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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
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COMMISSION FILE NUMBER: 1-12091
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MILLENNIUM CHEMICALS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 22-3436215
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
99 WOOD AVENUE SOUTH, 08830
ISELIN, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 908-603-6600
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $0.01 per share New York Stock Exchange
(including rights to purchase Series A
Preferred Stock)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of voting stock held by non-affiliates as of
March 14, 1997 (based upon the closing price of $18.25 per common share as
quoted on the New York Stock Exchange) is approximately $1,343,875,300. For
purposes of this computation, the shares of voting stock held by Directors,
Officers and the Registrant's employee benefit plans were deemed to be stock
held by affiliates. The number of shares of common stock outstanding at March
14, 1997 was 77,324,605 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement relating to the
1997 Annual Meeting of Stockholders, to be filed with the Securities and
Exchange Commission, are incorporated by reference in Part III of this Annual
Report as indicated herein.
________________________________________________________________________________
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TABLE OF CONTENTS
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ITEM PAGE
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PART 1
1. Business............................................................................................ 3
2. Properties.......................................................................................... 18
3. Legal Proceedings................................................................................... 18
4. Submission of Matters to a Vote of Security Holders................................................. 19
PART II
5. Market for the Registrant's Common Equity and Related Shareholder Matters........................... 19
6. Selected Financial Data............................................................................. 19
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 20
8. Financial Statements and Supplementary Data......................................................... 32
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 58
PART III
10. Directors and Executive Officers of the Registrant.................................................. 58
11. Executive Compensation.............................................................................. 58
12. Security Ownership of Certain Beneficial Owners and Management...................................... 58
13. Certain Relationships and Related Transactions...................................................... 58
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................... 59
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DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in the
Annual Report to Stockholders and in this Form 10-K, including, without
limitation, the statements under 'Business -- Strategy' and 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Outlook for 1997' are, or may be deemed to be, forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 (the 'Exchange Act'). 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 construction projects on schedule.
Some of these Cautionary Statements are discussed in more detail under
'Business' and 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.' 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.
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ITEM 1. BUSINESS
Millennium Chemicals Inc. (the 'Company') is a major international chemical
company, with leading market positions in a broad range of commodity,
industrial, performance and specialty chemicals.
The Company has three principal operating subsidiaries: Millennium
Petrochemicals Inc. ('Millennium Petrochemicals'), formerly known as Quantum
Chemical Corporation; Millennium Inorganic Chemicals Inc. (collectively with its
non-U.S. affiliates, 'Millennium Inorganic Chemicals'), formerly known as SCM
Chemicals Inc.; and Millennium Specialty Chemicals Inc. ('Millennium Specialty
Chemicals'), formerly known as Glidco Inc. The Company changed the names of
these three subsidiaries on March 3, 1997, to reflect their shared
value-creation principles and corporate identity. Through its subsidiaries, the
Company is:
The largest producer of polyethylene products in the United States;
The second largest producer of titanium dioxide ('TiO2') in the
United States and the third largest producer of TiO2 in the world;
The second largest producer of acetic acid and vinyl acetate monomer
in the United States;
A leading producer of high value-added performance polymers, and of
titanium tetrachloride, cadmium/selenium pigments and silica gel; and
A leading producer of fragrance and flavor chemicals derived from
crude sulfate turpentine.
In addition, an indirect subsidiary of the Company serves as the general
partner of Suburban Propane Partners, L.P. ('Suburban Propane Partners'), a
publicly-traded limited partnership which, through an operating partnership, is
the third largest retail marketer of propane in the United States. The Company
owns a 2% general partnership interest and an approximate 24% subordinated
limited partnership interest, each on a combined basis, in these partnerships.
The Company accounts for its 26.4% interest in Suburban Propane Partners as an
equity investment.
The Company has been an independent, publicly-owned company since its
demerger (i.e., spin-off) on October 1, 1996 (the 'Demerger') from Hanson PLC
('Hanson'). In connection with the Demerger, the Company acquired its present
businesses from Hanson and issued to Hanson's shareholders all of the Company's
then outstanding Common Stock. For additional information concerning the
Demerger, see Note 1 to the Company's Consolidated (Combined) Financial
Statements.
The Company's United Kingdom office is located at Laporte Road,
Stallingborough, Nr. Grimsby, North East Lincolnshire, DN40 2PR, England. Its
United Kingdom telephone number is 01469-1345 662663. The Company's principal
executive offices in the United States are located at 99 Wood Avenue South,
Iselin, New Jersey 08830. Its United States telephone number is (908) 603-6600.
The Company was incorporated in Delaware on April 18, 1996. For additional
information concerning the Company's status as a dual resident corporation, see
Note 2 to the Company's Consolidated (Combined) Financial Statements.
In this Annual Report: (i) references to the Company are to the Company and
its consolidated subsidiaries, except as the context otherwise requires; (ii)
references to the activities of, and financial information with respect to, the
Company prior to October 1, 1996, are to the historical activities and combined
historical financial information of the businesses that were transferred to the
Company by Hanson in connection with the Demerger; (iii) references to '1995'
and subsequent years are to the applicable calendar year ended December 31,
reflecting the fact that the Company adopted a December 31 year-end effective as
of January 1, 1995, and references to 'fiscal 1994' and earlier years are to the
applicable fiscal years ended September 30; (iv) references to 'tonnes' are to
metric tons, equal to 1,000 kilograms or 2,204.6 pounds, and references to 'tpa'
are to tonnes per annum; and, (v) references to the Company's rated capacity and
production capacity are based upon engineering assessments made by the Company.
Actual production may vary depending on a number of factors including
feedstocks, product mix, unscheduled maintenance and demand.
3
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STRATEGY
The Company's strategy is to maximize long-term cash flow, and thereby
create value, through improved efficiency at existing operations, disciplined
capital expenditures, selective dispositions, selective acquisitions of other
chemical businesses and the reduction of leverage. In addition to building upon
its leading market positions in existing lines of business, the Company will
seek to expand its operations worldwide, focus its production on more profitable
value-added products and increase the proportion of its businesses that are less
cyclical in nature. The Company emphasizes stock ownership by management and
links a significant portion of management's compensation to the achievement of
performance targets, including targets based on economic value creation and the
Company's performance relative to its industry peers.
The following are the key elements of the Company's strategy:
Continue to Expand Existing Businesses. The Company will seek to capitalize
upon the leading market positions of Millennium Petrochemicals, Millennium
Inorganic Chemicals and Millennium Specialty Chemicals by expanding in domestic
and international markets through capital expenditures and, as opportunities
permit, selective acquisitions or joint venture arrangements. In 1996,
Millennium Petrochemicals and Millennium Inorganic Chemicals invested
approximately $155 million and $36 million, respectively, on various expansion
and debottlenecking projects. Projects completed in 1996 and early 1997 have
expanded Millennium Petrochemicals' linear low density polyethylene and high
density polyethylene production capacity by approximately 17% and 11%,
respectively, and Millennium Inorganic Chemicals' TiO2 capacity (after
reflecting the reductions in sulfate-process manufacturing capacity announced in
1996) by approximately 4%, in each case from 1995 levels. A project, scheduled
to be completed by the end of 1998, is expected to increase Millennium
Petrochemicals' acetic acid capacity by 33% from its 1996 level. A second
project, scheduled for completion in early 1999, will increase Millennium
Inorganic Chemicals' chloride-process TiO2 capacity by approximately 10% from
its 1996 level.
Maintain Low-Cost Position in Commodity, Industrial and Performance
Chemicals. The Company will seek to increase the competitiveness of its
commodity, industrial and performance chemicals' businesses by improving the
efficiency of existing operations through ongoing investment in technology, new
processes and equipment. Millennium Petrochemicals will continue to pursue
productivity improvements and cost reductions to increase profitability
throughout its business cycles. Millennium Petrochemicals' productivity measured
by pounds produced per employee has increased every year since 1990, for a
cumulative improvement of 131% over the six years ended December 31, 1996.
Millennium Inorganic Chemicals has continued to improve its competitive cost
position by realizing increased economies of scale and installing improved
manufacturing technologies. In addition, the Company expects to achieve
improvements in the unit cost of methanol, acetic acid and vinyl acetate monomer
as a result of the conversion of its synthesis gas ('syngas') plant from
residuum oil feedstock to natural gas, which was completed in December 1996.
Permanent annual savings of approximately $50 million were achieved by the
Company in each of 1996 and 1995, principally due to the re-engineering of
Millennium Petrochemicals' manufacturing and distribution facilities, bringing
the cumulative annualized savings by the Company since 1992 to approximately
$190 million. Refocused efforts for cost reductions and process improvements at
each business segment have identified additional areas where permanent savings
of approximately $100 million on an annualized basis are expected to be realized
by the end of 1997.
Increase Production and Marketing of Value-Added Products. The Company will
seek to expand its position as a supplier of less cyclical, value-added
intermediate and specialty chemicals, which historically command higher margins
than commodity chemicals, principally by developing and acquiring new
technologies and applications. In addition to the expansions previously
described, during 1996, Millennium Specialty Chemicals completed modifications
which quadrupled its capacity to produce the specialty fragrance chemical
dihydromyrcenol, and increased its linalool and geraniol capacity by 20% (in
each case from 1995 levels) in order to meet growing worldwide demand for these
products. Another phase of this capacity expansion program, scheduled to be
completed in the fall of 1997, is expected to double the capacity of Millennium
Specialty Chemicals' Brunswick, Georgia facility over 1995 levels.
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Emphasize Management Stock Ownership and Performance-Based Compensation. In
order to align the interests of the Company's management and stockholders, the
Company has established guidelines for significant investment by management in
Common Stock. In addition, management's long-term incentive compensation
(including the vesting of 75% of the awards of restricted stock made shortly
following the Demerger) is dependent upon the achievement of performance goals
based on economic value creation concepts and the Company's performance relative
to industry peers. Information relating to these guidelines and plans will be
presented under the heading 'Executive Compensation' in the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders.
Provide a Safe and Ethical Workplace. The Company seeks to provide a safe
and ethical workplace environment that encourages open communication, personal
development, teamwork and reward for positive contribution to the achievement of
its goals.
PRINCIPAL PRODUCTS
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' and 'Performance Polymers,' which
are produced by Millennium Petrochemicals; 'TiO2 and Related Products,' which
are produced by Millennium Inorganic Chemicals; and 'Fragrance and Flavor
Chemicals,' which are produced by Millennium Specialty Chemicals. See Note 11 of
the Company's Consolidated (Combined) Financial Statements included in this
Annual Report for financial information about these business segments.
The following is a description of the principal products of the Company and
their uses:
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PRODUCT USES
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Polyethylene and Related Products:
Low Density Polyethylene ('LDPE')......... Packaging for meats and produce, household wraps, toys,
housewares and coatings for paper, milk and juice cartons.
High Density Polyethylene ('HDPE')........ Blowmolded bottles for milk, juices and detergents, industrial
drums, injection-molded household goods and toys, and consumer
packaging.
Linear Low Density Polyethylene
('LLDPE')............................... Heavy duty bags, stretch wrap, container lids, trash and
merchandise bags and toys.
Ethylene.................................. A raw material for polyethylene and other chemical and polymer
products.
Acetyls and Ethyl Alcohol:
Vinyl Acetate Monomer ('VAM')............. A raw material for adhesives and water-based paints, in copolymer
resin used in packaging films in the manufacture of safety glass
and in textile applications.
Acetic Acid............................... A raw material for VAM, plastics, dyes, pharmaceutical and other
chemical compounds.
Methanol.................................. A raw material for acetic acid, MTBE, formaldehyde and solvents
for chemicals, coatings, inks and adhesives.
Ethyl Alcohol............................. An ingredient in personal care products, pharmaceutical and
household cleaning and other consumer products.
Ethyl Ether............................... Laboratory reagents, gasoline and diesel engine starting fluids
and smokeless gun powder.
</TABLE>
(List continued on next page)
5
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(List continued from previous page)
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PRODUCT USES
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Performance Polymers:
Polypropylene............................. Battery cases, automotive components, packaging materials,
luggage, housewares and appliance parts.
Colors and Concentrates................... Stock and customer colorants, anti-block, anti-static and
anti-slip additives, ultraviolet inhibitors, foaming agents,
processing aids and flame retardants.
Wire and cable resins..................... Insulation for power cable, communications cable, CATV and
automotive wire.
Adhesive tie layers....................... Food and medical packaging.
Hot melt adhesive resins.................. Sealants, caulks and adhesives.
Fuel additives............................ Diesel fuel pour point depressants.
Rotomolding powders....................... Tanks, ductwork, bins, toys and automotive parts.
Polymeric powders......................... Coatings for glass, metal, paper, textiles, carpets and other
plastics, as well as processing aids for polyesters.
Titanium Dioxide and Related Products:
Titanium Dioxide ('TiO2')................. A pigment produced in differentiated forms used in a variety of
consumer and industrial products, including paints and coatings,
plastics, paper and elastomers.
Titanium Tetrachloride ('TiCl4').......... Used primarily to manufacture titanium metal for aerospace,
anticorrosion and medical applications.
Colored Pigments.......................... Artist's colors, durable plastics and automotive coatings.
Silica Gel................................ Coatings, food and personal care products.
Fragrance and Flavor Chemicals:
Turpentine derivatives.................... Fragrance, flavor, pharmaceutical and industrial applications.
</TABLE>
MILLENNIUM PETROCHEMICALS
The following table sets forth information concerning Millennium
Petrochemicals' annual production capacity, as of December 31, 1996, for its
principal products:
MILLENNIUM PETROCHEMICALS RATED CAPACITY
(MILLIONS OF POUNDS PER ANNUM, EXCEPT AS INDICATED)
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PRODUCT CAPACITY
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LDPE................................................................................ 1,555
LLDPE............................................................................... 1,130
HDPE................................................................................ 1,935
Ethylene............................................................................ 3,830
Acetic Acid......................................................................... 900
VAM................................................................................. 800
Methanol............................................................................ 200*
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* Millions of gallons
POLYETHYLENE AND RELATED PRODUCTS
Millennium Petrochemicals is the largest United States producer of LDPE,
the second largest United States producer of HDPE and the fourth largest United
States producer of LLDPE, based on reported production capacities.
Millennium Petrochemicals currently manufactures all three types of
polyethylene at its La Porte, Texas production complex. In addition, it
manufactures LDPE at its Morris, Illinois, Port Arthur, Texas and Clinton, Iowa
complexes; HDPE at its Clinton, Iowa and Port Arthur and Chocolate Bayou, Texas
complexes; and LLDPE at its Morris complex. The Morris and Clinton complexes are
the only
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petrochemical industry polyethylene facilities located in the Midwest and enjoy
a freight cost advantage over Gulf Coast producers in delivering products to
customers in the Midwest and on the East Coast of the United States. Millennium
Petrochemicals' polyethylene manufacturing facilities operated at an average
operating rate (based on capacity) of 86% during 1996 and 85% during 1995 and
fiscal 1994.
During 1996, Millennium Petrochemicals completed capital projects that
increased its production capacity with respect to LLDPE and HDPE by
approximately 17% and 11%, respectively, from 1995 levels. These projects, which
were mainly funded prior to the Demerger, include the restart of 250 million
pounds of annual LLDPE capacity at Morris, the conversion of 300 million pounds
of annual LLDPE capacity at Port Arthur to HDPE production and construction of a
480 million pound per annum gas phase LLDPE unit at La Porte.
Ethylene is the principal raw material used in the production of
polyethylene. Millennium Petrochemicals is currently capable of producing over
3.8 billion pounds of ethylene per annum at its La Porte, Morris and Clinton
complexes.
In addition to producing its own ethylene, Millennium Petrochemicals has
contracted to purchase significant amounts of ethylene from Gulf Coast producers
under certain long-term agreements at prices based on market prices. Millennium
Petrochemicals sells ethylene on the spot market in excess of its requirements.
Spot prices fluctuate and may be significantly less than, or significantly
greater than, the prices that Millennium Petrochemicals has paid for the
ethylene purchased under its long-term agreements. Millennium Petrochemicals'
ethylene purchase obligations began to decline in December 1996 and will be
eliminated by December 2000, unless Millennium Petrochemicals seeks extensions
or new agreements. Millennium Petrochemicals' purchases of ethylene under these
contracts approximated $183 million, $207 million and $143 million in 1996, 1995
and fiscal 1994, respectively. Sales of lesser quantities of excess ethylene
into the spot market during the same periods resulted in cash losses of $13.4
million, $6.1 million and $6.4 million, respectively.
Millennium Petrochemicals is currently participating in a feasibility study
with other companies relating to a jointly-owned ethylene plant that would have
an annual capacity of 1.5 to 2.0 billion pounds and would be scheduled to be
operational after 2000. If the parties agree to proceed, as to which there can
be no assurance, management estimates that the Company's proportionate
additional capacity would be approximately 500 to 667 million pounds per annum
and its capital expenditure commitment would be in the range of approximately
$175 million to $200 million, to be spent over three years.
Millennium Petrochemicals' feedstocks for ethylene are natural gas liquids,
including ethane, propane and butane. Millennium Petrochemicals purchases its
requirements for these feedstocks from outside sources and converts them into
ethylene, propylene and a variety of marketable by-products at the La Porte,
Morris and Clinton plants. While the Company has agreements providing for the
supply of these feedstocks, the contractual prices of these feedstocks vary with
market conditions and are at times highly volatile. See 'Management's Discussion
and Analysis of Financial Condition and Results of
Operations -- Introduction -- Polyethylene and Related Products.'
Polyethylene is manufactured in pellet form and shipped in North America
primarily by railcar in 180,000 pound lots. The remainder is shipped in 40,000
pound hopper trucks, 1,000 pound boxes and 50 pound bags. Millennium
Petrochemicals sells its polyethylene products in the United States primarily
through its own sales organization. It generally engages export sales agents to
market its products in the rest of the world. Millennium Petrochemicals'
polyethylene operations have an extensive customer base.
Millennium Petrochemicals' polyethylene operations are subject to
substantial competition from other United States and non-United States
producers, including some of the world's largest chemical and integrated oil
companies such as Dow Chemical Company, Union Carbide Corporation, Phillips
Petroleum Company, NOVA Corporation, Chevron Corporation, Exxon Corporation,
Lyondell Petrochemical Company, Eastman Chemical Company, Solvay Polymers,
Formosa Plastics and Westlake Polymers. Millennium Petrochemicals competes in
the polyethylene market on the basis of price, product performance and technical
service.
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ACETYLS AND ETHYL ALCOHOL
Acetic Acid and VAM. Millennium Petrochemicals is the second largest United
States producer of both acetic acid and VAM based on reported production
capacity. Its acetic acid plant is located at La Porte, Texas. Millennium
Petrochemicals uses approximately 60% of its acetic acid production internally
to produce VAM at La Porte. It is anticipated that proposed debottlenecking
projects will expand Millennium Petrochemicals' annual acetic acid production
capacity from 900 million to 1.2 billion pounds by the end of 1998.
Millennium Petrochemicals' principal competitors in the production of
acetic acid and/or VAM are Hoechst-Celanese, American Acetyls, Union Carbide
Corporation and E.I. DuPont de Nemours and Company.
Methanol. Millennium Petrochemicals operates a syngas unit at La Porte
which was converted during 1996 from residual crude oil (residuum) feedstock to
natural gas. Synthesis gas, a mixture of carbon monoxide and hydrogen formed by
the partial oxidation of a hydrocarbon, is the principal feedstock for methanol.
Millennium Petrochemicals uses the synthesis gas it produces to manufacture
methanol and acetic acid. In addition to selling methanol externally, it uses
approximately 75 million gallons of the methanol it produces each year for other
production processes, including the manufacture of acetic acid.
Ethyl Alcohol and Ethyl Ether. Millennium Petrochemicals produces synthetic
ethyl alcohol at its Tuscola, Illinois plant by a direct hydration process that
combines water and ethylene. Millennium Petrochemicals also owns and operates
plants at Tuscola, Illinois, Newark, New Jersey and Anaheim, California for
denaturing ethyl alcohol by the addition of certain chemicals. In addition, it
produces small volumes of ethyl ether, a by-product of its ethyl alcohol
production, at Tuscola. Tuscola has an annual production capacity of
approximately 50 million gallons of synthetic ethyl alcohol and approximately 5
million gallons of ethyl ether.
PERFORMANCE POLYMERS
Millennium Petrochemicals produces performance polymer products, which
include enhanced grades of polyethylene and polypropylene. The Company believes
that, over a business cycle, average selling prices and profit margins for
performance polymers tend to be higher than selling prices and profit margins
for higher-volume commodity polyethylenes.
Polypropylene. Millennium Petrochemicals manufactures polypropylene at
Morris, Illinois using propylene produced as a by-product of its ethylene
production as well as purchased propylene. The plant has the capacity to produce
280 million pounds of polypropylene annually for various applications in the
automotive, housewares and appliance industries.
Colors and Concentrates. Millennium Petrochemicals produces color
concentrates at its facilities in Crockett, Texas and in Fairport Harbor and
Heath, Ohio. Color concentrates and compounds are specialty polyethylenes that
are impregnated with pigments for sale to converters who mix the concentrates
with larger volumes of polymers, including polyethylene, to produce colored
plastics.
Wire and Cable Resins. Millennium Petrochemicals produces polyethylene and
polypropylene resins used in various wire and cable applications, including
insulation and jacketing for telecommunications, CATV, electrical power cable
and automotive wiring.
Adhesive Tie Layers. Millennium Petrochemicals produces adhesive tie layer
resins which are extrudable adhesive resins used to bond dissimilar materials in
multi-layer structures, such as food and medical packages.
Hot Melt Adhesives. Millennium Petrochemicals produces hot melt adhesive
resins which are specialty resins used in the manufacture of sealants, caulks
and adhesives.
Rotomolding Powders. Millennium Petrochemicals produces rotomolding
polyethylene powders which are used in rotomolding, a specialized process for
fabricating large hollow plastic objects such as tanks, bins, toys and
automotive parts.
Polymeric Powders. Millennium Petrochemicals produces polymeric powders
which are a form of powdered polyethylene used to coat glass, metal, paper,
textiles, carpets and other plastics.
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MILLENNIUM INORGANIC CHEMICALS
TITANIUM DIOXIDE
Millennium Inorganic Chemicals is the third largest producer of TiO2 in the
world and the second largest producer of TiO2 in the United States. TiO2 is a
white pigment used for imparting whiteness, brightness and opacity in a wide
range of products, including paints and coatings, plastics, paper and
elastomers.
The following table sets forth Millennium Inorganic Chemicals' TiO2
production capacity, as of December 31, 1996, using the chloride-process and the
sulfate-process discussed below, and the approximate percentage of its total
production capacity represented by each such process.
MILLENNIUM INORGANIC CHEMICALS RATED CAPACITY
(TONNES PER ANNUM)
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PROCESS CAPACITY
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Chloride................................................................... 429,000 ( 91%)
Sulfate(1)................................................................. 44,000 ( 9%)
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Total............................................................ 473,000 (100%)
</TABLE>
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(1) As a result of a reduction in the profitability of its sulfate-process
operations, during 1996 Millennium Inorganic Chemicals closed its 10,000 tpa
sulfate-process plant in Stallingborough, England and scaled back production
at its United States sulfate-process facility by approximately one-third or
22,000 tpa. Millennium Inorganic Chemicals will continue to review its
business, which could lead to a further reduction in its sulfate-process
TiO2 capacity and the eventual closure of its United States sulfate-process
facility if market conditions do not warrant its continued operation.
Millennium Inorganic Chemicals' sulfate-process manufacturing operations
have operated at a marginal level in recent years. For the financial impact
of these actions, see 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.'
TiO2 is produced in two crystalline forms: rutile and anatase. Rutile TiO2
is a more tightly packed crystal that has a higher refractive index than anatase
TiO2 and, therefore, better opacification and tinting strength in many
applications. Some rutile TiO2 products also provide better resistance to the
harmful effects of weather. Rutile TiO2 is the preferred form for use in
coatings, ink and plastics. Anatase TiO2 has a bluer undertone and is less
abrasive than rutile TiO2. It is often preferred for use in paper, ceramics,
rubber and man-made fibers.
TiO2 producers process titaniferous ores that range from brown to black in
color to extract a white pigment using one of two different technologies. The
older sulfate-process is a wet chemical process that uses concentrated sulfuric
acid to extract TiO2 in either anatase or rutile form. The sulfate-process
generates significant volumes of waste materials including iron sulfate and
spent sulfuric acid. The newer chloride-process is a high temperature process in
which chlorine is used to extract TiO2 in rutile form, with greater purity and
higher control over the size distribution of the pigment particles than the
sulfate-process permits. In general, the chloride-process is also less intensive
than the sulfate-process in terms of capital investment, labor and energy; and,
because much of the chlorine can be recycled, it produces less waste subject to
environmental regulation. Once an intermediate TiO2 pigment has been produced by
either the chloride- or sulfate-process, it is 'finished' into a product with
specific performance characteristics for particular end-use applications through
proprietary processes involving surface treatment with various chemicals and
combinations of milling and micronizing.
Due to customer preferences, as well as economic and environmental factors,
the TiO2 industry's worldwide chloride-process capacity has increased
significantly relative to sulfate-process capacity during the last twenty years
and currently represents just over half of total industry capacity. Millennium
Inorganic Chemicals is the world's second largest producer of TiO2 by the
chloride production process, with approximately 91% of its year-end worldwide
production capacity based on proprietary chloride-process technology.
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Millennium Inorganic Chemicals' seven TiO2 plants are located in the three
major world markets for TiO2: North America, Western Europe and, the fastest
growing market, the Asia/Pacific region. Its North American plants, consisting
of two in Baltimore, Maryland and three in Ashtabula, Ohio, have aggregate
production capacities of 241,000 tpa using the chloride-process and 44,000 tpa
using the sulfate-process. Its Stallingborough, England plant has
chloride-process production capacity of 109,000 tpa (scheduled to increase to
150,000 tpa by 1999). Its Kemerton plant in Western Australia has
chloride-process production capacity of 79,000 tpa. Approximately 60% of
Millennium Inorganic Chemicals' current TiO2 production capacity is located in
the North American market, approximately 23% in the Western European market and
approximately 17% in the Asia/Pacific market.
Millennium Inorganic Chemicals' plants operated at an average of 88% of
installed capacity during 1996, 96% during 1995 and 93% during fiscal 1994.
Millennium Inorganic Chemicals plans to invest approximately $120 million
between 1996 and 1999 for an additional debottlenecking project at its
Stallingborough chloride-process plant that is expected to increase TiO2
capacity by 41,000 tpa beginning in 1999. These expenditures will be funded by
the Company's internally generated cash and borrowings under its credit
facilities. Millennium Inorganic Chemicals had previously announced plans for a
$340 million expansion of its Kemerton, Western Australia chloride-process
plant, involving a new production line, which would have increased TiO2 capacity
by an additional 111,000 tpa. This project has been deferred until market
conditions improve.
Titanium-bearing ores used in the TiO2 extraction process (ilmenite,
natural rutile and leucoxene) occur as mineral sands and hard rock in many parts
of the world. Mining companies increasingly treat these natural ores to extract
iron and other minerals and produce slags or synthetic rutiles with higher TiO2
concentrations, resulting in lower rates of waste by-products during the TiO2
production process. Ores are shipped by bulk carriers from terminals in the
country of origin to TiO2 production plants, usually located near port
facilities. Millennium Inorganic Chemicals obtains ores from a number of
suppliers in South Africa, Australia, Canada and Norway, generally pursuant to
three-to-eight-year term supply contracts. RTZ-CRA's subsidiary, RTZ Iron and
Titanium Inc., and its affiliate Richards Bay Iron & Titanium (Proprietary)
Limited, followed by RGC Limited, are the world's largest producers of titanium
ores and accounted for approximately 83% of the titanium ores and upgraded
titaniferous raw materials purchased by Millennium Inorganic Chemicals in 1996.
Other major raw materials used in the production of TiO2 are chlorine,
caustic soda, petroleum and metallurgical coke, aluminum, sodium silicate,
sulfuric acid, oxygen, nitrogen, natural gas and electricity. The number of
sources for and availability of these materials is specific to the particular
geographic region in which the facility is located. For Millennium Inorganic
Chemicals' Australian plant, chlorine and caustic soda are obtained exclusively
from one supplier under a long term supply agreement. Millennium Inorganic
Chemicals has experienced tightness in various raw material markets, but not to
an extent requiring curtailed production. There are certain risks related to the
utilization of raw materials sourced from less developed or developing
countries. For example, the titanium ore feedstock market has been tight, due in
part to political instability in Sierra Leone which forced the closure of a
major natural rutile mine, and, in part, to a recent operating outage at a new
titanium operation in South Africa. Additional new synthetic titanium ore
capacity is expected to be operational in late 1997. A number of Millennium
Inorganic Chemicals' raw material suppliers are significant to Millennium
Inorganic Chemicals and, accordingly, if one significant supplier or a number of
significant suppliers were unable to meet their obligations under present supply
arrangements, Millennium Inorganic Chemicals could suffer reduced supplies
and/or be forced to incur increased prices for its raw materials. Such an event
could have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
Of the total 450,000 tonnes of TiO2 sold by Millennium Inorganic Chemicals
in 1996, approximately 62% was sold to customers in the paint and coatings
industry, approximately 18% to customers in the plastics industry, approximately
15% to customers in the paper industry and approximately 5% to other customers.
Millennium Inorganic Chemicals' ten largest customers accounted for
approximately 33% of its TiO2 sales in 1996. Millennium Inorganic Chemicals
experiences some seasonality in its sales because sales of paints and coatings
are greatest in the spring and summer months.
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TiO2 is sold either directly by Millennium Inorganic Chemicals to its
customers or, to a lesser extent, through agents or distributors. It is
distributed by rail, truck and ocean carrier in either dry or slurry form.
The global markets in which the Company's TiO2 business operates are all
highly competitive. Millennium Inorganic Chemicals competes primarily on the
basis of price, product quality and technical service. Certain of Millennium
Inorganic Chemicals' competitors are partially vertically integrated, producing
titanium-bearing ores as well as TiO2. Millennium Inorganic Chemicals' major
competitors are E.I. DuPont de Nemours and Company, Tioxide Group Limited (a
unit of Imperial Chemical Industries plc), Kronos, Inc. (a unit of NL
Industries) and Kerr-McGee Chemical Corporation (both directly and through
various joint ventures). DuPont, Tioxide, Millennium Inorganic Chemicals, Kronos
and Kerr-McGee Chemicals, collectively, account for approximately 61% of world
production capacity.
New plant capacity additions in the TiO2 industry are slow to develop
because of the substantial capital expenditure and the significant lead time
(3-5 years typically for a new plant) needed for planning, obtaining
environmental approvals and permits, construction of manufacturing facilities
and arranging for raw material supplies. Debottlenecking and other capacity
expansion at existing plants require substantially less time and cost and,
during certain time periods including 1996, can significantly increase overall
industry capacity.
TiO2 competes with other whitening agents which are generally less
effective but less expensive. Paper manufacturers have, in recent years,
developed alternative technologies which reduce the amount of TiO2 used in
paper. For example, kaolin and calcium carbonate are used extensively as fillers
by paper manufacturers in medium and lower-priced products.
RELATED PRODUCTS
Titanium Tetrachloride ('TiCl4'). Millennium Inorganic Chemicals
manufactures a metallurgical grade of TiCl4 at its Ashtabula, Ohio plant,
primarily for sale to United States titanium metal producers. TiCl4 is produced
as an intermediate product in the chloride-process used for manufacturing TiO2.
The Company is the largest merchant seller of TiCl4 in the United States and,
management believes, the world.
The majority of the Company's TiCl4 sales are of metallurgical grade sold
to titanium sponge producers who convert the product into titanium metal. Other
customers use TiCl4 to produce catalysts for chemical processes and pearlescent
pigments for metallic coatings and cosmetics. Sales are almost exclusively to
customers in the United States. TiCl4 is distributed by rail and truck as
anhydrous TiCl4 and as titanium oxychloride (an aqueous solution of TiCl4).
Silica Gel. Millennium Inorganic Chemicals produces several grades of
fine-particle silica gel at its St. Helena plant in Baltimore, Maryland and
markets them internationally. Fine-particle silica gel is a chemically and
biologically inert form of silica with a particle size ranging from three to ten
microns.
The Company's SiLCRON'r' brand of fine-particle silica is used in coatings
as a flatting or matting (gloss reduction) agent and to provide mar-resistance.
SiLCRON'r' is also used in foods and creams, lotions and pastes. SiL-PROOF'r'
grades of fine-particle silica gel are chill-proofing agents used to stabilize
chilled beer and prevent clouding. They are especially important in countries
that prohibit the use of chemical additives in beer. Fine-particle silica is
distributed in dry form in palletized bags by truck and ocean carrier.
Colored Pigments. Millennium Inorganic Chemicals manufactures a line of
cadmium-selenium based colored pigments at its St. Helena plant and markets them
internationally. In addition to their brilliance, cadmium colors are light
stable, heat stable and insoluble. These properties make them useful, even
irreplaceable, in such applications as artists' colors, plastics and glass
colors. Due to concern for the toxicity of heavy metals, including cadmium,
Millennium Inorganic Chemicals has introduced low-leaching cadmium-based
pigments that meet all United States government requirements for landfill
disposal of non-hazardous waste. Colored pigments are distributed in dry form in
drums by truck and ocean carrier.
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MILLENNIUM SPECIALTY CHEMICALS
Millennium Specialty Chemicals is one of the world's leading producers of
chemicals derived from crude sulfate turpentine ('CST'), a by-product of the
kraft process of papermaking, and is the largest purchaser and distiller of CST
in the world. Millennium Specialty Chemicals' primary turpentine-based products
are intermediate fragrance chemicals, such as linalool and geraniol, which
provide the starting point for the production of a number of other fragrance
ingredients. In addition, Millennium Specialty Chemicals supplies materials for
use as flavors and some specialty products for a number of industrial
applications.
Millennium Specialty Chemicals operates manufacturing facilities in
Jacksonville, Florida and Brunswick, Georgia. The Jacksonville site has
facilities for the fractionation of turpentine into alpha-and beta-pinene,
sophisticated equipment to further upgrade fragrance chemical products, as well
as manufacturing facilities for synthetic pine oil, anethole, methyl chavicol
and a number of other fragrance chemicals. Brunswick produces linalool and
geraniol from the much more plentiful component of CST, alpha-pinene, utilizing
a proprietary and, the Company believes, unique technology. The Company believes
that this provides Millennium Specialty Chemicals with a significant advantage
in raw material availability. Linalool and geraniol produced at Brunswick are
further processed at the Jacksonville site to produce fragrance chemicals
including citral, citronellol and pseudoionone. In addition, to meet the growing
worldwide demand for dihydromyrcenol, Millennium Specialty Chemicals began
operating in 1996 the world's largest dihydromyrcenol facility, with a rated
annual capacity of over 4 million pounds at Brunswick.
Millennium Specialty Chemicals is in the process of upgrading and expanding
its manufacturing facilities in an effort to expand further its production
capacity and to insure continued compliance with environmental regulations.
Millennium Specialty Chemicals invested approximately $13 million on such
improvements in 1996, including construction of new fractionation columns at its
Jacksonville plant and the additional dihydromyrcenol capacity referred to
above. These expenditures were mainly funded prior to the Demerger.
CST, which is Millennium Specialty Chemicals' key raw material, is a
by-product of the kraft pulping process. Millennium Specialty Chemicals
purchases CST from approximately 50 pulp mills in North America. Additionally,
Millennium Specialty Chemicals purchases quantities of CST or its derivatives
from Asia, Europe and South America as business conditions dictate. The Company
believes that Millennium Specialty Chemicals is the largest purchaser of CST in
the world.
Millennium Specialty Chemicals has experienced tightness in CST supply from
time to time, together with corresponding price increases. Generally, Millennium
Specialty Chemicals seeks to enter into long-term supply contracts with pulp
mills in order to ensure a stable supply of CST. The sale of CST generates
relatively insignificant revenues and profits for the pulp mills that serve as
Millennium Specialty Chemicals' principal suppliers. Accordingly, Millennium
Specialty Chemicals attempts to work closely and cooperatively with its
suppliers and provide them with incentives to produce more CST. For example,
Millennium Specialty Chemicals employs two full-time employees whose sole
responsibility is to work with pulp mills to recover CST more efficiently and
economically.
The major use of fragrance chemicals is the production of perfumes, and the
major consumers of perfumes worldwide are the soap and detergent manufacturers.
Millennium Specialty Chemicals sells directly worldwide to major soap, detergent
and fabric conditioner manufacturers and fragrance compounders and, to a lesser
extent, producers of cosmetics and toiletries. Approximately 80% of Millennium
Specialty Chemicals' sales are to the fragrance chemicals market, with
additional sales to the vitamin intermediates market and the pine oil cleaners
and disinfectant markets. Approximately 60% of Millennium Specialty Chemicals'
sales are outside the United States; in 1996, sales were transacted in 70
different countries. Sales are primarily made through Millennium Specialty
Chemicals' direct sales force, while agents and distributors are used in
outlying areas where volume does not justify full-time sales coverage.
The markets in which Millennium Specialty Chemicals competes are highly
competitive. Millennium Specialty Chemicals competes primarily on the basis of
quality, service and the ability to conform its products to the technical and
qualitative requirements of its customers. Millennium
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Specialty Chemicals works closely with many of its customers in developing
products to satisfy their specific requirements. Millennium Specialty Chemicals'
supply agreements with customers are typically short-term in duration (up to one
year). Therefore, its business is substantially dependent on long-term customer
relationships based upon quality, innovation and customer service. Customers
from time to time change the formulations of an end product in which one of
Millennium Specialty Chemicals' fragrance chemicals is used, which may affect
demand for such fragrance chemicals. Millennium Specialty Chemicals' ten largest
customers accounted for approximately 47% of its total sales in 1996. Millennium
Specialty Chemicals' major competitors are BASF, Hoffman LaRoche, Kuraray and
Bush Boake Allen.
RESEARCH AND DEVELOPMENT
The Company's expenditures for research and development totaled $39
million, $42 million and $46 million in 1996, 1995 and fiscal 1994,
respectively. It is anticipated that, at least in the near term, research and
development expenditures should continue at levels comparable to, or slightly
higher than, those in 1996. The Company has research facilities in Cincinnati,
Ohio and Morris, Illinois (Millennium Petrochemicals); Baltimore, Maryland,
Stallingborough, England and Bunbury, Western Australia (Millennium Inorganic
Chemicals); and Jacksonville, Florida (Millennium Specialty Chemicals). The
Company's research efforts are principally focused on improvements in process
technology, product development, technical service to customers, applications
research and enhancing product quality.
INTERNATIONAL EXPOSURE
The Company generates revenue from export sales (i.e., U.S.
dollar-denominated sales outside the United States by domestic operations), as
well as revenue from operations conducted outside the United States. Export
sales, which are made in over 70 countries, amounted to approximately 9%, 10%
and 8% of total revenues in 1996, 1995 and fiscal 1994, respectively. Revenue
from foreign operations amounted to approximately 12%, 10% and 10% of total
revenues in 1996, 1995 and fiscal 1994, respectively, principally reflecting the
operations of Millennium Inorganic Chemicals in the United Kingdom and Western
Australia; identifiable assets of the foreign operations represented 15% and 7%
of total identifiable assets at December 31, 1996 and December 31, 1995,
respectively, principally reflecting the assets of these operations. (The
percentage increase in identifiable assets was attributable mainly to the
transfer to Hanson of certain non-chemical related businesses in connection with
the Demerger.) In addition, the Company obtains a portion of its principal raw
materials from sources outside the United States. Millennium Inorganic Chemicals
obtains ores used in the production of TiO2 under long-term contracts from a
number of suppliers in South Africa, Australia, Canada and Norway, and
Millennium Specialty Chemicals obtains a portion of its requirements of CST or
its derivatives from suppliers in Indonesia and other Asian countries, Europe
and South America.
The Company's export sales and foreign manufacturing and sourcing are
subject to the usual risks of doing business abroad, such as fluctuations in
currency exchange rates, transportation delays and interruptions, political and
economic instability and disruptions, restrictions on the transfer of funds, the
imposition of duties and tariffs and import and export controls and changes in
governmental policies. The Company's exposure to the risks associated with doing
business abroad may increase if, as intended, the Company expands its worldwide
operations.
The functional currency of each of the Company's foreign operations is the
local currency. Historically, the net impact of currency translation has not
been material to the Company's results of operations or financial position.
EQUITY INTEREST IN SUBURBAN PROPANE PARTNERS
An indirect subsidiary of the Company serves as general partner of Suburban
Propane Partners, a Delaware limited partnership whose common units trade on the
New York Stock Exchange under the symbol 'SPH.' In 1996, in connection with its
initial public offering, Suburban Propane Partners acquired, through an
operating partnership, the propane business and assets of Millennium
Petrochemicals' former Suburban Propane division. Suburban Propane Partners is
the third largest
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retail marketer of propane in the United States, serving more than 730,000
active residential, commercial, industrial and agricultural customers from more
than 350 customer service centers in more than 40 states. Suburban Propane
Partners' operations are concentrated in the east and west coast regions of the
United States. The retail propane sales volume of Suburban Propane Partners was
approximately 567 million gallons during its fiscal year ended September 28,
1996. Based on industry statistics, Suburban Propane Partners believes that its
retail propane sales volume constitutes approximately 6% of the United States
retail market for propane. For its fiscal year ended September 28, 1996,
Suburban Propane Partners reported total revenues of approximately $707.9
million and net income of approximately $12.9 million. At September 28, 1996,
Suburban Propane Partners reported total assets of approximately $807.4 million.
For its three months ended December 28, 1996, Suburban Propane Partners reported
total revenues of $246 million and net income of $17.3 million.
The Company has a 2% general partnership interest and an approximate 24%
subordinated limited partnership interest, each on a combined basis, in Suburban
Propane Partners and the operating partnership. The Company has agreed, subject
to certain limitations, to contribute up to $43.6 million, on a revolving basis,
to Suburban Propane Partners to enhance its ability to make quarterly cash
distributions to the limited partners through the quarter ending March 31, 2001.
Suburban Propane Partners paid a distribution of $0.50 per common unit for the
quarter ended December 28, 1996, but did not pay a distribution for such quarter
with respect to the subordinated limited partnership units held by the Company.
Under the partnership agreement governing Suburban Propane Partners, Suburban
Propane Partners is managed by, or under the direction of, a seven-member Board
of Supervisors. Two of the supervisors are appointed by the general partner; the
holders of the limited partnership interests and subordinated limited
partnership interests, voting as a class, elect three of the supervisors; and
these five supervisors elect two executive officers of Suburban Propane Partners
as the remaining two supervisors.
EMPLOYEES
At December 31, 1996, the Company had approximately 6,850 full and
part-time employees and contractors, of whom approximately 5,700 were engaged in
manufacturing, 375 were engaged in sales and distribution and 775 had corporate
and administrative responsibilities. Approximately 15% of the Company's
employees are represented by various labor unions. Of the Company's fifteen
collective bargaining agreements, eleven expire in 1997 and four expire in 1998.
The Company believes that the relations of its operating subsidiaries with
employees and unions are generally good.
ENVIRONMENTAL MATTERS
The Company's businesses are subject to extensive federal, state, local and
foreign laws, regulations, rules and ordinances concerning, among other things,
emissions to the air, discharges and releases to land and water, the generation,
handling, storage, transportation, treatment and disposal of wastes and other
materials and the remediation of environmental pollution caused by releases of
wastes and other materials ('Environmental Laws'). The operation of any chemical
manufacturing plant and the distribution of chemical products entail risks under
Environmental Laws, many of which provide for substantial fines and criminal
sanctions for violations and there can be no assurance that material costs or
liabilities will not be incurred. In particular, the production of ethylene,
methanol, TiO2 and certain other chemicals involves the handling, manufacture or
use of substances or compounds that may be considered to be toxic or hazardous
within the meaning of certain Environmental Laws, and certain operations have
the potential to cause environmental or other damage. Potentially significant
expenditures could be required in connection with the repair or upgrade of
facilities in order to meet existing or new requirements under Environmental
Laws as well as in connection with the investigation and remediation of
threatened or actual pollution.
The Company's costs and operating expenses relating to environmental
matters were approximately $62 million, $67 million and $61 million in 1996,
1995 and fiscal 1994, respectively. These amounts cover, among other things, the
Company's cost of complying with environmental regulations and permit conditions
as well as managing and minimizing its waste. Capital expenditures for
environmental compliance and remediation were approximately $22 million, $22
million and $7 million
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in 1996, 1995 and fiscal 1994, respectively. In addition, capital expenditures
for projects in the normal course of operations and major expansions include
costs associated with the environmental impact of those projects which are
inseparable from the overall project cost. Capital expenditures and, to a lesser
extent, costs and operating expenses relating to environmental matters for years
after 1996 will be subject to evolving regulatory requirements and will depend
on the amount of time required to obtain necessary permits and approvals.
From time to time, various agencies may serve cease and desist orders or
notices of violation on an operating unit or deny its applications for certain
licenses or permits, in each case alleging that the practices of the operating
unit are not consistent with the regulations or ordinances. In some cases, the
relevant operating unit may seek to meet with the agency to determine mutually
acceptable methods of modifying or eliminating the practice in question. The
Company believes that its operating units should be able to achieve compliance
with the applicable regulations and ordinances in a manner which should not have
a material adverse effect on its business or results of operations. The United
States Occupational Safety and Health Administration ('OSHA') has issued a
citation with proposed penalties of approximately $154,000 against Millennium
Petrochemicals for alleged violation of OSHA regulations in connection with a
fire at the La Porte, Texas complex in which two workers were injured.
Millennium Petrochemicals believes its procedures did not violate OSHA
regulations and will contest the citation and the proposed penalties. The
Illinois Attorney General's Office has threatened to file a complaint seeking
monetary sanctions for releases into the environment at Millennium
Petrochemicals' Morris plant in alleged violation of state regulations, and a
civil penalty in excess of $100,000 could result.
Certain Company subsidiaries have been named as defendants, potentially
responsible parties ('PRPs'), or both, in a number of environmental proceedings
associated with waste disposal sites and facilities currently or previously
owned, operated or used by the Company subsidiaries or their predecessors, some
of which disposal sites or facilities are on the Superfund National Priorities
List of the United States Environmental Protection Agency or similar state
lists. These proceedings seek cleanup costs, damages for personal injury or
property damage, or both. Certain of these proceedings involve claims for
substantial amounts, individually ranging in estimates from less than $300,000
to $45 million. The Company believes that the range of potential liability for
the above matters, collectively, which primarily relate to environmental
remediation activities and other environmental proceedings, is between $130
million and $180 million and has accrued $180 million as of December 31, 1996.
One potentially significant matter in which a Company subsidiary is a PRP
concerns alleged PCB contamination of a section of the Kalamazoo River from
Kalamazoo, Michigan to Lake Michigan for which a remedial
investigation/feasibility study is currently being undertaken. Potential
remediation costs related to this matter that are reasonably probable have been
included in the collective range of potential liability referred to above as
well as in the accrual for environmental matters on the Company's balance sheet.
The accrual also reflects the fact that certain Company subsidiaries have
contractual obligations to indemnify the purchasers of certain discontinued
operations against certain environmental liabilities and that the Company agreed
as part of the Demerger transactions to indemnify Hanson and certain of its
subsidiaries against certain of such contractual indemnification obligations. No
assurance can be given that actual costs will not exceed accrued amounts for
sites and indemnification obligations for which estimates have been made, and no
assurance can be given that costs will not be incurred with respect to sites and
indemnification obligations as to which no estimate presently can be made.
Several Company subsidiaries have asserted claims and/or instituted
litigation against their insurance carriers alleging that all, or a portion, of
the past and future costs of investigating, monitoring and conducting response
actions at previously or currently owned and/or operated properties and off-site
landfills are the subject of coverage under various insurance policies. During
1995, a Company subsidiary entered settlement agreements in one such case with a
number of insurance carriers relating to coverage for environmental
contamination at present and former plant and landfill sites in the aggregate
amount of approximately $60 million, of which $50 million has been received,
with the balance of such payments being made over time. In addition, several
Company subsidiaries have asserted claims and/or instituted litigation against
various entities alleging that they are responsible for all or a portion of such
costs. Management is unable to predict the outcome of such claims and
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litigation. Accordingly, for purposes of financial reporting and establishing
provisions, the Company has not assumed any such recoveries except where payment
has been received or the amount of liability or contribution by such other
parties has been agreed.
The Company cannot predict whether future developments in laws and
regulations concerning environmental protection will affect its earnings or cash
flow in a materially adverse manner or whether its operating units will be
successful in meeting future demands of regulatory agencies in a manner which
will not materially adversely affect the Company's combined financial condition,
results of operations or liquidity.
PATENTS, TRADEMARKS AND LICENSES
The Company's subsidiaries have numerous United States and foreign patents,
registered trademarks and trade names, together with applications and licenses
therefor. Millennium Petrochemicals holds available for license to responsible
third parties proprietary processes it has developed and has entered into a
number of licensing arrangements with respect to the manufacture of polyethylene
and vinyl acetate monomer. Millennium Petrochemicals is also licensed by others
in the application of certain processes. Significant licenses held by Millennium
Petrochemicals are the BP Chemicals fluid bed polyethylene process for the
production of both LLDPE and HDPE, the Unipol process for the production of
LLDPE, certain processes for the production of polyethylene and polypropylene
and a BP Chemicals process for the production of acetic acid. Generally, upon
expiration of the licenses, the licensee continues to be entitled to use the
technology without payment of a royalty. Millennium Inorganic Chemicals
generally does not license its proprietary processes to third parties or hold
licenses from others. While the patents, licenses, proprietary technologies and
trademarks of the Company subsidiaries provide certain competitive advantages
and are considered important, particularly with regard to processing
technologies such as Millennium Inorganic Chemicals' proprietary chloride
production process and Millennium Specialty Chemicals proprietary terpene
chemistry process. The Company does not consider its business as a whole to be
materially dependent upon any one particular patent, license, proprietary
technology or trademark.
EXECUTIVE OFFICERS
The following individuals serve as executive officers of the Company:
<TABLE>
<CAPTION>
NAME POSITION
- --------------------------- ---------------------------------------------------------------------
<S> <C>
William M. Landuyt......... Chairman of the Board and Chief Executive Officer
Robert E. Lee.............. President and Chief Operating Officer
Donald V. Borst............ President and Chief Executive Officer of Millennium Inorganic
Chemicals
George W. Robbins.......... President and Chief Executive Officer of Millennium Specialty
Chemicals
Ronald H. Yocum............ President and Chief Executive Officer of Millennium Petrochemicals
George H. Hempstead, III... Senior Vice President -- Law and Administration and Secretary
John E. Lushefski.......... Senior Vice President and Chief Financial Officer
Marie S. Dreher............ Vice President -- Corporate Controller
A. Mickelson Foster........ Vice President -- Investor Relations
Francis V. Lloyd........... Vice President -- Tax
James A. Lofredo........... Vice President -- Corporate Development
Christine F. Wubbolding.... Vice President and Treasurer
</TABLE>
Mr. Landuyt, 41, has served as Chairman of the Board and Chief Executive
Officer of the Company since the Demerger. Mr. Landuyt was Director, President
and Chief Executive Officer of Hanson Industries (which managed the U.S.
operations of Hanson until the Demerger) from June 1995 until the Demerger,
Director of Hanson from 1992 until September 29, 1996, Finance Director of
Hanson from 1992 to May 1995, and Vice President and Chief Financial Officer of
Hanson Industries from 1988 to 1992. He joined Hanson Industries in 1983.
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Mr. Lee, 40, has served as President, Chief Operating Officer and a
Director of the Company since the Demerger. Mr. Lee was Director, Senior Vice
President and Chief Operating Officer of Hanson Industries from June 1995 until
the Demerger, an Associate Director of Hanson from 1992 until the Demerger, Vice
President and Chief Financial Officer of Hanson Industries from 1992 to June
1995, Vice President and Treasurer of Hanson Industries from 1990 to 1992, and
Treasurer of Hanson Industries from 1987 to 1990. He joined Hanson Industries in
1982. Mr. Lee is a member of the Board of Supervisors of Suburban Propane
Partners.
Mr. Borst, 61, has served as President and Chief Executive Officer of
Millennium Inorganic Chemicals since 1990. Mr. Borst joined SCM Corporation in
1984 as Vice President -- SCM Pigments -- U.S. and was appointed as President
and Chief Executive Officer of Millennium Inorganic Chemicals in 1986. He has
over 39 years experience in the fertilizer and inorganic chemicals sectors of
the chemicals industry.
Mr. Robbins, 56, has served as President and Chief Executive Officer of
Millennium Specialty Chemicals since 1986. He was an Associate Director of
Hanson from May 1995 until the Demerger and a Director of Hanson Industries from
June 1995 until the Demerger. Mr. Robbins joined SCM Corporation in 1982 as Vice
President and General Manager of the SCM Organic Chemicals Division. He has been
associated with the plastics and chemicals industries for almost 30 years.
Dr. Yocum, 57, has served as President and Chief Executive Officer of
Millennium Petrochemicals since 1993. He joined Millennium Petrochemicals in
1987 as a Group Vice President, Research and Development. He has been associated
with the petrochemicals industry for 30 years.
Mr. Hempstead, 53, has served as Senior Vice President -- Law and
Administration and Secretary of the Company since the Demerger. He was Senior
Vice President -- Law and Administration of Hanson Industries from June 1995
until the Demerger, an Associate Director of Hanson from 1990 until the
Demerger, and a Director of Hanson Industries from 1986 until the Demerger. Mr.
Hempstead was Senior Vice President and General Counsel of Hanson Industries
from 1993 to June 1995 and Vice President and General Counsel of Hanson
Industries from 1982 to 1993. He initially joined Hanson Industries in 1976. Mr.
Hempstead is a member of the Board of Supervisors of Suburban Propane Partners.
Mr. Lushefski, 41, has served as Senior Vice President and Chief Financial
Officer of the Company since the Demerger. He was Senior Vice President and
Chief Financial Officer of Hanson Industries from June 1995 until the Demerger.
He was Vice President and Chief Financial Officer of Peabody Holding Company, a
Hanson subsidiary which held Hanson's coal mining operations, from 1991 to May
1995 and Vice President and Controller of Hanson Industries from 1990 to 1991.
Mr. Lushefski initially joined Hanson Industries in 1985.
Ms. Dreher, 38, has served as Corporate Controller of the Company since the
Demerger and was elected Vice President on October 8, 1996. She was Director of
Planning and Budgeting of Hanson Industries from November 1995 until the
Demerger. She joined Hanson Industries in January 1994 as Assistant Controller
with principal responsibilities focused on tax, environmental and financial
compliance matters. She is a certified public accountant. Prior to joining
Hanson Industries, she was a senior manager at Ernst & Young LLP.
Mr. Foster, 41, has served as Vice President -- Investor Relations of the
Company since the Demerger. He was Vice President -- Investor relations of
Hanson Industries from August 1992 until the Demerger. Mr. Foster held investor
relations' positions with ARCO and Pacific Enterprises from 1983 to 1992. He is
the immediate past Chairman of the National Investor Relations Institute.
Mr. Lloyd, 57, has served as Vice President -- Tax of the Company since the
Demerger. He was Vice President -- Tax of Hanson Industries from 1993 until the
Demerger. Mr. Lloyd joined Hanson Industries in 1987 and was Senior Director of
Tax of Hanson Industries from 1987 to 1993. Prior thereto, he was Vice President
and Director of Tax of Kidde, Inc., which was acquired by Hanson in 1987.
Mr. Lofredo, 41, served as the Company's Director of Corporate Development
since the Demerger and was elected a Vice President on October 8, 1996. He was
Director of Corporate Development of Hanson Industries from March 1993 until the
Demerger, with his principal responsibilities focused on
17
<PAGE>
<PAGE>
acquisitions and divestitures. He joined Hanson Industries in June 1992 as
Assistant Corporate Controller.
Ms. Wubbolding, 44, has served as Vice President and Treasurer of the
Company since the Demerger. She was Vice President of Hanson Industries from
January 1996 until the Demerger and Treasurer from June 1994 until the Demerger.
She joined Hanson Industries in 1976 and held various financial positions,
primarily in the treasury area, prior to 1994.
ITEM 2. PROPERTIES
Set forth below is a list of the Company's principal manufacturing
facilities, all but one of which is owned. The Company's operating subsidiaries
also lease warehouses and offices.
<TABLE>
<CAPTION>
LOCATION PRODUCTS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Millennium Petrochemicals
Morris, Illinois................................... LDPE; LLDPE; polypropylene; ethylene
Clinton, Iowa...................................... LDPE; HDPE; ethylene; tie-layer resins
La Porte, Texas.................................... Ethylene; methanol; LDPE; LLDPE; HDPE; VAM; acetic acid
Chocolate Bayou, Texas............................. HDPE
Port Arthur, Texas................................. LDPE; HDPE
Crockett, Texas.................................... Colors and concentrates; wire and cable compounds
Anaheim, California................................ Denatured ethyl alcohol
Newark, New Jersey................................. Denatured ethyl alcohol
Fairport Harbor, Ohio (leased)..................... Wire and cable compounds, colors and concentrates
Heath, Ohio........................................ Colors and concentrates
Tuscola, Illinois.................................. Ethyl alcohol; ethyl ether; wire and cable compounds;
polyethylene powders
Millennium Inorganic Chemicals
Baltimore, Maryland (Hawkins Point)................ TiO2
Ashtabula, Ohio.................................... TiO2 and TiCl4
Stallingborough, England........................... TiO2
Kemerton, Western Australia........................ TiO2
Baltimore, Maryland (St. Helena)................... Colored pigments and silica
Millennium Specialty Chemicals
Jacksonville, Florida.............................. Fragrance and flavor chemicals
Brunswick, Georgia................................. Fragrance and flavor chemicals
</TABLE>
The Company believes that its properties are well maintained and are in
good operating condition.
ITEM 3. LEGAL PROCEEDINGS
Together with other alleged past manufacturers of lead pigments for use in
paint and lead-based paint, a former subsidiary of a present Company subsidiary
has been named as a defendant or third party defendant in various legal
proceedings alleging that it (through a discontinued operation) and other
manufacturers are responsible for personal injury and property damage allegedly
associated with the use of lead pigments in paint. These proceedings consist of
four cases in the State of New York, one of which has been brought by The City
of New York, a class action personal injury case filed on behalf of all
purportedly lead-poisoned children in Ohio, two personal injury cases in
Maryland and one personal injury case in West Virginia. There can be no
assurance that additional litigation will not be filed. The legal proceedings
seek recovery under a variety of theories, including negligence, failure to
warn, breach of warranty, conspiracy, market share liability, fraud and
misrepresentation. The plaintiffs in these actions generally seek to impose on
the defendants responsibility for alleged damages and health concerns associated
with the use of lead-based paints. These cases (except the Maryland cases which
are on appeal following judgments for the defense) are in various pre-trial
stages. The Company is vigorously defending such litigation. Although liability,
if any, that may result is not reasonably capable of estimation, the Company
currently believes that the disposition of such claims in the aggregate should
not have a material adverse effect on the Company's combined financial position,
results of operations or liquidity. The pending legal proceedings referred to
above are as follows:
18
<PAGE>
<PAGE>
Brenner et. al. v. American Cyanamid Company, et. al., commenced in the Supreme
Court of the State of New York on November 9, 1993; The City of New York et. al.
v. Lead Industries Association, Inc., et. al., commenced in the Supreme Court of
the State of New York on June 8, 1989; Omar J. Gates v. American Cyanamid
Company, et. al., commenced in the Supreme Court of the State of New York on
March 13, 1996; Jennifer German, et. al. v. Federal Home Loan Mortgage Corp. et.
al. v. Lead Industries Association, Inc., et. al., commenced in the United
States District Court, Southern District of New York on July 26, 1993; Jackson,
et. al. v. The Glidden Co., et. al., commenced in the Court of Common Pleas,
Cuyahoga County, Ohio on August 12, 1992; Ritchie, et. al. v. The Glidden Co.,
et. al., commenced in the Circuit Court of Marshall County, West Virginia on
September 24, 1996; and Alvin Wright et. al. v. Lead Industries Association
Inc., et. al., commenced in the Circuit Court of Baltimore City, Maryland on
December 29, 1994.
In addition, various laws and administrative regulations have, from time to
time, been enacted or proposed at the federal, state and local levels and may be
proposed in the future that seek to (i) impose various obligations on present
and former manufacturers of lead pigment and lead paint with respect to asserted
health concerns associated with the use of such products, and (ii) effectively
overturn court decisions in which the Company's former subsidiary and other
defendants have been successful. No legislation or regulations have been adopted
to date which are expected to have a material adverse effect on the Company's
combined financial position, results of operations or liquidity.
The Company and various Company subsidiaries are defendants in a number of
other pending legal proceedings incidental to present and former operations.
These include several proceedings alleging injurious exposure of the plaintiffs
to various chemicals and other materials manufactured by the Company's current
and former subsidiaries; typically such proceedings involve large claims made by
many plaintiffs against many defendants in the chemicals industry. The Company
does not expect that the outcome of these proceedings, either individually or in
the aggregate, will have a material adverse effect upon the Company's combined
financial condition, results of operations or liquidity.
For information concerning the Company's environmental proceedings, see
'Environmental Matters' in Item 1 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Common Stock of the Company is traded on the New York Stock Exchange
(the 'NYSE') under the symbol 'MCH.' The following table sets forth the high and
low closing sales prices per share of Common Stock reported by the NYSE since
October 2, 1996, the commencement of 'regular way' trading:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
October 2, 1996 through December 31, 1996......................................... $23.000 $17.250
January 1, 1997 through March 14, 1997............................................ $20.875 $17.750
</TABLE>
As of March 14, 1997, there were 85,797 record holders of Common Stock. The
closing price per share of Common Stock as reported by the NYSE on such date was
$18.25.
On January 21, 1997, the Company declared a dividend of $.12 per share of
Common Stock payable to all holders of record on March 14, 1997, and will pay
Advance Corporation Tax of $0.03 per share in respect of the dividend. This
dividend will be paid on March 31, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data of the Company set forth below are derived from
the audited Consolidated (Combined) Financial Statements of the Company except
for the data as at and for the period ended September 30, 1992, which are
derived from the unaudited Combined Financial
19
<PAGE>
<PAGE>
Statements of the Company. In the opinion of the Company, the unaudited combined
financial data have been prepared on a basis consistent with that of the audited
financial data.
Income statement data and other data for fiscal 1993, fiscal 1992 and
balance sheet data for fiscal 1992 exclude the operations of Millennium
Petrochemicals, which was acquired on September 30, 1993, in a transaction
accounted for as a purchase.
The information set forth below should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Consolidated (Combined) Financial Statements and Notes
thereto of the Company included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
------------------------ DECEMBER 31,
1996 1995 1994
------- ------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
Income Statement Data:
Net sales........... $ 3,040 $ 3,800 $ 908
Operating income.... 283(1) 842 203
Income from
continuing
operations........ 141(1)(2) 331 84
Net (loss) income... (2,701)(1)(2)(3) 349 96
Balance Sheet Data (at
period end):
Total assets(4)..... 5,601 10,043 10,024
Total liabilities... 4,283 5,242 5,166
Stockholders'
equity(4)......... 1,318 4,801 4,858
Other Data (with respect
to continuing
operations):
Depreciation and
amortization...... 201 241 59
Capital
expenditures...... 285 276 30
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1993 1992
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Income Statement Data:
Net sales...........$3,288 $ 862 $ 920
Operating income.... 344 139 181
Income from
continuing
operations........ 66 103 138
Net (loss) income... 94 123 194
Balance Sheet Data (at
period end):
Total assets(4)..... 9,691 10,135 5,183
Total liabilities... 5,053 4,692 663
Stockholders'
equity(4)......... 4,638 5,443 4,519
Other Data (with respect
to continuing
operations):
Depreciation and
amortization...... 247 44 38
Capital
expenditures...... 109 28 43
</TABLE>
- ------------
(1) Includes the effects of non-recurring charges of $75 ($48 after-tax) to
reduce the carrying value of certain facilities employed in the
sulfate-process manufacturing of TiO2 and provide for the costs associated
with the closure of certain of these facilities, as described in Note 3 to
the Consolidated (Combined) Financial Statements of the Company.
(2) Includes gain of $210 ($86 after-tax) resulting from Millennium
Petrochemicals' sale in March 1996 of a 73.6% equity interest in Suburban
Propane Partners, as described in Note 1 to the Consolidated (Combined)
Financial Statements of the Company. In 1995 and fiscal 1994, Suburban
Propane is included as a continuing operation.
(3) Includes the effects of a non-cash after-tax charge of $3,206 relating to
one of the Discontinued Businesses (as defined in Note 1 to the Consolidated
(Combined) Financial Statements of the Company) as a result of the Company's
adoption of the long-lived asset carrying value methodology provided by SFAS
121, as described in Note 4 to the Consolidated (Combined) Financial
Statements of the Company. The Discontinued Businesses were sold to Hanson
on October 6, 1996.
(4) Includes net assets of the Discontinued Businesses: $3,772 at December 31,
1995; $3,757 at December 31, 1994; $3,757 at September 30, 1994; $3,935 at
September 30, 1993; and, $3,818 at September 30, 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the Company's
Consolidated (Combined) Financial Statements and Notes thereto. See 'Index to
Financial Statements.'
In connection with the forward-looking statements which appear in the
following information, the Cautionary Statements referred to in 'Disclosure
Concerning Forward-Looking Statements' should be reviewed carefully.
20
<PAGE>
<PAGE>
INTRODUCTION
HISTORICAL CYCLICALITY OF SIGNIFICANT COMPONENTS OF THE COMPANY'S OPERATIONS
The markets for Millennium Petrochemicals' principal products are highly
cyclical and the global markets for Millennium Inorganic Chemicals' principal
products are also cyclical, although to a slightly lesser degree. In contrast,
the Company believes that, over a business cycle, the markets for fragrance and
flavor chemicals and other specialty products are generally more stable in terms
of industry demand, selling prices and operating margins.
POLYETHYLENE AND RELATED PRODUCTS
In 1996, Millennium Petrochemicals' polyethylene and related operations
contributed approximately 43% of the Company's revenues and approximately 56% of
its operating income with an operating margin of approximately 12%. In 1995 and
fiscal 1994, when Suburban Propane was included as a continuing operation,
polyethylene and related operations contributed approximately 36% and 32%,
respectively, of the Company's revenues and approximately 45% and 7%,
respectively, of its operating income with operating margins of approximately
28% and 2%, respectively.
In the United States, demand for polyethylene has historically fluctuated
from year to year, although it has increased at average annual rates of
approximately 3.6% over the last five years and approximately 5.3% over the last
ten years. The industry is particularly sensitive to capacity additions,
including capacity to manufacture ethylene, polyethylene's principal raw
material. Polyethylene producers have historically experienced alternating
periods of inadequate ethylene and/or polyethylene capacity, resulting in
increased selling prices and operating margins, followed by periods of large
capacity additions, resulting in declining capacity utilization rates, selling
prices and operating margins. During the mid-1980's, increases in new production
facilities did not keep pace with demand and by 1987 - 1988, U.S. producers were
operating at high capacity utilization rates. Accordingly, selling prices and
operating margins increased substantially in 1988 - 1989. Significant additional
industry capacity came on stream during 1990 - 1992 and, as a consequence, the
industry, including Millennium Petrochemicals, experienced lower capacity
utilization rates, selling prices and operating margins in 1990 - 1993. In
addition, Millennium Petrochemicals' income was adversely affected in 1989 and
1990 by a fire and explosion at its Morris, Illinois facility. An unanticipated
shortage of ethylene resulting from Gulf Coast plant outages due to cold
weather, floods and mechanical failures led to significantly increased selling
prices and operating margins for polyethylene from mid-1994 through mid-1995.
From mid-1995 through the first quarter of 1996, selling prices and operating
margins for polyethylene decreased significantly due to the restoration of lost
ethylene supply, expanded manufacturing capacity and inventory reductions by
customers. Selling prices increased again during the second and third quarters
of 1996 as a result of significantly increased domestic demand for polyethylene,
strong exports and higher natural gas feedstock costs; notwithstanding these
costs, operating margins also increased. Selling prices dropped during the
fourth quarter of 1996 and the beginning of 1997 on softening demand which,
combined with the effect of continuing feedstock cost increases, resulted in a
decline in margins. Price increase announcements for implementation in the first
quarter of 1997 have been made; however, there is no assurance that such
increases will be realized or, if realized, how long they may be sustained. In
the future, there can be no assurance that growth in demand for polyethylene
will be sufficient to absorb currently anticipated capacity increases (including
increases in ethylene capacity) without the industry experiencing an overall
reduction in utilization rates, which has in the past caused selling prices and
operating margins to decline, or that a downward phase of industry cyclicality
will not be exacerbated by unanticipated capacity additions, changes in
technology, price volatility of raw materials, changes in customer inventory
levels or other conditions.
TIO2 AND RELATED PRODUCTS
In 1996, Millennium Inorganic Chemicals' TiO2 and related operations
contributed approximately 29% of the Company's revenues and generated operating
income of $8 million, after reflecting $75 million of non-recurring charges to
reduce the carrying value of certain assets employed in the sulfate-process
manufacturing of TiO2 and to provide for the costs associated with the closure
of certain sulfate-
21
<PAGE>
<PAGE>
process production facilities. Excluding these charges, this segment contributed
approximately 23% to operating income with an operating margin of approximately
9%. In 1995 and fiscal 1994, these operations contributed approximately 23% and
24%, respectively, of the Company's revenues and approximately 21% and 31%,
respectively, of its operating income with operating margins of approximately
21% and 13%, respectively.
TiO2 is considered a 'quality of life' performance chemical, the demand for
which is influenced by changes in the gross domestic product of various regions
of the world. The worldwide TiO2 industry, in which Millennium Inorganic
Chemicals participates, has experienced cyclical demand, supply and pricing,
although to a lesser degree than the polyethylene industry. A cyclical peak for
average annual TiO2 prices occurred in 1990. By mid-1994, TiO2 prices had
declined by approximately 22% from that peak. In late 1994, demand grew as a
result of improved economic conditions and stock building by customers. Coupled
with limited capacity additions, this increased the industry capacity
utilization rates to above 90% and resulted in a turnaround in worldwide prices,
continuing through most of 1995. Demand growth subsequently slowed due to
reduced economic growth, customer destocking worldwide and rainy spring seasons
in 1995 and 1996, resulting in price erosion and a reduction in capacity
utilization rates in late 1995 and the first half of 1996. In addition, recent
consolidation of customers in Millennium Inorganic Chemicals' coatings market
further increased price competition for certain of its products, putting
increased pressure on profitability. To address market conditions in the TiO2
industry during 1996, Millennium Inorganic Chemicals, among other things, closed
its 10,000 tpa sulfate-process plant in Stallingborough England and scaled back
capacity by approximately one-third at its 66,000 tpa sulfate-process plant in
Baltimore, Maryland (an overall capacity reduction for Millennium Inorganic
Chemicals of approximately 6%). The Company incurred non-recurring charges of
$15 million ($9 million after tax) in 1996 for the cost of these initiatives
and, in addition, reduced the carrying value of its remaining sulfate production
assets by $60 million ($39 million after tax). If market conditions continue to
deteriorate, it may be necessary to further reduce operations at the Baltimore
sulfate process plant and accrue for additional closure costs of approximately
$15 million. In recent years, Millennium Inorganic Chemicals' sulfate-process
manufacturing operations have operated at a marginal level and made a negative
contribution of $2 million in 1996. The Company has also delayed chloride-
process expansion programs in the United Kingdom and Australia. Price increases
announced by Millennium Inorganic Chemicals and most other TiO2 producers for
the United States and European markets in early January 1997, and for the
Asia/Pacific markets commencing in April 1997, are expected to be realized
beginning in the second quarter of 1997. However, there can be no assurance that
such increases will be realized or, if realized, how long they may be sustained.
RESULTS OF OPERATIONS
The Company's principal operations are grouped into five business segments:
Polyethylene and Related Products, Acetyls and Ethyl Alcohol, Performance
Polymers, TiO2 and Related Products, and Fragrance and Flavor Chemicals. As
shown in the table below, Suburban Propane Partners accounted for 17% and 21% of
the Company's net sales and 6% and 22% of its operating income in 1995 and
fiscal 1994, respectively. Millennium Petrochemicals sold a 73.6% equity
interest in Suburban Propane Partners in March 1996.
The following table shows, for the periods indicated, sales (net of
intercompany transactions, which are not material) and operating income (before
interest and provision for income taxes) attributable to each of the Company's
business segments (excluding the Discontinued Businesses which were sold to
Hanson on October 6, 1996).
22
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED YEAR ENDED
----------------- DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
------ ------- -------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net Sales
Polyethylene and related products........................ $1,293 $ 1,374 $ 327 $ 1,061
Acetyls and Ethyl alcohol................................ 388 461 105 347
Performance polymers..................................... 364 363 82 318
Titanium dioxide and related products.................... 881 860 185 795
Fragrance and flavor chemicals........................... 114 103 24 89
------ ------- ------ -------------
3,040 3,161 723 2,610
Propane(1).................................................... -- 639 185 678
------ ------- ------ -------------
Total Net Sales.......................................... 3,040 3,800 908 3,288
------ ------- ------ -------------
------ ------- ------ -------------
Operating Income
Polyethylene and related products........................ 159 380 92 23
Acetyls and Ethyl alcohol................................ 40 142 38 70
Performance polymers..................................... 41 59 13 42
Titanium dioxide and related products (2)................ 8 177 27 106
Fragrance and flavor chemicals........................... 35 31 7 27
------ ------- ------ -------------
283 789 177 268
Propane(1).................................................... -- 53 26 76
------ ------- ------ -------------
Total Operating Income................................... $ 283 $ 842 $ 203 $ 344
------ ------- ------ -------------
------ ------- ------ -------------
</TABLE>
- ------------
(1) Suburban Propane is reflected as a continuing operation of the Company
(i.e., a division of Millennium Petrochemicals) through December 31, 1995.
In March 1996, Millennium Petrochemicals sold a 73.6% interest in Suburban
Propane Partners in an initial public offering. The Company has accounted
for its continuing investment in Suburban Propane Partners under the equity
method effective January 1, 1996.
(2) 1996 includes non-recurring charges of $75 ($48 after-tax) to reduce the
carrying value of certain facilities employed in the sulfate-process
manufacturing of TiO2 and to provide for the costs associated with certain
sulfate-process production facility closures.
1996 COMPARED TO 1995
The Company had operating income of $283 million for the year ended
December 31, 1996, a decrease of $559 million (66%) from 1995, and net sales of
$3.040 billion, a decrease of $760 million (20%). The Company recorded
non-recurring charges of $75 million ($48 million after tax) during 1996 to
reduce the carrying value of certain facilities employed in the sulfate-process
manufacturing of TiO2 products and to provide for the closure costs of certain
sulfate-process production capacity. In addition, as a result of Millennium
Petrochemicals' sale of a 73.6% interest in Suburban Propane through an initial
public offering in March 1996, the Company's interest in the results of Suburban
Propane Partners' operations have been reflected as equity in earnings of
Suburban Propane Partners in the Consolidated (Combined) Financial Statements of
the Company since January 1, 1996. Suburban Propane contributed $639 million to
net sales and $53 million to operating income during 1995. Excluding Suburban
Propane and the non-recurring charges referred to above, the Company's net sales
decreased $121 million (3.8%) and its operating income decreased $431 million
(55%) from the prior year. These decreases are primarily due to lower average
selling prices for polyethylene, acetyls and performance polymer product
offerings as they declined from their 1995 peak levels and declining selling
prices for TiO2 as a result of high producer inventories, excess capacity and
customer destocking. Additionally, increasing costs for feedstocks for ethylene
(polyethylene's principal raw material) and higher cost for titanium ores during
this period further reduced operating income.
On a pro forma basis, earnings per share for 1996 would have been $2.20,
based on 76,450,905 shares outstanding (which includes the shares issued to
Hanson shareholders pursuant to the Demerger,
23
<PAGE>
<PAGE>
the portion of the 2,912,322 shares of restricted Common Stock awarded to
executive officers and key employees on October 8, 1996 pursuant to the
Company's Long-Term Stock Incentive Plan that are expected to vest, and the
shares issued pursuant to such plan to non-employee directors). Such earnings
per share include ($0.63) and $1.12 per share from the after-tax impact of the
non-recurring charges related to the sulfate-process TiO2 operations and the
gain on the sale of the 73.6% interest in Suburban Propane Partners,
respectively.
Polyethylene and Related Products: Net sales of polyethylene and related
products were $1.293 billion for 1996, a decrease of $81 million (6%). Operating
income decreased $221 million (58%) to $159 million, principally as a result of
a 15% decline in average selling prices for polyethylene products coupled with
higher feedstock costs. The lower prices reflected competitive pressure arising
from excess industry capacity and a reduction of ethylene inventory supplies
during the first half of 1996. In the 1995 period, industry ethylene inventories
were extremely tight due to unexpected industry outages causing ethylene and,
consequently, polyethylene prices to rise dramatically; this situation corrected
itself towards the end of 1995. During 1996, average selling prices increased
during the second and third quarters on increased domestic demand, strong
exports and higher natural gas feedstock costs but dropped during the last
quarter and early in 1997 as customers worked off polyethylene inventories in
anticipation of future price decreases and reduced seasonal demand. Polyethylene
unit volumes for 1996 increased 7.2% over 1995 on increased demand.
Average unit costs for polyethylene increased 9.5% over 1995 due to
increased feedstock costs for ethylene. These costs rose dramatically as a
result of the colder than normal winter temperatures experienced in late 1995
and early 1996, which increased the demand for natural gas and the cost of
natural gas liquids. Millennium Petrochemicals' ethylene feedstock and natural
gas costs remained at high levels throughout 1996 and a significant portion of
the first quarter of 1997. Feedstock costs rose 45% during the fourth quarter of
1996 alone.
Acetyls and Ethyl Alcohol: Net sales of acetyls and ethyl alcohol decreased
$73 million (16%) to $388 million in 1996, while operating income decreased $102
million (72%) to $40 million. The decline in operating income resulted from
decreased average selling prices and lower volumes. This was primarily true for
methanol, which experienced historically high selling prices during 1995 due to
strong demand from reformulated gasoline producers to meet environmental
requirements. As some of these requirements were subsequently relaxed and
additional capacity became available, methanol prices fell 32%. VAM also
experienced a 20% decline in average selling prices during 1996 as export
markets were affected by oversupply and weakened demand. In addition, an outage
to convert the syngas unit to natural gas caused production limitations which
resulted in a decline in sales volume in both methanol and acetic acid in 1996
compared to 1995. Mechanical difficulties associated with the resumption of
acetyls production, as well as certain suppliers' failure to perform at expected
levels, resulted in curtailed production and increased costs during the first
quarter of 1997.
Performance Polymers: Net sales of performance polymers in 1996 were
relatively flat compared to 1995 at $364 million, while operating income
decreased $18 million (31%) to $41 million. The decline in operating income
resulted from an 8% decline in average selling prices caused by lower
polyethylene costs. Growth in the wire and cable markets, which experienced a
24% increase in unit sales volume, partially offset the impact of lower pricing.
Unit costs were slightly lower during 1996 as higher ethylene and other raw
material costs were offset by lower propylene and polyethylene costs.
During 1996, Millennium Petrochemicals continued to implement its
reengineering and cost reduction programs, with expected annual savings of
approximately $30 million. The syngas plant was restarted after its conversion
from residuum oil to natural gas on December 4, 1996. In addition, during 1996,
several expansion and improvement projects were completed, including with the
restart of 250 million pounds of annual LLDPE capacity at the Morris facility,
conversion of 300 million pounds of annual LLDPE production capacity to HDPE at
Port Arthur and a new 480 million pound per annum LLDPE plant at the La Porte
facility.
Titanium Dioxide and Related Products: Titanium dioxide and related
products' operating income for 1996 decreased $169 million (96%) from $177
million in 1995. This reflects non-recurring charges of $75 million ($48 million
after tax) to reduce the carrying value of certain plant and equipment employed
in the sulfate-process manufacturing of TiO2 and to provide for the closure of
certain sulfate production
24
<PAGE>
<PAGE>
facilities in light of the market conditions discussed below. Excluding these
non-recurring charges, operating income for the year decreased $94 million (53%)
compared to 1995. Net sales for 1996 increased 2% to $881 million compared to
$860 million for 1995.
During 1996, the TiO2 industry experienced severe price competition with
global prices continuing on a downward trend which began in late 1995. The price
erosion reflects a confluence of market factors, including customer destocking,
consolidations in the paint and coatings industry, a weak paper industry,
increased TiO2 capacity and a weak spring paint and coatings season. These
conditions caused global average TiO2 selling prices in U.S. dollar terms to be
6% lower during 1996, compared to 1995, as producers attempted to maintain
volume and market share. These declines were world-wide with yearly average
prices down 3% in the Americas, 8% in Europe and 13% in the Asia/Pacific region
compared to yearly average prices in these regions in 1995. The worldwide
average TiO2 selling price in U.S. dollar terms was 14% lower in December 1996
than December 1995 with local prices in Europe and the Asia/Pacific region
declining 25% and 29%, respectively, during the same period. Price increase
announcements recently made by TiO2 producers with effect from January 1997 for
the U.S. and Europe and from April 1997 for the Asia/Pacific region should, if
not modified, help to reverse this trend.
These conditions had severe effects on TiO2 sulfate-process products which
have higher production costs and lower selling prices than chloride-process
products. In response to these deteriorating market conditions, the 10,000 tpa
sulfate-process plant in Stallingborough, England was closed and production
capacity of the 66,000 tpa sulfate-process plant in Baltimore, Maryland was
scaled back by approximately one-third. In addition, completion of the expansion
of the chloride-process facility in the United Kingdom, described below, was
delayed until 1999 and plans for the 111,000 tpa expansion in Australia have
been postponed until market conditions and trends improve. Finally, cost
containment measures and reengineering efforts for certain processes are being
implemented in order to reduce overall operating costs.
Also contributing to the decline in operating income were higher fixed
costs, resulting from an increase in chloride-process capacity which was phased
in, thereby reducing operating rates, and higher variable costs due to increased
costs of titanium ore feedstocks, coke and utilities.
A $75 million capital investment program to increase Millennium Inorganic
Chemicals' chloride-process capacity by 52,000 tpa was completed during 1996. A
$50 million two-year program to improve environmental performance at its
Ashtabula, Ohio facilities is underway with final completion scheduled for 1998.
In addition, plans are underway to expand chloride-process capacity at the
Stallingborough plant by 41,000 tpa in 1999 at a cost of approximately $120
million to meet projected long-term growth in demand in the European markets.
The TiO2 plants operated at approximately 88% of capacity during 1996
compared to approximately 96% during the prior year. Decreased operating rates
reflected market conditions and increased operating capacity for
chloride-process manufacturing. Sales volume for 1996 increased 8%, largely due
to stronger demand in the coatings and plastics markets with shipments to the
sluggish paper market continuing to lag.
Fragrance and Flavor Chemicals: Fragrance and flavor chemicals continued
its growth trend with its seventh consecutive record year of operating income of
$35 million for 1996, an increase of $4 million (13%) compared to 1995. Net
sales increased $11 million (11%) to $114 million. This trend reflected a 2.2%
increase in unit sales volume over 1995 as well as a shift toward higher-value
added products. This growth was accomplished in spite of worldwide demand for
fragrance chemicals being flat in 1996, and more than offset significant
increases in the cost of CST, Millennium Specialty Chemicals' principal raw
material (49% on a unit basis compared to 1995). Millennium Specialty Chemicals'
continued emphasis on higher-margin intermediate and upgrade products also
contributed to 1996's operating margin per unit increasing 7.6% over 1995.
During 1996, Millennium Specialty Chemicals' expansion continued.
Completion of the final phase of the program, scheduled for the fall of 1997,
will double the capacity of Millennium Specialty Chemicals' Brunswick, Georgia
facility over 1995 levels.
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<PAGE>
1995 COMPARED TO FISCAL 1994
The Company changed its fiscal year from September 30 to December 31,
effective as of January 1, 1995. Accordingly, the following discussion compares
results of operations for the twelve months ended December 31, 1995 with those
for the twelve months ended September 30, 1994.
The Company had operating income of $842 million in 1995, an increase of
$498 million (145%), and net sales of $3.8 billion, an increase of $512 million
(16%) from fiscal 1994. These increases are primarily attributable to the
quadrupling of Millennium Petrochemicals' operating income (excluding propane
operations) to $581 million on a 27% increase in its net sales (excluding
propane operations) to $2.198 billion.
Polyethylene and Related Products: Net sales of polyethylene and related
products were $1.374 billion in 1995, an increase of $313 million (29%) over
fiscal 1994. Operating income increased by $357 million to $380 million,
principally as a result of a 46% increase in average unit selling prices for
polyethylene products. The higher prices reflected continued tight ethylene
supply due to competitors' plant shutdowns and higher demand for ethylene
through the first quarter of 1995. By mid-year, the ethylene supply problems
were resolved and the polyethylene market experienced a correction as customers
reduced inventories, leading to weakened prices and margins for polyethylene.
Such market changes also resulted in polyethylene unit volumes declining 6%
overall for the year. By the end of 1995, average selling prices for
polyethylene had dropped 25% compared to the beginning of 1995. Polyethylene
production costs were 5% higher on a unit basis in 1995 compared to fiscal 1994,
primarily due to higher prices for purchased ethylene, reflecting tight supplies
and a shift in sales mix to higher value-added products which have a higher cost
structure.
Acetyls and Ethyl Alcohol: Net sales of acetyls and ethyl alcohol increased
$114 million (33%) to $461 million in 1995, while operating income doubled to
$142 million. The increase in operating income primarily resulted from increased
average selling prices, which were 38% higher for acetyl products and 10% higher
for alcohol products. Higher acetyls pricing was due to strong demand for
methanol used in the manufacture of gasoline additives to meet environmental
requirements. In addition, there were supply shortages in export markets and
formula-based price increases from higher methanol and acetic acid pricing.
Beginning in the latter part of the first quarter of 1995, however, methanol
prices began to decline as a result of the relaxation of certain environmental
requirements for gasoline additives and the addition of industry capacity. By
the end of 1995, methanol prices had declined by approximately 70% from
late-1994 levels. The increase in demand for methanol and acetic acid resulted
in unit sales volumes for 1995 that were 7% higher compared to fiscal 1994. On a
unit basis, 1995 costs were 15% higher compared to fiscal 1994 primarily due to
higher feedstock costs (ethylene and residuum oil) and higher maintenance costs.
Performance Polymers: Net sales of performance polymers were $363 million
in 1995, an increase of $45 million (14%) compared to fiscal 1994. Operating
income increased by $17 million (40%) to $59 million. The increase in operating
income reflected higher selling prices across all product lines due to increased
demand in the earlier part of the year and the increased price of polyethylene
and polypropylene, which are used as raw materials in the manufacture of certain
specialty polymer products. The effect of higher pricing was partially offset by
a 2% decline in volume and a 13% increase in costs primarily attributable to
purchased propylene and the cost mix of higher value-added products sold.
Titanium Dioxide and Related Products: Titanium dioxide and related
products had net sales of $860 million in 1995, an increase of $65 million (8%)
from fiscal 1994, and operating income of $177 million, an increase of $71
million (67%). The improved performance was primarily attributable to a 15%
overall increase in average selling prices for TiO2 in U.S. dollar terms, with
increased selling prices of 6% in the United States, 23% in Europe and 16% in
the Asia/Pacific region. TiO2 1995 sales volume of 415,000 tonnes was 5% lower
than in fiscal 1994. Sales were constrained by capacity limitations early in
1995, when plants were operating at 99% of capacity. Total industry demand
during the period from late 1994 through early 1995 was strong, driving prices
higher during that period. Later in 1995, sales volume and capacity utilization
rates fell as a result of a softening of demand in United States and European
markets and inventory reductions by customers.
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During 1995, Millennium Inorganic Chemicals' TiO2 plants operated at an
average of 96% of capacity (with all chloride-process plants operating at an
average of 98% of capacity) compared to an estimated industry average of 89%.
During the fourth quarter of 1995, TiO2 operations were reduced to 91% of
capacity to balance production with weakening demand.
Fragrance and Flavor Chemicals: This segment had its sixth consecutive year
of record profits in 1995, with operating income increasing by $4 million (15%)
to $31 million from fiscal 1994. Sales were $103 million, an increase of $14
million (16%) from fiscal 1994. Capacity for the production of fragrance
chemicals was expanded by 17% with the increased production almost immediately
sold out. While aggregate unit sales volumes were unchanged at 59 million
pounds, higher margin intermediate and upgrade products, which had an increase
in unit sales volumes of 18%, were the most significant factors in this
segment's increased profitability. Selling prices increased by an average of 16%
in 1995. The impact of such increases was partially offset by a 23% average
increase in raw material costs. Certain product lines were de-emphasized to
redirect production to higher margin products. The result was an increase in
margin from 44.6% to 45.6%.
In order to meet expected worldwide demand growth in the fragrance and
flavor chemicals industry, the Company implemented plans to increase capacity
for the production of these products at its facilities by an additional 20%.
Suburban Propane: Suburban Propane, adversely affected by unseasonably mild
winter conditions throughout the United States, generated operating income of
$53 million in 1995, a $23 million (30%) decline from fiscal 1994. Sales for
1995 were $639 million, a 6% decline from fiscal 1994. The decrease in operating
income was primarily due to a 6% decrease in retail volume to 534 million
gallons. Wholesale volume also decreased by 8% to 174 million gallons. Such
declines were attributable to lower demand resulting from temperatures that were
approximately 9% warmer in 1995 than in fiscal 1994. Average retail margins
declined 4.8% from fiscal 1994, primarily due to the proportionately lower sales
volume of the higher-margin retail gallons.
OUTLOOK FOR 1997
Polyethylene and Related Products: Buoyed by the recent historically high
costs for feedstocks, multiple price increase announcements are in place for
polyethylene and are supported by strong demand. Ethylene supplies are
anticipated to remain tight through the third quarter of 1997 with prices
increasing as a result of high effective operating rates. Such pricing is
anticipated to fall in response to significant additional ethylene production
capacity coming on line from major producers later in the year. The Company
anticipates declining feedstock costs and stabilized ethylene prices as spring
approaches, followed by a drop in ethylene and polyethylene prices beginning in
the fourth quarter of 1997. Except for the Clinton plant, Millennium
Petrochemicals' ethylene production units are budgeted to operate at maximum
production rates throughout the year. The Clinton plant will have a turnaround,
beginning in May, for major maintenance which will temporarily reduce ethylene
production in the Midwest. Ethylene production costs in 1997 are expected to be
approximately the same as 1996.
Acetyls and Ethyl Alcohol: This segment should realize cost benefits from
the conversion of the Syngas unit, completed in December 1996, from residuum oil
feedstock to natural gas, beginning in the second quarter 1997. Higher sales
volumes in methanol and level sales volumes in VAM and acetic acid are
anticipated for 1997. Additionally, prices for methanol rose early in the first
quarter of 1997 and increases for VAM and acetic acid have been announced by
most major producers. Mechanical difficulties connected with the resumption of
acetyls production as well as certain suppliers' failure to perform at expected
levels have limited production and increased costs during the first two months
of 1997.
Performance Polymers: Volumes are expected to continue strong in wire and
cable; however, price inceases for many performance polymers may not be
sufficient to offset increased feedstock and other costs.
Titanium Dioxide and Related Products: Even assuming realization of price
increases beginning in the second quarter of 1997, the impact of cost saving
initiatives and slightly improved sales volumes, TiO2 profitability in 1997 is
expected to be lower than in 1996. The worldwide average TiO2 selling price in
U.S. dollar terms was 14% lower in December 1996 than in December 1995, with
local prices in Europe and the Asia/Pacific region declining 25% and 29%,
respectively, during the same period. As a
27
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<PAGE>
result, even if announced 1997 price increases take effect, it is expected that
the average full year TiO2 price will be considerably lower than the average
1996 TiO2 price.
Fragrance and Flavor Chemicals: The overall aroma chemical market is
expected to experience flat volumes in 1997. While the strategy of focusing on
higher-margin upgraded products continues, margins will be negatively affected
due to the expected continued increase in raw material costs, which increased
49% during 1996.
Strategic Response: To offset the anticipated impact of 1997's difficult
markets described above, the Company is focusing on cost reduction and process
improvements throughout its business units. Initiatives are underway which are
aimed at permanently reducing the Company's cost structure by over $100 million
on an annualized basis during 1997.
EFFECT OF INFLATION
Because of the relatively low level of inflation experienced in the United
States, inflation did not have a material impact on the Company's combined
results of operations for 1996, 1995 or fiscal 1994.
FOREIGN CURRENCY MATTERS
The functional currency of each of the Company's non-United States
operations (principally the operations of Millennium Inorganic Chemicals in the
United Kingdom and Australia), is the local currency. The impact of currency
translation in combining the results of operations and financial position of
such operations has not been material to the combined financial position of the
Company. Additionally, the Company generates revenue from export sales (see Note
11 to the Consolidated (Combined) Financial Statements of the Company) and
revenue from operations conducted outside the United States which may be
denominated in currencies other than the U.S. dollar, British pound or
Australian dollar. Results from such transactions aggregated a $7 million loss
in 1996, and gains of $13 million and $2 million, respectively, in 1995 and
fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Through September 30, 1996, the Company financed its operations and capital
and other expenditures from a combination of cash generated from operations,
external borrowings and loans and invested capital provided by Hanson or its
United States affiliates. Since its demerger from Hanson, the Company has met
all of its cash requirements through internally-generated funds and external
borrowings. The Company's ability to generate cash from operations and the
servicing and repayment of debt will depend upon numerous business factors, some
which are outside the control of the Company, including industry cyclicality
(resulting from industry-wide capacity additions, changes in general economic
conditions and other conditions) and price volatility of certain raw materials.
Net cash provided by operating activities was $372 million in 1996,
compared with net cash provided by operating activities of $795 million in 1995.
The decrease resulted from a 57% decrease in income from continuing operations.
Net cash provided by investing activities was $458 million in 1996,
compared with net cash used of $246 million in 1995. The increase principally
resulted from the sale of a 73.6% interest in Suburban Propane for proceeds of
$733 million.
Net cash used in financing activities was $834 million in 1996, compared
with $503 million in 1995. The increase principally related to changes in the
level of funding and other transactions between the Company and its affiliates
prior to the Demerger and from external sources since October 1, 1996. At
December 31, 1996, the Company had net debt of $2.056 billion, or $72 million
less than the pro forma net debt disclosed in the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996. The ratio of net debt to
total capital at December 31, 1996 was 61%. At December 31, 1996, the Company
had approximately $161 million of unused availability under short-term lines of
credit and the Credit Facility (described below). The Company believes that
during 1997 cash provided by operations and availability under existing
borrowing facilities will provide adequate support for all the Company's cash
needs for working capital and capital expenditures for its existing businesses.
28
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Holding Company Structure: The Company is a holding company whose sole
asset is 100% of the outstanding capital stock of an intermediate holding
company, which, in turn, is the indirect parent of Millennium America Inc.
('Millennium America') and the indirect parent of the subsidiaries that hold the
Company's non-United States operations. Millennium America is a holding company
whose sole asset is 100% of the outstanding capital stock of an intermediate
holding company, which, in turn, is the parent of each of the Company's United
States operating subsidiaries. Accordingly, each of the Company and Millennium
America must rely on cash flows from its subsidiaries, including debt service
and dividends from such subsidiaries. The ability of these subsidiaries to make
payments to Millennium America and the Company, respectively, will be affected
by the obligations of such subsidiaries to their creditors, applicable state
corporate laws and other laws and regulations. State corporate law applicable to
Millennium America's and the Company's principal subsidiaries generally
prohibits the payment of dividends by any given subsidiary unless such
subsidiary has capital surplus or net profits in the current or immediately
preceding year.
The Credit Facility: Millennium America and the Company, as guarantor, are
parties to a Credit Facility, as amended on December 18, 1996, with Bank of
America National Trust and Savings Association, as administrative agent ('Bank
of America'), the Chase Manhattan Bank, as documentation agent, and various
participating banks and other institutional lenders for the provision of the
Credit Facility to the Company (the 'Credit Facility').
The Credit Facility consists of a five-year unsecured revolving credit
facility in an amount up to $1.650 billion. Borrowings under the Credit Facility
may consist of standby loans (i.e. committed revolving credit loans) or
uncommitted competitive loans offered by syndicated banks through an auction
mechanism (or both, at the option of Millennium America). Standby loans and
competitive loans may be borrowed in either U.S. dollars or other currencies.
The proceeds of the Credit Facility may be used to provide working capital to
Millennium America and the Company and for general corporate purposes. Certain
proceeds were used for the repayment of portions of Millennium America's
indebtedness to Hanson in connection with the Demerger.
The interest rates under the standby loans are based upon, at the option of
the respective borrowing subsidiaries, (i) the London interbank offered rate
('LIBOR'), (ii) the New York interbank offered rate ('NIBOR') or (iii) in the
case of U.S. dollar loans, the higher of Bank of America's prime rate or the
federal funds rate plus 0.5% ('ABR'). Interest rates based on LIBOR or NIBOR
will be increased by a spread of between 13.5 and 47.5 basis points depending
upon the actual ratings (the 'Ratings') by Standard & Poor's Rating Group and
Moody's Investors Service Inc. of senior unsecured non-credit enhanced long-term
debt issued by Millennium America and guaranteed by the Company (or issued
directly by the Company) or, if there is no such debt, the indicative rating of
Millennium America by such rating agencies. Based on the current Ratings, the
spread over LIBOR is presently 27.5 basis points. No spread is charged on ABR
loans. The interest rates under the competitive loans will be obtained from
those bids selected by the applicable borrowing subsidiary.
A commitment fee is payable to the lenders under the Credit Facility on the
aggregate amount of the commitments, whether used or unused, at a rate per annum
of between 6.5 and 25 basis points depending upon the Ratings. Loans under the
Credit Facility may be repaid and then reborrowed. Based on the current Ratings,
the commitment fee is presently 15 basis points.
The loans under the Credit Facility are guaranteed by the Company. However,
since the Company's only asset is the stock of a subsidiary that is the
intermediate holding company for the Company's operating subsidiaries and the
Company is completely reliant upon its operating subsidiaries for funds, in the
event the borrowing subsidiaries default on their payment obligations under the
Credit Facility and the lenders seek to enforce the Company's guarantee, it is
unlikely that the Company would be able to satisfy these obligations in full.
The Credit Facility contains covenants and provisions that restrict, among
other things, the ability of Millennium America and its material subsidiaries
to: (i) create liens on any of its property or assets, or assign any rights to
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
29
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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 Facility also
limits the ability of the Company's subsidiaries (other than Millennium America)
to incur indebtedness or issue preferred stock.
The Credit Facility requires the Company and its subsidiaries on a
consolidated basis to satisfy certain financial performance criteria.
Specifically, the Company and its subsidiaries are not permitted: (i) to allow
the Leverage Ratio (as defined) to exceed 0.65 to 1 at any time on or before
December 31, 1997, and 0.60 to 1 at any time thereafter; or (ii) to allow the
Interest Coverage Ratio (as defined) for any period of four consecutive fiscal
quarters, commencing with the period ended September 30, 1996, to be less than
3.0 to 1. The Leverage Ratio was .61 to 1 and the Interest Coverage Ratio was
3.8 to 1 for the period ended December 31, 1996.
Events of default under the Credit Facility include, in addition to
standard events of default, the failure of Millennium America to remain a direct
or indirect wholly owned subsidiary of the Company.
Exchangeable Notes: The Demerger resulted in a change-in-control of
Millennium America within the meaning of the indenture governing the 2.39%
Senior Exchangeable Discount Notes due 2001 (the 'Exchangeable Notes'). Pursuant
to a required tender offer, which offer expired on December 17, 1996, Millennium
America repurchased over 96% of the Exchangeable Notes for approximately $1.1
billion. The repurchase was funded with the net proceeds of the issuance of
senior debt securities as described below and additional long-term borrowings
under the Credit Facility.
Senior Obligations: On November 27, 1996, Millennium America issued $500
million of 7% Senior Notes due November 15, 2006 and $250 million of 7.625%
Senior Debentures due November 15, 2026 (collectively the 'Senior Obligations').
The Senior Obligations are fully and unconditionally guaranteed by the Company.
The indenture pursuant to which the Senior Obligations were issued contains
certain covenants that limit, among other things, the ability of Millennium
America and those of its U.S. subsidiaries that own material real property or
the stock or debt of another such subsidiary ('Restricted Subsidiaries') to
grant liens and the ability of Restricted Subsidiaries to incur additional
funded debt. At December 31, 1996, Millennium America and the Restricted
Subsidiaries could have granted approximately $414 million of additional liens
and the Restricted Subsidiaries could have incurred approximately $414 million
of additional funded debt.
Sterling and dollar deposits: During the first quarter of 1997, the Company
sold for an aggregate of `L'190 million and $38 million, which approximates
carrying value, several offshore companies whose principal holdings were
sterling and dollar deposits. The proceeds from these sales were primarily used
to repay borrowings under the Credit Facility.
Risk Management: The Company has, from time to time, entered into forward
exchange contracts, currency swaps or other derivative products to hedge its
risk in foreign or other operations. At December 31, 1996, the Company had in
effect various interest rate protection agreements with several banks to manage
its floating interest rate exposures on $750 million of borrowings under the
Credit Facility. Under these interest rate protection agreements, the Company
receives a weighted average fixed rate of 5.7875% for various periods expiring
through October 1998. These agreements have been accounted for as hedge
transactions against the Company's long term borrowings. The Company anticipates
that its debt levels will exceed the notional amount of the interest rate
protection agreements for the relevant periods. In addition, at December 31,
1996, the Company entered into forward contracts to hedge the impact of exchange
rate fluctuations on approximately `L'200 million of its sterling cash deposits
through February 12, 1997, at an average exchange rate of $1.69. Such contracts
were unwound in February 1997, in connection with the sale of the offshore
companies described above. The spot rate for the British pound at December 31,
1996, was $1.71.
Capital Expenditure Commitments. The Company made capital expenditures for
its continuing operations amounting to $285 million, $276 million and $109
million in 1996, 1995 and fiscal 1994, respectively. Included in 1996 is
approximately $155 million at Millennium Petrochemicals and $36 million at
Millennium Inorganic Chemicals for various production capacity expansion and
debottleneck-
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ing projects. Projects completed in 1996 and early 1997 have expanded Millennium
Petrochemicals LLDPE and HDPE production capacity by approximately 17% and 11%,
respectively, and Millennium Inorganic Chemicals' TiO2 capacity (after
reflecting the reductions in sulfate-process manufacturing capacity announced in
1996) by approximately 4%, in each case from 1995 levels. The company expects
capital expenditures for 1997 to be at a level which approximates depreciation
and amortization. The Company anticipates funding these capital expenditures
with the Company's internally generated cash from operations and borrowings
under the Credit Facility. The Company continuously evaluates its level of
capital expenditures in light of current and expected market conditions,
opportunities to create value and exceptional requirements. Accordingly, at
present there can be no assurance as to the level of capital expenditures in
1997.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
MILLENNIUM CHEMICALS INC.
We have audited the accompanying consolidated (combined) financial
statements of Millennium Chemicals Inc. (the 'Company') listed in the index
appearing under Item 14 (a)(1) and (2) on page 59. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the financial statements of Cornerstone-Spectrum, Inc. (formerly HMB
Holdings, Inc.) ('Cornerstone') which statements reflect (loss) income from
discontinued operations of ($2,877), $15 and $38 for the fiscal years ended
September 30, 1996, 1995 and 1994, respectively. Those statements were audited
by other auditors whose reports thereon have been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for
Cornerstone, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated (combined) financial statements referred to above, present fairly,
in all material respects, the financial position of the Company and its
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years ended December 31, 1996 and 1995,
the three months ended December 31, 1994 and the fiscal year ended September 30,
1994, in conformity with generally accepted accounting principles.
PRICE WATERHOUSE LLP
Morristown, New Jersey
January 21, 1997, except for Note 14,
as to which the date is March 14, 1997
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REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
and Stockholder of
Cornerstone-Spectrum, Inc.
We have audited the consolidated balance sheet of Cornerstone-Spectrum,
Inc. (the 'Company') as of September 28, 1996 and the related consolidated
statements of operations, changes in stockholder's equity, and cash flows for
the year then ended (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of
Cornerstone-Spectrum, Inc. at September 28, 1996 and the consolidated results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements the Company
changed its method of measuring losses for impairment of long-lived assets.
ERNST & YOUNG LLP
Hackensack, New Jersey
November 13, 1996
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REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
and Stockholders of
HMB Holdings, Inc.
We have audited the consolidated balance sheets of HMB Holdings, Inc. (the
'Company') as of September 30, 1995 and the related consolidated statements of
income, changes in stockholder's equity, and cash flows for each of the two
years in the period then ended (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of HMB Holdings,
Inc. at September 30, 1995 and the consolidated results of its operations and
its cash flows for each of the two years in the period then ended in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Hackensack, New Jersey
November 7, 1995, except for Note 11,
as to which the date is July 2, 1996.
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MILLENNIUM CHEMICALS INC.
CONSOLIDATED (COMBINED) BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1996 1995
------ -------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 408 $ 412
Trade receivables, net............................................................... 464 502
Inventories.......................................................................... 515 554
Other current assets................................................................. 83 221
Net assets of Discontinued Businesses sold to Hanson................................. -- 3,772
------ -------
Total current assets............................................................ 1,470 5,461
Property, plant and equipment, net........................................................ 2,031 2,262
Investments and other assets.............................................................. 334 278
Goodwill.................................................................................. 1,766 2,042
------ -------
Total assets.................................................................... $5,601 $10,043
------ -------
------ -------
LIABILITIES AND STOCKHOLDERS' EQUITY/
INVESTED CAPITAL
Current liabilities:
Notes payable........................................................................ $ 98 $ 113
Current maturities of long-term debt................................................. 6 11
Trade accounts payable............................................................... 160 178
Income taxes payable................................................................. 33 --
Accrued expenses and other liabilities............................................... 430 575
------ -------
Total current liabilities....................................................... 727 877
Non-current liabilities:
Long-term debt....................................................................... 2,360 3,304
Deferred income taxes................................................................ 78 171
Other liabilities.................................................................... 1,118 890
------ -------
Total liabilities............................................................... 4,283 5,242
------ -------
Commitments and contingencies (Note 9)
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 --
Paid in capital...................................................................... 1,319 --
Retained earnings.................................................................... 38 --
Unearned restricted stock............................................................ (50) --
Cumulative translation adjustment.................................................... 10 --
Invested capital..................................................................... -- 4,801
------ -------
Total stockholders' equity...................................................... 1,318 4,801
------ -------
Total liabilities and stockholders' equity/invested capital............................... $5,601 $10,043
------ -------
------ -------
</TABLE>
See Notes to Consolidated (Combined) Financial Statements
35
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED (COMBINED) STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
----------------- DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
------- ------ ------------ -------------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net sales..................................................... $ 3,040 $3,800 $908 $ 3,288
Operating costs and expenses:
Cost of products sold.................................... 2,264 2,458 589 2,470
Depreciation and amortization............................ 201 241 59 247
Selling, development and administrative expenses......... 217 259 57 227
Impairment of assets and related closure costs........... 75 -- -- --
------- ------ ------ -------------
Operating income.................................... 283 842 203 344
Interest expense, primarily to a related party................ 214 240 60 206
Interest income............................................... (37) (25) (5) (19)
Gain on sale of Suburban Propane.............................. (210) -- -- --
Equity in earnings of Suburban Propane Partners............... (37) -- -- --
Other expense, net............................................ 23 73 5 26
------- ------ ------ -------------
Income from continuing operations before provision for income
taxes....................................................... 330 554 143 131
Provision for income taxes.................................... (189) (223) (59) (65)
------- ------ ------ -------------
Income from continuing operations............................. 141 331 84 66
(Loss) income from discontinued operations (net of income
taxes of ($1,167), $22, $5 and $11)......................... (2,842) 18 12 28
------- ------ ------ -------------
Net (loss) income............................................. $(2,701) $ 349 $ 96 $ 94
------- ------ ------ -------------
------- ------ ------ -------------
Per share information assuming 76,450,905 shares outstanding
during entire year:
Income per share from continuing operations................... $ 1.84
Loss per share from discontinued operations................... $(37.17)
-------
Net loss per share............................................ $(35.33)
-------
-------
Pro forma income from continuing operations (unaudited)....... $168
-------
-------
Pro forma income from continuing operations per share
(unaudited)................................................. $2.20
-------
-------
</TABLE>
See Notes to Consolidated (Combined) Financial Statements
36
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
------------------ DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
------- ------- ------------ -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Income from continuing operations....................... $ 141 $ 331 $ 84 $ 66
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization...................... 201 241 59 247
Impairment of assets and related closure costs..... 75 -- -- --
Provision for deferred income taxes................ 86 35 17 178
Gain on sale of business........................... (210) -- -- --
Unrealized translation gain........................ (21) -- -- --
Changes in assets and liabilities:
Decrease (increase) in trade receivables........... 38 13 (29) (90)
Decrease (increase) in inventories................. 5 (92) (46) 97
Decrease (increase) in other current assets........ 126 8 (150) 41
(Increase) decrease in investments and other
assets........................................... (65) 173 (129) 206
Increase (decrease) in trade accounts payable...... 13 32 5 (18)
Increase (decrease) in accrued expenses and other
liabilities and income taxes payable............. 7 86 33 (272)
(Decrease) increase in other liabilities........... (24) (32) 26 (227)
Other, net......................................... -- -- 6 4
------- ------- ------ -------------
Net cash provided by (used in) operating
activities....................................... 372 795 (124) 232
Cash flows from investing activities:
Capital expenditures.................................... (285) (276) (30) (109)
Proceeds from sale of business.......................... 733 -- -- --
Proceeds from sale of fixed assets...................... 10 30 5 16
------- ------- ------ -------------
Cash provided by (used in) investing activities.... 458 (246) (25) (93)
Cash flows from financing activities:
Dividend to parent...................................... -- (1,617) -- --
Net transactions with affiliates........................ -- 1,212 136 (912)
Net contribution from Hanson............................ 167 -- -- --
Proceeds from long-term debt............................ 2,335 40 29 3,205
Repayment of long-term debt............................. (3,321) (4) (26) (2,658)
(Decrease) increase in notes payable.................... (15) (134) 29 143
------- ------- ------ -------------
Cash (used in) provided by financing activities.... (834) (503) 168 (222)
------- ------- ------ -------------
Effect of exchange rate changes on cash...................... -- (1) (12) 13
------- ------- ------ -------------
(Decrease) increase in cash and cash equivalents............. (4) 45 7 (70)
Cash and cash equivalents at beginning of period............. 412 367 360 430
------- ------- ------ -------------
Cash and cash equivalents at end of period................... $ 408 $ 412 $ 367 $ 360
------- ------- ------ -------------
------- ------- ------ -------------
</TABLE>
See Notes to Consolidated (Combined) Financial Statements
37
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED (COMBINED) STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK UNEARNED CUMULATIVE
---------------- PAID IN RETAINED RESTRICTED TRANSLATION INVESTED
SHARES AMOUNT CAPITAL EARNINGS STOCK ADJUSTMENT CAPITAL TOTAL
------ ------ -------- -------- ---------- ---------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance September 30,
1993.................... $ $ $ $ $ $ 5,443 $ 5,443
Net income................ 94 94
Net transactions with
affiliates.............. (912) (912)
Translation adjustment.... 13 13
-- --
-------- --- ----- ----- -------- -------
Balance September 30,
1994.................... 4,638 4,638
Net income................ 96 96
Net transactions with
affiliates.............. 136 136
Translation adjustment.... (12) (12)
-- --
-------- --- ----- ----- -------- -------
Balance at December 31,
1994.................... 4,858 4,858
Net income................ 349 349
Dividend to parent........ (1,617) (1,617)
Net transactions with
affiliates.............. 1,212 1,212
Translation adjustment.... (1) (1)
-- --
-------- --- ----- ----- -------- -------
Balance at December 31,
1995.................... 4,801 4,801
Net income (loss)......... 38 (2,739) (2,701)
Amortization and
adjustment of unearned
restricted stock........ (13) 15 2
Issuance of stock......... 74 1 1,267 (1,268) --
Issuance of restricted
stock................... 3 65 (65) --
Net capital contribution
from demerger
transactions............ 443 443
Net transaction with
affiliates.............. (1,237) (1,237)
Translation adjustment.... 10 -- 10
-- --
-------- --- ----- ----- -------- -------
Balance at December 31,
1996.................... 77 $1 $1,319 $ 38 $(50) $ 10 $ 0 $ 1,318
-- --
-- --
-------- --- ----- ----- -------- -------
-------- --- ----- ----- -------- -------
</TABLE>
See Notes to Consolidated (Combined) Financial Statements
38
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS
(IN MILLIONS, EXCEPT 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 financial position, results of operations and cash flows 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 financial statements also include the combined operations and net
assets of certain non-chemicals businesses ('Discontinued Businesses') which
were owned by subsidiaries of Hanson that became subsidiaries of the Company
upon the Demerger. 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 net assets and results
of operations have been presented in the accompanying financial statements as
discontinued operations for all periods presented. Any difference between the
proceeds from these transactions and the underlying carrying value of the net
assets of these operations has been accounted for as a capital transaction and,
accordingly, does not affect the Company's results of operations.
For periods through 1995, the financial statements include, as a continuing
operation, the net operating assets and results of operations of Suburban
Propane which was acquired as a division of Millennium Petrochemicals on
September 30, 1993. In March 1996, Millennium Petrochemicals sold a 73.6%
interest in Suburban Propane 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 ('Affiliates'), including legal, finance, tax, risk management and
employee benefit services. Charges for these services, which were allocated to
the Affiliates based on the respective revenues of the Company and the
Affiliates, reduced the Company's selling and administrative expense by $18 and
$26 for the years ended December 31, 1996 and 1995, respectively, and $35 for
the fiscal year ended September 30, 1994, and $7 for the three months ended
December 31, 1994. The Company's management believes such method of allocation
is reasonable. In addition, a subsidiary of the Company has controlled, on a
centralized basis, all cash receipts and disbursements received or made by such
Affiliates.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Year End: Prior to January 1, 1995, the fiscal year of the Company's
subsidiaries ended on the Saturday nearest to September 30 and is designated
herein as having ended on September 30 for convenience of reference. Effective
January 1, 1995, the Company's reporting period was changed to a calendar year
to conform with the business year most prevalent in the chemical industry.
Accordingly,
39
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
interim December 31, 1994, data contained herein reflects results of operations
for the 13 week period ended on the Saturday closest to December 31, and is
designated as December 31 for convenience of reference.
The reporting year end of the Discontinued Businesses which were
transferred to Hanson is September 30. Accordingly, the financial position and
results of operations for these businesses have been included in the
Consolidated (Combined) Financial Statements of the Company using their fiscal
reporting periods and thereby reflecting a three month lag to the Company's
reporting period.
Operating results for the three months ending December 31, 1993, were as
follows:
<TABLE>
<CAPTION>
(UNAUDITED)
-----------
<S> <C>
Sales............................................................ $ 789
Operating income................................................. 67
Net income....................................................... 17
</TABLE>
During the three months ended December 31, 1993 (unaudited), cash and cash
equivalents used for continuing operations and investing activities were $477
and $16, respectively. Cash and cash equivalents provided by financing
activities were $425. The net effect of these activities resulted in cash and
cash equivalents decreasing from $544 at September 30, 1993, to $476 at December
31, 1993.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents: Cash equivalents represent investments in short-term
deposits and commercial paper with banks which have original maturities of
ninety days or less. The equivalent of approximately $362 at December 31, 1996,
is represented by sterling denominated deposits. In addition, investments and
other assets include approximately $112 and $68 in restricted cash at December
31, 1996 and 1995, respectively, which is on deposit to satisfy various
insurance claims.
Trade Receivables: Trade receivables consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1996 1995
---- ----
<S> <C> <C>
Trade receivables................................................................... $472 $518
Allowance for doubtful accounts..................................................... (8) (16)
---- ----
$464 $502
---- ----
---- ----
</TABLE>
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 on a LIFO basis were approximately
$45 and $22 less than the amount of such inventories valued at current cost at
December 31, 1996 and 1995, respectively.
40
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1996 1995
---- ----
<S> <C> <C>
Inventories consist of the following:
Finished products................................................................... $270 $337
In-Process products................................................................. 12 17
Raw materials....................................................................... 165 144
Other inventories................................................................... 68 56
---- ----
$515 $554
---- ----
---- ----
</TABLE>
Property, Plant and Equipment: Property, plant and equipment is stated on
the basis of cost. Depreciation is provided by the straight-line method over the
estimated useful lives of the assets, generally 20 to 40 years for buildings and
5 to 25 years for machinery and equipment.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Property, plant and equipment consists of the following:
Land and buildings................................................................. $ 364 $ 341
Machinery and equipment............................................................ 2,494 2,612
Leasehold improvements............................................................. 4 6
------ ------
2,862 2,959
Allowance for depreciation and amortization........................................ 831 697
------ ------
$2,031 $2,262
------ ------
------ ------
</TABLE>
Goodwill: Goodwill represents the excess of the purchase price over the
fair value of assets allocated to acquired companies. Goodwill is being
amortized using the straight-line method over 40 years. Management periodically
evaluates goodwill for impairment based on the anticipated future cash flows
attributable to its operations. Such expected cash flows, on an undiscounted
basis, are compared to the carrying value of the tangible and intangible assets,
and if impairment is indicated, the carrying value of goodwill is adjusted. In
the opinion of management, no impairment of goodwill exists at December 31,
1996. Accumulated amortization aggregated $197 and $149 at December 31, 1996 and
1995, respectively. Amortization of goodwill amounted to $48 and $58 for the
years ended December 31, 1996 and 1995, $14 for the three months ended December
31, 1994, and $58 for the fiscal year ended September 30, 1994, respectively.
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 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
rates 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 are primarily holding
41
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
companies, the assets of which are remittable to the Company. As such, the
functional currency of these subsidiaries has been changed to the U.S. dollar.
Gains from the remeasurement of foreign assets and liabilities into U.S. dollars
are included in Other expense, net and aggregated $34 for the year ended
December 31, 1996.
During 1996, the Company entered into forward contracts to hedge the impact
of exchange rate fluctuations on approximately `L'200 of its sterling deposits
at an average exchange rate of $1.60. The contracts expired on December 12,
1996. The Company subsequently renewed these contracts until February 12, 1997,
at which time they were unwound in connection with the conversion of sterling
proceeds received on the sale of certain offshore companies for `L'190 at an
average exchange rate of $1.69. Realized and unrealized losses from these
contracts approximated $22 and are included in Other expense, net at December
31, 1996.
Federal Income Taxes: Deferred tax assets and liabilities are computed
based on the difference between the financial statement and income tax basis of
assets and liabilities using the enacted marginal tax rate. Deferred income tax
expenses or credits are based on the changes in the asset or liability from
period to period.
The U.S. earnings of the Company have been included in the consolidated
federal income tax return filed by Hanson's ultimate U.S. parent which is now a
subsidiary of the Company. Pursuant to an informal tax allocation agreement
prior to the Demerger, the Company provided for income taxes as if it filed
separate income tax returns. Accordingly, the Company has not reflected in the
historical financial statements certain tax benefits arising out of the
consolidated tax group (including certain predecessor entities, the
'Consolidated Group') that became allocable to the Company once the Demerger was
completed. Upon the Demerger, such tax benefits have been included in deferred
taxes and accounted for as a capital transaction.
Certain other operations of Hanson previously included in the Consolidated
Group upon completion of the Demerger no longer qualify to be members of the
Consolidated Group. The Company and certain of its subsidiaries have entered
into tax sharing and indemnification agreements with Hanson or its subsidiaries
in which the Company and/or its subsidiaries generally agreed to indemnify
Hanson or its subsidiaries for income tax liabilities attributable to periods
when such other operations were included in the consolidated tax returns of the
Consolidated Group.
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 if such indemnification obligation were to arise, it would amount
to approximately $421 upon the Demerger, and will decrease by approximately $84
on each October 1 over the next five years.
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
42
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
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 have actually 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.
Research and Development: The cost of research and development efforts is
expensed as incurred. Such costs aggregated $39 and $42 for the years ended
December 31, 1996 and 1995, respectively, $46 for the fiscal year ended
September 30, 1994, and $9 for the three months ended December 31, 1994.
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 December 1996, the Company had several such agreements covering various
periods. The notional amount of these agreements was $750 at December 31, 1996.
The fixed rates payable to the Company under these agreements average 5.7875%
with terms expiring at various dates through October 1998. The Company would
have been required to pay approximately $1 million to settle all outstanding
agreements based upon their fair value as of December 31, 1996. These fair
values are based upon estimates received from independent financial advisors.
The fair value of the Exchangeable Notes and, collectively, the senior notes and
the senior debentures is approximately $36 and $732, respectively, based on
estimates obtained from independent financial advisors.
Earnings per share: Historical earnings per share information for 1995 and
fiscal 1994 are not provided because there is no separate identifiable pool of
capital for periods prior to incorporation upon which a per share calculation
could be based.
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 during the
year ended December 31, 1996, 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.
Pro forma income from continuing operations is calculated as if (a) the
Demerger had been consummated at the beginning of the periods presented; (b) the
changes in the Company's capital structure resulting from the Demerger had
occurred on such date; (c) the Company's level of general and administrative
corporate costs is that as if it operated as a separate entity; and, (d)
compensation expense related to the restricted stock awards pursuant to the
Long-Term Stock Incentive Plan (see Note 8) had been incurred for a full year.
NOTE 3 -- IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ('SFAS 121'), 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.' SFAS 121
established guidelines for reviewing recoverability of long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Impairment losses under SFAS 121 are measured by comparing the
estimated fair value of the assets to their carrying amount. Except
43
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
for certain assets of one of the Discontinued Businesses sold to Hanson, the
effect of adoption of SFAS 121 was not material. (See Note 4 -- Net Assets of
Discontinued Businesses Sold to Hanson).
During 1996, the Company recorded a $60 non-cash charge ($39 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.
Intense price competition has been experienced, and is expected to continue as
customers of the anatase products associated with the sulfate-process operations
seek more cost efficient manufacturing inputs to their applications. As a result
of the deterioration of market conditions in the TiO2 industry, in July 1996 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., rephasing
chloride-process expansion programs in the U.K. and Australia and announced
increases in global selling prices for TiO2. The 10,000 tpa sulfate-process
plant in Stallingborough, England has been closed and production at its 66,000
tpa 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. In addition, $15 ($9 after tax) of closure costs
associated with the implementation of this plan have been accrued during 1996.
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. If market conditions continue to deteriorate, it may
be necessary to further reduce operations at the Baltimore sulfate-process
facility and accrue for additional closure costs.
NOTE 4 -- NET ASSETS OF DISCONTINUED BUSINESSES SOLD TO HANSON
Net assets of Discontinued Businesses sold to Hanson included the
historical net assets of certain businesses which were not a part of the
chemical businesses of the Company following the Demerger transactions. The
stock and net assets of such companies were sold to Hanson on October 6, 1996,
and, accordingly, have been reflected herein as Discontinued Operations. (See
Note 1.) In January 1996, Hanson announced its plan to demerge its chemicals
businesses; such plan included the sale of the Discontinued Businesses by the
Company. Because adoption of SFAS 121 on January 1, 1996, preceded the date this
plan was announced, the SFAS 121 charge predates the date at which such
businesses may be accounted for as discontinued operations under APB 30. The
1995 balance sheet includes the historical net assets of these businesses which
are comprised of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1995
---------------
<S> <C>
Current assets........................................................................ $ 710
Non-current assets.................................................................... 7,126
Current liabilities................................................................... (364)
Non-current liabilities............................................................... (3,700)
---------------
Net assets of Discontinued Businesses sold to Hanson.................................. $ 3,772
---------------
---------------
</TABLE>
44
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
The following represents the results of operations of the Discontinued
Businesses for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED FISCAL YEAR
DECEMBER 31, ENDED
----------------- SEPTEMBER 30,
1996 1995 1994
------- ------ -------------
<S> <C> <C> <C>
Sales............................................................... $ 2,017 $1,722 $ 1,589
------- ------ -------------
Pre-tax (loss) income............................................... (4,009) 40 39
Tax (benefit) provision............................................. (1,167) 22 11
------- ------ -------------
Net (loss) income................................................... ($2,842) $ 18 $ 28
------- ------ -------------
------- ------ -------------
</TABLE>
Prior to the adoption of SFAS 121, asset impairment was evaluated at an
operating company level based on the contribution of operating profits and
undiscounted cash flows being generated from those operations. Under this
policy, assets used in one of the Discontinued Businesses, comprised of
approximately 20 separate operating companies, were evaluated for impairment
based on gross margins and cash flows generated by each separate operating
company in a given business cycle. Evaluation of the businesses' assets at this
level did not result in any impairment.
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 groupings 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.
The initial non-cash charge resulting from adopting the evaluation
methodology provided by SFAS 121 was $4,497 ($3,206 after income taxes), related
to this Discontinued Business.
NOTE 5 -- INCOME TAXES
Consolidated income from continuing operations before income taxes consist
of the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
------------ DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
---- ---- ------------ -------------
<S> <C> <C> <C> <C>
Pretax income:
United States............................................ $259 $473 $133 $ 102
Foreign.................................................. 71 81 10 29
---- ---- ------ ------
$330 $554 $143 $ 131
---- ---- ------ ------
---- ---- ------ ------
</TABLE>
The components of income taxes are:
<TABLE>
<S> <C> <C> <C> <C>
Federal:
Current.......................................... $ 67 $145 $ 27 $(127)
Deferred......................................... (1,083) 54 30 188
Foreign income taxes.................................. 15 29 4 8
State and local income taxes.......................... 23 17 3 7
------- ---- --- ------
$ (978) $245 $ 64 $ 76
------- ---- --- ------
------- ---- --- ------
</TABLE>
45
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
Income taxes included in the financial statements are as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
--------------- DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
------- ---- ------------ -------------
<S> <C> <C> <C> <C>
Continuing Operations................................. $ 189 $223 $ 59 $ 65
Discontinued Operations............................... (1,167) 22 5 11
------- ---- ------ ------
$ (978) $245 $ 64 $ 76
------- ---- ------ ------
------- ---- ------ ------
</TABLE>
The Company's effective income tax rate differs from the amount computed by
applying the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
--------------- DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
------- ---- ------------ -------------
<S> <C> <C> <C> <C>
Continuing Operations:
Statutory federal income tax rate................ 35.0% 35.0% 35.0% 35.0%
Basis difference relating to Suburban Propane.... 17.4 -- -- --
State and local income taxes, net of federal
benefit........................................ 5.0 4.2 4.5 3.0
Provision for nondeductible expenses, primarily
goodwill amortization.......................... 5.2 4.0 3.4 15.8
Non-taxable foreign interest income.............. (2.5) (1.2) (1.2) (4.2)
Utilization of net operating losses.............. (5.1) (3.3) (4.0) --
Other............................................ 2.3 1.6 3.6 (0.7)
------- ---- ----- -----
Effective income tax rate for continuing
operations..................................... 57.3% 40.3% 41.3% 48.9%
------- ---- ----- -----
Discontinued operations:
Effective income tax rate........................ 29.1% 55.4% 29.4% 28.3%
------- ---- ----- -----
------- ---- ----- -----
</TABLE>
The difference between the effective income tax rate on discontinued
operations and the statutory federal income tax rate primarily relates to
non-deductible goodwill amortization and tax depletion.
At December 31, 1996, certain subsidiaries of the Company had available
operating loss carry-forwards aggregating $237 expiring in the years 1998
through 2008, all of which are subject to certain limitations on their use.
46
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
Deferred income taxes reflect the net tax effects of tax attributes and
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------
1996 1995
----- ----
<S> <C> <C>
Deferred tax assets:
Environmental and legal obligations................................................ $ 39 $ 38
Other post-retirement benefits and pension obligations............................. 118 118
Net operating loss carryforwards................................................... 83 70
Capital loss carryforwards......................................................... 112 --
AMT credits........................................................................ 114 --
Other accruals..................................................................... 92 111
----- ----
558 337
Valuation allowance................................................................ (112) --
----- ----
Total deferred tax assets..................................................... 446 337
----- ----
Deferred tax liabilities:
Excess of book over tax basis in property, plant and equipment..................... 306 470
Other.............................................................................. 208 28
----- ----
Total deferred tax liabilities................................................ 514 498
----- ----
Net deferred tax liabilities ($10 in 1996 and 1995 classified in current
assets)..................................................................... $ 68 $161
----- ----
----- ----
</TABLE>
Certain of the federal income tax returns of the Consolidated Group and
certain of the state income tax returns of the Company's subsidiaries are
currently under examination by the Internal Revenue Service. In the opinion of
management, any assessments which may result will not have a material adverse
effect on the financial condition or results of operations of the Company.
NOTE 6 -- LONG-TERM DEBT AND CREDIT ARRANGEMENTS
The detail of long-term debt is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
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.................................................................. $1,540 $ --
7% Senior Notes due 2006 (net of unamortized discount of $.5)........................ 500 --
7.625% Senior Notes due 2026 (net of unamortized discount of $1.1)................... 250 --
2.39% Senior Exchangeable Discount Notes, due 2001 (net of unamortized discount of $6
and $251).......................................................................... 37 1,004
Allocated Loan from Hanson bearing interest at 7.0% due 2003......................... -- 2,250
Debt payable through 2007 at interest rates ranging from 4% to 11%................... 39 61
Less current maturities of long-term debt............................................ (6) (11)
------ ------
$2,360 $3,304
------ ------
------ ------
</TABLE>
Under a Revolving Credit Agreement dated July 26, 1996, as amended on
December 18, 1996, certain of the Company's subsidiaries, may borrow up to
$1,650 under a five-year unsecured revolving
47
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
credit facility, which matures in July 2001 (the 'Credit Agreement'). The
Company is the 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. Borrowings under the
Credit Agreement bear interest at the bank's prime lending rate, or LIBOR or
NIBOR plus a spread and facility fee based upon the Company's senior long-term
credit ratings. The current spread and facility fee are .275% and .15%,
respectively.
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 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 tradeable, 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 `L'2 in the
capital of Hanson, currently 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).
On October 18, 1996, as required by the Exchangeable Note indenture, a
subsidiary of the Company commenced a tender offer to repurchase any and all
Exchangeable Notes from holders who exercise their 'change in control' rights
under the indenture for cash of 101% of their accreted value plus accrued
interest. The tender offer expired on December 17, 1996, with $1,212 face amount
of notes (issued at a discount) being tendered and purchased at a repurchase
price of approximately $1,100. As part of the Demerger transactions, the excess
of the repurchase price over the carrying value of the notes has been paid by
Hanson and included as a component of net contribution of capital. Such
repurchase was funded with the net proceeds of the issuance of the senior debt
securities, described below, and borrowings under the Credit Facility.
In November 1996, Millennium America Inc., one of the Company's
subsidiaries, and the Company as guarantor, issued $500 of Senior Notes bearing
interest at 7% and maturing November 15, 2006, and $250 of Senior Debentures
bearing interest of 7.625% and maturing November 15, 2026. The aggregate net
proceeds of these issuances were used to repurchase the Exchangeable Notes
discussed above.
In conjunction with the acquisition of Millennium Petrochemicals, a
subsidiary of the Company established a long term financing agreement with
Hanson under which $2,250 was borrowed in October 1993 ('Allocated Loan'). The
agreement, as amended, provided for such borrowings to be repaid in October
2003, and accrued interest at 7% per annum payable annually. Such loan was
repaid on October 1, 1996, as a part of the transactions to effectuate the
Demerger.
On December 31, 1996 and December 31, 1995, the Company had outstanding
notes payable of $98 and $113, respectively, bearing interest at average rates
of approximately 7.2% and 6.1%, respectively, with maturities of thirty days or
less. At December 31, 1996, the Company and its subsidiaries had outstanding
standby letters of credit amounting to $128 and had available unused lines of
credit of $52.
48
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
The maturities of long-term debt during the next five years are as follows:
1997 -- $6, 1998 -- $8, 1999 -- $2, 2000 -- $17, and 2001 and beyond -- $2,333.
Interest paid for the years ended December 31, 1996 and 1995, fiscal year
ended September 30, 1994, and the three months ended December 31, 1994 was $58,
$380, $275 and $4, respectively.
NOTE 7 -- PENSION AND OTHER POSTRETIREMENT BENEFITS
Domestic Pension Plans: The Company has several noncontributory defined
benefit pension plans covering substantially all its U.S. employees. The
benefits for these plans are based primarily on years of credited service and
average compensation as defined under the respective plans' provisions. The
Company's funding policy is to contribute amounts to the plans sufficient to
meet the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional amounts as the Company may
determine to be appropriate from time to time.
The Company also sponsors defined contribution plans for its salaried and
certain union employees. Contributions relating to defined contribution plans
are made based upon the respective plans' provisions.
The components of net periodic pension cost for continuing operations for
the Company's U.S. defined benefit plans and the total contributions charged to
pension expense for the Company's U.S. defined contribution plans are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
---------------- DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Defined benefit plans:
Service cost-benefit earned during the period.... $ 12 $ 15 $ 3 $ 16
Interest cost on projected benefit obligation.... 45 54 14 56
Actual return on plan assets..................... (68) (79) (11) (83)
Net amortization and deferral.................... (1) -- (8) --
Curtailment gain................................. -- -- (1) (2)
------ ------ ----- -----
Net periodic pension (income) for defined benefit
plans.......................................... (12) (10) (3) (13)
Defined contribution plans....................... 2 4 1 4
------ ------ ----- -----
Total pension (income)...................... $(10) $ (6) $ (2) $ (9)
------ ------ ----- -----
------ ------ ----- -----
</TABLE>
Assumptions used in the actuarial calculations relating to the defined
benefit plans were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rates......................................... 7.50% 7.50% 8.50%
Rates of increase in compensation levels................................ 4.25 4.25 5.25
Expected long-term rate of return on assets............................. 9.00 9.00 9.00
</TABLE>
49
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets for the Company's U.S. defined benefit pension
plans:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------- --------------------------
PLANS WHOSE PLANS WHOSE PLANS WHOSE PLANS WHOSE
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation................ $(500) $ (86) $(632) $ (51)
Nonvested benefit obligation............. (12) (7) (21) (5)
----------- ----------- ----------- -----
Accumulated benefit obligation................ $(512) $ (93) $(653) $ (56)
----------- ----------- ----------- -----
Projected benefit obligation.................. (546) (111) (703) (60)
Plan assets at fair value..................... 670 85 865 36
----------- ----------- ----------- -----
Projected benefit obligation less than (in
excess) of plan assets...................... 124 (26) 162 (24)
Add (deduct):
Unrecognized prior service cost.......... -- 5 (2) 6
Unrecognized net loss.................... 25 11 15 3
Unrecognized net asset at date of
adoption, net of amortization.......... (2) -- (1) --
Adjustment required to recognize minimum
liability.............................. -- (6) -- (6)
----------- ----------- ----------- -----
Prepaid (accrued) pension costs (included in
Investments and other assets)............... $ 147 $ (16) $ 174 $ (21)
----------- ----------- ----------- -----
----------- ----------- ----------- -----
</TABLE>
The plans' assets are primarily included in a master trust, which
principally invests in listed stocks and bonds, including common stock of the
Company which, at market value, comprise less than 1% of the master trust's
assets at December 31, 1996.
Postretirement Benefits: The Company provides unfunded health care and life
insurance benefits to certain groups of retirees. In 1994, the Company adopted
Statement of Financial Accounting Standards No. 106 ('SFAS 106'), 'Employers'
Accounting for Postretirement Benefits Other Than Pensions'. Adoption of SFAS
106 did not have a material effect on the Company's financial statements as the
Company had provided for the unfunded obligation for other post-employment
benefits as part of its accounting for certain business combinations.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
---------------- DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Net periodic postretirement benefit cost includes the
following components:
Service cost..................................... $2 $ 3 $1 $ 3
Interest cost.................................... 4 9 2 10
-- ------ -- ---
Net periodic postretirement benefit cost.............. $6 $ 12 $3 $13
-- ------ -- ---
-- ------ -- ---
</TABLE>
50
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
The following table presents the plan's unfunded status reconciled with
amounts recognized in the Company's balance sheets:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1996 1995
----- -----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................................................... $(201) $(253)
Fully eligible active plan participants........................................... (10) (38)
Other active plan participants.................................................... (23) (14)
----- -----
Accumulated postretirement benefit obligation..................................... (234) (305)
Unrecognized net gain............................................................. (9) (30)
----- -----
Accrued postretirement benefit obligation (included in Other liabilities)......... $(243) $(335)
----- -----
----- -----
</TABLE>
The weighted average annual assumed rates of increase in the health care
cost trend rate is 9.4%-12.5% and is assumed to decrease .5% a year to
5.5%-6.0%. The effect of increasing the assumed health care cost trend rates by
1% in each year would increase the accumulated postretirement benefit obligation
as of December 31, 1996, by $9, and the aggregate of service and interest
components of net periodic postretirement benefit cost for 1996 by $0.2.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% at both December 31, 1996 and 1995.
Foreign Benefit Arrangements: Pension and other employee benefits of the
Company's foreign subsidiaries are primarily provided by government sponsored
plans and are being accrued currently over the period of active employment. Such
amounts are not material.
NOTE 8 -- LONG-TERM INCENTIVE PLAN
The Company has adopted a Long-Term Stock Incentive Plan ('Stock Incentive
Plan') for the purpose of enhancing the profitability and value of the Company
for the benefit of the stockholders. A maximum of 3,909,000 shares of Common
Stock may be issued or used for reference purposes pursuant to the Stock
Incentive Plan. Since the Demerger, 2,912,322 shares of performance based and
time vested restricted stock were issued to executive officers and other key
employees, 4,026 shares were issued to non-employee directors and options to
purchase 523,000 shares were issued during 1996 under the Stock Incentive Plan.
Options granted under the Stock Incentive Plan vest three years from the date of
grant and expire ten years from the date of grant. The Company had authorization
under the Stock Incentive Plan to grant awards for up to an additional 469,652
shares at December 31, 1996.
The Stock Incentive Plan provides for the following types of awards: (i)
stock options, including incentive stock options and non-qualified stock
options; (ii) stock appreciation rights; (iii) restricted stock; (iv)
performance units; and, (v) performance shares. On October 8, 1996, the
Compensation Committee of the Company's Board of Directors awarded performance
based and time vested restricted stock having a undiscounted fair market value
on the date of grant of approximately $65 to 32 executive officers and key
managers. The vesting schedule for the award is as follows: (i) three equal
tranches aggregating 25% of the total award will vest in each of October 1999,
2000 and 2001; and (ii) three equal tranches aggregating 75% of the total award
will be subject to the achievement of 'economic value added' performance
criteria established by the Compensation Committee for each of three performance
cycles commencing January 1, 1997 and ending December 31, 1999, 2000 and 2001,
respectively. If and to the extent such criteria are achieved, half of earned
portion of the 25% tranche relating to a particular performance based cycle of
the award will vest immediately and the remainder will vest in five equal annual
installments commencing on the first anniversary of the end of the cycle.
51
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
In addition to the initial awards of restricted stock to the above officers
and key managers, the Compensation Committee may make annual awards of
restricted stock to senior managers of the Company that employs the same
'economic value creation' performance goals.
Unearned restricted stock of $65 was recorded on October 8, 1996, based on
the market value of the shares on the date of issuance and is included as a
separate component of stockholders' equity. Compensation expense recognized in
accordance with Accounting Principles Board Opinion No. 25 was $2 for the year
ended December 31, 1996.
In December 1996, a total of 523,000 stock options were awarded to certain
key employees at an exercise price equal to the fair market value of the shares
at the date of grant. Accordingly, no compensation expense has been recognized
for the options granted in 1996.
The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ('SFAS 123'), 'Accounting for Stock-Based
Compensation'. Had compensation cost for the Company's incentive plan been
determined based on the fair value of such grants on the grant date in
accordance with the provisions of SFAS 123, the impact on 1996 net income and
earnings per share would not have been materially different.
The following information relates to options to purchase common stock under
the Stock Incentive Plan for the year ended December 31, 1996.
<TABLE>
<S> <C>
Options outstanding at beginning of year......................................... 0
Granted.......................................................................... 523,000
Exercised........................................................................ --
Forfeited........................................................................ --
---------
Options outstanding at end of year............................................... 523,000
---------
---------
Exercise price per share of options outstanding.................................. $19/Share
</TABLE>
NOTE 9 -- 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
proceedings 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 December 31,
1996.
The Company has various contractual obligations to purchase raw materials
used in its production of polyethylene, titanium dioxide and aroma chemicals.
Commitments to purchase ethylene used in the production of polyethylene are
based on market prices and expire from 1997 through 2001. 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 $1,300 for titanium dioxide and expire between 1997 and 2002.
Commitments to acquire crude sulfate turpentine, used in the production of aroma
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.
52
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE 10 -- LEASES
Rental expense for operating leases is as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
--------------- DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
---- ---- ------------ -------------
<S> <C> <C> <C> <C>
Minimum rentals............................................. $53 $59 $ 15 $56
</TABLE>
Future minimum rental commitments under non-cancellable operating leases,
as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997.................................................................................... $50
1998.................................................................................... 42
1999.................................................................................... 37
2000.................................................................................... 22
2001.................................................................................... 11
Thereafter.................................................................... 24
</TABLE>
NOTE 11 -- OPERATIONS BY INDUSTRY SEGMENTS AND GEOGRAPHIC AREA
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.
The following is a summary of the Company's continuing operations by
industry segment and geographic area:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
---------------- DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Net Sales:
Polyethylene and related products......................... $1,293 $1,374 $327 $ 1,061
Acetyls and ethyl alcohol................................. 388 461 105 347
Performance polymers...................................... 364 363 82 318
Titanium dioxide and related products..................... 881 860 185 795
Fragrance and flavor chemicals............................ 114 103 24 89
------ ------ ------ -------------
3,040 3,161 723 2,610
Propane(1)................................................ -- 639 185 678
------ ------ ------ -------------
Total................................................ $3,040 $3,800 $908 $ 3,288
------ ------ ------ -------------
------ ------ ------ -------------
Operating Income:
Polyethylene and related products......................... $ 159 $ 380 $ 92 $ 23
Acetyls and ethyl alcohol................................. 40 142 38 70
Performance polymers...................................... 41 59 13 42
Titanium dioxide and related products(2).................. 8 177 27 106
Fragrance and flavor chemicals............................ 35 31 7 27
------ ------ ------ -------------
283 789 177 268
Propane(1)................................................ -- 53 26 76
------ ------ ------ -------------
Total................................................ $ 283 $ 842 $203 $ 344
------ ------ ------ -------------
------ ------ ------ -------------
</TABLE>
(footnotes on next page)
53
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
(footnotes from previous page)
(1) Suburban Propane is reflected as a continuing operation of the Company
(i.e., division of Millennium Petrochemicals) through December 31, 1995. In
February 1996, Millennium Petrochemicals sold a 73.6% interest in Suburban
Propane in an initial public offering. The Company has accounted for its
continuing investment under the equity method effective January 1, 1996.
(2) 1996 includes non-recurring charges of $75 ($48 after tax) to reduce the
carrying value of certain facilities employed in the sulfate-process
manufacturing of TiO2 and to provide for the costs associated with the
closure of certain sulfate-process production capacity as described in Note
3.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1996 1995
------ -------
<S> <C> <C>
Identifiable Assets:
Polyethylene and related products.................................................... $2,668 $ 2,622
Acetyls and ethyl alcohol............................................................ 708 704
Performance polymers................................................................. 573 448
Titanium dioxide and related products................................................ 854 907
Fragrance and flavor chemicals....................................................... 87 77
Propane.............................................................................. -- 733
Businesses held for sale............................................................. -- 3,772
Corporate(a)......................................................................... 711 780
------ -------
Total........................................................................... $5,601 $10,043
------ -------
------ -------
</TABLE>
- ------------
(a) Corporate assets consists primarily of cash and cash equivalents and other
assets.
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
---------------- DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Depreciation and amortization:
Polyethylene and related products......................... $ 104 $ 109 $ 28 $ 113
Acetyls and ethyl alcohol................................. 26 31 6 32
Performance polymers...................................... 21 21 5 24
Titanium dioxide and related products..................... 46 42 10 40
Fragrance and flavor chemicals............................ 4 3 1 3
Propane................................................... -- 34 9 34
Corporate................................................. -- 1 -- 1
------ ------ ------ -------------
Total................................................ $ 201 $ 241 $ 59 $ 247
------ ------ ------ -------------
------ ------ ------ -------------
Capital expenditures:
Polyethylene and related products......................... $ 120 $ 62 $ 7 $ 28
Acetyls and ethyl alcohol................................. 67 30 5 11
Performance polymers...................................... 5 13 2 2
Titanium dioxide and related products..................... 81 124 7 41
Fragrance and flavor chemicals............................ 12 17 3 7
Propane................................................... -- 29 6 19
Corporate................................................. -- 1 -- 1
------ ------ ------ -------------
Total................................................ $ 285 $ 276 $ 30 $ 109
------ ------ ------ -------------
------ ------ ------ -------------
</TABLE>
(table continued on next page)
54
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
(table continued from previous page)
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS FISCAL YEAR
DECEMBER 31, ENDED ENDED
---------------- DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
------ ------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales:
United States............................................. $2,693 $3,462 $840 $ 2,992
Foreign................................................... 377 368 82 322
Inter-area elimination.................................... (30) (30) (14) (26)
------ ------ ------ -------------
Total................................................ $3,040 $3,800 $908 $ 3,288
------ ------ ------ -------------
------ ------ ------ -------------
Operating income:
United States............................................. $ 245 $ 743 $188 $ 297
Foreign................................................... 38 99 15 47
------ ------ ------ -------------
Total................................................ $ 283 $ 842 $203 $ 344
------ ------ ------ -------------
------ ------ ------ -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ -------
<S> <C> <C>
Identifiable assets:
United States -- Continuing............................................................. $4,733 $ 5,525
-- Discontinued......................................................... -- 3,772
Foreign................................................................................. 868 746
------ -------
Total.............................................................................. $5,601 $10,043
------ -------
------ -------
</TABLE>
Most of the Company's foreign operations are conducted by subsidiaries in
the U.K. and Australia. Sales between the Company's U.S. operations and its
foreign operations are made on terms similar to those of its third-party
distributors. Sales between geographic areas are not significant.
Income and expenses not allocated to industry segment in computing
operating income include interest income and expense and other income and
expense of a general corporate nature.
Export sales from the U.S. for the years ended December 31, 1996 and 1995,
the three months ended December 31, 1994, and the fiscal year ended September
30, 1994, were approximately $272, $379, $80 and $277, respectively.
NOTE 12 -- INFORMATION ON MILLENNIUM AMERICA
Millennium America is a wholly-owned subsidiary of the Company and is a
holding company for all of the Company's operating subsidiaries other than its
operations in the U.K. and Australia. Millennium America is the issuer of the 7%
Senior Notes, 7.625% Debentures and the Exchangeable Notes and a borrower under
the Credit Facility. Accordingly, the following financial information is
provided for Millennium America: Consolidated Balance Sheets as of December 31,
1996 and December 31, 1995, and the Consolidated Statements of Operations for
the Years Ended December 31, 1996, December 31, 1995, the Three Months Ended
December 31, 1994 and the Fiscal Year Ended September 30, 1994.
55
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
MILLENNIUM AMERICA INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 375 $ 346
Trade receivables, net.................................................................... 399 438
Inventories............................................................................... 411 468
Other current assets...................................................................... 73 221
Net assets of Discontinued Businesses to be sold to Hanson................................ -- 3,766
------ ------
Total current assets................................................................. 1,258 5,239
Property, plant and equipment, net............................................................. 1,827 2,103
Investments and other assets................................................................... 291 278
Due from parent and affiliates................................................................. 89 --
Goodwill....................................................................................... 1,766 2,042
------ ------
Total assets......................................................................... $5,231 $9,662
------ ------
------ ------
LIABILITIES AND INVESTED CAPITAL
Current liabilities:
Notes payable............................................................................. $ 98 $ 113
Current maturities of long-term debt...................................................... 8 11
Trade accounts payable.................................................................... 119 161
Income taxes payable...................................................................... 22 --
Accrued expenses and other liabilities.................................................... 460 555
------ ------
Total current liabilities............................................................ 707 840
Non-current liabilities:
Long-term debt............................................................................ 2,319 3,304
Deferred income taxes..................................................................... 61 150
Due to parent and affiliates.............................................................. 389 --
Other liabilities......................................................................... 649 881
------ ------
Total liabilities.................................................................... 4,125 5,175
------ ------
Commitments and contingencies (Note 9)
Invested capital............................................................................... 1,106 4,487
------ ------
Total liabilities and invested capital............................................... $5,231 $9,662
------ ------
------ ------
</TABLE>
56
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
MILLENNIUM AMERICA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS FISCAL YEAR
DECEMBER 31, 1994 ENDED ENDED
------------------- DECEMBER 31, SEPTEMBER 30,
1996 1995 1994 1994
------ ------ ------------ -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales.................................................. $2,693 $3,432 $826 $ 2,967
Operating costs and expenses:
Cost of products sold................................. 2,019 2,229 534 2,241
Depreciation and amortization......................... 180 223 54 231
Selling, development and administrative expenses...... 191 236 51 198
Impairment of assets and related closure costs........ 58 -- -- --
------ ------ ------ -------------
Operating income................................. 245 744 187 297
Interest expense, primarily to a related party............. 253 240 59 204
Interest income............................................ (28) (24) (5) (19)
Gain on sale of Suburban Propane........................... (210) -- -- --
Equity in earnings of Suburban Propane Partners............ (37) -- -- --
Other (income) expense, net................................ (5) 56 1 11
------ ------ ------ -------------
Income from continuing operations before provision for
income taxes............................................. 272 472 132 101
Provision for income taxes................................. (182) (196) (55) (55)
------ ------ ------ -------------
Income from continuing operations.......................... 90 276 77 46
(Loss)Income from discontinued operations (net of income
taxes of ($1,167), $22, $5 and $11)...................... (2,842) 18 12 28
------ ------ ------ -------------
Net (loss) income.......................................... ($2,752) $ 294 $ 89 $ 74
------ ------ ------ -------------
------ ------ ------ -------------
</TABLE>
57
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS -- CONTINUED
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE 13 -- QUARTERLY FINANCIAL DATA -- UNAUDITED
Summarized quarterly financial information for the years ended December 31,
1996 and 1995, is as follows:
<TABLE>
<CAPTION>
1996
-----------------------------
MARCH JUNE SEPT. DEC.
QUARTER ENDED 31 30 30 31
- ------------------------- ------- ---- ----- ----
<S> <C> <C> <C> <C>
Net sales................ $ 730 $780 $ 769 $761
Operating income......... 86 29 90 78
Net income(loss) from
continuing
operations............. 112 (19) 10 38
Net (loss) income........ (3,078) (33) 47 363
Income from continuing
operations per share... 1.46 (.25) .13 .50
Net income per share..... (40.26) (.43) .61 .75
Pro forma income (loss)
from continuing
operations............. 118 (10) 22 38
Pro forma income (loss)
from continuing
operations per share... 1.54 (.13) .29 .50
<CAPTION>
1995
-----------------------------
JUNE SEPT. DEC.
QUARTER ENDED MARCH 31 30 30 31
- --------------------------------- ---- ----- ----
<S> <C> <C> <C> <C>
Net sales................$ 1,102 $965 $ 872 $861
Operating income......... 302 235 153 152
Net income(loss) from
continuing
operations............. 154 51 71 55
Net (loss) income........ 120 58 98 73
Income from continuing
operations per share...
Net income per share.....
Pro forma income (loss)
from continuing
operations.............
Pro forma income (loss)
from continuing
operations per share...
</TABLE>
NOTE 14 -- SUBSEQUENT EVENTS
During the first quarter of 1997, the Company sold for a combined U.S.
dollar equivalent of $358, which approximates carrying value, several offshore
companies whose principal holdings were sterling deposits. In addition, on
January 21, 1997, the Company declared a dividend of $0.12 per share payable on
March 31, 1997, to all holders of record on March 14, 1997, and will pay Advance
Corporation Tax of $0.03 per share in respect of the dividend.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the caption 'Executive Officers' in Item 1
of this Annual Report is incorporated herein by reference.
The information to be included under the caption 'Election of Directors' in
the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended,
in connection with the annual meeting of the Company's stockholders to be held
on May 16, 1997 (the 'Proxy Statement'), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information to be included under the caption 'Executive Compensation'
in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be included under the caption 'Ownership of Common
Stock' in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
58
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. The Company's 1996 Consolidated (Combined) Financial Statements
included in Item 8 of Part II consist of the following:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
-- Report of Price Waterhouse LLP..................................................... 32
-- Report of Ernst & Young LLP (Cornerstone-Spectrum, Inc.)........................... 33
-- Report of Ernst & Young LLP (HMB Holdings Inc.).................................... 34
-- Consolidated (Combined) Balance Sheets -- December 31, 1996 and 1995............... 35
-- Consolidated (Combined) Statements of Operations -- Years Ended December 31, 1996
and 1995, Three Months Ended December 31, 1994 and Fiscal Year Ended September 30,
1994................................................................................. 36
-- Consolidated (Combined) Statements of Cash Flows -- Year Ended December 31, 1996
and 1995, Three Months Ended December 31, 1994 and Fiscal Year Ended September 30,
1994................................................................................. 37
-- Consolidated (Combined) Statements of Changes in Stockholders' Equity -- Years
Ended December 31, 1996 and 1995, Three Months Ended December 31, 1994 and Fiscal
Year Ended September 30, 1994........................................................ 38
-- Notes to Consolidated (Combined) Financial Statements.............................. 39
</TABLE>
2. Financial Statement Schedules.
The following Financial Statement Schedule which follows immediately
below should be read in conjunction with the Financial Statements
included in Item 8 of this Annual Report on Form 10-K. Schedules
other than the one listed below are omitted because of the absence
of the conditions under which they are required or because the
information called for is included in the Consolidated (Combined)
Financial Statements of the Company or the Notes thereto.
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ---------------------------------------------------------------------------------------------
<C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of the Company (Filed as Exhibit 3.1 to
the Company's Registration Statement on Form 10 (File No. 1- 12091) (the 'Form 10'))*
3.2 -- By-laws of the Company (Filed as Exhibit 3.2 to the Form 10)*
4.1 -- Form of Indenture, dated as of November 27, 1996, among Millennium America Inc.
('Millennium America'), the Company and The Bank of New York, as trustee, in respect of
the 7% Senior Notes due November 15, 2006 and the 7.625% Senior Debentures due November
15, 2026 (Filed as Exhibit 4.1 to the Registration Statement of the Company and Millennium
America on Form S-1 (Registration No. 333-15975) (the 'Form S-1'))*
4.2 -- Form of Note (Included in the Indenture filed as Exhibit 4.1 to the Form S-1)*
4.3 -- Form of Debenture (Included in the Indenture filed as Exhibit 4.1 to the Form S-1)*
4.4 (a) -- Indenture, dated as of March 1, 1994, between Millennium America, as issuer, and The Bank
of New York, as Trustee (Filed as Exhibit 4.4(a) to the Form 10)*
4.4 (b) -- First Supplemental Indenture, dated as of May 16, 1994, between Millennium America, as
issuer, and The Bank of New York, as Trustee (Filed as Exhibit 4.4(a) to the Form 10)*
4.4 (c) -- Second Supplemental Indenture, dated as of September 18, 1996, between Millennium America,
as issuer, and The Bank of New York, as Trustee (Filed as Exhibit (c)(3) to the Issuer
Tender Offer Statement on Schedule 13E-4 (the '13E-4'), dated October 18, 1996, of Hanson
('Hanson'), Millennium America and Hanson (Bermuda) Limited ('HBL'))*
</TABLE>
59
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ---------------------------------------------------------------------------------------------
<C> <S>
4.4 (d) -- Third Supplemental Indenture, dated as of October 1, 1996, among Millennium America, as
issuer, the Company, as Guarantor, and The Bank of New York, as Trustee (Filed as Exhibit
(c)(4) to the 13E-4)*
4.5 (a) -- ADS Rights Agreement (the 'ADS Rights Agreement'), dated as of March 1, 1994, among
Hanson, HBL and Citibank, N.A., as ADS Rights Agent (Filed as Exhibit 4.4(c) to the Form
10)*
4.5 (b) -- First Amendment to the ADS Rights Agreement, dated as of September 18, 1996, among Hanson,
HBL and Citibank, N.A., as ADS Rights Agent (Filed as Exhibit (c)(6) to the 13E-4)*
4.6 (a) -- ADS Issuance Agreement (the 'ADS Issuance Agreement'), dated as of March 1, 1994, between
Hanson and HBL (Filed as Exhibit 4.4(b) to the Form 10)*
4.6 (b) -- First Amendment to the ADS Issuance Agreement, dated as of September 18, 1996, between
Hanson and HBL (Filed as Exhibit (c)(8) to the 13E-4)*
4.7 -- Keepwell Agreement, dated as of March 1, 1994, between Hanson and HBL (Filed as Exhibit
4.4(d) to the Form 10)*
4.8 -- Allocation Agreement, dated as of August 28, 1996, among Hanson, HBL and Millennium
America (Filed as Exhibit (c)(10) to the 13E-4)*
10.1 -- Form of Pre-Demerger Stock Purchase Agreement, dated as of September 16, 1996, between
Millennium Holdings Inc (formerly HM Holdings, Inc.) ('Millennium Holdings') and Hanson
(including related form of Indemnification Agreement and Tax Sharing and Indemnification
Agreement) (Filed as Exhibit 10.1 to the Form 10)*
10.2 -- Form of Pre-Demerger Stock Purchase Agreement, dated as of September 16, 1996, between
Millennium Holdings and Hanson relating to Peabody Holding Company, Inc. (including
related form of Indemnification Agreement and Tax Sharing and Indemnification Agreement)
(Filed as Exhibit 10.2 to the Form 10)*
10.3 -- Form of Pre-Demerger Stock Purchase Agreement, dated as of September 16, 1996, between
Millennium Holdings and Hanson relating to certain Canadian subsidiaries (including
related form of Indemnification Agreement) (Filed as Exhibit 10.3 to the Form 10)*
10.4 -- Form of Pre-Demerger Stock Purchase Agreement, dated as of September 30, 1996, between
Millennium Holdings and Hanson relating to Lynton Group, Inc. (Filed as Exhibit 10.4 to
the Form 10)*
10.5 -- Form of Post-Demerger Stock Purchase Agreement, dated as of September 30, 1996, between
HMB Holdings, Inc. and Hanson (including related form of Indemnification Agreement and Tax
Sharing and Indemnification Agreement) (Filed as Exhibit 10.5 to the Form 10)*
10.6 -- Form of Post-Demerger Stock Purchase Agreement, dated as of September 30, 1996, between
Hanson and MHC Inc. (including related form of Indemnification Agreement and Tax Sharing
and Indemnification Agreement) (Filed as Exhibit 10.6 to the Form 10)*
10.7 -- Demerger Agreement, dated as of September 30, 1996, between Hanson, Millennium Overseas
Holdings Ltd. (formerly Hanson Overseas Holdings Ltd.) and the Company (Filed as Exhibit
10.7 to the Form 10)*
10.8 -- Form of Indemnification Agreement, dated as of September 30, 1996, between Hanson and the
Company (Filed as Exhibit 10.8 to the Form 10)*
10.9 (a) -- Form of Tax Sharing and Indemnification Agreement, dated as of September 30, 1996, between
Hanson, Millennium Overseas Holdings Ltd., Millennium America Holdings Inc (formerly HM
Anglo American Ltd.), Hanson North America Inc. and the Company (Filed as Exhibit 10.9(a)
to the Form 10)*
10.9 (b) -- Deed of Tax Covenant, dated as of September 30, 1996, between Hanson, Millennium Overseas
Holdings Ltd. Millennium Inorganic Chemicals Limited (formerly SCM Chemicals Limited),
SCMC Holdings B.V. (formerly Hanson SCMC B.V.) and Millennium Inorganic Chemicals Ltd.
(formerly SCM Chemicals Ltd.) and the Company (the 'Deed of Tax Covenant') (Filed as
Exhibit 10.9(b) to the Form 10)*
10.9 (c) -- Amendment to the Deed of Tax Covenant dated January 28, 1997**
</TABLE>
60
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ---------------------------------------------------------------------------------------------
<C> <S>
10.10 -- Form of Corporate Transition Agreement, dated as of September 30, 1996, between Hanson
North America Inc. and Millennium America Holdings Inc. (Filed as Exhibit 10.10 to the
Form 10)*
10.11 -- Form of Joint Ownership Agreement, dated as of September 30, 1996, between Hanson North
America Inc. and Millennium America Holdings Inc. (Filed as Exhibit 10.11 to the Form 10)*
10.12 -- Form of Agreement, dated as of October 1, 1996, between Hanson Pacific Limited and
Millennium Holdings Inc. (Filed as Exhibit 10.12 to the Form 10)*
10.13 -- Form of Management Agreement, dated as of September 30, 1996, among MHC Inc., Millennium
Petrochemicals Inc. (formerly Quantum Chemical Corporation) ('Millennium Petrochemicals')
and Welbeck Management Limited (Filed as Exhibit 10.13(a) to the Form 10)*
10.14(a) -- Credit Agreement ('Credit Agreement'), dated as of July 26, 1996, among Millennium America
Inc. (formerly Hanson America Inc.), the Company, as Guarantor, the borrowing subsidiaries
party thereto, the lenders party thereto, The Chase Manhattan Bank, as Documentation
Agent, and Bank of America National Trust and Savings Association, as Administration Agent
(Filed as Exhibit 10.14 to the Form 10)*
10.14(b) -- Amendment to the Credit Agreement dated as of December 18, 1996**
10.15 -- Agreement, dated as of July 1, 1996, between Millennium America Holdings Inc. and William
M. Landuyt (Filed as Exhibit 10.15 to the Form 10)*`D'
10.16 -- Agreement, dated as of July 1, 1996, between Millennium America Holdings Inc. and Robert
E. Lee (Filed as Exhibit 10.16 to the Form 10)*`D'
10.17 -- Agreement, dated as of July 1, 1996, between Millennium America Holdings Inc. and George
H. Hempstead III (Filed as Exhibit 10.17 to the Form 10)*`D'
10.18 -- Agreement, dated as of July 1, 1996, between Millennium America Holdings Inc. and John E.
Lushefski (Filed as Exhibit 10.18 to the Form 10)*`D'
10.19 -- Agreement, dated as of July 1, 1996, between Millennium Petrochemicals and Ronald H. Yocum
(Filed as Exhibit 10.19 to the Form 10)*`D'
10.20 -- Agreement, dated as of July 1, 1996, between Millennium Inorganic Chemicals Inc. (formerly
SCM Chemicals Inc.), and Donald V. Borst (Filed as Exhibit 10.20 to the Form 10)*`D'
10.21 -- Agreement, dated as of July 1, 1996, between Millennium Specialty Chemicals Inc. (formerly
Glidco Inc.), and George W. Robbins (Filed as Exhibit 10.21 to the Form 10)*`D'
10.22 -- Form of Change-in-Control Agreement, dated as of July 1, 1996, between, Millennium America
Holdings Inc. and each of A. Mickelson Foster, Francis V. Lloyd, Christine F. Wubbolding,
Marie S. Dreher and James A. Lofredo (Filed as Exhibit 10.22 to the Form 10)*`D'
10.23(a) -- Millennium Chemicals Inc. Annual Performance Incentive Plan (Filed as Exhibit 10.23 to the
Form 10)*`D'
10.23(b) -- Amendment Number 1 to the Millennium Chemicals Inc. Annual Performance Plan.**`D'
10.24 -- Millennium Chemicals Inc. 1996 Long Term Incentive Plan (Filed as Exhibit 10.24 to the
Form 10)*`D'
10.25 -- Millennium Chemicals Inc. Long Term Stock Incentive Plan (Filed as Exhibit 10.25 to the
Form 10)*`D'
10.26 -- Millennium Chemicals Inc. Supplemental Retirement Plan (Filed as Exhibit 10.26 to the Form
10)*`D'
10.27 -- Millennium Petrochemicals Supplemental Executive Retirement Plan (Filed as Exhibit 10.27
to the Form 10)*`D'
10.28 -- Millennium Inorganic Chemicals Supplemental Executive Retirement Plan (Filed as Exhibit
10.28 to the Form 10)*`D'
10.29 -- Millennium Specialty Chemicals Supplemental Executive Retirement Plan (Filed as Exhibit
10.29 to the Form 10)*`D'
10.30 -- Millennium Chemicals Inc. Salary and Bonus Deferral Plan**`D'
11.1 -- Statement re: computation of per share earnings**
12.1 -- Statement re: computation of ratios**
</TABLE>
61
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ---------------------------------------------------------------------------------------------
<C> <S>
21.1 -- Subsidiaries of the Company**
23.1 -- Consent of Price Waterhouse LLP**
23.3 -- Consent of Ernst & Young LLP**
27.1 -- Financial Data Schedule**
99.1 -- Form of Letter Agreement, dated July 3, 1996, between Hanson and U.K. Inland Revenue
(Filed as Exhibit 99.2 to the Form 10)*
</TABLE>
- ------------
* Incorporated by reference
** Filed herewith
`D' Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c)
(B) REPORTS ON FORM 8-K
NOT APPLICABLE.
62
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.
By: /s/ WILLIAM M. LANDUYT
...................................
WILLIAM M. LANDUYT
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, and on the date set forth above.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ---------------------------------------------------------------------
<C> <S>
/S/ WILLIAM M. LANDUYT Chairman of the Board, Chief Executive Officer and Director
......................................... (principal executive officer)
(WILLIAM M. LANDUYT)
/S/ ROBERT E. LEE President, Chief Operating Officer and Director
.........................................
(ROBERT E. LEE)
/S/ JOHN E. LUSHEFSKI Senior Vice President and Chief Financial Officer
......................................... (principal financial officer)
(JOHN E. LUSHEFSKI)
/S/ KENNETH BAKER Director
.........................................
(THE RT. HON. KENNETH BAKER CH MP)
/S/ WORLEY H. CLARK, JR. Director
.........................................
(WORLEY H. CLARK, JR.)
/S/ MARTIN D. GINSBURG Director
.........................................
(MARTIN D. GINSBURG)
/S/ GLENARTHUR Director
.........................................
(THE RT. HON. THE LORD GLENARTHUR)
/S/ DAVID J. P. MEACHIN Director
.........................................
(DAVID J. P. MEACHIN)
/S/ MARTIN G. TAYLOR Director
.........................................
(MARTIN G. TAYLOR)
/S/ MARIE S. DREHER Vice President-Corporate Controller
......................................... (principal accounting officer)
(MARIE S. DREHER)
</TABLE>
63
<PAGE>
<PAGE>
SCHEDULE II
MILLENNIUM CHEMICALS INC,
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
CHARGED
BALANCE AT CHARGED TO TO OTHER
BEGINNING OF COSTS ACCOUNTS- DEDUCTION BALANCE AT
DESCRIPTION PERIOD AND EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- ------------------------------------------- ------------ ------------ ---------- --------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Fiscal year ended September 30, 1994
Deducted from asset accounts:
Allowance for doubtful accounts.......... $ 7 10 -- 3(a) $ 14
Three months ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts.......... 14 1 -- -- 15
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts.......... 15 5 -- 4(a) 16
Year ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts.......... 16 1 -- 9(a)(b) 8
Valuation Allowance................. -- -- 112(c) -- 112
</TABLE>
- ------------
(a) Uncollected accounts written off, net of recoveries.
(b) Sale of Suburban Propane.
(c) Valuation on tax carryforwards arising from demerger transactions.
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as..............'r'
Chemistry notation normally expressed as subscript shall
be expressed as baseline characters.
The dagger footnote symbol shall be expressed as...................`D'
The British pound sterling symbol shall be expressed as ...........'L'
A-1
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
HANSON OVERSEAS HOLDINGS LIMITED
SCM CHEMICALS LIMITED
HANSON SCMC BV
SCM CHEMICALS LTD.
January 28, 1997
HANSON PLC
1 Grosvenor Place
London SW1X 7JH
England
Ladies and Gentlemen:
We refer to the Deed of Tax Covenant, made on September 30, 1996,
between ourselves and you (the "Deed").
This letter shall formally amend the Deed to reflect our understanding
and agreement that:
(a) The definition of "Decontrolled Companies" in Section 10(A) of the
Deed is amended to insert, immediately after the words "The following
companies", the parenthetical phrase "(or any successor thereof, with respect to
each such Decontrolled Company)";
(b) the Tax Liabilitiesy of the Decontrolled Companies for which the
Covenantor is responsible pursuant to Section 10(B) of the Deed comprehends any
"Tax Liability" as defined in Section 1(B) (i) of the Deed and is amended to
insert the words "or any of the Decontrolled Companies" after the words "the
Company" each time the words "the Company" appears;
(c) the Covenantor's right to control the defense of all or any Claims
pursuant to Section 7 of the Deed comprehends "Claims" as defined in Section
1(A) of the Deed and is amended to insert the words "or any Decontrolled
Company" after the words "the Company"; and
(d) in furtherance of the reflection of our understanding and agreement
set forth in paragraph (c) of this letter, the Claims Procedure set forth in
Section 7 of the Deed shall be amended to insert the words "or any of the
<PAGE>
<PAGE>
Decontrolled Companies" after the words "the Company" each time the words "the
Company" appears in such Section 7 or in any defined term used therein; and
(e) The Tax Liabilityies of the Decontrolled Companies for which the
Covenantor is responsible pursuant to Section 10(B) of the Deed comprehends any
Tax Liability of the Decontrolled Companies as set forth in Section 10(B) of the
Deed and is amended to insert the words "(i) any accounting period ending on or
before 17 June 1996; and (ii) any Event occurring on or before 17 June 1996; and
(iii) any Income, Profits or Gains earned, accrued or received on or before 17
June 1996; but excluding any Tax Liability in respect of" any accounting period
prior to, or during which, or during any part of which, the Decontrolled Company
or Companies was or were wholly-owned by HM Anglo-American Ltd., directly or
indirectly (other in substitution for the words "any accounting period ending on
or before Demerger Date; but excluding" and to add the words, "prior to or"
immediately after the words "accounting period" and to add the words, "directly
or indirectly," immediately after the words "wholly owned" and to add after the
words "HM Anglo-American Limited" the words "(other than the accounting period
or accounting periods in which the redemption of shares in the Decontrolled
Company or Companies was effected in June 1996 which resulted in the
Decontrolled Companies becoming directly or indirectly, wholly-owned by HM
Anglo-American Limited, which shall remain the subject of this
Covenant.)"accounting periods shall not be excluded)."
IN WITNESS WHEREOF, this document has been executed and delivered as a
Deed the day and year first before written.
SIGNED as a deed by
MILLENNIUM CHEMICALS INC.
HANSON OVERSEAS HOLDINGS LIMITED
SCM CHEMICALS LIMITED
HANSON SCMC BV
SCM CHEMICALS LTD. acting by a
director and its secretary/two directors /s/ George H. Hemstead, III
---------------------------
Director/Secretary
/s/ William M. Landuyt
---------------------------
Director
SIGNED as a deed by HANSON PLC
acting by a director and its secretary/
two directors /s/ Graham Dransfield
---------------------------
Director
/s/ Robert Hanson
---------------------------
Director
<PAGE>
<PAGE>
EXECUTION COPY
AMENDMENT dated as of December 18, 1996 (this
"Amendment"), to the Credit Agreement dated as of July 26,
1996 (the "Credit Agreement"), among MILLENNIUM AMERICA
INC. (formerly HANSON AMERICA INC.), a Delaware
corporation referred to as "HAI" under the Credit
Agreement ("Millennium America"); MILLENNIUM CHEMICALS
INC., a Delaware corporation ("Millennium"), as Guarantor;
the lenders from time to time party thereto, initially
consisting of those listed on Schedule 2.01 to the Credit
Agreement (the "Lenders"); THE CHASE MANHATTAN BANK, as
Documentation Agent; and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as administrative agent (in such
capacity, the "Administrative Agent").
A. The parties hereto have agreed, subject to the terms and
conditions hereof, to amend the Credit Agreement on the terms and subject to the
conditions provided herein.
B. Capitalized terms used and not otherwise
defined herein shall have the meanings assigned to such
terms in the Credit Agreement.
SECTION 1. Proposed Merger of Millennium America
and Millennium America Holdings.
(a) The Lenders waive the provisions of Section 6.06 of the
Credit Agreement to the extent (and only to the extent) necessary to
permit the proposed merger of Millennium America with and into
Millennium America Holdings Inc. (formerly HM Anglo-America Ltd.), with
the result that Millennium America Holdings Inc. will be the surviving
corporation, will remain a wholly-owned subsidiary of Millennium, will
change its corporate name to Millennium America Inc., and will succeed
to all of the rights and obligations of HAI or the Borrower under the
Credit Agreement. From and after the consummation of such merger, all
references in the Loan Documents to "HAI" or the "Borrower" will be
deemed to refer to such surviving corporation.
(b) Millennium in its capacity as Guarantor agrees that its
obligations as a guarantor under the Credit Agreement will remain in
full force and effect and will in no way be diminished by the merger
referred
<PAGE>
<PAGE>
2
to in paragraph (a) above or the waiver granted
thereunder.
SECTION 2. Amendment to Section 1.01.
(a) The text following the table in the definition of "Applicable
Percentage" is hereby amended and restated in its entirety as follows:
"For purposes of the foregoing, (i) if either Moody's or S&P
shall not have in effect a rating for Index Debt (other than by reason of the
circumstances referred to in the last two sentences of this definition), then
such rating agency shall be deemed to have established a rating in Category 6;
(ii) if the ratings established or deemed to have been established by Moody's
and S&P for the Index Debt shall fall within adjacent Categories, the Applicable
Percentage shall be based on the higher of the two ratings; (iii) if the ratings
established or deemed to have been established by Moody's and S&P for the Index
Debt differ by two Categories, the Applicable Percentage shall be based on the
middle Category, (iv) if the ratings established or deemed to have been
established by Moody's and S&P for the Index Debt differ by more than two
Categories, the Applicable Percentage shall be based on the Category next above
that in which the lower rating falls, (v) if the ratings established or deemed
to have been established by Moody's and S&P for the Index Debt shall be changed
(other than as a result of a change in the rating system of Moody's or S&P),
such change shall be effective as of the date on which it is first publicly
announced by the applicable rating agency; the Borrower shall notify and provide
proof to the Agent of any such change promptly upon learning of such change, and
(vi) if Moody's and/or S&P shall have in effect indicative ratings for Index
Debt, such ratings shall be employed as provided herein to determine the
Applicable Percentage notwithstanding that no Index Debt shall be outstanding.
Each change in the Applicable Percentage shall apply to all outstanding Loans,
and shall apply during the period commencing on the effective date of such
change and ending on the date immediately preceding the effective date of the
next such change. If, following the Demerger Date, only a single rating agency
shall so far have established a rating for the Index Debt, the Applicable
Percentage shall be based on such rating. If the rating system of Moody's or S&P
shall change, or if either such rating agency shall cease to be in the business
of rating corporate debt obligations, HAI or Millennium, as the case
<PAGE>
<PAGE>
3
may be, and the Administrative Agent shall negotiate in good faith to amend this
definition to reflect such changed rating system or the non-availability of
ratings from such rating agency and, pending the effectiveness of any such
amendment, the Applicable Percentage shall be determined by reference to the
rating most recently in effect prior to such change or cessation."
(b) Clause (b)(2) of the definition of "Interest
Period" is amended and restated in its entirety as
follows:
"(2) as determined by the Administrative Agent, on the
corresponding day of the week that is within one week or two weeks thereafter,
as the applicable Borrower may elect,"
SECTION 3. Amendment to Section 6.05.
Section 6.05 of the Credit Agreement is hereby amended and
restated in its entirety as follows:
"SECTION 6.05. Interest Coverage Ratio. Permit
the Interest Coverage Ratio for any period of four
consecutive fiscal quarters (or, prior to September 30,
1997, any such period ending after September 30, 1996)
to be less than 3.0 to 1."
SECTION 4. Representation and Warranty. Millennium America and
Millennium hereby represent and warrant to the Lenders and the Administrative
Agent that on and as of the date hereof, and after giving effect to this
Amendment:
(a) This Amendment has been duly executed and delivered by
Millennium America and Millennium and constitutes a legal, valid and
binding obligation of Millennium America and Millennium enforceable
against Millennium America and Millennium in accordance with
its terms.
(b) The representations and warranties of Millennium America or
Millennium, as the case may be, contained in the Credit Agreement and
any other Loan Documents are true and correct in all material respects.
(c) No Default or Event of Default has occurred
and is continuing.
<PAGE>
<PAGE>
4
SECTION 5. Effectiveness. This Amendment shall become effective
as of the date first set forth above and upon the Administrative Agent's receipt
of duly executed counterparts of this Amendment which, when taken together, bear
the authorized signatures of each of the parties hereto.
SECTION 6. Effect of Amendment. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders under the Credit Agreement or any other Loan Document, and shall not
alter, modify, amend or in any way affect any of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement or any
other Loan Document, all of which are ratified and affirmed in all respects and
shall continue in full force and effect. Nothing herein shall be deemed to
entitle Millennium America or Millennium to a consent to, or a waiver,
amendment, modification or other change of, any of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement or any
other Loan Document in similar or different circumstances. This Amendment shall
apply and be effective only with respect to the provisions of the Credit
Agreement specifically referred to herein.
SECTION 7. Counterparts. This Amendment may be signed in any
number of counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract. Delivery of an
executed counterpart of a signature page by facsimile transmission shall be
effective as delivery of a manually executed counterpart of this Amendment.
SECTION 8. APPLICABLE LAW. THIS AMENDMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
SECTION 9. Credit Agreement. Except as expressly amended hereby,
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof. As used in the Credit Agreement, the terms "Agreement",
"herein", "hereinafter", "hereunder", "hereto", and words of similar import
shall mean, from and after the date hereof, the Credit Agreement as amended by
this Amendment.
SECTION 10. Expenses. Millennium America (and
Millennium, as Guarantor) shall pay all reasonable out-of-
<PAGE>
<PAGE>
5
pocket expenses incurred by the Administrative Agent in connection with the
preparation, negotiation, execution, delivery and enforcement of this Amendment,
including, but not limited to, the reasonable fees and disbursements of Cravath,
Swaine & Moore.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed by their duly authorized officers, all as of the date and
year first above written.
MILLENNIUM AMERICA INC.,
by
------------------------------
Name:
Title:
MILLENNIUM CHEMICALS INC.,
by
-------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, individually and
as Administrative Agent,
by
------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
individually and as Documentation
Agent,
by
------------------------------
Name:
Title:
<PAGE>
<PAGE>
6
ABN AMRO BANK N.V., NEW YORK BRANCH,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
BANK BRUSSELS LAMBERT, NEW YORK
BRANCH,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
THE BANK OF NEW YORK,
by
------------------------------
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY,
by
------------------------------
Name:
Title:
<PAGE>
<PAGE>
7
BANQUE NATIONALE DE PARIS,
by
-----------------------------
Name:
Title:
by
-----------------------------
Name:
Title:
BANQUE PARIBAS,
by
-----------------------------
Name:
Title:
BARCLAYS BANK PLC,
by
-----------------------------
Name:
Title:
CIBC INC.,
by
-----------------------------
Name:
Title:
CITIBANK, N.A.,
by
------------------------------
Name:
Title:
<PAGE>
<PAGE>
8
COMMERZBANK AG, NEW YORK AND/OR GRAND
CAYMAN BRANCHES,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
CREDIT LYONNAIS UNITED KINGDOM CREDIT LYONNAIS NEW YORK BRANCH,
MAIN OFFICE,
by
by -----------------------------
--------------------------------- Name:
Name: Title:
Title:
CREDIT SUISSE,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
by
------------------------------
Name:
Title:
<PAGE>
<PAGE>
9
FLEET BANK,
by
------------------------------
Name:
Title:
THE FUJI BANK, LIMITED,
NEW YORK BRANCH,
by
------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN TRUST
COMPANY,
by
------------------------------
Name:
Title:
LLOYDS BANK PLC,
by
------------------------------
Name:
Title:
by
------------------------------
Name:
Title:
MELLON BANK, N.A.,
by
------------------------------
Name:
Title:
<PAGE>
<PAGE>
10
MIDLAND BANK PLC, NEW YORK BRANCH,
by
-----------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK,
by
-----------------------------
Name:
Title:
NATIONAL WESTMINSTER BANK PLC, NATIONAL WESTMINSTER BANK PLC,
NASSAU BRANCH,
by
by -----------------------------
---------------------------- Name:
Name: Title:
Title:
NATIONSBANK, N.A.,
by
-----------------------------
Name:
Title:
PNC BANK, N.A.,
by
-----------------------------
Name:
Title:
ROYAL BANK OF CANADA,
by
-----------------------------
Name:
Title:
<PAGE>
<PAGE>
11
THE SAKURA BANK, LIMITED,
by
-----------------------------
Name:
Title:
THE SANWA BANK, LIMITED, NEW YORK
BRANCH,
by
-----------------------------
Name:
Title:
SOCIETE GENERALE,
by
-----------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH,
by
-----------------------------
Name:
Title:
TORONTO DOMINION (NEW YORK), INC.,
by
-----------------------------
Name:
Title:
<PAGE>
<PAGE>
AMENDMENT NUMBER ONE
TO THE
MILLENNIUM CHEMICALS INC.
ANNUAL PERFORMANCE INCENTIVE PLAN
WHEREAS, Millennium Chemicals Inc. (the "Company") maintains
the Millennium Chemicals Inc. Annual Performance Incentive Plan, effective as of
October 1, 1996 (the "Plan");
WHEREAS, pursuant to Section 10 of the Plan, the Board of
Directors of the Company (the "Board") reserved the right to amend the Plan; and
WHEREAS, the Board desires to amend the Plan.
NOW, THEREFORE, effective as of January 1, 1997, the Plan is
amended as follows:
1. The Plan is amended by the addition of the following two
sentences at the end of Section 6.4:
"Notwithstanding the foregoing, the Committee may, in its sole
discretion, defer the payment of all or a portion of a
Performance Award payable for any Plan Year and such deferred
amount (the "Deferred Amount") shall be payable at such time
or times established by the Committee and shall be subject
to such forfeiture conditions, if any, as established by the
Committee. In no event shall such Deferred Amount increase
(between the date as of which the Deferred Amount is credited
to the Participant pursuant to this Section 6.4 until the
actual payment date) by a measuring factor for each fiscal
year greater than the interest rate on thirty (30) year
Treasury Bonds on the first business day of such fiscal
year compounded annually."
2. Section 10 of the Plan is amended by the deletion of
subdivision (ii) thereof in its entirety and the substitution of the following
in lieu thereof:
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<PAGE>
"(ii) increase the maximum amounts set forth in subsection 6.3
or change the maximum measuring factor set forth in the last
sentence of Section 6.4 (except to the extent permitted under
Code Section 162(m) to substitute an approximately equivalent
rate in the event that the thirty (30) year Treasury Bond rate
ceases to exist)."
IN WITNESS WHEREOF, this amendment has been executed this 21st
day of January, 1997.
MILLENNIUM CHEMICALS INC.
By: /s/ George H. Hempstead
-------------------------------
<PAGE>
<PAGE>
MILLENNIUM CHEMICALS INC.
SALARY AND BONUS DEFERRAL PLAN
Effective as of October 8, 1996
<PAGE>
<PAGE>
FOREWORD
Effective as of October 8, 1996 (the "Effective Date"), Millennium Chemicals
Inc. (the "Company") adopted the Millennium Chemicals Inc. Salary and Bonus
Deferral Plan (the "Plan") for the benefit of certain of its employees. The Plan
is intended to be an unfunded plan of deferred compensation primarily for the
benefit of a select group of management and highly compensated employees. The
Plan is not intended to be covered by ERISA.
The purpose of the Plan is to permit those employees of the Company who are part
of a select group of management or highly compensated employees to defer,
pursuant to the provisions of the Plan, a portion of the salaries or bonuses
otherwise payable to them, which will be considered to be invested in Common
Stock of the Company, and to permit those participants to vote a number of
shares of Common Stock equal to the number considered to be held for their
benefit under the Plan.
<PAGE>
<PAGE>
ARTICLE I
Definitions
1.1 "Additional Deferral Election" means the election by a
participant under Section 3.5 to further defer distribution from
his or her Deferred Stock Account.
1.2 "Board of Directors" means the Board of Directors of the Company.
1.3 "Cause" means, with respect to a participant's termination of
employment, (1) in the case where there is no employment
agreement between the Company (or one of its subsidiaries) and
the participant, or where there is an employment agreement, but
such agreement does not define cause (or words of like import),
termination due to a participant's dishonesty, fraud,
insubordination, willful misconduct, refusal to perform services
(for any reason other than illness or incapacity) or materially
unsatisfactory performance of his or her duties for the Company
or one of its subsidiaries, or (2) in the case where there is an
employment agreement between the Company (or one of its
subsidiaries) and the participant, termination that is or would
be deemed to be for cause (or words of like import) as defined
under such employment agreement.
1.4 "Change in Control" means an event in which
(a) any "person" as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") (other than the Company, any trustee or
other fiduciary holding securities under any employee
benefit plan of the Company, or any company owned,
directly or indirectly, by the stockholders of the Company
in substantially the same proportions as their ownership
of Common Stock of the Company), is or becomes the owner
(as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding
securities;
(b) during any period of two consecutive years (not including
any period prior to the date of the consummation of the
spinoff of the Company to shareholders of Hanson PLC
pursuant to a demerger), individuals who at the beginning
of such period constitute the board of directors, and any
new director (other than a director designated by a person
who has entered into an agreement with the Company to
effect a transaction
<PAGE>
<PAGE>
described in paragraph (a), (c), or (d) of this section)
whose election by the board of directors or nomination for
election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the
two-year period or whose election or nomination for
election was previously so approved, cease for any reason
to constitute at least a majority of the board of
directors;
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in
the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or
consolidation; provided, however, that a merger or
consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no person
acquires more than twenty-five percent (25%) of the
combined voting power of the Company's then outstanding
securities shall not constitute a Change in Control of the
Company; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of
the Company's assets other than the sale of all or
substantially all of the assets of the Company to a person
or persons who beneficially own, directly or indirectly,
at least fifty percent (50%) or more of the combined
voting power of the outstanding voting securities of the
Company at the time of the sale.
1.5 "Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute.
1.6 "Committee" means the committee that is responsible for
administering the Plan. The Committee shall consist of three or
more employees of the Company as determined by, and appointed by,
the Board of Directors.
1.7 "Common Stock" means the common stock ($1.00 par value) of the
Company, including any shares into which it may be split,
subdivided or combined.
2
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<PAGE>
1.8 "Company" means Millennium Chemicals Inc. and any successor to
such corporation by merger, purchase or otherwise.
1.9 "Deferred Bonus" means the amount of a participant's bonus that
such participant has elected to defer until a later year pursuant
to an election under Section 3.2.
1.10 "Deferred Bonus Election" means the election by a participant
under Section 3.2 to defer until a later year a portion of his or
her bonus.
1.11 "Deferred Salary" means the amount of a participant's base salary
that such participant has elected to defer until a later year
pursuant to an election under Section 3.1.
1.12 "Deferred Salary Election" means the election by a participant
under Section 3.1 to defer until a later year a portion of his or
her base salary.
1.13 "Deferred Stock Account" means the bookkeeping account
established under Section 3.3 on behalf of a participant and
includes, in addition to amounts stated in Section 3.3, any
Dividend Reinvestment Return credited thereon pursuant to Section
3.5(a).
1.14 "Deferred Stock Election" means the election by a participant
under Section 3.3 to have his or her Deferred Salary and/or
Deferred Bonus credited in the form of Common Stock to the
participant's Deferred Stock Account.
1.15 "Dividend Reinvestment Return" means the amounts which are
credited to each participant's Deferred Stock Account pursuant to
Section 3.5(a) to reflect dividends declared by the Company on
its Common Stock.
1.16 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
1.17 "Fiscal Year" means the fiscal year of the Company, which
currently is the calendar year.
1.18 "NYSE" means the New York Stock Exchange.
3
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<PAGE>
1.19 "Plan" means the Millennium Chemicals Inc. Salary and Bonus
Deferral Plan as from time to time in effect.
1.20 "Stock Trust" means the Millennium Chemicals Inc. Deferred Salary
and Bonus Trust established with the trustee with respect to this
Plan.
4
<PAGE>
<PAGE>
ARTICLE II
Participation
2.1 Participation
(a) Participation in the Plan shall be limited to:
(i) eligible particular individuals or groups of
individuals designated by the Committee who are
employees of a unit of the Company (or of one of
its subsidiaries) as to which the Plan has been
adopted pursuant to a decision by, or with the
approval of, the Board of Directors;
(ii) other than a nonresident alien of the United
States receiving no United States source income
within the meaning of sections 861(a)(3) or
911(d)(2) of the Code.
(b) The Committee may also, consistent with Company policy,
designate as ineligible particular individuals, groups of
individuals or employees of business units who otherwise
would be eligible under Section 2.1(a).
5
<PAGE>
<PAGE>
ARTICLE III
Deferral Elections, Accounts and Distributions
3.1 Deferred Salary Election
(a) With respect to an individual who is eligible to
participate in this Plan in accordance with Section
2.1(a), elections of Deferred Salary shall be made on
forms to be furnished by the Committee. A Deferred Salary
Election shall apply only to base salary for the
particular year specified in the election. A participant
may elect to defer from 5% of his or her base salary to
100% of that salary (in increments of 5%).
(b) A Deferred Salary Election with respect to compensation
for a particular calendar year (i) must be made on or
before December 31, 1996 for deferrals in the 1997
calendar year and, thereafter, on or before the November
30 preceding the commencement of such calendar year, and
(ii) once made, cannot be changed or revoked except as
provided herein. In the event an individual becomes
eligible to participate after the first day of a calendar
year, such participant may elect in a written notification
to the Committee to make a Deferred Salary Election,
provided such notification is made prior to the end of the
30-day period following the date the individual becomes a
participant. For purposes of this Section 3.1, only base
salary earned by the participant after the date the
participant elects to defer shall be subject to deferral.
Such Deferred Salary shall be credited to the
participant's Deferred Stock Account as of each payroll
period of the calendar year to which it pertains.
Revocation of any Deferred Salary Election during such
calendar year shall only affect base salary to be earned
in the future and shall reduce the participant's deferral
percentage to zero for the remainder of that year. Notice
of revocation must be filed with the Committee by the
fifteenth day of the month before the month in which such
revocation is to be effective. Such revocation shall not
affect any balances credited to the participant's Deferred
Stock Account before the effective date of the revocation
of the Deferred Salary Election.
(c) Subject to Section 3.6(a), an individual eligible to
participate may defer the payment of any base salary and
any Dividend Reinvestment Return
6
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<PAGE>
credited thereon pursuant to Section 3.5 until a date
which is three, seven, ten or fifteen years from the first
day of the calendar year in which the base salary being
deferred is earned, or the participant's permanent and
total disability, death or termination of employment, if
earlier.
(d) In the event of any such Deferred Salary Election, the
form of payment of any distribution (i.e., lump sum or in
five or ten approximately equal annual installments, where
available) shall be elected at the same time and, except
as herein provided, shall not be changed or revoked.
(e) In the event that any distribution is elected to be paid
in five or ten approximately equal annual installments,
the participant also may elect, at the time of the
Deferred Salary Election, to have the form of payment
changed to a lump sum in the event of such participant's
death, termination of employment, or permanent and total
disability before the expiration of the period of
deferral. Except as herein provided, such election shall
not be changed or revoked.
3.2 Deferred Bonus Election
(a) With respect to an individual who is eligible to
participate in this Plan in accordance with Section
2.1(a), elections of Deferred Bonus shall be made on forms
to be furnished by the Committee. A Deferred Bonus
Election shall apply only to a bonus for the particular
year specified in the election. A participant may elect to
defer up to 100% of his or her bonus (in increments of
5%).
(b) A Deferred Bonus Election with respect to compensation for
a particular Fiscal Year (i) must be made on or before the
date six months prior to the end of such Fiscal Year, and
(ii) once made, cannot be changed or revoked except as
provided herein. In the event an individual becomes
eligible to participate after the first day of a calendar
year, such participant may elect in a written notification
to the Committee to make a Deferred Bonus Election,
provided such notification is made prior to the end of the
30-day period following the date the individual becomes a
participant. For purposes of this Section 3.2, only the
portion of the bonus earned by the participant after the
date the participant elects to defer shall be subject to
deferral. Such Deferred Bonus shall be credited
7
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<PAGE>
to the participant's Deferred Stock Account as of the
first business day of January of the calendar year
immediately following the participant's election.
(c) Subject to Section 3.6(a), an individual eligible to
participate may defer the payment of any bonus and any
Dividend Reinvestment Return credited thereon pursuant to
Section 3.5 until a date which is three, seven, ten or
fifteen years from the first day of the calendar year
immediately following the date on which the Deferred Bonus
Election was made, or the participant's permanent or total
disability, death or termination of employment, if
earlier.
(d) In the event of any such Deferred Bonus Election, the form
of payment of any distribution (i.e., lump sum or in five
or ten approximately equal annual installments, where
available) shall be elected at the same time and, except
as herein provided, shall not be changed or revoked.
(e) In the event that any distribution is elected to be paid
in five or ten approximately equal annual installments,
the participant also may elect, at the time of the
Deferred Bonus Election, to have the form of payment
changed to a lump sum in the event of such participant's
death, termination of employment, or permanent and total
disability before the expiration of the period of
deferral. Except as herein provided, such election shall
not be changed or revoked.
3.3 Deferred Stock Election
(a) The entire amount deferred pursuant to each participant's
Deferred Salary Election and/or Deferred Bonus Election
shall be credited in the form of Common Stock to the
participant's Deferred Stock Account, as provided below.
(b) A participant's Deferred Stock Account will be credited:
(i) as soon as practicable following each payroll
date, with the number of shares of Common Stock
(rounded to the nearest one-one hundredth of a
share) determined by dividing the participant's
Deferred Salary for such date by the average
price paid by the Trustee of the Stock Trust for
shares of
8
<PAGE>
<PAGE>
Common Stock with respect to such payroll date
or, if the Trustee shall not at such time
purchase any shares of Common Stock, then the
price shall be the average of the high and low
NYSE market price for the Common Stock on such
date; and
(ii) as of the date when a participant's bonus is
actually paid, with the number of shares of
Common Stock (rounded to the nearest one-one
hundredth of a share) determined by dividing the
portion of the participant's Deferred Bonus for
the immediately-preceding Fiscal Year by the
average price paid by the Trustee of the Stock
Trust for shares of Common Stock with respect to
such date or, if the Trustee shall not at such
time purchase any shares of Common Stock, then
the price shall be the average of the high and
low NYSE market price for the Common Stock on
such date.
(c) If the Company enters into transactions involving stock
splits, stock dividends, reverse splits or any other
recapitalization transactions, the number of shares of
Common Stock credited to a participant's Deferred Stock
Account will be adjusted (rounded to the nearest one-one
hundredth of a share) so that the participant's Deferred
Stock Account reflects the same equity percentage interest
in the Company after the recapitalization as was the case
before such transaction.
(d) If at least a majority of the Company's stock is sold or
exchanged by its shareholders pursuant to an integrated
plan for cash or property (including stock of another
corporation) or if substantially all of the assets of the
Company are disposed of and, as a consequence thereof,
cash or property is distributed to the Company's
shareholders, each participant's Deferred Stock Account
will, to the extent not already so credited under Section
3.5(a), be (i) credited with the amount of cash or
property receivable by a Company shareholder directly
holding the same number of shares of Common Stock as is
credited to such participant's Deferred Stock Account and
(ii) debited by that number of shares of Common Stock
surrendered by such equivalent Company shareholder.
(e) Each participant shall be entitled to provide directions
to the Committee to cause the Committee to similarly
direct the Trustee of the Stock Trust to vote, on any
matter presented for a vote to the shareholders of the
9
<PAGE>
<PAGE>
Company, that number of shares of Common Stock held by the
Stock Trust equivalent to the number of shares of Common
Stock credited to the participant's Deferred Stock
Account. The Committee shall arrange for distribution to
all participants in a timely manner all communications
directed generally to the shareholders of the Company as
to which their votes are solicited.
3.4 Additional Deferral Election
(a) Any individual who has made a Deferred Bonus Election or a
Deferred Salary Election may make an additional election
to further postpone, for a period of three (3) years from
the first day of the calendar year in which the amount in
such Account otherwise first would have been payable, the
initial starting date of the payment of the amount
standing to his or her benefit in his or her Deferred
Stock Account (but not to change the form thereof under
Section 3.6(c)). Such Additional Deferral Election shall
only apply to balances in the participant's Deferred Stock
Account that are scheduled to be paid (or to begin to be
paid) no earlier than six (6) months after the date of
such election.
(b) Only one Additional Deferral Election may be made by any
participant with respect to (i) any Deferred Salary for a
particular calendar year and (ii) any Deferred Bonus for a
particular Fiscal Year.
3.5 Investment Return on Deferred Stock Accounts
(a) Each time the Company declares a dividend on its Common
Stock, each participant's Deferred Stock Account will be
credited with a Dividend Reinvestment Return equal to that
number of shares of Common Stock (rounded to the nearest
one-one hundredth of a share) determined by dividing (i)
the amount that would have been paid (or the fair market
value thereof, if the dividend is not paid in cash) to the
participant on the total number of shares of Common Stock
credited to the participant's Deferred Stock Account had
that number of shares of Common Stock been held by such
participant by (ii) the average price paid by the Trustee
of the Stock Trust for shares of Common Stock with respect
to the dividend payment date or, if the Trustee shall not
at such time purchase any shares of Common Stock, then the
price shall be the
10
<PAGE>
<PAGE>
average of the high and low NYSE market price for the
Common Stock on such date.
(b) Within 60 days following the end of each calendar year,
the Committee shall furnish each participant with a
statement of account which shall set forth the balances of
the individual's Accounts as of the end of such calendar
year, inclusive of Dividend Reinvestment Return.
3.6 Distributions
(a) Upon the occurrence of the event specified in the
participant's Deferred Salary Election and/or Deferred
Bonus Election, the amount of a participant's Deferred
Stock Account shall, except as otherwise provided in
Section 3.6(e), be paid in shares of Common Stock (with
any fractional share interest therein paid in cash to the
extent of the then fair market value thereof), to the
participant or his or her beneficiary, as applicable. Such
payment(s) shall be from the general assets of the Company
(including the Stock Trust) in accordance with this
Section 3.6 and shall be made (or begin to be made) as
soon as practicable following the occurrence of the event
making payment necessary or, if so elected in the Deferred
Salary Election and/or Deferred Bonus Election, on the
January 31st of the calendar year immediately following
such event.
(b) Notwithstanding the foregoing, in the case of a deferral
period described in Section 3.1(c) and/or Section 3.2(c),
if the participant suffers permanent or total disability,
dies, or terminates employment prior to the date to which
the participant has otherwise deferred commencement of
payments, then, except in the case of termination for
Cause (as to which payment shall be made promptly
thereafter), payment shall be made (or begin to be made)
as soon as practicable following the occurrence of the
event making payment necessary or, if so elected in the
Deferred Salary Election and/or Deferred Bonus Election,
on the January 31st of the calendar year immediately
following such event.
(c) Unless other arrangements are specified by the Committee
on a uniform and nondiscriminatory basis, deferred amounts
shall be paid in the form of (i) a lump sum payment, (ii)
in five approximately equal annual installments or (iii)
in ten approximately equal annual installments, as elected
by the participant at the time of his or her Deferred
Salary
11
<PAGE>
<PAGE>
Election or Deferred Bonus Election; provided, however,
that payments shall only be in a single lump sum in the
case that payment commences (i) while the participant is
still an employee of the Company or of a subsidiary of the
Company or (ii) due to termination for cause.
(d) In case of an unforeseeable emergency, a participant may
request the Committee, on a form to be provided by the
Committee, that payment be made earlier than the date to
which it was deferred.
For purposes of this Section 3.6(d), an "unforeseeable
emergency" shall be limited to a severe financial hardship
to the participant resulting from a sudden and unexpected
illness or accident of the participant or of a dependent
(as defined in section 152(a) of the Code) of the
participant, loss of the participant's property due to
casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the
control of the participant. The circumstances that will
constitute an unforeseeable emergency will depend upon the
facts of each case, but, in any case, payment may not be
made to the extent that such hardship is or may be
relieved: (i) through reimbursement or compensation by
available insurance or otherwise, (ii) by liquidation of
the participant's assets, to the extent the liquidation of
such assets would not itself cause severe financial
hardship or (iii) by cessation of deferrals under the
Plan. Examples of what are not considered unforeseeable
emergencies include the need to send a participant's child
to college or the desire to purchase a home.
The Committee shall consider any requests for payment
under this Section 3.6(d) on a uniform and
nondiscriminatory basis and in accordance with the
standards of interpretation described in section 457 of
the Code and the regulations thereunder. The minimum
payment under this Section 3.6(d) shall be $5,000.
(e) The Company (or the applicable employer subsidiary) shall
deduct any required federal, State and local income and
employment taxes from all payments under the Plan. No
participant or beneficiary shall be entitled to receive
any distribution of shares of Common Stock credited to a
participant's Deferred Stock Account until the Company (or
the applicable employer subsidiary) has received full
payment of such withholding obligations in cash.
12
<PAGE>
<PAGE>
3.7 Change in Control
In the event of a Change in Control, the amount of a
participant's Deferred Stock Account shall be distributed to such
participant as soon as practicable thereafter and any Deferred
Salary Election and/or Deferred Bonus Election shall terminate
and be null and void following such Change in Control.
3.8 General Provisions
(a) The Company shall make no provision for the funding of any
Deferred Stock Accounts payable hereunder that (i) would
cause the Plan to be a funded plan for purposes of section
404(a)(5) of the Code, or title I of ERISA or (ii) would
cause the Plan to be other than an "unfunded and unsecured
promise to pay money or other property in the future"
under Treasury Regulationss. 1.83-3(e); and, except
following a Change in Control, the Company shall have no
obligation to make any arrangement for the accumulation of
funds to pay any amounts under this Plan. Subject to the
restrictions of the preceding sentence and in Section
3.8(c), the Company, in its sole discretion, may establish
one or more grantor trusts described in Treasury
Regulationsss. 1.677(a)-1(d) to accumulate shares of
Common Stock to pay amounts under this Plan, provided that
the assets of such trust(s) shall be required to be used
to satisfy the claims of the Company's general creditors
in the event of the Company's bankruptcy or insolvency.
(b) In the event that the Company (or one of its subsidiaries)
shall decide to establish an advance accrual reserve on
its books against the future expense of payments from
Deferred Stock Accounts, such reserve shall not under any
circumstances be deemed to be an asset of this Plan but,
at all times, shall remain a part of the general assets of
the Company (or such subsidiary), subject to claims of the
Company's (or such subsidiary's) creditors.
(c) A person entitled to any amount under this Plan shall be a
general unsecured creditor of the Company (or his or her
employer subsidiary) with respect to such amount.
Furthermore, a person entitled to a payment or
distribution with respect to a Deferred Stock Account
shall have a claim upon the Company (or his or her
employer subsidiary) only to the extent of the balance(s)
in his or her Deferred Stock Account.
13
<PAGE>
<PAGE>
(d) The participant's beneficiary under this Plan with respect
to his or her Deferred Stock Account shall be the person
designated to receive benefits on account of the
participant's death on a form provided by the Committee.
(e) All commissions, fees and expenses that may be incurred in
operating the Plan and any related trust(s) established in
accordance with Section 3.8(a) (including the Stock Trust)
will be paid by the Company.
(f) Notwithstanding any other provision of this Plan, (i)
elections under this Plan may only be made by participants
while they are employees of the Company and/or of one of
its subsidiaries and (ii) no Additional Deferral Election
shall be effective if made within six (6) months prior to
the earlier of (i) the date of the participant's
retirement or (ii) the date the participant voluntarily
terminates employment with the Company.
3.9 Non-Qualified Pension Plan Credit
Amounts deferred under this Plan shall be included for all
purposes, including the computation of compensation, under any
pension plans (within the meaning of Section 3(2) of ERISA) that
are not intended to satisfy the requirements of Section 401(a) of
the Code in which any participant herein participates which is
maintained, sponsored or contributed to by the Company or any of
its affiliates.
3.10 Non-Assignability
Participants, their legal representatives and their beneficiaries
shall have no right to anticipate, alienate, sell, assign,
transfer, pledge or encumber their interests in the Plan, nor
shall such interests be subject to attachment, garnishment, levy
or execution by or on behalf of creditors of the participants or
of their beneficiaries, and any attempt by participants, their
legal representatives and their beneficiaries to anticipate,
alienate, sell, assign, transfer, pledge or encumber their
interests in the Plan shall be null and void.
3.11 Mandatory Deferral
Notwithstanding any other provision of this Plan, the
Compensation Committee of the Board of Directors may require an
employee to defer the portion of any payment from any Deferred
Stock Account in any case where the Company
14
<PAGE>
<PAGE>
anticipates that such portion otherwise would be nondeductible
pursuant to section 162(m) of the Code.
15
<PAGE>
<PAGE>
ARTICLE IV
Administration
4.1 Plan Administrator
The Committee shall be the "administrator" of the Plan within the
meaning of ERISA. The Committee shall have the exclusive right to
interpret the Plan and the decisions, actions and records of the
Committee shall be conclusive and binding upon the Company and
all persons having or claiming to have any right or interest in
or under the Plan.
The Committee may delegate to such officers, employees or
departments of the Company such authority, duties, and
responsibilities of the Committee as it, in its sole discretion,
considers necessary or appropriate for the proper and efficient
operation of the Plan, including, without limitation, (i)
interpretation of the Plan, (ii) approval and payment of claims,
and (iii) establishment of procedures for administration of the
Plan.
4.2 Claims Procedure
If any participant, his legal representatives or his
beneficiaries has a claim for benefits which are not being paid,
such claimant may file with the Committee a written claim setting
forth the amount and nature of the claim, supporting facts, and
the claimant's address. The Committee shall notify each claimant
of its decision in writing by registered or certified mail within
30 days after its receipt of a claim, unless otherwise agreed by
the claimant. If a claim is denied, the written notice of denial
shall set forth the reasons for such denial, refer to pertinent
Plan provisions on which the denial is based, describe any
additional material or information necessary for the claimant to
realize the claim, and explain the claim review procedure under
the Plan.
A claimant whose claim has been denied or such claimant's duly
authorized representative may file, within 60 days after notice
of such denial is received by the claimant, a written request for
review of such claim by the Committee. If a request is so filed,
the Committee shall review the claim and notify the claimant in
writing of its decision within 30 days after receipt of such
request. In special circumstances, the Committee may extend for
up to 30 additional days the
16
<PAGE>
<PAGE>
deadline for its decision. The notice of the final decision of
the Committee shall include the reasons for its decision and
specific references to the Plan provisions on which the decision
is based. The decision of the Committee shall be final and
binding on all parties.
17
<PAGE>
<PAGE>
ARTICLE V
Amendment and Termination
5.1 Amendment of the Plan
Subject to the provisions of Section 5.3, the Plan may be wholly
or partially amended or otherwise modified at any time by written
action of the Board of Directors.
5.2 Termination of the Plan
Subject to the provisions of Section 5.3, the Plan may be
terminated at any time by written action of the Board of
Directors.
5.3 No Impairment of Benefits
Notwithstanding the provisions of Sections 5.1 and 5.2, no
amendment to or termination of the Plan shall impair any rights
to benefits which have accrued hereunder; provided, however, that
is shall not be deemed an impairment of any rights to benefits if
the Company amends, modifies or terminates the Plan and amounts
deferred thereunder are distributed to participants without any
adjustment for the impact of any federal, state or local taxes
which may be imposed as a result of such distribution.
18
<PAGE>
<PAGE>
EXHIBIT 11.1
Computation of per share earnings from continuing operations:
<TABLE>
<S> <C>
Shares of Common Stock outstanding based on actual Hanson
ordinary shares and ADSs outstanding and stock dividend ratio
of one for every 70.......................................... 74,408,257
Non performance based portion of restricted shares
issued to executive officers and key employees............... 728,066
Expected vesting of performance based portion of restricted
shares issued to executive officers and key employees........ 1,310,556
Shares issued to the Company's non employee
directors.................................................... 4,026
----------
Shares outstanding............................................. 76,450,905
----------
----------
YEAR ENDED DECEMBER 31, 1996
Income from continuing operations 141,000,000
----------- = 1.84
Shares Outstanding 76,450,905
Loss from discontinued operations (2,842,000,000)
-------------- = 37.17
Shares outstanding 76,450,905
Net loss (2,701,000,000)
-------------- = 35.33
Shares outstanding 76,450,905
Pro forma income from continuing operations 168,000,000
----------- = 2.20
Shares outstanding 76,450,905
</TABLE>
<PAGE>
<PAGE>
Exhibit 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, FISCAL YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PRE-TAX INCOME 330 554 131 151 200
ADJUST FOR:
SUBURBAN EARNINGS (37)
SUBURBAN CASH DISTRIBUTION 5
INTEREST EXPENSE (A) 214 240 206 14 6
RENT EXPENSE (A) 18 20 19 1 1
-------- ------ ----- ------ ------
TOTAL 530 814 356 166 207
(A) FIXED CHARGES 232 260 225 15 7
-------- ------ ----- ------ ------
2.3:1 3.1:1 1.6:1 11.1:1 29.6:1
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF
MILLENNIUM CHEMICALS INC.
<TABLE>
<CAPTION>
STATE OR COUNTRY
OF INCORPORATION
----------------
<S> <C>
MILLENNIUM CHEMICALS INC. DELAWARE/UK RESIDENT
MILLENNIUM OVERSEAS HOLDINGS LIMITED UNITED KINGDOM
SCM CHEMICALS UK HOLDINGS LIMITED UNITED KINGDOM
MILLENNIUM INORGANIC CHEMICALS LIMITED UNITED Kingdom
SCM CHEMICALS (KOREA) LIMITED KOREA
SCMC HOLDINGS B.V. NETHERLANDS
SCM CHEMICALS LTD. AUSTRALIA
SCM CHEMICALS (NOMINEES) PTY. LIMITED AUSTRALIA
SCM CHEMICALS (NOMINEES 2) PTY. LIMITED AUSTRALIA
SINCLAIR INSURANCE COMPANY BERMUDA
MILLENNIUM AMERICA HOLDINGS INC. DELAWARE
MILLENNIUM AMERICA INC. DELAWARE
MILLENNIUM HOLDINGS INC. DELAWARE
MILLENNIUM SPECIALTY CHEMICALS INC. DELAWARE
MILLENNIUM FLAVORS INC. DELAWARE
MILLENNIUM FRAGRANCES INC. DELAWARE
MILLENNIUM PETROCHEMICALS INC. VIRGINIA
CUE INSURANCE LIMITED BERMUDA
DR INSURANCE COMPANY KENTUCKY
MILLENNIUM PLASTICS INC. DELAWARE
MILLENNIUM POLYMERS INC. DELAWARE
H.W. LOUD CO. (10%) CALIFORNIA
QUANTUM PETROCHEMICAL CORPORATION (MPI-90%) UNITED KINGDOM
MILLENNIUM CHEMICALS EXPORT LTD. BARBADOS
NDCC INTERNATIONAL II INC. DELAWARE
NATIONAL DISTILLERS AND CHEMICAL CORPORATION DELAWARE
QUANTUM ACCEPTANCE CORPORATION DELAWARE
QUANTUM CHEMICAL (CANADA) LTD. CANADA
QUANTUM PIPELINE COMPANY ILLINOIS
USI CHEMICALS INTERNATIONAL, INC. DELAWARE
QUANTUM UK LIMITED UNITED KINGDOM
QUANTUM CHEMICAL EUROPE B.V. NETHERLANDS
SUBURBAN PROPANE GP, INC. DELAWARE
SUBURBAN PROPANE PARTNERS, L.P.) (26.4% AGGREGATE
SUBURBAN PROPANE, L.P.) (PARTNERSHIP INTEREST)
MILLENNIUM INORGANIC CHEMICALS INC. DELAWARE
ASHCO, INC. OHIO
MILLENNIUM PIGMENTS INC. DELAWARE
HMB HOLDINGS INC. DELAWARE
MHC INC. DELAWARE
ABC PRODUCER A/S ((30%) NORWAY
MHC INC. (CONT'D)
AMESBURY PROPERTY INC. DELAWARE
CIRCLE STEEL CORPORATION ILLINOIS
DUKE CITY LUMBER COMPANY, INC. NEW MEXICO
HM MERIT SHOE CO., INC. DELAWARE
ENDICOTT JOHNSON SHOE CO. DELAWARE
HM NOBIL SHOES, INC. OHIO
NOBIL SHOE CO. DELAWARE
HM NOSCO SHOES, INC. OHIO
NOSCO SHOE CO. DELAWARE
HM TRENT SHOES CORP., INC. OHIO
TRENT SHOE CO. DELAWARE
GLIDCO LEASING INC. MARYLAND
GLIDDEN LATIN AMERICA HOLDINGS INC. DELAWARE
INDUSTRIAS GLIDDEN S.A. DE C.V. MEXICO
</TABLE>
<PAGE>
<PAGE>
SUBSIDIARIES OF
MILLENNIUM CHEMICALS INC.
<TABLE>
<CAPTION>
STATE OR COUNTRY
OF INCORPORATION
----------------
<S> <C>
MHC INC. (CONT'D)
GLIDDEN SALCHI S.P.A. ITALY
HM EXPORT SERVICES INC. DELAWARE
HOISU LTD. NEW YORK
AGRICOLA DO BRAZIL LTD. BRAZIL
BIG DUTCHMAN DE MEXICO S.A. MEXICO
BIG DUTCHMAN NEDERLAND B.V. NETHERLANDS
COVINGTON INTERNATIONAL LIMITED HONG KONG
KAMINA HOLDINGS LIMITED HONG KONG
PENN NAVIGATION COMPANY DELAWARE
PENN EXPORT COMPANY, INC. DELAWARE
PENN SHIPPING COMPANY DELAWARE
PENNTRANS COMPANY DELAWARE
NAUTA CORPORATION LIBERIA
DIVERSITY INSURANCE CO. LTD. BERMUDA
U.S. INDUSTRIES OVERSEAS FINANCE N.V. NETHERLANDS ANTILLES
USI CREDIT CORP. DELAWARE
CARIBBEAN INDUSTRIAL CREDIT CORP. PUERTO RICO
HPT 28 INC. DELAWARE
HPT 29 INC. DELAWARE
IMWA EQUITIES II, CO., L.P. (45%) NEW JERSEY
HSA HOLDINGS INC. DELAWARE
IMWA EQUITIES II, CO., L.P. (55%) NEW JERSEY
INDUSTRIAS GLIDDEN DE ESPANA, S.A. SPAIN
GLIDDEN IBERICA S.A. (50%) SPAIN
INTERWORLD ENTERPRISES COMPANY LIMITED TAIWAN
ISB LIQUIDATING COMPANY DELAWARE
JIMPAYNE INTERNATIONAL, INC. DELAWARE
KIC LTD. BERMUDA
KIDDE CREDIT CORPORATION DELAWARE
KIDDE INTERNATIONAL LTD. DELAWARE
LEMEAN PROPERTY HOLDINGS CORPORATION DELAWARE
MILLENNIUM ASSETS INC. DELAWARE
MILLENNIUM CAPITAL INC. DELAWARE
MILLENNIUM FINANCE INC. DELAWARE
MILLENNIUM REALTY INC. DELAWARE
PH BURBANK HOLDINGS, INC. DELAWARE
POWER LIQUIDATING COMPANY, INC. MASSACHUSETTS
SCM HOLDINGS PTY. LTD. (AUSTRALIA) AUSTRALIA
SCM INTERNATIONAL II LTD. DELAWARE
SCM PLANTS INC. MARYLAND
SCM S.A. INDUSTRIA E COMERCIO BRAZIL
SMITH CORONA MARCHANT FINANCE A.G. SWITZERLAND
SCM EUROPE, S.A. BELGIUM
SPARTUS HOLDINGS INC. DELAWARE
SUTRAPS, INC. ILLINOIS
TIONA, LTD. DELAWARE
SCM PROPERTIES LTD. DELAWARE
UAR LIQUIDATING INC. DELAWARE
USI INTERNATIONAL INC. DELAWARE
USI PUERTO RICO PROPERTIES, INC. DELAWARE
USI WORLDWIDE N.V. NETHERLAND ANTILLES
USI WORLDWIDE PANAMA PANAMA
WALTER KIDDE & COMPANY, INC. DELAWARE
WYATT INDUSTRIES, INC. TEXAS
</TABLE>
2
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements of Millennium Chemicals Inc. on Form S-8 (No. 333-13139) pertaining
to the Millennium Chemicals Inc. Retirement Savings & Investment Plan, (No.
333-13141) pertaining to the SCM Chemicals Inc. Retirement Savings & Investment
Plan, (No. 333-13143) pertaining to the Quantum Chemical Retirement Savings &
Investment Plan, (No. 333-13147) pertaining to the Quantum Chemical Retirement
Savings & Investment Plan for Hourly Represented Employees, (No. 333-13149)
pertaining to the SCM Glidco Organics Corp. Retirement Savings & Investment Plan
and (No. 333-13717) pertaining to the Millennium Chemicals Inc. Long-Term Stock
Incentive Plan of our report dated January 21, 1997, except for Note 14, as to
which the date is March 14, 1997 appearing on page 32 of this Annual Report on
Form 10-K.
PRICE WATERHOUSE LLP
Morristown, New Jersey
March 14, 1997
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
of Millennium Chemicals Inc. on Form S-8 (No. 333-13139) pertaining to the
Millennium Chemicals Inc. Retirement Savings & Investment Plan, (No. 333-13141)
pertaining to the SCM Chemicals Inc. Retirement Savings & Investment Plan, (No.
333-13143) pertaining to the Quantum Chemical Retirement Savings & Investment
Plan, (No. 333-13147) pertaining to the Quantum Chemical Retirement Savings &
Investment Plan for Hourly Represented Employees, (No. 333-13149) pertaining to
the SCM Glidco Organics Corp. Retirement Savings & Investment Plan and (No.
333-13717) pertaining to the Millennium Chemicals Inc. Long-Term Stock Incentive
Plan of our reports dated (i) November 13, 1996 with respect to the consolidated
financial statements of Cornerstone-Spectrum, Inc. and (ii) November 7, 1995,
except for Note 12, as to which the date is July 2, 1996 with respect to the
consolidated financial statements of HMB Holdings, Inc. included in the Annual
Report (Form 10-K) of Millennium Chemicals Inc. for the year ended December 31,
1996.
ERNST & YOUNG LLP
Hackensack, New Jersey
March 21, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> 12-MOS
<CASH> 408
<SECURITIES> 0
<RECEIVABLES> 472
<ALLOWANCES> 8
<INVENTORY> 515
<CURRENT-ASSETS> 1,470
<PP&E> 2,862
<DEPRECIATION> 831
<TOTAL-ASSETS> 5,601
<CURRENT-LIABILITIES> 727
<BONDS> 2,360
<COMMON> 1
0
0
<OTHER-SE> 1,317
<TOTAL-LIABILITY-AND-EQUITY> 5,601
<SALES> 0
<TOTAL-REVENUES> 3,040
<CGS> 2,264
<TOTAL-COSTS> 2,757
<OTHER-EXPENSES> 23
<LOSS-PROVISION> (247)
<INTEREST-EXPENSE> 177
<INCOME-PRETAX> 330
<INCOME-TAX> 189
<INCOME-CONTINUING> 141
<DISCONTINUED> (2,842)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,701)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
