SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 1-12091
MILLENNIUM CHEMICALS INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3436215
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
99 Wood Avenue South
Iselin, New Jersey 08830
(Address of principal executive offices)
908-603-6600
(Registrant's telephone number, including area code)
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 of each of the issuer's classes of
common stock, as of the latest practicable date: 77,324,605 shares of Common
Stock, par value $.01 per share, as of May 15, 1997.
MILLENNIUM CHEMICALS INC.
Table of Contents
Part I Page
Item 1 Financial Statements . . . . . . . . . . . . . . . . . . . 2
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 13
Part II
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Disclosure Concerning Forward-Looking Statements
All statements, other than statements of historical fact, included in this
Quarterly Report are, or may be deemed to be, forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934. Important
factors that could cause actual results to differ materially from those
discussed in such forward-looking statements ("Cautionary Statements") include:
the balance between industry production capacity and operating rates on the one
hand, and demand for the Company's products, including polyethylene and titanium
dioxide, on the other hand; the economic trends in the United States and other
countries which serve as the Company's marketplaces; customer inventory levels;
competitive pricing pressures; the cost and availability of the Company's
feedstocks and other raw materials, including natural gas and ethylene;
competitive technology positions; and failure to achieve the Company's
productivity improvement and cost reduction targets or to complete cosntruction
projects on schedule. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on behalf of the Company are
expressly qualified in their entirety by such Cautionary Statements.
ITEM 1. FINANCIAL STATEMENTS
MILLENNIUM CHEMICALS INC.
CONSOLIDATED BALANCE SHEETS
(In Millions)
March 31, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 65 $ 408
Trade receivables, net 488 464
Inventories 462 515
Other current assets 76 83
---------- ----------
Total current assets 1,091 1,470
Property, plant and equipment, net 2,018 2,031
Investments and other assets 321 334
Goodwill 1,754 1,766
---------- ----------
Total assets $ 5,184 $ 5,601
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 48 $ 98
Current maturities of long-term debt 6 6
Trade accounts payable 121 160
Income taxes payable 97 33
Accrued expenses and other liabilities 423 470*
---------- ----------
Total current liabilities 695 767
Long-term debt 2,004 2,360
Deferred income taxes 105 78
Other liabilities 1,056 1,078*
---------- ----------
Total liabilities 3,860 4,283
---------- ----------
Commitments and contingencies (Note 5)
Stockholders' Equity
Preferred stock (par value $.01 per share,
authorized 25,000,000 shares; none issued
and outstanding) - -
Common stock (par value $.01 per share,
authorized 225,000,000 shares; issued and
outstanding 77,324,605 shares) 1 1
Paid in capital 1,322 1,319
Retained earnings 47 38
Unearned restricted stock (51) (50)
Cumulative translation adjustment 5 10
---------- ----------
Total stockholders' equity 1,324 1,318
---------- ----------
Total liabilities and stockholders' equity $ 5,184 $ 5,601
========== ==========
See Notes to Consolidated (Combined) Financial Statements
----------------------
* Reclassified for comparative purposes.
MILLENNIUM CHEMICALS INC.
CONSOLIDATED (COMBINED) STATEMENTS OF OPERATIONS
(In Millions, except share data)
Three Months Ended
March 31,
---------
1997 1996
---- ----
(Unaudited)
Net sales $ 794 $ 730
Operating costs and expenses
Cost of products sold 624 551
Depreciation and amortization 53 51
Selling, development and administrative expenses 51 42
-------- --------
Operating income 66 86
Interest expense (primarily to a related party in 1996) 38 54
Interest income (5) (10)
Gain on sale of Suburban Propane - (212)
Equity in earnings of Suburban Propane Partners (5) (37)
Other expense, net 1 10
-------- --------
Income from continuing operations before provision
for income taxes 37 281
Provision for income taxes (17) (169)
-------- --------
Income from continuing operations 20 112
Loss from discontinued operations (net of income tax
benefit of $1,287) - (3,190)
-------- --------
Net income (loss) $ 20 $ (3,078)
======== ========
Per share information assuming 76,450,905 shares
outstanding during entire period:
Income per share from continuing operations $ 0.26 $ 1.46
-------- --------
Net income per share $ 0.26 $ (40.26)
======== ========
See Notes to Consolidated (Combined) financial statements.
MILLENNIUM CHEMICALS INC.
CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS
(In Millions)
Three Months Ended
March 31,
---------
1997 1996
---- ----
(Unaudited)
Cash flows from operating activities:
Income from continuing operations $ 20 $ 112
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 53 51
Provision for deferred income taxes 13 52
Equity earnings (5) -
Gain on sale of business - (212)
Changes in assets and liabilities:
(Increase) decrease in trade receivables (24) 26
Decrease in inventories 53 57
Decrease in other current assets 7 8
Decrease in investments and other assets 13 4
(Decrease) increase in trade accounts payable (39) 8
Increase in accrued expenses and other
liabilities and income taxes payable 57 102
(Decrease) in other liabilities (33) (44)
------- ------
Net cash provided by operating activities 115 164
Cash flows from investing activities:
Capital expenditures (36) (74)
Proceeds from sale of business - 733
Proceeds from sale of fixed assets - 1
------- ------
Net cash (used in) provided by investing activities (36) 660
Cash flows from financing activities:
Dividend to stockholders (11) -
Net transactions with affiliates - (1,038)
Proceeds from long-term debt - 10
Repayment of long-term debt (356) (13)
(Decrease) increase in notes payable (50) 206
------- ------
Net cash (used in) financing activities (417) (835)
------- ------
Effect of exchange rate changes on cash (5) 4
------- ------
(Decrease) in cash and cash equivalents (343) (7)
Cash and cash equivalents at beginning of period 408 412
------- ------
Cash and cash equivalents at end of period $ 65 $ 405
======= ======
See Notes to Consolidated (Combined) Financial Statements.
MILLENNIUM CHEMICALS INC.
Consolidated Statements of Changes in Stockholders' Equity
(In Millions)
Unearned Cumulative
Common Stock Paid In Retained Restricted Translation
Shares Amount Capital Earnings Stock Adjustment Total
------ ------ ------- -------- ----- ---------- -----
Balance at December 31, 1996 77 $ 1 $ 1,319 $ 38 $ (50) $ 10 $ 1,318
Net income 20 20
Dividend (11) (11)
Amortization of unearned
restricted stock 3 (1) 2
Translation adjustment (5) (5)
--- ---- ------- ------ ----- ----- -------
Balance at March 31, 1997 (unaudited) 77 $ 1 $ 1,322 $ 47 $ (51) $ 5 $ 1,324
--- ---- ------- ------ ----- ----- -------
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements
(In Millions, except for share data)
NOTE 1--BASIS OF PRESENTATION AND DESCRIPTION OF COMPANY
Millennium Chemicals Inc. (the "Company") was incorporated on April 18, 1996,
and has been publicly-owned since October 1, 1996, when Hanson PLC ("Hanson")
paid a dividend to its stockholders consisting of all of the then outstanding
shares of the Company's common stock (the "Demerger"). The Company's businesses
were owned by Hanson prior to October 1, 1996. The Company is a leading producer
of commodity, industrial, performance and specialty chemicals operating through
its subsidiaries: Millennium Petrochemicals (formerly Quantum Chemical
Corporation), Millennium Inorganic Chemicals (formerly SCM Chemicals Inc., SCM
Chemicals Limited and SCM Chemicals Ltd., collectively), and Millennium
Specialty Chemicals (formerly Glidco Inc.). For periods prior to the Demerger,
the financial statements present, on a combined basis, the historical net assets
and results of operations of their chemical operations. Consequently, the
results of operations and cash flows prior to October 1, 1996 may not be
indicative of what would have been reported if the Company had been a separate
entity. For periods subsequent to the Demerger, the financial statements are
presented on a consolidated basis. All significant intercompany accounts and
transactions have been eliminated.
The accompanying consolidated (combined) financials are unaudited and have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. They include all adjustments which the Company considers
necessary for a fair statement of the results of operations and financial
position for the interim periods presented. Such adjustments consisted only of
normal recurring items, except as otherwise disclosed in Note 3.
The financial statements also include the combined operations of certain
non-chemicals businesses ("Discontinued Businesses") which were owned by
subsidiaries of Hanson that became subsidiaries of the Company upon the Demerger
(see Note 3). The Company sold the Discontinued Businesses to Hanson on October
6, 1996. Since these operations are not a part of the Company upon completion of
the Demerger transactions, their historical results of operations have been
presented in the accompanying financial statements as discontinued operations
for March 1996.
In March 1996, Millennium Petrochemicals sold a 73.6% interest in Suburban
Propane, a division of Millennium Petrochemicals, through an initial public
offering of 21,562,500 common units in a new master limited partnership ("MLP"),
Suburban Propane Partners, L.P., and received aggregate proceeds from the sale
of the common units and the issuance of notes of the Suburban Propane operating
partnership, Suburban Propane, L.P., of approximately $831 resulting in a
pre-tax gain of $212. The Company retains a combined subordinated and general
partnership interest of 26.4% in Suburban Propane Partners L.P. and Suburban
Propane L.P. (collectively "Suburban Propane Partners"), which is accounted for
on an equity basis effective January 1, 1996.
Prior to the Demerger, the Company provided certain corporate, general and
administrative services to certain other indirect wholly-owned subsidiaries of
Hanson ("Prior Affiliates"), including legal, finance, tax, risk management and
employee benefit services. Charges for these services, which were allocated to
the Prior Affiliates based on the respective revenues of the Company and the
Prior Affiliates, reduced the Company's selling and administrative expense by $7
for the three months ended March 31, 1996. The Company's management believes
such method of allocation is reasonable. In addition, prior to the Demerger, a
subsidiary of the Company controlled, on a centralized basis, all cash receipts
and disbursements received or made by such Prior Affiliates.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
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 amount of assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
(In Millions, except for share data)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--Continued
Inventories: Inventories are stated at the lower of cost or market value. For
certain United States ("U.S.") operations cost is determined under the last-in,
first-out (LIFO) method. The first-in, first-out (FIFO) method is used by all
other subsidiaries. Inventories valued at a LIFO basis were approximately $51
and $45 less than the amount of such inventories valued at current cost at March
31, 1997 and December 31, 1996, respectively.
March 31, December 31,
1997 1996
---- ----
(Unaudited)
Inventories consist of the following:
Finished products $ 250 $ 270
In-process products 13 12
Raw materials 127 165
Other inventories 72 68
-------- --------
$ 462 $ 515
========= ========
Environmental Liabilities and Expenditures: Accruals for environmental matters
are recorded in operating expenses when it is probable that a liability has been
incurred and the amount of the liability can be reasonably estimated. Accrued
liabilities are exclusive of claims against third parties (except where payment
has been received or the amount of the liability or contribution by such other
parties, including insurance companies, has been agreed) and are not discounted.
In general, costs related to environmental remediation are charged to expense.
Environmental costs are capitalized if the costs increase the value of the
property and/or mitigate or prevent contamination from future operations.
Foreign Currency Translation and Forward Contracts: Assets and liabilities of
the Company's foreign operating subsidiaries are translated at the exchange rate
in effect at the balance sheet dates, while revenue, expenses, and cash flows
are translated at average exchange rates for the reporting period.
Prior to October 1, 1996, certain of the Company's subsidiaries, whose holdings
principally consisted of sterling denominated cash deposits, were considered to
hedge a portion of Hanson's investments in the U.S. The functional currency of
these subsidiaries was the local currency. After the Demerger, such deposits no
longer acted as a hedge; instead, the entities were primarily holding companies,
the assets of which were remittable to the Company. As such, the functional
currency of these subsidiaries was changed to the U.S. dollar.
During 1996, the Company entered into forward contracts to hedge the impact of
exchange rate fluctuations on approximately 200 pounds sterling of the sterling
deposits held by these subsidiaries. The contracts, which expired on December
12, 1996, were renewed until February 12, 1997, at which time they expired in
connection with the conversion of sterling proceeds received on the sale of
certain offshore companies for approximately 190 pounds sterling ($305). The
proceeds for such sale were used to reduce long-term debt.
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
(In Millions, except for share data)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--Continued
Dual Residence: The Company is organized under the laws of Delaware and is
subject to U.S. federal income taxation of corporations. However, in order to
obtain clearance from the United Kingdom ("U.K.") Inland Revenue as to the
tax-free treatment of the stock dividend for U.K. tax purposes for Hanson and
Hanson shareholders, Hanson agreed with the U.K. Inland Revenue that the Company
will continue to be centrally managed and controlled in the U.K. at least until
September 30, 2001. Hanson also agreed that the Company's Board of Directors
will be the only medium through which strategic control and policy making powers
are exercised, and that board meetings almost invariably will be held in the
U.K. during this period. The Company has agreed not to take, or fail to take,
during such five-year period, any action that would result in a breach of, or
constitute non-compliance with, any of the representations and undertakings made
by Hanson in its agreement with the U.K. Inland Revenue and to indemnify Hanson
against any liability and penalties arising out of a breach of such agreement.
The Company's By-Laws provide for similar constraints. The Company and Hanson
estimate that such indemnification obligation would amount to approximately $421
if it were to arise during the twelve\ months ending September 30, 1997, and it
will decrease approximately $84 on each October 1 prior to October 1, 2001, when
it will expire.
If the Company ceases to be a U.K. tax resident at any time, the Company will be
deemed for purposes of U.K. corporation tax on chargeable gains to have disposed
of all of its assets at such time. In such a case, the Company would be liable
for U.K. corporation tax on chargeable gains on the amount by which the fair
market value of those assets at the time of such deemed disposition exceeds the
Company's tax basis in those assets. The tax basis of the assets would be
calculated in pounds sterling, based on the fair market value of the assets (in
pounds sterling) at the time of acquisition of the assets by the Company
adjusted for U.K. inflation. Accordingly, in such circumstances, the Company
could incur a tax liability even though it has not actually sold the assets and
even though the underlying value of the assets may not actually have appreciated
(due to currency movements). Since it is impossible to predict the future value
of the Company's assets, currency movements and inflation rates, it is
impossible to predict the magnitude of such liability, should it arise.
Fair Value of Financial Instruments: The fair value of all short-term financial
instruments approximated their carrying value due to their short maturity. The
fair value of long-term financial instruments, excluding interest rate
protection agreements and the Exchangeable Notes and the Senior Notes and Senior
Debentures discussed below, approximated carrying value as they were based on
terms that continue to be available to the Company from its lenders.
The Company enters into interest rate protection agreements to manage interest
costs and risks associated with changing interest rates; these agreements
effectively convert underlying variable rate debt into fixed rate debt. At March
1997, the Company had several such agreements covering various periods. The
notional amount of these agreements was $750 at March 31, 1997. The fixed rates
payable to the Company under these agreements average 5.7875% per annum with
terms expiring at various dates through October 1998. The fair value of the
Exchangeable Notes and, collectively, the Senior Notes and the Senior Debentures
is approximately $36 and $705, respectively, based on estimates obtained from
independent financial advisors.
Earnings Per Share: Per share information is computed assuming that the common
stock issued as a result of the Demerger had been issued at the beginning of
1996. The weighted average number of common and common equivalent shares
outstanding at March 31, 1997 was 76,450,905. Such shares include 2,038,619 of
the 2,912,322 restricted shares issued on October 8, 1996, which anticipates the
achievement of certain performance based goals through the restricted period.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," effective for periods ending after December 31, 1997. SFAS
128 specifies new standards designed to improve the earnings per share ("EPS")
information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and increasing
the comparability of EPS data on an international basis. Had the Company adopted
the provisions of SFAS 128 as of January 1, 1997, basic and diluted EPS for the
three months ended March 31, 1997 would have been $0.27.
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
(In Millions, except for share data)
NOTE 3--NET ASSETS OF DISCONTINUED BUSINESSES SOLD TO HANSON
The following represents the results of operations of the Discontinued
Businesses sold to Hanson for the quarter ended March 31, 1996:
Sales $ 515
Pre-tax loss (4,477)
Tax benefit 1,287
---------
Net loss $ (3,190)
=========
The pre-tax loss for the period includes the initial non-cash charge resulting
from adopting the evaluation methodology provided by SFAS 121 of $4,497 ($3,206
after income taxes), related to the Discontinued Businesses.
SFAS 121 requires the impairment review to be performed at the lowest level of
asset grouping for which there are identifiable cash flows which represents a
change from the level at which the previous accounting policy measured
impairment. In this case, economic grouping of assets were made based on local
marketplaces. Evaluation of assets at this lower grouping level indicated an
impairment of certain of those assets. The impairment loss was measured based on
the difference between estimated discounted cash flows and the carrying value of
such assets. Considerable management judgment is necessary to estimate
discounted future cash flows and, accordingly, actual results could vary
significantly from such estimates.
NOTE 4--LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
March 31, December 31,
1997 1996
---- ----
(unaudited)
Revolving Credit Facility bearing interest at
either the bank's prime lending rate, LIBOR or
NIBOR plus .275% at the option of the Company
plus Facility Fee of .15% to be paid quarterly $ 1,188 $ 1,540
7% Senior Notes due 2006 (net of unamortized
discount of $.5 and $.5) 500 500
7.625% Senior Notes due 2026 (net of unamortized
discount of $1.1 and $1.1) 249 249
2.39% Senior Exchangeable Discount Notes, due 2001
(net of unamortized discount of $5 and $6) 38 37
Debt payable through 2007 at interest rates
ranging from 4% to 11% 35 40
Less current maturities (6) (6)
--------- ----------
$ 2,004 $ 2,360
========= ==========
Under the Revolving Credit Agreement, as amended on December 18, 1996, certain
of the Company's subsidiaries may borrow up to $1,650 under the five-year
unsecured revolving credit facility, which matures in July 2001 (the "Credit
Agreement"). The Company is guarantor of this facility. Borrowings under the
Credit Agreement may consist of standby loans or uncommitted competitive loans
offered by syndicated banks through an auction bid procedure. Loans may be
borrowed in U.S. dollars and/or other currencies. The proceeds from the
borrowings may be used to provide working capital and for general corporate
purposes.
MILLENNIUM CHEMICALS INC. Notes to Consolidated (Combined) Financial
Statements-Continued
(In Millions, except for share data)
NOTE 4--LONG-TERM DEBT AND CREDIT ARRANGEMENTS--Continued
The Credit Agreement contains covenants and provisions that restrict among other
things, the ability of the Company and its material subsidiaries to: (i) create
liens on any of its property or assets to or assign any rights to or security
interests in future revenues; (ii) engage in sale and leaseback transactions;
(iii) engage in mergers, consolidations and sales of all or substantially all of
their assets on a consolidated basis; (iv) enter into agreements restricting
dividends and advances by their subsidiaries; and (v) engage in transactions
with affiliates other than those based on arm's length negotiations. The Credit
Agreement also limits the ability of certain subsidiaries of the Company to
incur indebtedness or issue preferred stock. The Credit Agreement also requires
the Company to satisfy certain financial performance criteria.
The Exchangeable Notes have a stated interest rate of 2.39% per annum which when
combined with the implicit interest yield attributable to the original issue
discount to par ("OID") represent a yield to maturity of 6.0%. The notes are not
callable until March 1, 1999. Each holder of a note has a benefit of a right (an
"ADS Right"), not separately tradable, which is exercisable at the holder's
option until March 1, 2001 to cause the holder's notes to be exchanged for
Hanson ADSs, with each ADS representing five ordinary shares of 2 pounds
sterling in the capital of Hanson. The exchange ratio iscurrently set at 12.182
ADSs per $1,000 principal amount of maturity of the notes (after giving effect
to the 1 for 8 consolidation of Hanson's ordinary shares on February 24, 1997).
NOTE 5--COMMITMENTS AND CONTINGENCIES
The Company is subject, among other things, to several proceedings under the
Federal Comprehensive Environmental Response Compensation and Liability Act and
other federal and state statutes or agreements with third parties. These
proceeding are in various stages ranging from initial investigation, to active
settlement negotiations, to implementation of the clean-up or remediation of
sites.
Additionally, certain of the Company's 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. While certain of the
lawsuits involve allegedly significant amounts, it is management's opinion,
based on the advice of counsel, that the ultimate resolution of such litigation
will not have a material adverse effect on the Company's financial position or
results of operations.
The Company believes that the range of potential liability for the above
matters, collectively, which primarily relate to environmental remediation
activities, is between $130 and $180 and has accrued $180 as of March 31, 1997.
The Company has various contractual obligations to purchase raw materials used
in its production of polyethylene, titanium dioxide, and fragrance and flavor
chemicals. Commitments to purchase ethylene used in the production of
polyethylene are based on market prices and expire from 1997 through 2000.
Commitments to purchase ore used in the production of titanium dioxide are
generally 3 to 8 year contracts with competitive prices generally determined at
a fixed amount subject to escalation for inflation. Total commitments to
purchase ore aggregate approximately $1,200 for titanium dioxide and expire
between 1997 and 2002. Commitments to acquire crude sulfate turpentine, used in
the production of fragrance and flavor and flavor chemicals, are generally
pursuant to 1 to 5 year contracts with prices based on the market price and
which expire from 1997 through 2000.
NOTE 6--OPERATIONS BY INDUSTRY SEGMENTS
The Company's principal operations (excluding its interest in Suburban Propane
Partners) are grouped into five business segments: polyethylene and related
products, acetyls and ethyl alcohol, performance polymers, titanium dioxide and
related products, and fragrance and flavor chemicals.
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
(In Millions, except for share data)
NOTE 6--OPERATIONS BY INDUSTRY SEGMENTS--Continued
The following is a summary of the Company's operations by industry segment:
Three Months Ended
March 31,
1997 1996
(unaudited)
Net Sales:
Polyethylene and related products $ 359 $ 285
Acetyls and ethyl alcohol 96 96
Performance polymers 94 95
Titanium dioxide and related products 211 224
Fragrance and flavor chemicals 34 30
------- -------
Total $ 794 $ 730
======= =======
Depreciation and Amortization:
Polyethylene and related products $ 28 $ 26
Acetyls and ethyl alcohol 7 7
Performance polymers 6 5
Titanium dioxide and related products 11 12
Fragrance and flavor chemicals 1 1
------- -------
Total $ 53 $ 51
======= =======
Operating Income:
Polyethylene and related products $ 39 $ 13
Acetyls and ethyl alcohol 6 15
Performance polymers 5 12
Titanium dioxide and related products 5 36
Fragrance and flavor chemicals 11 10
------- -------
Total $ 66 $ 86
======= =======
NOTE 7--INFORMATION ON MILLENNIUM AMERICA
Millennium America Inc. ("MAI") is a wholly-owned subsidiary of the Company and
a holding company for all of the Company's operating subsidiaries other than its
operations in the U.K. and Australia.
MAI is also the issuer of the Senior Notes and Exchangeable Notes and a borrower
under the Credit Agreement, all of which are guaranteed by the Company.
Summarized financial information for MAI is as follows:
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
NOTE 7--INFORMATION ON MILLENNIUM AMERICA--Continued
March 31, December 31,
Millennium America Inc. 1997 1996
---- ----
(Unaudited)
Current assets $ 878 $ 1,258
Noncurrent assets 3,854 3,973
-------- ---------
Total assets $ 4,732 $ 5,231
======== =========
Current liabilities $ 615 $ 707
Noncurrent liabilities 2,989 3,418
Invested capital 1,128 1,106
-------- ---------
Total liabilities and invested capital $ 4,732 $ 5,231
======== =========
Three Months Ended
March 31,
---------
1997 1996
---- ----
(Unaudited)
Net sales $ 713 $ 630
Operating income 64 63
Income from continuing operations 22 100
Net income (loss) 22 (3,090)
NOTE 8--SUBSEQUENT EVENT
On April 2, 1997, a subsidiary of the Company entered into a settlement
agreement under which it is to receive $49 from various insurance companies
relating to a 1989 explosion and fire at its Morris, Illinois plant. Settlement
proceeds of $28 were received during April 1997, and the balance is expected to
be received during May 1997; such proceeds have been, and will be, used to repay
debt and for general corporate purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The Company had operating income of $66 million for the three months ended March
31, 1997, a decrease of $20 million (23%) from the three months ended March 31,
1996, and net sales of $794 million for the 1997 quarter, an increase of $64
million (9%) from the 1996 quarter. The decrease in operating income is
primarily due to selling prices for TiO2 averaging 15% less quarter on quarter.
Although operating results for polyethylene were much improved copared to the
prior year's quarter, the improvement was not sufficient to offset the shortfall
in titanium dioxide results.
Net income for the first quarter of 1997 was $20 million or 26 cents per share.
Net income for the first quarter of 1996 would have been $30 million or 39 cents
per share on a pro forma basis, assuming post-demerger debt levels and corporate
expenses, and excluding unusual items.
Net income for the first quarter of 1997 does not include any material unusual
items. Net income from continuing operations as reported for the first quarter
of 1996 includes $88 million, after tax, related to the one-time gain on the
disposal of 73.6% of the Company's interest in Suburban Propane.
Polyethylene and Related Products: Net sales of polyethylene and related
products were $359 million for the first quarter 1997, an increase of $74
million (26%) from the prior year's quarter. Compared to the first quarter of
1996, operating income tripled to $39 million for this quarter, with higher
selling prices offsetting higher costs for feedstock and purchased ethylene.
Higher feedstock costs (which peaked in January 1997 and returned to more normal
levels) and strong demand in the first two months of 1997 allowed for the
implementation of previously announced price increases. Average selling prices
for the quarter were 30% higher than last year's quarter and 4% lower than the
fourth quarter of 1996. A second price increase has been announced, effective
April 1, 1997.
Acetyls and Ethyl Alcohol: Net sales of acetyls and ethyl alcohol were unchanged
from the 1996 quarter at $96 million, while operating income decreased $9
million (60%) to $6 million primarily due to higher feedstock, ethylene and
natural gas costs and to production curtailments from mechanical start-up
difficulties in the conversion of the Syngas unit to natural gas and supplier
interruptions during the quarter. Volumes improved after the end of the quarter
with the resolution of production difficulties in March and, coupled with price
increases in VAM, acetic acid and methanol, profitability also improved. With
the Syngas unit now operating as expected, the cost structure and production
volume of acetyls are expected to improve.
Performance Polymers: Net sales of performance polymers for the first quarter
were relatively flat compared to the 1996 quarter at $94 million, while
operating income decreased $7 million (58%) to $5 million. Higher raw material
costs, mainly ethylene, propylene and base resins were the main reasons for the
decrease in operating income. Demand in wire and cable continued to be strong
although margin pressure persisted in polypropylene.
Titanium Dioxide and Related Products: Lower average selling prices continue to
hamper titanium dioxide and related products' results, with operating income for
the 1997 first quarter $31 million (86%) lower than the $36 million for the same
period last year. Net sales decreased 6% to $211 million for the quarter
compared to $224 million last year. The benefits of cost containment programs
and higher sales volume were not sufficient to offset the effects of lower
average prices, higher raw material costs and currency movements.
The worldwide average TiO2 selling prices in U.S. dollar terms were
approximately 15% lower than the first quarter of 1996 (and 4% lower than the
fourth quarter of 1996), while sales volume was 11% higher due to stronger
seasonal demand in the coatings market, pre-price increase buying and stronger
European economies. Prices continued to erode in the Americas, Europe and
Asia/Pacific regions during the quarter before stabilizing prior to the April 1
effective date for price increases in the Americas and in Europe and announced
price increases in Asia/Pacific. In local currency terms, average selling prices
in the Americas, Europe and Asia/Pacific were 9%, 27% and 26%, respectively,
lower than the prior year.
The TiO2 plants operated at approximately 94% of effective capacity during the
three months ended March 31, 1997 compared to approximately 84% during the three
months ended March 31, 1996. Last year's production rate was hampered by harsh
winter conditions in the Americas and production difficulties in both the
Americas and Europe.
The chloride-process expansion at the Stallingborough plant continued on
schedule for completion in 1999.
Fragrance and Flavor Chemicals: Fragrance and flavor chemicals continued its
record performance with operating income increasing 10% to $11 million for the
first quarter 1997. Net sales for the quarter increased $4 million (13%) to $34
million. While sales volume was relatively flat compared to the first quarter of
last year, product mix and price increases improved average selling prices,
which were up 14% over the prior year. This improvement affected margins
favorably and offset higher CST costs, which increased 32 cents per gallon
compared to the prior year, to $1.54 per gallon.
CST prices are expected to increase further as demand continues to grow.
Production is running at capacity due to strong sales volume.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash provided by operations and
borrowings under the Company's revolving credit facility. Net cash provided by
operating activities was $115 million in the first quarter of 1997 compared with
net cash provided by operating activities of $164 million in the first quarter
of 1996 due mainly to an 82% decrease in income from continuing operations.
Net cash used in investing activities was $36 million in the first quarter of
1997, compared with net cash provided of $660 million in the first quarter of
1996. The decrease primarily results from the March 1996 sale of a 73.6%
interest in Suburban Propane. In addition, capital expenditures were $36 million
for the 1997 quarter, less than half of the level in the first quarter 1996.
Capital expenditures for the full year 1997 are now expected to be at or
slightly above depreciation of approximately $160 million.
Net cash used in financing activities was $417 million in the first quarter of
1997, compared with net cash used of $835 million in the first quarter of 1996.
The 1997 quarter principally reflected the repayment of long-term debt and
decrease in notes payable. The 1996 primarily reflected pre-demerger
transactions with affiliates.
During the 1997 quarter, gross debt declined $406 million as a result of the
Company's application of the net proceeds of selling several offshore
subsidiaries whose principal holdings were sterling and dollar deposits. Net
debt (i.e. gross debt less available cash) decreased $63 million during the
quarter, primarily from operational cash flow generated during the quarter. As a
result, the ratio of net debt to total capital at March 31, 1997 was 60%, a 1%
improvement from the 1996 year end.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
(b) No Current Reports on Form 8-K were filed during the quarterly
period ended March 31, 1997 and through the date hereof.
SIGNATURE
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.
MILLENNIUM CHEMICALS INC.
John E. Lushefski
Date: May 15, 1997 __________________________
John E. Lushefski
Senior Vice President and Chief
Financial Officer (as duly
authorized officer and principal
financial officer)
EXHIBIT INDEX
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule