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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 September 30, 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 November 10, 1997
----- --------------------------------
Common shares, $.01 stated value 14,908 shares
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ARISTECH CHEMICAL CORPORATION
SEC FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PAGE
----
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 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature 12
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Income (Unaudited)
(Dollars in Millions)
- ---------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
Sales $224.9 $231.9 $683.3 $691.6
Operating Costs:
Cost of Sales 182.0 181.7 565.0 536.0
Selling, general and administrative expenses 12.5 13.6 39.1 35.2
Depreciation and amortization 12.3 12.0 36.5 35.6
------ ------ ------ ------
Total Operating Costs 206.8 207.3 640.6 606.8
------ ------ ------ ------
Operating Income 18.1 24.6 42.7 84.8
Loss on Disposal of Assets (9.1) (2.3) (9.1) (8.8)
Other Expense (0.2) (0.2) (1.2) (0.7)
Interest Income 0.2 - 0.2 0.7
Interest Expense (6.1) (10.2) (17.8) (32.3)
------ ------ ------ ------
Income Before Provision for Taxes on Income 2.9 11.9 14.8 43.7
Provision for Taxes on Income 2.4 7.4 7.8 19.7
------ ------ ------ ------
Net Income $ 0.5 $ 4.5 $ 7.0 $ 24.0
====== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
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ARISTECH CHEMICAL CORPORATION
Consolidated Balance Sheets
(Dollars in Millions)
- -----------------------------
September 30, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
Current Assets:
Cash and equivalents $ 4.6 $ 1.9
Receivables (less allowance for doubtful accounts
of $.5 for September 30, 1997 and $.6 for December 31, 1996) 128.3 110.2
Inventories 121.3 113.1
Other current assets 1.2 2.1
--------- ---------
Total Current Assets 255.4 227.3
Property, plant and equipment, net of accumulated
depreciation 614.2 598.0
Investments and long-term receivables 6.7 0.2
Excess cost over assets acquired 168.7 172.6
Deferred income taxes 1.5 1.5
Other assets 15.9 14.2
--------- ---------
Total Assets $ 1,062.4 $ 1,013.8
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 82.5 $ 69.0
Payroll and benefits payable 10.7 12.0
Accrued taxes 7.5 13.1
Deferred income taxes 0.7 0.7
Short-term borrowings 49.0 40.4
Long-term debt due within one year 0.1 0.1
Other current liabilities 21.6 17.2
--------- ---------
Total Current Liabilities 172.1 152.5
Long-term debt-related parties 189.3 160.3
Long-term debt-other 149.6 149.6
Deferred income taxes 163.8 164.7
Other liabilities 35.3 33.1
--------- ---------
Total Liabilities 710.1 660.2
Common stock ($.01 par value, 20,000 shares authorized,
14,908 shares issued at September 30, 1997 and December 31, 1996) ---- ----
Additional paid-in capital 378.8 378.8
Retained deficit (26.5) (25.2)
--------- ---------
Total Stockholders' Equity 352.3 353.6
--------- ---------
Total Liabilities and Stockholders' Equity $ 1,062.4 $ 1,013.8
========= =========
The accompanying notes are an integral part of these financial statements.
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ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Millions)
- -------------------------------------------------
Nine Months Ended
September,
----------
1997 1996
---- ----
Cash Flows from Operating Activities:
Net Income $ 7.0 $ 24.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 32.6 31.7
Amortization of excess cost over assets acquired 3.9 3.9
Deferred income taxes (0.9) 1.3
Loss on disposal of assets 9.1 8.8
Increase in accounts receivable (18.1) (2.9)
Decrease (increase) in inventories (8.2) 1.4
Increase (decrease) in accounts payable
and other current liabilities 11.0 (7.4)
All other 1.5 1.5
------- ------
Net Cash Provided by Operating Activities 37.9 62.3
Cash Flows From Investing Activities:
Capital expenditures (58.0) (28.6)
Cash received on disposal of assets ---- 39.0
Long-term receivable (6.5) ----
Maturity of short-term investment ---- 17.0
Cash acquired, purchase of Avonite ---- 0.7
------- ------
Net Cash (Used in) Provided by Investing Activities (64.5) 28.1
Cash Flows From Financing Activities:
Short-term debt increase (decrease) 8.6 (3.7)
Repayment of long-term debt (141.0) (103.0)
Proceeds from issuance of long-term debt 170.0 72.0
Redemption of preferred stock ---- (6.2)
Redemption of PIK debentures ---- (24.5)
Dividends (8.3) (24.2)
------- ------
Net Cash Provided by (Used in) Financing Activities 29.3 (89.6)
Net Increase in Cash and Equivalents 2.7 0.8
Cash and Equivalents, Beginning of Period 1.9 0.4
------- ------
Cash and Equivalents, End of Period $ 4.6 $ 1.2
======= ======
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 June 1997 Statement of Financial Accounting Standards ("SFAS") No.
130 "Reporting Comprehensive Income" was issued. SFAS 130 is effective
for financial statements issued for periods beginning after December
15, 1997. The adoption of SFAS 130 will have no impact on the
Company's financial position or results of operations.
In June 1997 SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information" was issued. SFAS 131 is effective for
financial statements issued for periods beginning after December 15,
1997. The Company has not yet determined the effect of this standard.
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
period. 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 plasticizer. Major polymer
products include polypropylene and acrylic sheet. Approximately 85% 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 at September 30, 1997 and December 31, 1996 consist of the
following categories:
1997 1996
------ -----
(In millions)
Raw materials $ 35.3 $ 24.8
Finished products 66.3 70.8
Supplies and sundry items 19.7 17.5
-------- --------
Total Inventory $ 121.3 $ 113.1
======== ========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at September
30, 1997 and December 31, 1996:
(In millions) 1997 1996
------ -----
Land $ 13.8 $ 13.8
Buildings 38.4 36.8
Machinery and equipment 834.7 793.0
------- --------
Total property, plant and equipment 886.9 843.6
Less accumulated depreciation 272.7 245.6
------- --------
Net property, plant and equipment $ 614.2 $ 598.0
======== ========
5. DEBT
Interest September 30, December 31,
(In millions) Maturity Rates 1997 1996
-------- ------ ------ -----
Term Loan - MC 2002 Variable $ ---- $ 100.0
Revolving Loan - MIC 2002 Variable 177.0 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 0.6 0.6
Capital lease obligations 1997-1999 0.2 0.2
-------- --------
339.0 310.0
Less amount due within one year 0.1 0 .1
-------- --------
Total
$ 338.9 $ 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 $143.5 million at September 30, 1997 and $16.8
million at December 31, 1996.
As of 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 outstanding irrevocable
standby letters of credit have been reduced to $5.6 million as of
September 30, 1997.
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 judgement 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 13, 1996, the
District Court granted the Company's motion for summary judgement and
entered an order to that effect on November 19, 1996. A final
judgement was entered on December 23, 1996. Phillips appealed the
judgement and the appellate process is ongoing.
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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7. SUBSEQUENT EVENTS
On October 1, 1997, the Company formed a joint venture with Mitsubishi
Rayon Company, Ltd. to manufacture and sell acrylic sheet and
decorative surface products. The Company's acrylic sheet division,
headquarted in Florence, Kentucky, was reorganized as a limited
liability company that will conduct business under the name of
Aristech Acrylics LLC (the "LLC"). The Company holds a 90% interest in
the LLC.
On October 6, 1997, the Company entered into a contractual agreement
with JE Merit Constructors, Inc. for the engineering, procurement, and
construction of a 550 million pound per year polypropylene production
line at the Company's LaPorte, Texas site.
On October 31, 1997, the Company entered into a contractual agreement
with Morrison Knudsen Corporation for certain procurement for and
construction of a third phenol line at the Company's Haverhill, Ohio
site (the "Third Line"). The agreement is effective as of August 4,
1997.
On October 31, 1997, the Company entered into a contractual agreement
with The M.W. Kellogg Company for the engineering and certain
procurement for the Third Line. The agreement is effective as of
August 18,1997.
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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 three month period ending September 30, 1997 was $18.1
million on sales of $224.9 million compared with operating income of $24.6
million on sales of $231.9 million for the three month period ending September
30, 1996. Despite a favorable effect from slightly higher sales volumes,
operating income was lower primarily due to lower average net selling prices.
On average, selling prices for the Company's products decreased 3.5%. Selling
prices for chemical and polymers products were lower by 1.4% and 7.1%,
respectively. Sales volumes were higher by 0.3% in the three month period
ending September 30, 1997 as compared to the same period in 1996. Sales volumes
for chemical products were lower by 0.8% and sales volumes for polymer products
were higher by 2.4% in the three month period ending September 30, 1997 as
compared to the same period in 1996.
Selling, general and administrative expenses decreased $1.1 million or 8.1% in
the three month period ending September 30, 1997 compared to the same period in
1996 primarily due to the suspension of accruals relating to employee
compensation programs which are tied to the Company's profitability.
Loss on disposal of assets was $9.1 million in the three month period ending
September 30, 1997 compared to $2.3 million for the same period in 1996. The
increase is due to the writeoff of deferred engineering costs associated with
the Company's consideration of a cumene/phenol complex at Garyville, Louisiana.
Interest expense was $6.1 million for the three month period ending September
30, 1997 compared to $10.2 million for the same period in 1996. The $4.1
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 for the three month period ending September
30, 1997 was $2.4 million, compared with a provision for estimated taxes of
$7.4 million for the same period in 1996. The Company's effective tax rate has
increased to 83% in 1997 from 62% in 1996 as a result of the amortization of
non-deductible goodwill and lower pre-tax income.
The Company's net income was $0.5 million for the three month period ending
September 30, 1997, a decrease of $4.0 million compared with net income of $4.5
million in the same period in 1996.
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ARISTECH CHEMICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Operating income for the first nine months of 1997 was $42.7 million on sales
of $683.3 million compared with operating income of $84.8 million on sales of
$691.6 million in the first nine months of 1996. The reduction in operating
income reflects reduced margins in most of the Company's product lines as
compared to the same period in the prior year.
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 nine months of 1996. While average net
selling prices for the Company's products increased 1.4%, feedstock costs and
conversion costs increased 8.2% and 4.8%, respectively. Sales volumes were
lower by 1.6% in the first nine months of 1997 as compared to the first nine
months of 1996. Sales volumes for chemical products were lower by 2.7%. Sales
volumes for polymers products were higher by 0.3%.
Selling, general and administrative expenses increased $3.9 million or 11.1% in
the first nine 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 $4.3 million in the first nine
months of 1997 as compared to $1.3 million in the first nine months of 1996.
Avonite, Inc. became a consolidated subsidiary of the Company on July 1, 1996.
Interest expense was $17.8 million for the first nine months of 1997 compared
to $32.3 million for the first nine months of 1996. The $14.5 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 nine months of 1997 was $7.8
million, compared with a provision of $19.7 million in the first nine months of
1996. The Company's effective tax rate has increased to 53% in 1997 from 45% in
1996 as a result of the amortization of non-deductible goodwill and lower
pre-tax income.
The Company's net income was $7.0 million in the first nine months of 1997, a
decrease of $17.0 million compared with net income of $24.0 million in the same
period in 1996.
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ARISTECH CHEMICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION
Liquidity
- ---------
Total working capital was $83.3 million at the end of the third quarter of 1997
with a ratio of current assets to current liabilities of 1.5 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 increase in the Company's
working capital balance is principally due to an increase in trade accounts
receivable.
Cash from operations totaled $37.9 million in the nine month period ending
September 30, 1997 compared to $62.3 million in the nine month period ending
September 30, 1996. Cash generation during the first nine months of 1997 was
not sufficient to satisfy capital expenditure needs. In the first nine months
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.
A dividend was declared for $558 per share of common stock and was paid on
April 24, 1997 to holders of record as of February 26, 1997. The total amount
of dividends was $8.3 million.
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 available under the Company's revolving credit agreement, working capital
facility, and other third-party financings, will provide it with sufficient
resources to meet present and foreseeable future working capital and cash
needs.
Capital Expenditures
- --------------------
Fixed asset expenditures during the three month period ending September 30,
1997 were $18.1 million resulting in year-to-date 1997 fixed asset expenditures
of $58.0 million. This compared to $8.9 million for the third quarter 1996 and
year-to-date 1996 expenditures of $28.6 million. The current year expenditures
primarily reflect spending for the incremental capacity expansion at Haverhill,
Ohio for phenol and related products, 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 September 30, 1997
and December 31, 1996 were $143.5 million and $16.8 million, respectively.
Projects at the Company's Haverhill, Ohio facility account for 91.9% of the
outstanding commitments including expansion and construction of facilities for
production of phenol and related products and related equipment upgrades. Large
commitments also exist for equipment upgrades at the Company's Pasadena, Texas
facility and for equipment to be installed at the Company's new polypropylene
technical center in Pittsburgh, Pennsylvania.
On October 31, 1997, the Company entered into a contractual agreement with
Morrison Knudsen Corporation for certain procurement for and construction of a
third phenol line at the Company's Haverhill, Ohio site (the "Third Line"). The
agreement is effective as of August 4, 1997.
On October 31, 1997, the Company entered into a contractual agreement with The
M. W. Kellogg Company for the engineering and certain procurement for the Third
Line. The agreement is effective as of August 18, 1997.
The Company believes that cash from operations, supplemented as necessary with
cash available under the Company's revolving credit agreement, working capital
facility, and other third-party financings, will provide it with sufficient
resources to fund the Company's current and future years capital spending
program.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
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. Prendergast
----------------------------
Michael J. Prendergast
Acting Chief Financial Officer
November 10, 1997
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