EXHIBIT 13.2
OXY VINYLS, LP AND SUBSIDIARIES
Consolidated Financial Statements
As of December 31, 2001 and 2000
Together with Report of Independent Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners,
Oxy Vinyls, LP:
We have audited the accompanying consolidated balance sheets of Oxy Vinyls, LP
and subsidiaries (the "Partnership") as of December 31, 2001 and 2000, and the
related consolidated statements of operations, changes in partners' capital, and
cash flows for the years ended December 31, 2001 and 2000, and for the period
from April 30, 1999 through December 31, 1999. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of December
31, 2001 and 2000, and the results of their operations and their cash flows for
the years ended December 31, 2001 and 2000, and for the period from April 30,
1999 through December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
Dallas, Texas,
January 28, 2002
OXY VINYLS, LP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(Amounts in thousands)
2001 2000
----------------- -----------------
CURRENT ASSETS
Cash and cash equivalents $ 9,303 $ 15,942
Trade receivables 4,863 30,754
Other receivables 6,798 9,602
Foreign income taxes receivable 2,868 5,000
Receivable from Occidental Receivables, Inc., net 138,607 149,691
Receivable from Occidental Chemical Corporation, net 16,548 8,952
Inventories 105,167 122,807
Prepaid expenses 3,074 4,951
------------ ------------
Total current assets 287,228 347,699
Loans receivable from Occidental Petroleum Corporation, net 17,503 46,000
Property, plant and equipment, net 967,475 980,084
Other assets, net 21,126 18,994
------------ ------------
TOTAL ASSETS $ 1,293,332 $ 1,392,777
============ ============
CURRENT LIABILITIES
Current maturities of long-term debt $ -- $ 296
Accounts payable 117,912 180,809
Accrued liabilities 43,847 41,371
Accrued property taxes 15,133 18,410
Payable to PolyOne Corporation, net 1,811 6,894
------------ ------------
Total current liabilities 178,703 247,780
Long-term debt, net of current maturities -- 37,964
Equity investment in unconsolidated subsidiary 47,250 29,069
Note payable to Occidental Chemical Corporation 9,964 --
Postretirement benefit obligations 16,723 14,883
Deferred credits and other liabilities 7,652 11,973
COMMITMENTS AND CONTINGENCIES (NOTE 7)
PARTNERS' CAPITAL 1,033,040 1,051,108
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 1,293,332 $ 1,392,777
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
1
OXY VINYLS, LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2001 and 2000 and
For the Period from April 30, 1999 through December 31, 1999
(Amounts in thousands)
April 30, 1999
Year Ended Year Ended through
December 31, December 31, December 31,
2001 2000 1999
------------ ------------- -------------
REVENUES
Net sales $ 1,546,254 $ 1,892,292 $ 1,102,099
Equity in (losses) earnings of unconsolidated subsidiary (18,181) (3,550) 10,480
----------- ----------- -----------
1,528,073 1,888,742 1,112,579
COSTS AND OTHER DEDUCTIONS
Cost of sales 1,472,100 1,683,052 997,505
Selling, general and administrative and other operating expenses 70,687 58,423 43,295
Gain on sale of assets -- (912) --
Interest expense, net 1,052 1,394 4,420
----------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS BEFORE INCOME TAXES (15,766) 146,785 67,359
(Benefit) provision for income taxes (1,836) 593 3,699
----------- ----------- -----------
NET (LOSS) INCOME $ (13,930) $ 146,192 $ 63,660
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
2
OXY VINYLS, LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 2001 and 2000 and
For the Period from April 30, 1999 through December 31, 1999
(Amounts in thousands)
Occidental Occidental 1999 PVC Total
PVC LP Inc. PVC LLC Partner Inc. Partners' Capital
----------------- ----------------- ------------------ -------------------
Initial capitalization on April 30, 1999 $ 723,717 $ 9,650 $ 231,589 $ 964,956
Net income 47,745 637 15,278 63,660
Distributions to partners (10,745) (142) (3,438) (14,325)
----------- ----------- ----------- -----------
Balance at December 31, 1999 $ 760,717 $ 10,145 $ 243,429 $ 1,014,291
Net income 109,645 1,461 35,086 146,192
Distributions to partners (82,031) (1,095) (26,249) (109,375)
----------- ----------- ----------- -----------
Balance at December 31, 2000 $ 788,331 $ 10,511 $ 252,266 $ 1,051,108
Net loss (10,447) (140) (3,343) (13,930)
Non-cash distributions to partners (3,104) (41) (993) (4,138)
----------- ----------- ----------- -----------
Balance at December 31, 2001 $ 774,780 $ 10,330 $ 247,930 $ 1,033,040
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
OXY VINYLS, LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001 and 2000 and
For the Period from April 30, 1999 through December 31, 1999
(Amounts in thousands)
April 30, 1999
Year Ended Year Ended through
December 31, December 31, December 31,
2001 2000 1999
------------ ------------ ------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) income $ (13,930) $ 146,192 $ 63,660
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 63,135 60,112 48,166
Equity in losses (earnings) of unconsolidated subsidiary 18,181 3,550 (10,480)
Gain on disposition of assets, net -- (912) --
(Decrease) increase deferred foreign income taxes (488) 1,322 316
Other noncash (credits) charges to income (1,687) 7,998 1,533
Changes in operating assets and liabilities:
Decrease (increase) in trade and other receivables 28,186 (17,043) 105,236
Decrease in loans receivable from OxyMar -- 12,500 12,500
Decrease (increase) in inventories 17,336 (16,977) (23,220)
Decrease (increase) in receivables from Occidental Receivables, Inc. 11,084 50,350 (200,041)
Decrease (increase) in foreign income taxes receivable 2,132 (8,278) 3,278
Decrease (increase) in prepaid expenses 1,877 (2,102) (549)
(Decrease) increase in accounts payable and accrued liabilities (63,698) (31,161) 133,023
(Increase) decrease in receivable from Occidental Chemical Corporation, net (9,973) 3,287 (12,239)
(Decrease) increase in payable to PolyOne Corporation, net (6,844) 624 6,270
Other operating, net 9,614 (6,808) (6,007)
---------- ---------- ----------
Net cash provided by operating activities 54,925 202,654 121,446
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of assets -- 3,328 --
Capital expenditures (61,765) (67,001) (24,525)
---------- ---------- ----------
Net cash used by investing activities (61,765) (63,673) (24,525)
CASH FLOW FROM FINANCING ACTIVITIES:
(Payments) proceeds on long term-debt (38,260) (16,296) 44,000
Proceeds from note payable to Occidental Chemical Corporation 9,964 -- --
Distributions to partners -- (109,375) (14,325)
Decrease (increase) in loans receivable from
Occidental Petroleum Corporation 28,497 (17,210) (106,790)
---------- ---------- ----------
Net cash provided (used) by financing activities 201 (142,881) (77,115)
---------- ---------- ----------
(Decrease) increase in cash and cash equivalents (6,639) (3,900) 19,806
Cash and cash equivalents, beginning of period 15,942 19,842 36
---------- ---------- ----------
Cash and cash equivalents, end of period $ 9,303 $ 15,942 $ 19,842
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
4
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(1) FORMATION AND OPERATIONS -
Oxy Vinyls, LP ("OxyVinyls" or the "Partnership"), a Delaware limited
partnership, was formed on April 6, 1999, pursuant to a Limited Partnership
Agreement among Occidental PVC LP, Inc. (the "Oxy Limited Partner") and
Occidental PVC, LLC (the "Oxy General Partner"), wholly-owned subsidiaries of
Occidental Chemical Corporation (OCC) and 1999 PVC Partner Inc., (the "PolyOne
Limited Partner"), a subsidiary of PolyOne Corporation ("PolyOne") (formerly The
Geon Company). The contributions and related transactions hereinafter described
in this Note were effective, and the Partnership commenced operations, as of
April 30, 1999, at which time the Limited Partnership Agreement was amended
pursuant to a First Amended and Restated Limited Partnership Agreement dated as
of April 30, 1999 (collectively with the Limited Partnership Agreement, the
"Partnership Agreement"). Through the Oxy General Partner and the Oxy Limited
Partner, OCC indirectly owns a seventy-six percent interest in the Partnership.
OCC is an indirect, wholly-owned subsidiary of Occidental Petroleum Corporation
(OPC). Through the PolyOne Limited Partner, PolyOne indirectly owns a
twenty-four percent interest in the Partnership.
The Partnership owns and operates polyvinyl chloride (PVC) and vinyl
chloride monomer (VCM) assets in the United States that were contributed on
behalf of the Oxy General Partner and the Oxy Limited Partner by OCC, and on
behalf of the PolyOne Limited Partner, by PolyOne. These assets consist of
several manufacturing facilities on the U.S. Gulf Coast, as well as
manufacturing facilities in Kentucky and New Jersey and two chlor-alkali and
cogeneration facilities near Houston, Texas. A fifty percent equity interest in
OxyMar, a Texas general partnership between Oxy VCM Corporation ("Oxy VCM"), an
indirect wholly-owned subsidiary of OPC, and U.S. VCM Corporation ("U.S. VCM"),
a wholly-owned subsidiary of Marubeni Corporation ("Marubeni"), a Japanese
corporation, was contributed to the Partnership through the merger of Oxy VCM
into the Oxy General Partner and the subsequent transfer by the Oxy General
Partner of its equity interest in OxyMar to the Partnership. (See Note 2.)
The Partnership also owns and operates two PVC manufacturing facilities
located in Ontario and Alberta, Canada. Ownership of these Canadian assets was
acquired through a transfer by PolyOne Canada Inc., a wholly- owned Canadian
subsidiary of PolyOne, of the capital stock of Oxy Vinyls Canada Inc.
("OxyVinyls Canada") to 3547728 Canada, Inc., an indirect Canadian subsidiary of
the Partnership. For the capital stock of OxyVinyls Canada, 3547728 Canada Inc.
paid $36 million U.S. dollars borrowed by the Partnership from OPC and
contributed by the Partnership as capital to its subsidiary, LaPorte Chemicals
Corp. ("LaPorte") and further contributed by LaPorte to 3547728 Canada Inc.
3547728 Canada Inc. and OxyVinyls Canada were amalgamated with OxyVinyls Canada
as the surviving entity.
The assets and liabilities contributed on behalf of the Oxy General
Partner and the Oxy Limited Partner were recorded at OCC's book basis by the
Partnership. The assets and liabilities contributed on behalf of the PolyOne
Limited Partner were recorded at their fair value by the Partnership.
Under terms of the Partnership Agreement, net income is allocated among
the partners pro rata based on their percentage ownership of the Partnership.
Distributions to the partners and any additional cash contributions required by
the Partnership are also based on the partners' percentage ownership of the
Partnership.
The consolidated financial statements include the accounts of OxyVinyls
and its wholly-owned subsidiary, LaPorte, as well as LaPorte's subsidiary,
OxyVinyls Canada, whose functional currency is the U.S. dollar. All intercompany
accounts and transactions have been eliminated.
5
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
Risks and uncertainties -
-----------------------
The process of preparing consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires the use of estimates and assumptions regarding certain types of assets,
liabilities, revenues and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the consolidated financial statements.
Accordingly, upon settlement, actual results may differ from estimated amounts,
generally by immaterial amounts. Management believes that these estimates and
assumptions provide a reasonable basis for the fair presentation of OxyVinyls'
financial position and results of operations.
Since OxyVinyls' major products are commodities, significant changes in
the prices of chemical products could have a significant impact on OxyVinyls'
results of operations for any particular period. OxyVinyls had one major
customer, PolyOne, during the periods presented, which accounted for 14.8% of
total sales for the year ended December 31, 2001, 20.5% of total sales for the
year ended December 31, 2000, and 14.5% of total sales during the period from
April 30, 1999 through December 31, 1999. PolyOne's trade receivable balance
with OxyVinyls was approximately $16 million and $23 million at December 31,
2001 and 2000, respectively.
Substantially all key raw materials are supplied by related parties.
(See Note 11.)
OxyVinyls receives all VCM for its Alberta, Canada facility from one
supplier. The amounts of VCM supplied to this facility totaled approximately $47
million, $67 million and $45 million for the years ended December 31, 2001 and
2000 and for the period from April 30, 1999 through December 31, 1999,
respectively. Starting January 1, 2001, all VCM supplied to the Alberta, Canada
facility has been provided under the terms of an exchange agreement (see
Exchanges below).
Revenue recognition -
-------------------
Revenue from product sales is recognized as title passes, which is upon
shipment of product to the customer.
Income taxes -
------------
The Partnership is generally not subject to income taxes except for
Canadian income taxes related to OxyVinyls Canada, certain U.S. state income
taxes and U.S. federal income taxes associated with LaPorte.
The Partnership follows Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes", pursuant to which the liability
method is used in accounting for taxes. Under this method, deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax basis of assets and liabilities and are measured using the enacted tax
rates and regulations that will be in effect when the differences are expected
to reverse.
6
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Recent accounting pronouncements -
--------------------------------
During 2000, OxyVinyls adopted Emerging Issues Task Force ("EITF") No.
00-10 - "Accounting for Shipping and Handling Fees and Costs" ("EITF No. 00-10")
which establishes accounting and reporting standards for the treatment of
shipping and handling costs. Among its provisions, EITF No. 00-10 requires that
transportation costs that had been accounted for as deductions from net sales
should now be recorded in cost of sales. The implementation of EITF 00-10 had no
effect on net income. The period from April 30, 1999 through December 31, 1999
was reclassified to reflect this accounting change. The transportation costs
that have been reclassed from net sales and included in cost of sales on the
accompanying consolidated statements of operations totaled $34.2 million for the
period from April 30, 1999 through December 31, 1999.
In 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). In 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB No.
133." In 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of SFAS No. 133." SFAS
No. 133, as amended, was effective for OxyVinyls as of January 1, 2001. SFAS No.
133, as amended, establishes accounting and reporting standards for derivative
instruments and hedging activities and requires an entity to recognize all
derivatives in the statement of financial position and measure those instruments
at fair value. Changes in the derivative instruments' fair value must be
recognized into earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative instrument's gains
and losses to offset related results on the hedged item in the income statement,
to the extent effective, and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. The adoption of SFAS 133, as amended, did not have an impact on the
Partnership's financial position or results of operations on January 1, 2001.
In the fourth quarter of 2000, OxyVinyls adopted the disclosure
provisions of SFAS No. 140 - "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities - a Replacement of FASB
Statement No. 125," ("SFAS No. 140") which revises disclosure standards for
asset securitizations and other financial asset transfers. SFAS No. 140 also
contains provisions which revise certain criteria for accounting for
securitization, financial asset transfers and collateral. These accounting
provisions were adopted by OxyVinyls on April 1, 2001. The implementation of
these provisions of SFAS No. 140 did not have an impact on OxyVinyls'
consolidated financial position or results of operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations"
("SFAS No. 141"), which requires the purchase method of accounting for business
combinations initiated after June 30, 2001. The adoption of SFAS No. 141 did not
have an impact on the Partnership's financial position or results of operations.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangibles" ("SFAS No. 142"). The statement requires that goodwill recorded on
acquisitions completed prior to July 1, 2001 be amortized through December 31,
2001. Goodwill amortization is precluded on acquisitions completed after June
30, 2001. Effective January 1, 2002, goodwill will no longer be amortized but
will be tested for impairment annually. The adoption of SFAS No. 142, effective
January 1, 2002, is not expected to have an impact on the Partnership's
financial position or results of operations.
7
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Recent accounting pronouncements - (continued)
--------------------------------
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." ("SFAS No. 143") which addresses the financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated assets' retirement costs. The new
standard will be effective for the Partnership beginning January 1, 2003, and
management is currently evaluating the effect this standard will have on the
Partnership's financial position and results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). This Statement,
which addresses the accounting for impairment or disposal of long-lived assets,
supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" and the accounting and reporting
provisions of APB 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occuring Events and Transactions". The new standard will be
effective for the Partnership beginning January 1, 2002, and it is not expected
to have an impact on the Partnership's financial position or results of
operations.
Reclassifications -
-----------------
Certain prior year amounts have been reclassified to conform to the
December 31, 2001 presentation.
Foreign currency -
----------------
The functional currency applicable to OxyVinyls' Canadian operations is
the U.S. dollar since cash flows are denominated principally in U.S. dollars.
The effect of exchange-rate changes on transactions denominated in nonfunctional
currencies generated a gain of $.2 million for the year ended December 31, 2001,
a loss of $4.0 million for the year ended December 31, 2000, and a gain of $.2
million for the period from April 30, 1999 through December 31, 1999. These
amounts are included in the expense category of the item that gave rise to the
related transaction gain or loss.
Cash and cash equivalents -
-------------------------
Cash equivalents consist of highly liquid certificates of deposits and
a restricted bank deposit (see Note 7) with initial maturities of three months
or less. Cash equivalents totaled $3.5 million and $6.6 million at December 31,
2001 and 2000, respectively.
Interest income on deposits with unrelated parties was $.5 million for
the year ended December 31, 2001, $1.1 million for the year ended December 31,
2000 and $.4 million for the period from April 30, 1999 through December 31,
1999.
Cash overdrafts are reclassified to accounts payable and amounted to
$8.7 million and $9.9 million as of December 31, 2001 and 2000, respectively.
8
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Equity investment in OxyMar -
---------------------------
OxyMar, a partnership that is 50 percent owned by OxyVinyls, owns a VCM
manufacturing facility at Ingleside, Texas which is operated on OxyMar's behalf
by OCC pursuant to an operating agreement. OxyMar is not subject to federal or
state income taxes as income is reportable directly by the individual partners.
OxyVinyls accounts for its investment in OxyMar using the equity method of
accounting for subsidiaries.
Effective November 29, 2000, U.S. VCM transferred 28.6 percent of the
ownership of OxyMar to Oxy VCM, LP ("Oxy VCM"), an indirect wholly-owned
subsidiary of OCC. In connection with such transfer, OxyVinyls, Oxy VCM and U.S.
VCM entered into the Second Amended and Restated Partnership Agreement ("the
OxyMar Partnership Agreement"), dated as of November 29, 2000, pertaining to the
ownership and operation of OxyMar. Pursuant to the OxyMar Partnership Agreement,
U.S. VCM and OxyVinyls retained 50/50 management control of OxyMar. The
percentage ownership interest held by each partner of OxyMar is:
OxyVinyls 50.0%
Oxy VCM 28.6%
U.S. VCM 21.4%
Under the terms of the OxyMar Partnership Agreement, net income is
allocated among the partners pro rata based on their percentage interest in the
results of OxyMar. Distributions to the partners are also based on the partners'
percentage interest in OxyMar. Subject to certain qualifications described
below, the OxyMar Partnership Agreement requires cash calls from each partner
when the quarterly cash flow forecast approved by the OxyMar managing committee
shows a deficit in any month. Each partner is required to contribute a pro rata
portion, based on their respective percentage interests, of the deficit in the
form of an equity contribution or subordinated loan. The foregoing obligations
are qualified to the extent that during the period from November 29, 2000 until
April 30, 2004 (the "Restricted Period") OxyMar may not require any partner to
make any contribution or loan for any purpose and the funding requirements of
OxyMar shall be met by loans arranged or provided by OPC. To implement such
loans during the Restricted Period, effective as of December 27, 2000, OxyMar
entered into a $100 million Cash Management and Revolving Credit Facility
Agreement with OPC (the "OPC Revolver"). Effective February 28, 2001, the credit
facility limit under the OPC Revolver was increased to $200 million.
Pursuant to the terms of the OxyMar Partnership Agreement, upon the
expiration of the Restricted Period, U.S. VCM may elect to require OCC (or any
affiliate designated by OCC) to purchase U.S. VCM's remaining 21.4 percent
equity interest in OxyMar and in connection with such transfer require OPC to
assume Marubeni's guarantee of OxyMar's outstanding indebtedness. For purposes
of such transfer, the value of U.S. VCM's remaining interest in OxyMar is
calculated based upon an agreed deemed value of the OxyMar partnership less
partnership indebtedness, subject to certain adjustments for accrued taxes,
interest and available cash.
9
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Equity investment in OxyMar - (continued)
---------------------------
At December 31, 2001 and 2000, the historical underlying equity in net
assets of OxyMar exceeded the Partnership's investment in OxyMar by $7.0 million
and $7.5 million, respectively. The deficiency is being amortized on a
straight-line basis into income over 25 years. Amortization amounted to $.5
million for each of the years ended December 31, 2001 and 2000, and $.4 million
for the period from April 30, 1999 through December 31, 1999 and is included in
equity in (losses)/earnings of unconsolidated subsidiary on the consolidated
statements of operations. The following table presents summarized financial
information of OxyMar (in thousands):
For the Year Ended For the Year Ended April 30, 1999 Through
December 31, 2001 December 31, 2000 December 31, 1999
----------------- ----------------- -----------------
Net sales $ 370,432 $ 431,555 $ 303,273
Costs and expenses 408,212 439,836 281,601
------------------- ------------------ --------------------
Net (loss) income $ (37,780) $ (8,281) $ 21,672
=================== ================== ====================
Current assets $ 30,302 $ 68,423
Noncurrent assets $ 338,115 $ 346,642
Current liabilities $ 35,660 $ 36,255
Noncurrent liabilities $ 413,378 $ 421,651
Partners' capital $ (80,621) $ (42,841)
At December 31, 2001, OPC unconditionally provides guarantees of $187.5
million of OxyMar's obligations, which include private placement bonds and a
revolving credit line.
See Note 11 regarding OxyVinyls' purchase commitment from OxyMar.
Unrealized profits on inventory purchased from OxyMar are deferred by OxyVinyls
based on ownership percentage and are recognized upon the ultimate sale to an
unaffiliated customer.
Other assets, net -
-----------------
Other assets, net includes trade receivable balances of $5.2 million
and $9.0 million at December 31, 2001 and 2000, respectively due from customers
which filed bankruptcy during the year 2000. Management believes the amounts are
collectible over a period greater than one year and the receivables have been
reduced to their net realizable value. The allowance for doubtful long-term
receivables was $2.3 million and $4.5 million at December 31, 2001 and 2000,
respectively. Other assets, net also includes certain tangible assets and
deferred charges that are amortized over the estimated periods to be benefited
(3 - 10 years).
Major maintenance expenditures -
------------------------------
OxyVinyls uses the accrue-in-advance method to account for major
maintenance turnaround expenditures. Under this method, an estimate is made of
the costs expected to be incurred in connection with the next planned periodic
maintenance shutdown. That estimate is then accrued on a straight-line basis
over the period of time until the next planned major maintenance shutdown
occurs. The liability for major maintenance turnaround included in accrued
liabilities was $12.4 million and $10.1 million as of December 31, 2001 and
2000, respectively.
10
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Exchanges -
---------
Finished product exchange transactions, which involve homogeneous
commodities held for sale in the ordinary course in the same line of business
and do not involve the payment or receipt of cash, are not accounted for as
purchases and sales. Any resulting volumetric exchange balances are accounted
for as inventory in accordance with the normal inventory valuation policy.
Environmental costs -
-------------------
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Reserves for estimated costs that relate
to existing conditions caused by past operations and that do not contribute to
current or future revenue generation are recorded when environmental remedial
efforts are probable and the costs can be reasonably estimated. In determining
the reserves, OxyVinyls uses the most current information available, including
similar past experiences, available technology, regulations in effect, the
timing of remediation and cost-sharing arrangements. The environmental reserves
are based on management's estimate of the most likely cost to be incurred and
are reviewed periodically and adjusted as additional or new information becomes
available. Probable recoveries or reimbursements are recorded as an asset.
Pursuant to the asset contribution agreements of the Partnership, the
contributors (OCC and PolyOne) have an obligation to indemnify OxyVinyls for
health, safety and environmental claims that relate to pre-May 1, 1999
activities and that existed as of April 30, 1999, or arise within ten years of
that date, except to the extent that OxyVinyls exacerbated or accelerated the
claim.
As of December 31, 2001, management believes no environmental reserve
is required.
Research and development costs -
------------------------------
Research and development costs, which are charged to selling, general
and administrative and other operating expenses as incurred, were $4.5 million
for the year ended December 31, 2001, $6.9 million for the year ended December
31, 2000 and $4.4 million for the period from April 30, 1999 through December
31, 1999.
Supplemental cash flow information -
----------------------------------
Cash payments for income taxes totaled $.6 million during the year
ended December 31, 2001, $7.4 million during the year ended December 31, 2000,
and $.1 million during the period from April 30, 1999 through December 31, 1999.
Net interest paid totaled $2.4 million during the year ended December 31, 2001,
and $4.1 million for the year ended December 31, 2000 and $4.2 million during
the period from April 30, 1999 through December 31, 1999.
During the years ended December 31, 2001 and 2000 and for the period
from April 30, 1999 through December 31, 1999, OxyVinyls sold trade receivables
to an affiliate, Occidental Receivables, Inc. (ORI), in noncash transactions.
(See Note 3.)
11
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (continued)
Fair value of financial instruments -
-----------------------------------
OxyVinyls values financial instruments as required by SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The carrying amounts of
cash and cash equivalents approximate fair value because of the short maturity
of those instruments. OxyVinyls estimates the fair value of its long-term debt
based on the quoted market prices for the same or similar issues or on the
yields offered to OxyVinyls for debt of similar rating and similar remaining
maturities. The estimated fair value of OxyVinyls' long-term debt at December
31, 2001 and 2000 was approximately $9.9 million and $37.7 million,
respectively, compared with a carrying value of $10.0 million and $38.3 million,
respectively. (See Note 6.) The carrying value of all other financial
instruments approximates fair value.
(3) RECEIVABLES -
During the year ended December 31, 2001 and 2000, OxyVinyls sold, with
limited recourse, to ORI certain trade receivables under a revolving sale
program in connection with the ultimate sale for cash of an undivided ownership
interest in such receivables by ORI. OxyVinyls has retained the collection
responsibility with respect to the receivables sold. An interest in new
receivables is sold monthly in noncash transactions representing the net
difference between newly created receivables and collections made from
customers. In January 2001, OxyVinyls entered into a new similar type of
program, under substantially identical terms. The net receivables balance sold
as of December 31, 2001 and 2000, was $139 million and $150 million,
respectively.
(4) INVENTORIES -
Inventories are valued at the lower of cost or market. The last-in,
first-out (LIFO) method was used to determine the cost of $72 million and $81
million of inventories at December 31, 2001 and 2000, respectively. The
remaining inventories are accounted for using the first-in, first-out (FIFO) and
weighted-average-cost methods. Inventories consisted of the following (in
thousands):
2001 2000
----------- -----------
Raw materials $ 21,399 $ 24,209
Materials and supplies 20,137 22,574
Finished goods 64,697 96,300
----------- -----------
106,233 143,083
LIFO and lower of cost or market reserve (1,066) (20,276)
----------- -----------
Total inventories $ 105,167 $ 122,807
=========== ===========
During 2001, certain inventory quantities carried at LIFO were reduced.
This reduction resulted in a liquidation of LIFO inventory quantities carried at
lower costs prevailing in prior years as compared with the cost of 2001
purchases, the effect of which decreased cost of sales by approximately $1.0
million.
12
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(5) PROPERTY, PLANT AND EQUIPMENT -
Property additions and major renewals and improvements are capitalized
at cost. Interest costs incurred in connection with major capital expenditures
are capitalized and amortized over the lives of the related assets. OxyVinyls
capitalized $2.1 million and $1.5 million of interest during the years ending
December 31, 2001 and 2000, respectively. Depreciation of plant and equipment is
primarily provided using the units-of-production method based on estimated total
productive life. The Partnership has reviewed its long-lived assets to be held
and used for impairment during the years ended December 31, 2001 and 2000 and
during the period from April 30, 1999 through December 31, 1999. Management
believes no circumstances exist that would indicate the carrying value of a
long-lived asset may not be recoverable. Property, plant and equipment consisted
of the following (in thousands):
2001 2000
------------- -------------
Land and land improvements $ 32,354 $ 30,998
Buildings 55,618 54,215
Machinery and equipment 1,259,560 1,195,727
Construction in progress 39,728 68,498
-------------- --------------
1,387,260 1,349,438
Accumulated depreciation (419,785) (369,354)
-------------- --------------
Property, plant and equipment, net $ 967,475 $ 980,084
============== ==============
(6) LONG-TERM DEBT -
Long-term debt consisted of the following (in thousands):
2001 2000
------------- -------------
Note payable to OCC, 4.2%, due 2006 $ 9,964 $ --
Pollution control revenue bonds, 6%, due through 2007 -- 9,760
Pollution control revenue bonds, 6.75%, due through 2009 -- 500
Loan payable to Canadian bank under credit agreement,
variable rate 7.8% at December 31, 2000, due in 2004 -- 28,000
-------------- --------------
9,964 38,260
Current maturities -- (296)
-------------- --------------
$ 9,964 $ 37,964
============== ==============
13
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(6) LONG-TERM DEBT - (continued)
Minimum principal payments on long-term debt subsequent to 2001 are as
follows (in thousands):
2002 $ -
2003 -
2004 -
2005 -
2006 9,964
Thereafter -
-------------
$ 9,964
=============
The pollution control revenue bonds and the Canadian bank loan were
repaid during 2001 using the proceeds from the note payable to OCC and
collections of loans receivable from OPC.
The Canadian bank loan, when drawn upon, is payable in U.S. dollars
under the terms of the Amended Credit Agreement entered into by OxyVinyls in
December 1999. OxyVinyls Canada may borrow up to $10 million U.S. dollars under
the terms of the Amended Credit Agreement , which is guaranteed by OPC. The
bank loan was not drawn upon at December 31, 2001.
Interest expense related to long-term external debt was $2.2 million
for the year ended December 31, 2001, $4.1 million for the year ended
December 31, 2000, and $.5 million for the period from April 30, 1999 through
December 31, 1999.
(7) COMMITMENTS AND CONTINGENCIES -
Leases -
------
At December 31, 2001, future net minimum rental commitments under
noncancelable operating leases with terms in excess of one year are as follows
(in thousands):
2002 $ 23,772
2003 21,825
2004 17,958
2005 14,431
2006 12,047
Thereafter 59,159
-----------
$ 149,192
===========
14
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(7) COMMITMENTS AND CONTINGENCIES - (continued)
Leases - (continued)
------
OxyVinyls leases certain manufacturing facilities in LaPorte, Texas,
and railcars under the terms of various related agreements dated April 30, 1999
(collectively, the "LaPorte Lease"). The initial lease term extends through
April 20, 2004, and has a provision for annual renewals for an additional five
years. Upon termination of the LaPorte Lease, OxyVinyls may purchase the assets
based upon their estimated fair values. In the event OxyVinyls does not purchase
the assets, the LaPorte Lease provides a residual value guarantee by OxyVinyls
of approximately $152 million. Currently, OxyVinyls does not expect to make
payments under this provision. Total estimated future rental commitments of
$14.7 million under the LaPorte Lease are included in the operating lease
commitments above. Actual rent payments under the LaPorte Lease are calculated
using variable interest rates. OxyVinyls has restricted bank deposits, recorded
in cash and cash equivalents on the consolidated balance sheets, associated with
the LaPorte Lease of $3.5 million and $3.6 million as of December 31, 2001 and
2000, respectively. OxyVinyls earns interest on these deposits which will be
returned to OxyVinyls upon termination of the LaPorte Lease. All obligations
under the LaPorte Lease are guaranteed by OPC.
Rent expense was approximately $26.6 million for the year ended
December 31, 2001, $29.9 million for the year ended December 31, 2000 and $21.5
million for the period from April 30, 1999 through December 31, 1999. Rent
expense is included in cost of sales in the consolidated statements of
operations.
Other -
-----
OxyVinyls has entered into an agreement providing for the following
future payments (in thousands) to purchase brine, a raw material utilized in
chlor-alkali production. At December 31, 2001, the net present value of the
fixed and determinable portion of the obligation under this agreement was used
to collateralize financing of the brine supplier.
2002 $ 588
2003 547
2004 509
2005 473
2006 440
Thereafter 2,373
-----------
$ 4,930
===========
OxyVinyls has certain other commitments under contracts to purchase
electrical power and raw materials and other obligations, all in the ordinary
course of business and at market prices.
The Partnership also becomes involved in certain legal proceedings in
the normal course of business. Management believes that the outcome of such
matters will not significantly affect the Partnership's consolidated financial
position or results of operations.
Also, see Note 2 and Note 9 related to income taxes and Note 10 and 11
regarding related parties.
15
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS -
OxyVinyls participates in various defined contribution retirement plans
sponsored by OPC for its salaried, domestic union and nonunion hourly, and
certain foreign national employees that provide for periodic contributions by
OxyVinyls based on plan-specific criteria, such as base pay, age level, and/or
employee contributions. OxyVinyls expensed approximately $9.2 million, $8.2
million and $4.7 million, for the years ended December 31, 2001 and 2000, and
for the period from April 30, 1999 through December 31, 1999, respectively,
under the provisions of these plans.
OxyVinyls provides medical and dental benefits and life insurance
coverage for certain active, retired and disabled employees and their eligible
dependents. The benefits generally are funded by OxyVinyls as they are paid
during the year. The cost of providing these benefits is based on claims filed
and insurance premiums paid for the period. The total benefit costs, including
the postretirement costs, were approximately $7.9 million in 2001, $7.2 million
in 2000 and $5.0 million during the period from April 30, 1999 through December
31, 1999.
The following table sets forth the components of the net periodic
benefit costs from OxyVinyls' postretirement benefit plans (in thousands)
For the For the April 30, 1999
Year Ended Year Ended Through
December 31, December 31, December 31,
2001 2000 1999
-------------- -------------- --------------
Service cost--benefits earned during the period $ 621 $ 573 $ 625
Interest cost on benefit obligation 1,187 1,057 827
-------------- -------------- --------------
Net periodic benefit cost $ 1,808 $ 1,630 $ 1,452
============== ============== ==============
OxyVinyls' postretirement benefit plans are accrued based on various
assumptions and discount rates, as described below. The actuarial assumptions
used could change in the near term as a result of changes in expected future
trends and other factors which, depending on the nature of the changes, could
cause increases or decreases in the liabilities accrued.
The following table sets forth the reconciliation of the beginning and
ending balances of the benefit obligation for OxyVinyls' postretirement benefit
plans (in thousands):
Changes in benefit obligation: 2001 2000
--------- ---------
Benefit obligation - beginning of year $ 15,254 $ 11,942
Service cost - benefits earned during the period 621 573
Interest cost on projected benefit obligation 1,187 1,057
Actuarial loss 1,814 1,697
Benefits paid (189) (15)
-------- --------
Benefit obligation - end of year $ 18,687 $ 15,254
======== ========
16
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS - (continued)
The postretirement benefit obligations were determined by application
of the terms of medical and dental benefits and life insurance coverage,
including the effect of established maximums on covered costs, together with
relevant actuarial assumptions and health care cost trend rates projected at a
Consumer Price Index (CPI) increase of 3 percent as of December 31, 2001 and
2000. Participants pay for all medical cost increases in excess of increases in
the CPI. Consequently, increases in the assumed healthcare cost trend rates
beyond the CPI increase would have no impact on the postretirement benefit
obligation at December 31, 2001 and 2000. The discount rate used in determining
the benefit obligation was 7.0 percent, 7.75 percent, and 7.75 percent as of
December 31, 2001 and 2000 and for the period from April 30, 1999 through
December 31, 1999, respectively.
Pursuant to the asset contribution agreements of the Partnership, the
contributors (OCC and PolyOne) retained liability for, and have an obligation to
indemnify the Partnership with respect to, such contributors' employee benefit
and welfare plans and programs (including existing retirees and disabled) and
any claims by or on behalf of employees of OxyVinyls that are attributable to
their employment with the contributor prior to May 1, 1999. Obligations related
to postretirement benefits attributable to active employees at April 30, 1999,
were assumed by OxyVinyls.
The following table sets forth the funded status and the amount
recognized in OxyVinyls' consolidated balance sheets for postretirement benefit
obligations at December 31, 2001 and 2000 (in thousands):
2001 2000
----------- -----------
Funded status $(18,687) $(15,254)
Unrecognized net loss 2,185 371
-------- --------
Postretirement benefit obligations $(16,502) $(14,883)
======== ========
(9) INCOME TAXES -
Deferred foreign income taxes reflect the future tax consequences of
temporary differences between the tax basis of assets and liabilities and their
financial reporting amounts. At December 31, 2001 and 2000, OxyVinyls had
deferred tax liabilities of $1.1 million and $1.6 million, respectively, which
are included in deferred credits and other liabilities on the consolidated
balance sheets. The temporary differences resulting in deferred tax liabilities
are primarily related to property, plant and equipment.
The current and deferred (benefit)/provision for income tax was $(1.3)
million and $(.5) million, respectively, for the year ended December 31, 2001,
$(1.4) million and $1.3 million, respectively, for the year ended December 31,
2000 and $3.4 million and $.3 million, respectively, for the period from April
30, 1999 through December 31, 1999. Additionally, the Partnership paid certain
minimum state and federal taxes of approximately $.7 million for the year ended
December 31, 2000.
OxyVinyls is subject to audit by taxing authorities in various tax
jurisdictions. Management believes that any required adjustments to OxyVinyls'
tax liabilities will not have a material adverse impact on its financial
position or results of operations.
17
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(10) CASH MANAGEMENT AND CREDIT AND DEPOSIT FACILITIES AGREEMENT WITH OPC -
OxyVinyls participates in OPC's centralized cash management system for
its domestic operations. OxyVinyls maintains a concentration account to collect
cash receipts and to fund disbursements. OPC funds any negative cash balances
and collects any excess cash balances on a daily basis in the concentration
account under the terms of a Cash Management and Credit and Deposit Facilities
Agreement between OPC and OxyVinyls (the "Agreement").
Under terms of the Agreement, OPC has committed to loan OxyVinyls, on a
revolving basis, up to $104 million as of December 31, 2001.
PolyOne has guaranteed $42.3 million of the OxyVinyls' loans payable to
OPC. This guarantee terminates on the later of April 30, 2002, or when OxyVinyls
attains a defined amount of earnings before income taxes, depreciation and
amortization.
OPC loans to OxyVinyls cannot decrease below a minimum required balance
of $42.3 million before the termination of the PolyOne guarantee. The loan
payable to OPC was $42.3 million at December 31, 2001 and 2000. In order to
maintain the loan at the minimum required balance, any excess cash collected by
OPC is held in the form of interest bearing deposits under terms of the
Agreement. These deposits are considered loans receivable from OPC. As of
December 31, 2001 and 2000, the balance of loans receivable from OPC was $59.8
million and $88.3 million, respectively. The OxyVinyls' loans payable and
receivable to/from OPC, including interest, has been combined and recorded as
loans receivable from OPC, net in the accompanying consolidated balance sheets.
Loans payable to OPC accrue interest at the reported one-month London
Interbank Offered Rate (LIBOR) plus a calculated variable margin. Loans
receivable from OPC accrue interest at the reported one-month LIBOR. Net
interest expense (income) under the Agreement totaled $1.5 million for the year
ended December 31, 2001, $(.1) million for the year ended December 31, 2000 and
$4.5 million for the period from April 30, 1999 through December 31, 1999. Fees
payable to OPC under the Agreement totaled $.2 million for the year ended
December 31, 2001, $.3 million for the year ended December 31, 2000, and $.4
million for the period from April 30, 1999 through December 31, 1999. These fees
are included in other operating expenses.
The Agreement may be terminated by either OxyVinyls or OPC after the
termination of the PolyOne guarantee, at which date any outstanding loans as
well as any accrued interest and fees payable become due.
(11) RELATED PARTY TRANSACTIONS -
OxyVinyls sells PVC to PolyOne under the terms of a sales agreement
that expires on December 31, 2013. The agreement requires PolyOne and its
majority affiliates' to purchase their annual PVC requirements in North America
from OxyVinyls in excess of 290 million pounds. On the first 880 million pounds
of PVC supplied in any calendar year, PolyOne will pay a price which is based
upon cost and market considerations. PolyOne will purchase all volumes over 880
million pounds in any calendar year at a competitive market price.
18
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(11) RELATED PARTY TRANSACTIONS - (continued)
OxyVinyls sells VCM to OCC and PolyOne under the terms of separate
sales agreements that expire on December 31, 2013. The agreements require that
OCC and PolyOne purchase at market price all of their VCM requirements for
production of PVC in North America from OxyVinyls. Under the terms of the
agreements, PolyOne and OCC receive an integration credit on the first 210
million and 215 million pounds purchased in any year, respectively, to
compensate for surrendered purchasing power on major feedstocks.
OxyVinyls' sales of VCM to OCC under the terms of these agreements were
approximately $27.5 million and $45.2 million for the years ended December 31,
2001 and 2000, respectively, and $25.9 million for the period from April 30,
1999 through December 31, 1999. OxyVinyls' sales of PVC and VCM to PolyOne under
the terms of these agreements were approximately $184 million and $297 million
for the years ended December 31, 2001 and 2000, respectively, and $220 million
for the period from April 30, 1999 through December 31, 1999.
OxyVinyls sells chlor-alkali and other specialty products to OCC under
the terms of a sales agreement that expires on December 31, 2013. This agreement
requires OCC to purchase at market price all chlor-alkali products produced by
OxyVinyls that are not required for its internal uses. This agreement also
requires OCC to purchase all specialty products produced by OxyVinyls at full
manufacturing cost. This agreement also requires OxyVinyls to pay OCC a fee for
marketing excess chlor-alkali products to third parties. OxyVinyls sold $218.2
million, $181.7 million, and $102.7 million of chlor-alkali and specialty
products to OCC during the years ended December 31, 2001 and 2000 and for the
period from April 30, 1999 through December 31, 1999, respectively. OxyVinyls
paid $19.9 million, $22.0 million and $14.7 million to OCC for the marketing fee
during the years ended December 31, 2001 and 2000, and for the period from April
30, 1999 through December 31, 1999, respectively.
OxyVinyls purchases ethylene from Equistar Chemicals LP ("Equistar"),
an equity investee of OCC, under the terms of two agreements. The first
agreement requires that OxyVinyls purchase ethylene at market price, 250 million
pounds during the year 2000 and 200 million pounds in each of the years 2001
through 2003 for the LaPorte VCM facility. This agreement expires December 31,
2003. Under the terms of the second agreement, OxyVinyls purchases ethylene
requirements for the Deer Park VCM and OxyMar facilities at Equistar's weighted
average selling price, as defined in the agreement. This agreement expires on
December 31, 2013. OxyVinyls purchased $193.1 million, $170.5 million and 178.3
million of ethylene from Equistar under the terms of these agreements during the
years ended December 31, 2001 and 2000, and for the period from April 30, 1999
through December 31, 1999, respectively.
OxyVinyls purchases chlorine from Sunbelt Chlor Alkali Partnership, an
equity investee of PolyOne ("Sunbelt"), under the terms of an agreement that
expires on December 31, 2094. This agreement requires OxyVinyls to purchase at
market price, less a discount, all chlorine produced by Sunbelt at its chlorine
manufacturing process facility in McIntosh, Alabama, up to a maximum of 250
thousand tons per year. OxyVinyls purchased $9.8 million, $38.7 million, and
$16.4 million of chlorine from Sunbelt under the terms of this agreement during
the years ended December 31, 2001 and 2000, and for the period from April 30,
1999 through December 31, 1999, respectively.
OxyVinyls purchases VCM from OxyMar under the terms of a VCM purchase
agreement that runs until such time as OPC, either directly or through its
affiliates, ceases to own an equity interest in OxyMar. The agreement requires
OxyVinyls to purchase each year at market prices a minimum of 700 million of the
first 1.1 billion pounds of VCM produced and 530 million pounds of the next 1
billion pounds produced by OxyMar. Total purchases under this agreement were
$290.7 million, $308.9 million and $204.6 million for the years ended December
31, 2001 and 2000, and for the period from April 30, 1999 through December 31,
1999, respectively.
19
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(11) RELATED PARTY TRANSACTIONS - (continued)
OxyVinyls incurs costs charged by OCC and PolyOne under the terms of
various service and shared facilities agreements. These agreements are in effect
generally so long as services continue to be provided between parties and/or
facilities continue to be shared. Under the provisions of these agreements,
OxyVinyls receives from and makes payments to PolyOne and OCC for shared
facilities at Louisville, Kentucky, Pedricktown, New Jersey and Pasadena, Texas.
In some cases the agreements contain renewal options at negotiated prices. The
net total of these costs were approximately $.7 million, $.5 million and $.1
million for the years ended December 31, 2001 and 2000, and for the period from
April 30, 1999 through December 31, 1999, respectively. Additionally, OxyVinyls
incured the following costs payable to OCC and PolyOne (in millions).
OCC PolyOne
---------- -----------
Administrative and other support services
For the year ended December 31, 2001 $ 25.6 $ 2.9
For the year ended December 31, 2000 12.2 7.8
For the period from April 30, 1999
through December 31, 1999 6.9 6.2
Net railcar rent expense (income)
For the year ended December 31, 2001 $ 5.6 $ --
For the year ended December 31, 2000 4.8 (.2)
For the period from April 30, 1999
through December 31, 1999 4.3 .5
OxyVinyls had a net receivable from OCC of $16.5 million and $9.0
million as of December 31, 2001 and 2000, respectively.
OxyVinyls had a net payable to PolyOne of $1.8 million and $6.9 million
as of December 31, 2001 and 2000, respectively. The amounts due to PolyOne do
not include trade receivables of $16 million and $23 million payable to ORI by
PolyOne as of December 31, 2001 and 2000. (See Note 2 and Note 3.)
(12) TEMPORARY IDLING OF DEER PARK, TEXAS FACILITY -
On December 27, 2001, OxyVinyls temporarily idled its chlor-alkali
manufacturing facility in Deer Park, Texas (the "Deer Park Facility") due to
current market conditions. The facility, which has an annual production capacity
of approximately 410,000 tons of chlorine and approximately 451,000 tons of its
co-product caustic soda, will resume operations when warranted by market
conditions. During the period of suspended operations, OCC will supply OxyVinyls
with chlorine from other facilities and will continue to meet all customer
requirements. Operations at OxyVinyls' VCM, PVC and anhydrous caustic soda
facilities at Deer Park will not be impacted by the temporary idling of the
chlor-alkali manufacturing facility. For the year ended December 31, 2001, in
connection with idling of the Deer Park Facility, OxyVinyls incurred severance
and benefit related costs of $10.7 million. Management has reviewed the Deer
Park Facility for impairment and believes the carrying value is recoverable.
20
OXY VINYLS, LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
(13) VALUATION AND QUALIFYING ACCOUNTS -
Approximately 30 employees at various manufacturing facilities were
identified in a workforce reduction plan. Certain severance costs of $.9 million
and relocation costs of $.9 million were accrued in connection with the
formation of the Partnership. Also severance and relocation costs of $2.1
million and $.2 million, respectively, were accrued and charged to expense
during the period from April 30, 1999 through December 31, 1999. Total accrued
severance and relocation costs are recorded in accrued liabilities and the
amount charged to expense during the period from April 30, 1999 through December
31, 1999, is recorded in selling, general and administrative and other operating
expenses.
Severance of $10.7 million related to the Deer Park Facility was
recorded in 2001. These costs were recorded in accrued liabilities and the
amount charged to expense is recorded in selling general and administrative and
other operating expenses. (See Note 12.)
The following table presents the activity of certain valuation and
qualifying accounts for the years ended December 31, 2001 and 2000, and for the
period from April 30, 1999 through December 31, 1999 (in millions).
Balance at Balance at
Beginning Charged to End of
of Period Expense Deductions Adjustment Period
--------- ------- ---------- ---------- ------
For the year ended December 31, 2001
Allowance for doubtful accounts $ -- $ 3.2 $ (1.1) $ (2.1)(d) $ --
Allowance for long term doubtful
accounts $ 4.5 $ -- $ -- $ (2.3)(c) $ 2.2
Severance and other obligations $ -- $ 10.7 $ -- $ -- $ 10.7
========================================== ======= ======= =========== =========== =======
For the year ended December 31, 2000
Allowance for doubtful accounts $ -- $ 1.3 $ (.8) $ (.5)(d) $ --
Allowance for long term doubtful
accounts $ -- $ 4.5 $ -- $ -- $ 4.5
Severance and other obligations $ 3.2 $ -- $ (2.6)(a) $ (.6)(b) $ --
========================================== ======= ======= =========== =========== =======
For the period from April 30, 1999
through December 31, 1999
Allowance for doubtful accounts $ 1.3 $ 2.5 $ (.5) $ (3.3)(d) $ --
Severance and other obligations $ 1.8 $ 2.3 $ (.9)(a) $ -- $ 3.2
(a) Payments under the Partnership's plan for termination and
relocation of certain employees.
(b) Adjustment to cost of acquisition.
(c) Adjusted to income.
(d) Allowance balance transferred to ORI, net.
21