COMMITMENTS AND CONTINGENCIES
Contract commitments for capital expenditures for property, plant and
equipment totaled $16.8 million at March 31, 1997 and December 31,
1996.
As of March 31, 1997 and December 31, 1996, the Company had
outstanding irrevocable standby letters of credit in the amount of
$15.2 million, primarily in connection with environmental matters.
The Company is a defendant in a patent infringement suit filed by
Phillips Petroleum Company ("Phillips") in 1987, in the United States
District Court for the Southern District of Texas, captioned Phillips
Petroleum Company v. Aristech Chemical Corporation, Civil Action No.
H87-3445. The complaint alleges infringement of two patents related to
the production of polypropylene, which have since expired. The Company
and Phillips each filed motions for summary judgment which were
referred to a Special Master. The Special Master issued a
recommendation to find in the Company's favor, and Phillips filed a
motion to reject the Special Master's recommendation. A hearing on
this motion was held on October 21, 1996. On November 19, 1996, the
District Court granted the Company's motion for summary judgment and
entered an order to that effect on November 19, 1996. A final judgment
was entered on December 23, 1996. Phillips has filed a notice of
appeal.
The Company is subject to pervasive environmental laws and regulations
concerning the production, handling, storage, transportation, emission
and disposal of waste materials and is also subject to other federal
and state laws and regulations regarding environmental, health and
safety matters. These laws and regulations are constantly evolving,
and it is impossible to predict accurately the effect these laws and
regulations will have on the Company in the future.
The Company is also the subject of, or party to, a number of other
pending or threatened legal actions involving a variety of matters. In
the opinion of management, any ultimate liability arising from these
contingencies, to the extent not otherwise provided for, should not
have a material adverse effect on the consolidated financial position,
results of operations, or cash flows of the Company.
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Item 2.
ARISTECH CHEMICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in connection with the information contained in
the Financial Statements and Selected Notes to Financial Statements. The
following discussion may contain forward-looking terms such as "believes,"
"expects," "may," "will," "should," "projected," or "anticipates," or the
negative of these terms. No assurance can be given that future results covered
by such forward-looking statements will be achieved.
RESULTS OF OPERATIONS
Operating income for the first three months of 1997 was $8.4 million on sales
of $226.3 million compared with operating income of $36.4 million on sales of
$242.0 million in the first three months of 1996. The reduction in operating
income reflects reduced sales volumes and margins in most of the Company's
product lines and more extensive planned and unplanned maintenance turnaround
activity than in the same period in the prior year. The lower margins in the
first three months of 1997 are principally due to rising feedstock costs
outpacing increases in selling prices. Lower operating rates at the Company's
facilities due to unplanned maintenance, and higher levels of planned
maintenance activity, also adversely affected operating income. In addition,
the Company's operating income was reduced due to the sale of the Company's
coal chemicals business in March 1996. This business contributed $2.6 million
in operating income in the first three months of 1996. On average, selling
prices for the Company's products increased 6.1%. Feedstock costs, on average,
increased 31.8%. Sales volumes were lower by 6.5% in the first three months of
1997 as compared to the first three months of 1996. Sales volumes for chemical
products and polymer products were lower by 7.3% and 5.2%, respectively.
Selling, general and administrative expenses increased $1.6 million or 14.0% in
the first three months of 1997 compared to the same period in 1996 primarily
due to the consolidation of expenses relating to Avonite, Inc. Selling, general
and administrative expenses for Avonite, Inc. were $1.4 million in the first
three months of 1997. Avonite, Inc. became a consolidated subsidiary of the
Company on July 1, 1996.
Interest expense was $5.6 million for the first three months of 1997 compared
to $11.0 million for the first three months of 1996. The $5.4 million decrease
in interest expense resulted primarily from the conversion of $179.6 million in
principal amount of the Company's Payment-in-Kind Debentures to Common Stock on
September 30, 1996.
The provision for estimated taxes in the first three months of 1997 was $0.9
million, compared with a provision of $9.2 million in the first three months of
1996.
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ARISTECH CHEMICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company's net income was $1.0 million in the first three months of 1997, a
decrease of $11.5 million compared with net income of $12.5 million in the same
period in 1996.
FINANCIAL CONDITION
Liquidity
Total working capital was $67.6 million at the end of the first quarter of 1997
with a ratio of current assets to current liabilities of 1.4 to 1. Total
working capital was $74.8 million at the end of 1996 with a ratio of current
assets to current liabilities of 1.5 to 1. The decrease in the Company's
working capital balance is principally due to the declaration of a $8.3 million
common stock dividend by the Company's Board of Directors on February 26, 1997.
Cash from operations totaled $1.9 million in the first three months of 1997
compared to $10.6 million in the first three months of 1996. First quarter 1997
cash generation was not sufficient to satisfy capital expenditure needs. In the
first quarter of 1997, the Company supplemented its cash from operations with
cash available under its short term and revolving credit agreements in order to
meet its current cash requirements.
The dividend declared was for $558 per share of common stock and was paid on
April 24, 1997 to holders of record as of February 26, 1997.
On March 3, 1997, the $100.0 million MC Term Loan was prepaid in its entirety
using proceeds from the MIC Revolving Loan by increasing the commitment amount
of the facility to $250.0 million. The previous commitment amount of the MIC
Revolving Loan was $150.0 million. Concurrently, the guarantee fee payable to
MC was reduced .1125% to .1875% per annum for guaranteed loans effective March
3, 1997, and thereafter.
The Company believes that cash from operations, supplemented as necessary with
cash expected to be available under the Company's revolving credit agreement
and working capital facility, will provide it with sufficient resources to meet
present and foreseeable future working capital and cash needs.
Capital Expenditures
Fixed asset expenditures during the first quarter of 1997 were $19.2 million
compared to $10.6 million in the same quarter last year. Significant project
expenditures in the first quarter of 1997 included the phthalic anhydride
expansion and equipment upgrades at Pasadena, Texas and installation of bulk
raw material handling facilities for the acrylics unit at Florence, Kentucky.
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ARISTECH CHEMICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Contract commitments for property, plant and equipment as of March 31, 1997 and
December 31, 1996 were $16.8 million. Projects at the Company's Pasadena, Texas
facility account for 32.1% of the outstanding commitments including the
phthalic anhydride expansion and related equipment upgrades and catalyst
change. Large commitments also exist for added production facilities at the
Company's Haverhill, Ohio and Neal, West Virginia facilities.
Cash available from operations, together with funds available under the
Company's revolving credit agreement, will be utilized to fund the Company's
current year capital spending program.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On February 26, 1997, the annual meeting of stockholders of the
Company was held at which the following directors were elected to the
Board of Directors to serve until the 1998 annual meeting of
stockholders or until their successors have been elected and
qualified: Jiro Kamimura, Charles W. Hamilton, Michael J. Egan, Hajime
Koga, Yasuo Sam Sone, Muneo Suzuki, Takayori Tsuboi, Yoshizo Shimizu,
and Masatake Bando. All of the directors were elected by unanimous
vote of the stockholders.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Aristech Chemical Corporation
By /s/ Michael J. Egan
-----------------------------
Michael J. Egan
Senior Vice President &
Chief Financial Officer
April 29, 1997
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