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 September 30, 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)
732-603-6600
(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: 77,160,585 shares of Common
Stock, par value $.01 per share, as of October 10, 1997.
MILLENNIUM CHEMICALS INC.
Table of Contents
Page
Part I
Item 1 Financial Statements . . . . . . . . . . . . . . . . . . 2
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . 14
Part II
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . 18
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 20
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;
operating interruptions (including leaks, explosions, fires, mechanical
failures, unscheduled downtime, transportation interruptions, spills, releases
and other environmental risks); competitive technology positions; failure to
achieve the Company's productivity improvement and cost reduction targets or to
complete construction projects on schedule; and difficulties that may be
encountered in closing the Company's previously announced olefins and polymers
joint venture with Lyondell Petrochemical Company as anticipated, in combining
the two businesses, in achieving synergies as anticipated, or in managing the
businesses as a partnership. 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)
September 30, December 31,
1997 1996*
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 35 $ 408
Trade receivables, net 518 464
Inventories 488 515
Other current assets 54 83
------- -------
Total current assets 1,095 1,470
Property, plant and equipment, net 2,008 2,031
Investments and other assets 275 334
Goodwill 1,730 1,766
------- -------
Total assets $ 5,108 $ 5,601
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 85 $ 98
Current maturities of long-term debt 8 6
Trade accounts payable 122 160
Income taxes payable 28 33
Accrued expenses and other liabilities 424 470
------- -------
Total current liabilities 667 767
Long-term debt 1,808 2,360
Deferred income taxes 167 78
Other liabilities 1,018 1,078
------- -------
Total liabilities 3,660 4,283
------- -------
Commitments and contingencies (Note 6)
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
77,156,585 shares) 1 1
Paid in capital
1,327 1,319
Retained earnings 172 38
Unearned restricted stock (50) (50)
Cumulative translation adjustment (2) 10
------- -------
Total stockholders' equity 1,448 1,318
------- -------
Total liabilities and stockholders'
equity $ 5,108 $ 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)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1997 1996 1997 1996
(Unaudited) (Unaudited)
<CAPTION>
<S> <C> <C> <C> <C>
Net sales $ 816 $ 769 $ 2,423 $ 2,279
Operating costs and expenses:
Cost of products sold 546 571 1,741 1,711
Depreciation and amortization 54 50 160 152
Selling, development and administrative expenses 59 43 167 136
Asset impairment and related closure costs - 15 - 75
------- ------ ------- -------
Operating income 157 90 355 205
Interest expense (primarily to a related party in 1996) 32 63 102 171
Interest income (1) (13) (7) (25)
Gain on sale of Suburban Propane - 2 - (210)
Other expense (income) 4 15 (40) (1)
------- ------ ------- -------
Income from continuing operations before provision
for income taxes 122 23 300 270
(Provision) benefit for income taxes (55) (13) (131) (167)
------ ------ ------- -------
Income from continuing operations 67 10 169 103
Income (loss) from discontinued operations
(net of income tax of $17 and benefit of $1,269,
respectively) - 37 - (3,167)
------ ------ ------- -------
Net income (loss) $ 67 $ 47 $ 169 $ (3,064)
====== ====== ======= =======
Per share information assuming 76,334,873 shares
outstanding during entire period: $ 0.87 $ 0.13 $ 2.21 $ 1.35
Income per share from continuing operations ------ ------ ------- -------
Net income (loss) per share $ 0.87 $ 0.62 $ 2.21 $ (40.13)
====== ====== ======= =======
</TABLE>
See Notes to Consolidated (Combined) financial statements.
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS
(In Millions)
Nine Months Ended
September 30,
1997 1996
---- ----
(Unaudited)
Cash flows from operating activities:
Income from continuing operations $ 169 $ 103
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 160 152
Asset impairment and related closure costs - 75
Provision for deferred income taxes 97 64
Restricted stock amortization 8 -
Gain on sale of business - (210)
Changes in assets and liabilities:
(Increase) in trade receivables (54) (12)
Decrease in inventories 27 66
Decrease in other current assets 29 80
Decrease (increase) in investments and
other assets 59 (66)
Decrease in trade accounts payable (38) (13)
Decrease in accrued expenses and other
liabilities and income taxes payable (51) (50)
(Decrease) increase in other liabilities (68) 91
------- ------
Net cash provided by operating activities 338 280
Cash flows from investing activities:
Capital expenditures (116) (223)
Proceeds from sale of business - 733
Proceeds from sale of fixed assets 2 7
------- ------
Net cash (used in) provided by investing
activities (114) 517
Cash flows from financing activities:
Dividend to stockholders - (35)
Net transactions with affiliates - (1,237)
Proceeds from long-term debt - 306
Repayment of long-term debt - (550)
(Decrease) increase in notes payable (13) 109
------- ------
Net cash (used in) financing activities
(598) (822)
Effect of exchange rate changes on cash 1 1
------ ------
(Decrease) in cash and cash equivalents (373) (24)
Cash and cash equivalents at beginning of period 408 412
------ ------
Cash and cash equivalents at end of period $ 35 $ 388
====== ======
See Notes to Consolidated (Combined) Financial
Statements
<PAGE>
MILLENNIUM CHEMICALS INC.
Consolidated Statements of Changes in Stockholders' Equity
(In Millions)
<TABLE>
Unearned Cumulative
Common Stock Paid In Retained Restricted Translation
Shares Amount Capital Earnings Stock Adjustment Total
------ ------ ------- -------- ----- ---------- -----
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 77 1 $ 1,319 $ 38 $ (50) $ 10 $ 1,318
Net income 169 169
Dividend (35) (35)
Amortization and adjustment of
unearned restricted stock 8 8
Translation adjustment (12) (12)
------ ------ ------ ----- ----- ------ -------
Balance at September 30, 1997 (unaudited) 77 1 $ 1,327 $ 172 $ (50) $ (2) $ 1,448
====== ====== ====== ===== ===== ====== =======
</TABLE>
<PAGE>
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") is a leading producer of commodity,
industrial, performance and specialty chemicals operating through its
subsidiaries: Millennium Petrochemicals Inc. (formerly Quantum Chemical
Corporation), Millennium Inorganic Chemicals Inc. (formerly SCM Chemicals Inc.
and its non-US affiliates), and Millennium Specialty Chemicals Inc. (formerly
Glidco Inc.). On July 28, 1997, the Company and Lyondell Petrochemical Company
("Lyondell") announced an agreement to jointly own and operate the olefins and
polymers business of the Company and Lyondell. The partnership will be named
Equistar Chemicals, L.P. ("Equistar") (see Note 9).
The Company was incorporated on April 18, 1996, and has been publicly-owned
since October 1, 1996, when Hanson PLC ("Hanson") transferred its chemical
operations to the Company and, in consideration, all of the then outstanding
shares of the Company's common stock were distributed pro rata to Hanson's
shareholders (the "Demerger"). For periods prior to the Demerger, the financial
statements present, on a combined basis, the historical net assets and results
of operations of Hanson's chemical operations. Consequently, the Company's
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 consist only of
normal recurring items, except as otherwise disclosed in Notes 3 and 4.
The combined statements of operations and cash flows for the periods ended
September 30, 1996 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 4).
The Company sold the Discontinued Businesses to Hanson on October 6, 1996. Since
these operations were not a part of the Company upon completion of the Demerger
transactions, their historical results of operations have been presented as
discontinued operations.
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 $210. 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 expenses by
$6 and $18 for the three months and nine months ended September 30, 1996
respectively. 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
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
(In Millions, except for share data)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--Continued
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.
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 $38
and $45 less than the amount of such inventories valued at current cost at
September 30, 1997 and December 31, 1996, respectively
September 30, December 31,
1997 1996
(Unaudited)
Inventories consist of the following:
Finished products $ 253 $ 270
In-process products 15 12
Raw materials 141 165
Other inventories 79 68
------- -------
$ 488 $ 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 of such sales 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 have amounted to
approximately $421 if it had arisen during the twelve months ended September 30,
1997, and that such obligation will decrease by 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, the Senior Notes and the
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. The
notional amount of these agreements was $750 at September 30, 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. At September 30, 1997
the fair values of the Exchangeable Notes and, collectively, the Senior Notes
and the Senior Debentures are approximately $36 and $754, 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 September 30, 1997 was 76,334,873. Such shares include 1,834,761
of the 2,677,095 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 and nine months ended September 30, 1997 would have been .89 cents
and $2.24, respectively.
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
(In Millions, except for share data)
NOTE 3--IMPAIRMENT OF LONG-LIVED ASSETS
During 1996, the Company recorded a $75 non-recurring charge ($48 after tax) to
reduce the carrying value of certain property, plant and equipment employed in
sulfate-process manufacturing of TiO2 caused by changes in market conditions and
accrue for related closure costs. During the first half of 1996, intense price
competition was experienced, as customers of the anatase products associated
with the sulfate-process operations sought more cost efficient manufacturing
inputs to their applications. As a result of the deterioration of market
conditions in the TiO2 industry, the Company decided to implement a program
which included a reduction of its sulfate-process manufacturing capacity both in
the U.K. and U.S. The 10,000 tonnes per annum sulfate-process plant in
Stallingborough, England has been closed, and production at the 66,000 tonnes
per annum sulfate-process facility in Baltimore, Maryland has been reduced by
approximately one-third. The carrying value of plant and equipment associated
with sulfate-process manufacturing was reduced by $60 as a result of evaluating
the recoverability of such assets under the unfavorable market conditions
existing at that time. The amount of the write-down was determined by comparison
to the fair value of the related assets, as determined based on the projected
discounted cash flows identified to such assets.
NOTE 4-- DISCONTINUED BUSINESSES SOLD TO HANSON
The following represents the results of operations of the Discontinued
Businesses sold to Hanson:
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------ ------------------
Sales $ 555 $ 1,444
Pre-tax income (loss) 54 (4,436)
Tax (expense) benefit (17) 1,269
--------- ---------
Net income (loss) $ 37 $ (3,167)
========= =========
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 was 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.
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
(In Millions, except for share data)
NOTE 5--LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
September 30, 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 $ 994 $ 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 (8) (6)
------- -------
$ 1,808 $ 2,360
======= =======
Under the Revolving Credit Agreement, as amended on December 18, 1996, certain
of the Company's subsidiaries may borrow up to $1,500 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.
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, 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. In
addition, the Credit Agreement requires the Company to satisfy certain financial
performance criteria.
The indenture under which the Senior Notes and Senior Debentures are issued
contains certain covenants that limit, among other things, (i) the ability of
Millennium America Inc. and its Restricted Subsidiaries (as defined) to grant
liens or enter into sale and lease-back transactions, (ii) the ability of the
Restricted Subsidiaries to incur additional indebtedness, and (iii) the ability
of Millennium America Inc. and the Company to merge, consolidate or transfer
substantially all of their respective assets.
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"), represents 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 each in the capital of Hanson.
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
(In Millions, except for share data)
NOTE 5--LONG-TERM DEBT AND CREDIT ARRANGEMENTS--continued
The exchange ratio is currently set at 12.182 ADSs per $1,000 principal amount
of maturity of the notes. At September 30, 1997, the closing price of Hanson
ADSs on the New York Stock Exchange was $24.125 per ADS.
NOTE 6--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 $150 and $195 and has accrued $195 as of September 30,
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 $1,100 for titanium dioxide and expire
between 1997 and 2002. Commitments to acquire crude sulfate turpentine ("CST"),
used in the production of fragrance and flavor chemicals, are generally pursuant
to 1- to 5-year contracts expiring from 1997 through 2000 with prices based on
the market price.
NOTE 7--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 specialty chemicals.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
(In Millions, except for share data)
NOTE 7--OPERATIONS BY INDUSTRY SEGMENTS--Continued
The following is a summary of the Company's operations by industry segment:
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
1997 1996 1997 1996
(unaudited) (unaudited)
<CAPTION>
<S> <C> <C> <C> <C>
Net Sales:
Polyethylene and related products $ 354 $ 344 $ 1,067 $ 944
Acetyls and ethyl alcohol 111 91 314 294
Performance polymers 98 88 291 274
Titanium dioxide and related products 217 215 639 670
Specialty chemicals 36 31 112 97
------ ------ ------- ------
Total $ 816 $ 769 $ 2,423 $ 2,279
====== ====== ======= ======
Depreciation and Amortization:
Polyethylene and related products $ 30 $ 26 $ 88 $ 77
Acetyls and ethyl alcohol 7 5 21 18
Performance polymers 5 6 15 16
Titanium dioxide and related products 10 12 32 38
Specialty chemicals 2 1 4 3
------ ------ ------- ------
Total $ 54 $ 50 $ 160 $ 152
====== ====== ======= ======
Operating income:
Polyethylene and related products $ 88 $ 68 $ 205 $ 112
Acetyls and ethyl alcohol 25 11 55 39
Performance polymers 12 9 24 32
Titanium dioxide and related products 22 (6) 38 (6)
Specialty chemicals 10 8 33 28
------ ------ ------- ------
Total $ 157 $ 90 $ 355 $ 205
====== ====== ======= ======
</TABLE>
It is proposed that substantially all of the Company's polyethylene and related
products segment, performance polymers segment and the ethyl alcohol portion of
the acetyls and ethyl alcohol segment will be contributed to Equistar (see note
9). Equistar will be accounted for on an equity basis.
NOTE 8--INFORMATION ON MILLENNIUM AMERICA
Millennium America Inc. ("MAI") is a wholly-owned subsidiary of the Company and
the holding company for all of the Company's operating subsidiaries other than
its operations in the U.K. and Australia.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
(In Millions except share data)
NOTE 8--INFORMATION ON MILLENNIUM AMERICA--Continued
MAI is also the issuer of the Senior Notes, the Senior Debentures and
Exchangeable Notes and a borrower under the Credit Agreement, all of which are
fully and unconditionally guaranteed by the Company. Summarized financial
information for MAI is as follows:
September 30, December 31,
1997 1996
(Unaudited)
Current assets $ 925 $ 1,258
Noncurrent assets 3,842 3,973
-------- --------
Total assets $ 4,767 $ 5,231
========= ========
Current liabilities $ 586 $ 707
Noncurrent liabilities 3,254 3,418
Invested capital 927 1,106
--------- --------
Total liabilities and invested capital $ 4,767 $ 5,231
========= ========
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(unaudited) (unaudited)
<CAPTION>
<S> <C> <C> <C> <C>
Net sales $ 727 $ 673 $ 2,169 $ 1,988
Operating income 148 78 342 156
Income from continuing operations 63 4 167 79
Net income (loss) 63 41 167 (3,088)
</TABLE>
Separate consolidated financial statements of MAI are not presented as
management has determined that they would not be material to investors.
NOTE 9--JOINT VENTURE
On July 28, 1997 the Company and Lyondell announced an agreement to form a joint
venture partnership to own and operate the olefins and polymers and ethyl
alcohol businesses of the Company and Lyondell. The partnership will be named
Equistar Chemicals, L.P.. It is expected to be the largest producer of ethylene
and polyethylene in North America with expected revenues of $5 billion and book
assets totaling $5 billion. Equistar will be 57% owned by Lyondell and 43% by
the Company. It will be managed by a Partnership Governance Committee consisting
of three representatives of each of Lyondell and the Company. Approval of
Equistar's strategic plans and other major decisions will require the consent of
representatives of both partners. All decisions of Equistar's Governance
Committee that do not require unanimity between Lyondell and the Company may be
made by Lyondell's representatives alone. Management of Equistar will include
officers from both companies who will be employees of Equistar when the venture
closes. Dan F. Smith, Lyondell's Chief Executive Officer, will serve as
Equistar's Chief Executive Officer.
MILLENNIUM CHEMICALS INC.
Notes to Consolidated (Combined) Financial Statements-Continued
(In Millions except share data)
NOTE 9--JOINT VENTURE--continued
Equistar will have 13 manufacturing facilities on the U.S. Gulf Coast and in the
U.S. Midwest, producing ethylene, propylene, polyethylene (high-density,
low-density and linear-low-density), polypropylene, ethyl alcohol, butadiene,
aromatics, MTBE and other associated products. Equistar initially will have
$1.745 billion of debt including $745 million of existing Lyondell debt.
Although Equistar will assume primary responsibility for such existing Lyondell
debt, Lyondell will continue to be liable for such debt. In addition, Lyondell
will provide a $345 million note payable to Equistar. MAI will guarantee $750
million of Equistar's debt. It is contemplated that Equistar will distribute all
available net operating cash (as defined) pro rata to the partners on a monthly
basis.
The Company will contribute to Equistar substantially all of the net assets and
businesses comprising its polyethylene and related products and performance
polymers segments and the ethyl alcohol portion of the acetyls and ethyl alcohol
segment. The Company will retain the accounts receivable and substantially all
the accounts payable and accrued expenses from its contributed businesses and
receive approximately $750 million in cash upon formation of Equistar. Not
included in Equistar are Millennium Petrochemicals' acetic acid, vinyl acetate
and methanol businesses. Also excluded from Equistar are Millennium Inorganic
Chemicals and its non-US affiliates, Millennium Specialty Chemicals, and
Millennium's equity interest in Suburban Propane Partners.
Lyondell will contribute substantially all of the net assets and businesses
comprising its petrochemicals segment, except for retained accounts payable and
accrued expenses. Not included in the Venture are Lyondell's 58% interest in
Lyondell-CITGO Refining Co. Ltd. and its 75% interest in Lyondell Methanol (a
joint venture with MCN Investment Corp.).
MAI is soliciting consents from the holders of the Exchangeable Notes, and will
solicit consents from the holders of the Senior Notes and Senior Debentures, to
certain amendments to the indentures under which such securities were issued.
These amendments will permit the transaction involved in creating Equistar
without compliance by the Company or MAI with the relevant indenture covenants,
the application of which the Company believes is uncertain under the
circumstances. MAI is offering to purchase the Exchangeable Notes in conjunction
with such solicitation.
The transaction, which has been unanimously approved by the Boards of Directors
of both companies, is subject to approval by both companies' stockholders at
special meetings scheduled to be held on November 20, 1997 and satisfaction of
certain other conditions. Equistar is expected to commence operations by year
end.
NOTE 10--SUBSEQUENT EVENT
On October 17, 1997, the Company announced its intention to purchase from
Rhone-Poulenc Chimie S.A. its titanium dioxide (TiO2) and certain specialty and
intermediate chemicals subsidiaries located in France. The Company and
Rhone-Poulenc hope to complete the transaction before the end of this calendar
year, subject to a definitive agreement being signed and all necessary
clearances being obtained.
<PAGE>
ITEM 2. Management's Discussion Analysis Of Financial Condition and Results Of
Operations
Results of Operations
Three Months Ended September 30, 1997 Compared To Three Months Ended September
30, 1996
The Company had operating income of $157 million for the three months ended
September 30, 1997, an increase of $67 million (74%) from the three months ended
September 30, 1996. Net sales of $816 million for the 1997 quarter increased $47
million (6%) over the 1996 quarter. The 1996 quarter included a non-recurring
charge of $15 million for closure costs related to certain sulphate process
facilities. Excluding such charge, 1997 operating income increased 50% over the
comparable quarter of the prior year. This increase in operating income is due
primarily to higher selling prices and lower feedstock costs in the polyethylene
and related products segment together with improved volumes and production costs
in the titanium dioxide and related products segment .
Net income for the third quarter of 1997 was $67 million or $.87 per share. Net
income from continuing operations for the third quarter of 1996 would have been
$33 million or $.43 cents per share, assuming post-Demerger debt levels and
corporate expenses and excluding the non-recurring charge mentioned above.
Polyethylene and Related Products: Net sales of polyethylene and related
products were $354 million for the third quarter of 1997, an increase of $10
million (3%) from the prior year's quarter. Compared to the third quarter of
1996, operating income increased $20 million to $88 million, with higher selling
prices and lower raw material costs more than offsetting slightly lower volumes.
Average selling prices for the quarter were 2% higher than the third quarter of
last year but 3% lower than the second quarter of 1997. Significantly lower raw
material costs offset the decline in prices from the second quarter. The
ethylene markets have remained fairly stable during the quarter, as industry
outages kept supplies tight. The Company expects prices to decline and feedstock
costs to increase in the fourth quarter, with net sales and operating income
expected to continue to decline into 1998.
Acetyls and Ethyl Alcohol: Net sales of acetyls and ethyl alcohol increased $20
million (22%) while operating income more than doubled to $25 million due mainly
to higher selling prices in most product lines, lower costs and slightly higher
volume. Average selling prices for VAM, methanol and acetic acid were 11%, 20%
and 9%, higher, respectively, than the previous year's quarter. Cost
efficiencies are being realized from the natural gas conversion of the Syngas
facility; however, operational problems were experienced during the quarter,
limiting production. Third party volumes for methanol, while 33% higher than
last year's quarter, were 26% below the Company's expectations for the quarter.
Performance Polymers: Net sales of performance polymers for the third quarter
increased $10 million (11%) over the 1996 quarter to $98 million. Operating
income increased $3 million (33%) to $12 million as a result of generally higher
volumes due to strong demand. The effects of excess industry capacity in
polypropylene partially offset growth in the wire and cable business, where
volumes and prices continued to improve due to strong demand. These trends are
expected to continue for the balance of 1997.
Titanium Dioxide and Related Products: Operating income for the third quarter of
1997 was $22 million, an increase of $13 million (144%) from the comparable
quarter of 1996, excluding the $15 million charge taken in 1996 for closure
costs relating to certain sulfate-process manufacturing facilities. Net sales of
$217 million were in line with the prior year's quarter, with volumes up
approximately 5% from the 1996 quarter due to strong demand in all regions.
Worldwide average TiO2 selling prices were 3.9% lower than the third quarter of
1996, reflecting the steep decline in prices beginning in the second quarter of
last year. Price increases were implemented during the second and third quarters
of 1997 and reversed this downward trend, with third quarter prices 2.4% higher
than the second quarter. Price increases in all regions have been announced to
take effect in the fourth quarter of this year.
The strong British pound continues to hinder the success of price increases in
Europe, with exchange rate fluctuations absorbing the effect of any increases.
In Asia/Pacific markets, prices are generally rising due to tight supply.
Currently, profits overall are expected to continue improving in the fourth
quarter of 1997, as price increases take effect and the significant focus on
cost reduction programs continues.
Specialty Chemicals: Fragrance and flavor chemicals continued its record
performance with operating income increasing 25% to $10 million for the third
quarter 1997. Net sales for the quarter increased $5 million (16%) to $36
million, primarily due to a 9% increase in sales volume and an 8% increase in
average selling prices. Partially offsetting this improvement were higher CST
costs, which increased 25% over the 1996 quarter and 7% over the second quarter
of 1997, to $1.78 per gallon. Further increases in CST prices are expected as
demand continues to grow. Demand levels continue to hold steady and are expected
to continue through year end.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
The Company had operating income of $355 million for the nine months ended
September 30, 1997, an increase of $150 million (73%) from the nine months ended
September 30, 1996, and net sales of $2,423 million, an increase of $144 million
(6%) from the 1996 period. The nine months ended September 30, 1996 included a
$75 million non-recurring charge to reduce the carrying value of certain
facilities employed in the sulfate-process manufacturing of TiO2 products and
related closure costs. Excluding such charges, operating income for 1997
increased 27% over 1996. This increase is primarily due to higher selling prices
in the polyethylene and related products segment offsetting the impact of higher
feedstock costs and lower selling prices in TiO2.
Net income for the nine months ended September 30, 1997 was $169 million or
$2.21 per share, including a one- time gain from an insurance settlement of $46
million ($28 after tax) relating to a 1989 explosion and fire at the Morris,
Illinois plant. Excluding this gain, earnings per share would have been $1.85.
Net income from continuing operations for the same period in 1996 would have
been $90 million or $1.18 per share, assuming post-Demerger debt levels and
corporate expenses, and excluding the $75 million ($48 after tax) non-recurring
charges and a $88 million after-tax gain related to the disposal of 73.6% of the
Company's interest in Suburban Propane in the first quarter of 1996.
Polyethylene and Related Products: Net sales of polyethylene and related
products were $1,067 million for the nine months ended September 30, 1997, an
increase of $123 million (13%) from the same period in 1996. Compared to the
nine months of 1996, operating income increased $93 million (83%) to $205
million. Average selling prices were 12% higher than the 1996 nine months,
offsetting higher ethylene costs (which peaked in January 1997). These higher
costs allowed for price increases to be implemented. Prices are expected to
decline in the fourth quarter.
Acetyl and Ethyl Alcohol: Net sales of acetyl and ethyl alcohol for the nine
months ended September 30, 1997 increased $20 million over the same period in
1996 to $314 million. Operating income increased $16 million (41%) to $55
million. Despite some continued mechanical difficulties at the Syngas facility,
the conversion of the unit to natural gas had an $8 million favorable impact on
costs for the nine months of 1997. This, along with higher selling prices, more
than offset lower volume and higher feedstock prices. Volumes for acetic acid
and VAM were 17% and 1%, respectively, lower during the 1997 period than the
1996 period, as a result of production limitations arising from the mechanical
difficulties.
Performance Polymers: Net sales of performance polymers for the nine months
ended September 30, 1997 increased 6% compared to the same period in 1996, while
operating income decreased $8 million (25%) to $24 million. Higher raw material
costs, mainly ethylene, propylene and base resins, primarily account for the
decrease in operating income. While demand and pricing were strong in the wire
and cable market, demand for polypropylene was depressed due to excess industry
capacity.
Titanium Dioxide and Related Products: Operating income for the nine months
ended September 30, 1997 decreased $31 million (45%) to $38 million compared to
the same period in 1996, excluding the $60 million non-recurring charge to
reduce the carrying value of certain sulfate-process manufacturing facilities
and related closure costs of $15 million taken during the nine months of 1996.
During the 1997 period, worldwide average TiO2 prices were 9.6% lower than the
1996 period, reflecting the decline in prices over the past twelve months. The
second and third quarter of 1997 saw a reversal of this downward trend, with
third quarter average worldwide prices 2.4% higher than average prices in the
quarter ended June 30, 1997.
Sales volume during the nine months ended September 30, 1997 were 5% higher than
the same period in 1996 with strong demand in Europe and the Asia/Pacific
markets. Profits should improve as price increases continue to be implemented
and cost saving initiatives are realized.
Specialty Chemicals: Fragrance and flavor chemicals continued its record
performance with operating income for the nine months ended September 30, 1997
increasing 14% over the same period in 1996 to $32 million. Net sales for the
nine months ended September 30, 1997 increased $17 million (18%) to $112
million. A 9% increase in sales volume and an 8% increase average selling prices
have more than offset the continuing rise in CST prices, up 25% compared to
1996. Further increases in CST prices are expected as demand continues to grow.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash provided by operations and
borrowings under the Credit Agreement. Net cash provided by operating activities
was $338 million for the nine months ended September 30, 1997 compared with net
cash provided by operating activities of $280 million in the same period of 1996
due mainly to a 27% increase in operating income, proceeds of $49 million
received from an insurance settlement and favorable interest and corporate
expense levels in 1997 compared to pre-Demerger levels.
Net cash used in investing activities was $114 million in the nine months ended
September 30, 1997, compared with net cash provided of $517 million in the same
period of 1996. The 1996 period primarily benefited from the March 1996 sale of
a 73.6% interest in Suburban Propane. Capital expenditures of $116 million for
the 1997 period were $107 million less than in the 1996 period. Capital
expenditures for the full year 1997 are now expected to be at or slightly above
depreciation of approximately $170 million.
Net cash used in financing activities was $598 million in the nine months ended
September 30, 1997 compared with net cash used of $822 million in the same
period in 1996. The 1997 period principally reflected the repayment of long-term
debt. The 1996 period primarily reflected pre-Demerger transactions with Prior
Affiliates.
During the nine months ended September 30, 1997, gross debt declined $550
million, including $358 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 $190 million during this time, primarily from operational cash
flow generated. As a result, the ratio of net debt to total capital at September
30, 1997 was 56%, a five percentage-point improvement from the 1996 year end.
Upon the closing of Equistar, the Company will receive $750 million in cash
drawn under Equistar's new bank credit facilities. The Company will apply this
payment, together with approximately $250 million expected to be collected
within 90 days after such closing date from retained accounts receivable, to
reduce the Company's bank debt. The commitments under the Credit Agreement will
be reduced to $750 million on the Equistar closing date and will be reduced
permanently to $500 million 90 days thereafter.
In connection with the formation of Equistar, the Company intends to obtain
consents to certain amendments to the indentures under which the Exchangeable
Notes, Senior Notes and Senior Debentures were issued and, in conjunction
therewith, is offering to purchase the Exchangeable Notes (see Note 9).
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Master Transaction Agreement between Lyondell
Petrochemical Company and Millennium Chemicals Inc.
(incorporated by reference to the Company's Current
Report on Form 8-K dated July 25, 1997)
10.2 First Amendment to Master Transaction Agreement between
Lyondell Petrochemical Company and Millennium Chemicals
Inc.(incorporated by reference to the Company's Current
Report on Form 8-K dated October 17, 1997)
10.3 Limited Partnership Agreement of Equistar Chemicals,
LP (incorporated by reference to the Company's Current
Report on Form 8-K dated October 17, 1997)
10.4 Form of Asset Contribution Agreement among Millennium
Petrochemicals Inc., Millennium Chemicals LP LLC and
Equistar Chemicals, LP (incorporated by reference to
the Company's Current Report on Form 8-K dated October
17, 1997)
10.5 Form of Parent Agreement among Lyondell Petrochemical
Company, Millennium Chemicals Inc. and Equistar
Chemicals, LP (incorporated by reference to the
Company's Current Report on Form 8-K dated October 17,
1997)
10.6 Amendment Number One to the Millennium Chemicals Inc.
Long-Term Incentive Plan
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
(b) The following Current Reports on Form 8-K were filed during the
quarter ended September 30, 1997 and through the date hereof.
Date of Report Item No. Financial Statements
July 25, 1997 5 None
October 17, 1997 5 None
<PAGE>
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.
Date: November 14, 1997 __________________________
John E. Lushefski
Senior Vice President and Chief
Financial Officer (as duly
authorized officer and principal
financial officer)
<PAGE>
EXHIBIT INDEX
10.1 Master Transaction Agreement between Lyondell Petrochemical
Company and Millennium Chemicals Inc. (incorporated by
reference to the Company's Current Report on Form 8-K dated
July 25, 1997)
10.2 First Amendment to Master Transaction Agreement between
Lyondell Petrochemical Company and Millennium Chemicals Inc.
(incorporated by reference to the Company's Current Report on
Form 8-K dated October 17, 1997)
10.3 Limited Partnership Agreement of Equistar Chemicals, LP
(incorporated by reference to the Company's Current Report on
Form 8-K dated October 17, 1997)
10.4 Form of Asset Contribution Agreement among Millennium
Petrochemicals Inc., Millennium Chemicals LP LLC and Equistar
Chemicals, LP (incorporated by reference to the Company's
Current Report on Form 8-K dated October 17, 1997)
10.5 Form of Parent Agreement among Lyondell Petrochemical Company,
Millennium Chemicals Inc. and Equistar Chemicals, LP
(incorporated by reference to the Company's Current Report on
Form 8-K dated October 17, 1997)
10.6 Amendment Number One to the Millennium Chemicals Inc. Long-Term
Incentive Plan
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
AMENDMENT NUMBER ONE
TO THE
MILLENNIUM CHEMICALS INC.
LONG-TERM STOCK INCENTIVE PLAN
WHEREAS, Millennium Chemicals Inc. (the "Company") maintains the Millennium
Chemicals Inc. Long-Term Stock IncentivePlan (the "Stock Incentive Plan");
WHEREAS, pursuant to Section 14.1 of the Stock Incentive Plan, the Board of
Directors of the Company (the "Board") reserved the right to amend the Stock
Incentive Plan;
and WHEREAS, the Board desires to amend the Stock Incentive Plan.
NOW, THEREFORE, effective as of the date this amendment is approved by the
Board, the Stock Incentive Plan is amended as follows:
1. Section 6.3(g) of the Stock Incentive Plan is amended by the addition of
a new sentence at the end thereof to read as follows: Notwithstanding the
foregoing, an outstanding Option may not be modified to reduce the exercise
price thereof nor may a new Option at a lower price be substituted for a
surrendered Option, provided that the foregoing shall not apply to adjustments
or substitutions in accordance with Section 4.2 or Article XIII of the Plan.
2. Section 7.3(a)(i) of the Stock Incentive Plan is amended by the deletion
of the last sentence and the substitution of the following in lieu thereof:
Within these limits, the Committee may provide at the time of grant for the
lapse of such restrictions in installments in whole or in part, based on (w)
service; (x) attainment of objective performance goals established pursuant to
Section 7.3(a)(ii) below; (y) a Termination of Employment (including, without
limitation, Retirement) or such other extraordinary events as determined by the
Committee in its sole discretion (referred to herein, individually and
collectively, as a "Special Event"); or (z) such other factors or criteria as
the Committee may determine in its sole discretion. In addition, after the date
of grant and in connection with the occurrence of a Special Event, the Committee
may vest and/or waive the deferral limitations for all or any part of any
Restricted Stock Award other than Restricted Stock Awards for which the
restrictions lapse based on (x) above and with regard to which the objective
performance goals established pursuant to Section 7.3(a)(ii) are not ultimately
achieved."
IN WITNESS WHEREOF, this amendment has been executed this 24th day of July,
1997.
MILLENNIUM CHEMICALS INC.
By: /s/ George H. Hempstead, III
Senior Vice President
EXHIBIT 11.1
Computation of per share earnings from continuing operations:
Shares of Common Stock outstanding 74,464,263
Time-vested restricted shares issued to executive
officers and key employees 655,272
Expected vesting of performance-based restricted
restricted shares issued to executive
officers and key employees 1,179,489
Shares issued to the Company's
non employee directors 4,026
Stock options weighted average 31,823
----------
Weighted average Shares outstanding 76,334,873
NINE MONTHS ENDED SEPTEMBER 30, 1997
Net income 168,536,000 = 2.21
--------------------
Shares outstanding 76,334,873
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 35
<SECURITIES> 0
<RECEIVABLES> 518
<ALLOWANCES> 5
<INVENTORY> 488
<CURRENT-ASSETS> 1095
<PP&E> 2008
<DEPRECIATION> 939
<TOTAL-ASSETS> 5108
<CURRENT-LIABILITIES> 667
<BONDS> 1808
0
0
<COMMON> 1
<OTHER-SE> 1447
<TOTAL-LIABILITY-AND-EQUITY> 5108
<SALES> 0
<TOTAL-REVENUES> 2423
<CGS> 1741
<TOTAL-COSTS> 2068
<OTHER-EXPENSES> (40)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> 300
<INCOME-TAX> 131
<INCOME-CONTINUING> 169
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169
<EPS-PRIMARY> 2.21
<EPS-DILUTED> 0
</TABLE>
