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EXHIBIT 99.2
PRICEWATERHOUSECOOPERS [LOGO]
MILLENNIUM
CONTRIBUTED BUSINESS
STATEMENTS OF INCOME AND CASH FLOWS
FOR THE ELEVEN MONTHS ENDED
NOVEMBER 30, 1997
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PRICEWATERHOUSECOOPERS [LOGO]
Report of Independent Accountants
July 9, 1998
In our opinion, the accompanying statements of income and cash flows present
fairly, in all material respects, the financial results of the Millennium
Contributed Business for the eleven months ended November 30, 1997, in
conformity with generally accepted accounting principles. The statements of
income and cash flows are the responsibility of the Company's management; our
responsibility is to express an opinion on these statements of income and cash
flows based on our audit. We conducted our audit in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of income and cash
flows are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the statements of
income and cash flows, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall presentation. We
believe that our audit of the statements of income and cash flows provides a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
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MILLENNIUM CONTRIBUTED BUSINESS
STATEMENT OF INCOME
FOR THE ELEVEN MONTH PERIOD ENDED NOVEMBER 30, 1997
(AMOUNTS IN THOUSANDS)
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NOVEMBER 30,
1997
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Net sales $ 1,785,620
Operating costs and expenses:
Cost of sales 1,341,115
Selling, general and administrative expenses 135,917
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Operating income 308,588
Other income (expense):
Interest income 219
Interest expense (65,732)
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Income before taxes 243,075
Provision for income taxes 96,422
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Net income $ 146,653
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The accompanying notes are an integral part of these financial statements.
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MILLENNIUM CONTRIBUTED BUSINESS
STATEMENT OF CASH FLOWS
FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1997
(AMOUNTS IN THOUSANDS)
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NOVEMBER 30,
1997
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Cash flow from operating activities:
Net income $ 146,653
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 70,990
Amortization of Goodwill 54,431
Changes in assets and liabilities:
Accounts receivable 230,560
Inventories 13,171
Accounts payable (53,000)
Accrued expenses (32,927)
Other 2,826
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Net cash provided by operating activities 432,704
Cash flows from investing activities:
Capital expenditures (41,245)
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Net cash used in investing activities (41,245)
Cash flows from financing activities:
Net transactions with parent (386,459)
Repayment of long-term debt (5,000)
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Net cash provided by (used in)
financing activities (391,459)
Net (decrease) increase in cash and cash equivalents --
Cash and cash equivalents at beginning of period --
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Cash and cash equivalents at end of period $ --
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The accompanying notes are an integral part of these financial statements.
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MILLENNIUM CONTRIBUTED BUSINESS
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
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NOTE 1 -- DESCRIPTION OF THE CONTRIBUTED BUSINESS AND OPERATIONS
Pursuant to a partnership agreement (the "Partnership Agreement"), Millennium
Chemicals Inc. ("Millennium") and Lyondell Petrochemical Company (Lyondell")
formed Equistar Chemicals, LP ("Equistar" or the "Partnership"), a Delaware
limited partnership, which commenced operations on December 1, 1997. Equistar is
57% owned by Lyondell and 43% owned by Millennium. The Lyondell interest is
owned through two wholly-owned subsidiaries, Lyondell Petrochemical G.P. Inc.
("Lyondell GP") and Lyondell Petrochemical L.P. Inc. ("Lyondell LP"). Millennium
also owns its interest in the Partnership through two wholly-owned subsidiaries,
Millennium Petrochemicals GP LLC ("Millennium GP") and Millennium Petrochemicals
LP LLC ("Millennium LP").
The Partnership owns and operates the petrochemical and polymer businesses
contributed by Millennium and Lyondell (the "Contributed Business"). The assets
of the Partnership consist of 15 manufacturing facilities on the U.S. Gulf Coast
and in the U.S. Midwest. The petrochemical segment produces products including
ethylene, propylene, ethyl alcohol, butadiene, aromatics and methyl tertiary
butyl ether ("MTBE"). These products are used primarily in the production of
other chemicals and products, including polymers, for sales to customers
throughout the U.S. The petrochemicals segment also includes sales of methanol
produced by Lyondell Methanol LP ("Lyondell Methanol"), which is owned 75% by
Lyondell and is operated by the Partnership. The polymers segment produces
products that include polyethylene (high-density, low-density and linear
low-density), and polypropylene, which are used in the production of a wide
variety of consumer and industrial products.
On March 20, 1998 Equistar announced Occidental Petroleum Corporation would be
joining the Partnership. The ownership percentages of Equistar will now be
Lyondell (41%), Millennium (29.5%) and Occidental (29.5%).
Millennium contributed to the Partnership substantially all of the net assets
and operations comprising its petrochemicals and polymers segments. Millennium
retained $250,000 of the accounts receivable of the Contributed Business.
The accompanying financial statements include the results of operations and cash
flows, for the eleven months ended November 30, 1997, of the petrochemicals and
polymers businesses currently owned by Millennium that were contributed to the
Partnership ("Contributed Business"). Consequently, the results of operations
and the cash flows may not accurately reflect what may have been reported had
the Contributed Business been a separate, stand-alone entity or operated as a
part of the Partnership.
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MILLENNIUM CONTRIBUTED BUSINESS
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
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NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition. Revenue from product sales is generally recognized upon
shipment of product to the customer.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Environmental Remediation Cost. Environmental remediation costs are expensed or
capitalized in accordance with generally accepted accounting principles. In
October 1996, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP 96-1"), "Environmental Remediation Liabilities,"
which establishes new accounting and reporting standards for the recognition and
disclosure of environmental remediation liabilities. The adoption of SOP 96-1 in
1997 did not have a material impact on the results of operations.
Goodwill. Goodwill is being amortized using the straight-line method over forty
years. Management periodically reviews goodwill for impairment based on the
anticipated future cash flows attributable to the related operations. Expected
cash flows, on an undiscounted basis, are compared to the carrying value of the
tangible and intangible assets, and if impairment is indicated, the carrying
value of goodwill, and if necessary other related assets, is adjusted.
Management believes that no impairment exists at November 30, 1997.
Research and Development. The cost of research and development efforts is
expensed as incurred. Such costs aggregated $15,709 for the eleven month period
ended November 30, 1997.
Exchanges. Finished product exchange transactions, which are of a homogenous
nature of commodities in the same line of business and do not require payment or
receipt of cash, are not accounted for as purchases or sales. Any resulting
volumetric exchange balances are accounted for as inventory in accordance with
the normal LIFO valuation policy. Exchanges settled through payment and receipt
of cash are accounted for as purchases and sales.
Income Taxes. Earnings of the Contributed Business have been included in the
consolidated federal income tax return filed by its ultimate U.S. parent,
Millennium America Holdings Inc. Pursuant to an informal tax allocation
agreement, income taxes have been allocated to the Contributed Business based on
applicable statutory rates applied to the taxable earnings generated by such
business. State income tax was the primary difference between the effective tax
rates and the federal statutory rate.
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MILLENNIUM CONTRIBUTED BUSINESS
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
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As part of the transactions to consummate the Partnership, Millennium entered
into tax sharing and indemnification agreements with the Partnership in which
Millennium generally agreed to indemnify the Partnership for income tax
liabilities attributable to periods when the operations of the Contributed
Business were included in the consolidated tax return of Millennium. The
Partnership is not subject to federal income taxes as income is reportable
directly by the individual partners; therefore, going forward there will be no
provision for income taxes in the partnership's financial statements.
NOTE 3 -- RELATED PARTY TRANSACTIONS
Millennium provided certain corporate, general and administrative services to
the Contributed Business, including legal, financial, tax, risk management and
employee benefits services. Charges for these services are included in selling
and administration expenses. The Contributed Business also sells ethylene to an
affiliated business unit of Millennium for the manufacture of vinyl acetate
monomer. These sales are reflected at market price and have been included in the
accompanying income statement. All significant intercompany accounts and
transactions within the Contributed Business have been eliminated. Millennium
provides the Partnership with certain operational services, including waste
water treatment and barge dock access. The Partnership provides certain general
and administrative services to Millennium, including materials management,
certain utilities, office space, health, safety and environmental services and
computer services. The Partnership has also controlled certain cash receipts and
disbursements received or made by the Contributed Business.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
The Contributed Business is subject, among other things, to several proceedings
under the Federal Comprehensive Environmental Response Compensation and
Liability Act and other federal and state statutes. These proceedings are in
various stages ranging from initial investigation to active settlement
negotiations to implementation of clean-up remediation of sites. Additionally,
Millennium and/or its subsidiaries are defendants or plaintiffs in lawsuits that
have arisen in the normal course of business including those relating to
commercial transactions and product liability with respect to the Contributed
Business.
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MILLENNIUM CONTRIBUTED BUSINESS
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
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As part of the transactions to consummate the Partnership, Millennium agreed to
indemnify the Partnership for any present or future liabilities arising within a
seven year period after the consummation of the Partnership which are
attributable to the Contributed Business' operations prior to the Partnership's
formation in excess of $7,000.
The Contributed Business has various contractual obligations to purchase raw
materials used in its production of polyethylene. Commitments to purchase
ethylene used in the production of polyethylene are based on market prices and
expire from 1997 to 2001.
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