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EXHIBIT 99.4
EQUISTAR CHEMICALS, LP
BALANCE SHEET
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
BALANCE AT BALANCE AT
3/31/98 12/31/97 CHANGE
----------- ----------- -----------
Cash and cash equivalents $ 6,336 $ 41,425 $ (35,089)
Accounts receivable-trade 541,391 445,175 96,216
Accounts receivable-related parties 54,215 35,954 18,261
Receivable from owners 8,150 149,365 (141,215)
Inventories 527,413 512,271 15,142
Prepaid expenses and other current assets 20,829 24,213 (3,384)
----------- ----------- -----------
Total current assets 1,158,334 1,208,403 (50,069)
Property, plant and equipment 3,706,407 3,677,909 28,498
Less accumulated depreciation and amortization (1,601,648) (1,559,900) (41,748)
----------- ----------- -----------
2,104,759 2,118,009 (13,250)
Goodwill, net 1,130,950 1,138,914 (7,964)
Deferred charges and other assets 157,890 151,252 6,638
----------- ----------- -----------
Total assets $ 4,551,933 $ 4,616,578 $ (64,645)
Accounts payable-trade $ 242,713 $ 169,953 $ 72,760
Accounts payable-related parties 11,324 17,370 (6,046)
Payable to owners 63,360 (63,360)
Current maturities of long-term debt 32,245 36,490 (4,245)
Other current liabilities 82,920 64,843 18,077
----------- ----------- -----------
Total current liabilities 369,202 352,016 17,186
Long-term debt 1,712,515 1,512,496 200,019
Other liabilities and deferred credits 42,081 33,567 8,514
Owners' capital
Contributed capital-Lyondell 1,107,195 1,107,195 --
Contributed capital-Millennium 2,056,674 2,049,518 7,156
Note receivable from Lyondell (345,000) (345,000) --
Distributions (518,491) (100,000) (418,491)
Retained earnings 127,757 6,786 120,971
----------- ----------- -----------
Total owners' capital 2,428,135 2,718,499 (290,364)
----------- ----------- -----------
Total liabilities and owners' capital $ 4,551,933 $ 4,616,578 $ (64,645)
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EQUISTAR CHEMICALS, LP
INCOME STATEMENT
(AMOUNTS IN THOUSANDS)
QUARTER ENDED MARCH 31, 1998
(UNAUDITED)
Sales and other operating revenues $ 1,020,919
Cost of sales 798,296
-----------
Gross profit 222,623
Selling expenses 19,704
General and administrative expenses 56,710
-----------
Operating income 146,209
Interest expense (31,505)
Interest income 6,267
-----------
Net income $ 120,971
===========
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EQUISTAR CHEMICALS, LP
STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
Cash flows from operating activities:
Net income $ 120,971
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 57,704
(Increase) decrease in accounts receivable (114,477)
Decrease in receivables from owners 141,215
(Increase) decrease in inventories (15,142)
Increase (decrease) in accounts payable 66,714
Decrease in payables to owners (63,360)
Increase in other current liabilities 18,077
Net change in other working capital accounts 3,384
Other (6,453)
---------
Net cash provided by operating activities 208,633
Cash flows from investing activities:
Additions to property, plant and equipment (20,999)
---------
Net cash used in investing activities (20,999)
Cash flows from financing activities:
Borrowings of long-term debt 200,013
Repayments of long-term debt (4,245)
Distributions to owners (418,491)
---------
Net cash used in financing activities: (222,723)
---------
Decrease in cash and cash equivalents (35,089)
Cash and cash equivalents at beginning of period 41,425
---------
Cash and cash equivalents at end of period $ 6,336
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SUPPLEMENTAL CASH FLOW INFORMATION:
Noncash investing and financing activities:
Increase in net property, plant & equipment through contribution
of assets from owner $ 7,156
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EQUISTAR CHEMICALS, LP
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PREPARATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes 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.
In the first quarter of 1998, Equistar Chemicals, LP (the "Partnership" or
"Equistar") adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements. SFAS
No. 131 requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders and
establishes standards for related disclosures about products and services,
geographic areas, and major customers.
2. COMPANY OPERATIONS
Pursuant to a partnership agreement (the "Partnership Agreement") Lyondell
Petrochemical Company ("Lyondell") and Millennium Chemicals, Inc. ("Millennium")
formed Equistar Chemicals, LP, a Delaware limited partnership, which commenced
operations on December 1, 1997. The Partnership is owned 57 percent by Lyondell
and 43 percent by Millennium. Lyondell owns its interest in the Partnership
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 petrochemicals and polymers businesses
contributed by Lyondell and Millennium (the "Contributed Businesses") which
consist of 15 manufacturing facilities on the US Gulf Coast and in the US
Midwest. The petrochemicals 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. The petrochemicals segment also includes sales
of methanol produced by Lyondell Methanol LP ("Lyondell Methanol"), which is
owned 75 percent by Lyondell. The Partnership operates the Lyondell Methanol
facility. 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.
The Partnership Agreement provides that Equistar is governed by a Partnership
Governance Committee consisting of six representatives, three appointed by each
partner. Most of the significant decisions of the Partnership Governance
Committee require unanimous consent, including approval of the Partnership's
Strategic Plan and annual updates thereof.
Pursuant to the Partnership Agreement, net income is allocated among the
partners on a pro rata basis based on their percentage ownership of the
Partnership. Distributions are made to the partners based on their percentage
ownership of the Partnership. Additional contributions required by the
Partnership will also be based on the partners' percentage ownership of the
Partnership.
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3. INVENTORIES
The categories of inventory and their book values at March 31, 1998 and December
31, 1997 were as follows:
MILLIONS OF DOLLARS 1998 1997
------------------- --------- -------
Petrochemicals $ 156 $ 183
Polymers 304 264
Materials and supplies 67 66
========= =======
Total inventories $ 527 $ 513
========= =======
4. COMMITMENTS AND CONTINGENCIES
The Partnership has various purchase commitments for materials, supplies and
services incident to the ordinary conduct of business. In the aggregate, such
commitments are not at prices in excess of current market.
The Partnership is also subject to 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 upon the financial
statements or liquidity of the Partnership.
Equistar has agreed to indemnify and defend Lyondell and Millennium,
individually, against certain uninsured claims and liabilities which Equistar
may incur relating to the operation of the Contributed Business prior to
December 1, 1997 up to $7 million each within the first seven years of the
partnership, subject to certain terms of the Asset Contribution Agreements.
The Partnership's policy is to be in compliance with all applicable
environmental laws. The Partnership is subject to extensive environmental laws
and regulations concerning emissions to the air, discharges to surface and
subsurface waters and the generation, handling, storage, transportation,
treatment and disposal of waste materials. Some of these laws and regulations
are subject to varying and conflicting interpretations. In addition, the
Partnership cannot accurately predict future developments, such as increasingly
strict requirements of environmental laws, inspection and enforcement policies
and compliance costs therefrom which might affect the handling, manufacture,
use, emission or disposal of products, other materials or hazardous and
non-hazardous waste.
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
statements or liquidity of the Partnership. However, the adverse resolution in
any reporting period of one or more of these matters discussed in this Note
could have a material impact on the Partnership'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.
5. SUBSEQUENT EVENT
On May 15, 1998, the Partnership was expanded with the contribution of certain
assets from Occidental Petroleum Corporation ("Occidental"). These assets
include the ethylene, propylene and ethylene oxide ("EO") and derivatives
businesses and certain pipeline assets held by Oxy Petrochemicals Inc. ("Oxy
Petrochemicals"), a 50% interest in a joint venture between PDG Chemical Inc. ("
PDG Chemical") and du Pont de Nemours and Company, and a lease to the
Partnership of the Lake Charles, Louisiana olefins plant and related pipelines
held by Occidental Chemical Corporation ("Occidental Chemical") (collectively,
the "Occidental Contributed Business"). Occidental Chemical, Oxy Petrochemicals
and PDG Chemical are all wholly owned, indirect subsidiaries of Occidental. The
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Occidental Contributed Business included olefins plants at Corpus Christi and
Chocolate Bayou, Texas; EO/ethylene glycol ("EG") and EG derivatives businesses
located at Bayport, Texas, Occidental's 50% ownership of PD Glycol, which
operates EO/EG plants at Beaumont, Texas, 950 miles of owned and leased
ethylene/propylene pipelines and the lease to the Partnership of the Lake
Charles, Louisiana olefins plant and related pipelines.
In exchange for the Occidental Contributed Business, two subsidiaries of
Occidental were admitted as limited partners and a third subsidiary was admitted
as a general partner in the Partnership for an aggregate partnership interest of
29.5%. In addition, the Partnership assumed approximately $205 million of
Occidental indebtedness and the Partnership issued a promissory note to an
Occidental subsidiary in the amount of $419.7 million. In connection with the
contribution of the Occidental Contributed Business and the reduction of
Millennium's and Lyondell's ownership interests in the Partnership, the
Partnership also issued a promissory note to Millennium LP in the amount of $75
million. The consideration paid for the Occidental Contributed Business was
determined based upon arms-length negotiations between Lyondell, Millennium and
Occidental. In connection with the transaction, the Partnership and Occidental
also entered into a long-term agreement for the Partnership to supply the
ethylene requirements for Occidental Chemical's U.S. manufacturing plants
Upon completion of this transaction, the Partnership will be owned 41% by
Lyondell, 29.5% by Millennium and 29.5% by Occidental, through its wholly-owned
subsidiaries PDG Chemical Inc. ("Occidental GP"), Occidental Petrochem Partner
1, Inc. ("Occidental LP1") and Occidental Petrochem Partner 2, Inc. ("Occidental
LP2").
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