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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____ to _____
Commission file number 1-12091
MILLENNIUM CHEMICALS INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3436215
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
230 Half Mile Road
Red Bank, New Jersey 07701
(Address of principal executive offices)
732-933-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 77,653,893 shares of Common
Stock, par value $.01 per share, as of August 5, 1998.
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<PAGE>
MILLENNIUM CHEMICALS INC.
Table of Contents
Part 1
Item 1 Financial Statements.................................................2
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................16
Part II
Item 4 Submission of Matters to a Vote of Security Holders.................20
Item 6 Exhibits and Reports on Form 8-K....................................21
Signature .........................................................22
Exhibit Index.......................................................23
Disclosure Concerning Forward-Looking Statements
All statements, other than statements of historical fact, included in this
Quarterly Report are, or may be deemed to be, forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934. Important
factors that could cause actual results to differ materially from those
discussed in such forward-looking statements ("Cautionary Statements") include:
material changes in the relationship between industry production capacity and
operating rates on the one hand, and demand for the products of Millennium
Chemicals Inc. (the "Company") and Equistar Chemicals, LP ("Equistar"),
including ethylene, polyethylene and titanium dioxide, on the other hand; the
economic trends in the United States and other countries which serve as the
Company's and Equistar's marketplaces; customer inventory levels; competitive
pricing pressures; the cost and availability of the Company's and Equistar's
feedstocks and other raw materials, including natural gas and ethylene;
operating interruptions (including leaks, explosions, fires, mechanical
failures, unscheduled downtime, transportation interruptions, spills, releases
and other environmental risks); competitive technology positions; and failure to
achieve the Company's and Equistar's productivity improvement and cost reduction
targets or to complete construction projects on schedule. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on behalf of the Company are expressly qualified in their entirety by
such Cautionary Statements.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
MILLENNIUM CHEMICALS INC.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
June 30, Dec 31,
1998 1997
--------- ---------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 115 $ 64
Trade receivables, net 288 369
Inventories 291 273
Other current assets 131 106
------- -------
Total current assets 825 812
Property, plant and equipment, net 859 851
Investment in Equistar 1,706 1,934
Other assets 242 261
Goodwill 461 468
------- -------
Total assets $ 4,093 $ 4,326
======= =======
Liabilities and shareholders' equity
Current liabilities:
Notes payable $ 17 $ -
Current maturities of long-term debt 20 20
Trade accounts payable 114 86
Income taxes payable 14 12
Accrued expenses and other liabilities 243 323
------- -------
Total current liabilities 408 441
Long-term debt 1,044 1,327
Deferred income taxes 303 280
Other liabilities 820 814
------- -------
Total liabilities 2,575 2,862
------- -------
Commitments and contingencies (Note 8)
Shareholders' 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 77,590,293 shares in 1998 and
77,276,942 shares in 1997) 1 1
Treasury stock at cost - 260,878 shares (7) -
Paid in capital 1,358 1,334
Retained earnings 247 177
Unearned restricted shares (60) (42)
Cumulative translation adjustment (21) (6)
------- -------
Total shareholders' equity 1,518 1,464
------- -------
Total liabilities and shareholders' equity $ 4,093 $ 4,326
======= =======
See Notes to Consolidated Financial Statements
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------ ------ ------ -----
(Unaudited) (Unaudited)
Net sales $ 408 $ 813 $ 807 $ 1,607
Operating costs and expenses
Cost of products sold 279 571 564 1,195
Depreciation and amortization 24 53 47 106
Selling, development and
administrative expense 39 57 72 108
------ ------ ------ ------
Operating income 66 132 124 198
Interest expense (18) (32) (38) (70)
Interest income 1 1 2 6
Equity in earnings of Equistar 10 - 55 -
Other income, net 7 40 12 44
------ ------ ------ ------
Income before provision for income taxes 66 141 155 178
Provision for income taxes (23) (59) (62) (76)
------ ------ ------ ------
Net income $ 43 $ 82 $ 93 $ 102
====== ====== ====== ======
Net income per share - basic $ 0.57 $ 1.10 $ 1.24 $ 1.37
====== ====== ====== ======
Net income per share - diluted $ 0.57 $ 1.10 $ 1.23 $ 1.37
====== ====== ====== ======
See Notes to Consolidated Financial Statements
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
Six Months Ended
June 30,
1998 1997
-------- --------
(Unaudited)
Cash flows from operating activities
Net income $ 93 $ 102
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 47 106
Provision for deferred income taxes 26 53
Restricted stock amortization 6 6
Equity earnings (50) -
Changes in assets and liabilities
Increase in trade receivables (31) (36)
(Increase) decrease in inventories (18) 71
(Increase) decrease in other current assets (22) 26
(Increase) decrease in investments and other
assets (6) 53
Increase (decrease) in trade accounts payable 28 (7)
Decrease in accrued expenses and
other liabilities and income taxes payable (15) (23)
Decrease in other liabilities (10) (33)
----- -----
Cash provided by operating activities 48 318
----- -----
Cash flows from investing activities
Capital expenditures (70) (74)
Distributions from Equistar 142 -
Proceeds from sale of fixed assets 8 -
----- -----
Cash provided by (used in) investing activities 80 (74)
----- -----
Cash flows from financing activities
Dividend to shareholders (23) (23)
New borrowings 84 -
Repayment of long-term debt (365) (580)
Accounts receivable collection through Equistar 225 -
Increase (decrease) in notes payable 17 (16)
----- -----
Cash (used in) financing activities (62) (619)
----- -----
Effect of exchange rate changes on cash (15) (7)
----- -----
Increase (decrease) in cash and cash equivalents 51 (382)
Cash and cash equivalents at beginning of period 64 408
----- -----
Cash and cash equivalents at end of period $ 115 $ 26
===== =====
See Notes to Consolidated Financial Statements
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
Common Stock Treasury Paid In Retained Restricted Translation
Shares Amount Stock Capital Earnings Shares Adjustment Total
------ ------ ------- ------- ------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 76 $ 1 $ - $ 1,334 $ 177 $ (42) $ (6) $ 1,464
------- ------ ------ ------ ------
Comprehensive Income
Net income 93 93
Other comprehensive income
Currency translation adjustment (15) (15)
Amortization and adjustments
of unearned restricted shares 24 (18) 6
------- ------ ------ ------ ------
Total comprehensive income 24 93 (18) (15) 84
------- ------ ------ ------ ------
Shares held by Rabbi Trust (7) (7)
Dividends (23) (23)
------ ------ ------ ------- ------ ------ ------- -------
Balance at June 30, 1998 (Unaudited) 76 $ 1 $ (7) $ 1,358 $ 247 $ (60) $ (21) $ 1,518
====== ====== ====== ======= ====== ====== ======= =======
</TABLE>
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 1-Basis of Presentation and Description of Company
Millennium Chemicals Inc. (the "Company") is a major international chemicals
company, with leading market positions in a broad range of commodity,
industrial, performance and specialty chemicals operating through its
wholly owned subsidiaries: Millennium Inorganic Chemicals Inc. (and its
non-United States affiliates), Millennium Petrochemicals Inc. and Millennium
Specialty Chemical Inc. and, beginning December 1, 1997, through its interest in
Equistar Chemicals, LP ("Equistar"), a joint venture formed by the Company and
Lyondell Petrochemical Company ("Lyondell") to jointly own and operate the
olefins and polymers businesses of the Company and Lyondell. On May 15, 1998 the
Company's interest in Equistar was reduced to 29.5% with the addition of the
ethylene, propylene, ethylene oxide and derivatives businesses of Occidental
Petroleum Corporation's ("Occidental") chemical subsidiary (see Note 2).
The Company was incorporated on April 18, 1996 and has been publicly owned since
October 1, 1996, when Hanson PLC ("Hanson") transferred its chemical operations
to the Company and, in consideration, all of the then outstanding shares of the
Company's common stock were distributed pro rata to Hanson's shareholders (the
"Demerger").
The accompanying consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. They include all adjustments which the Company considers necessary
for a fair statement of the results of operations and financial position for the
periods presented. Such adjustments consist only of normal recurring items. All
significant intercompany accounts and transactions have been eliminated.
Note 2-Acquisitions and Dispositions
On December 1, 1997, the Company and Lyondell completed the formation of
Equistar, a joint venture partnership created to own and operate the olefins and
polymers and ethyl alcohol businesses of the Company and Lyondell. The Company
contributed to Equistar substantially of all the net assets of its polyethylene,
performance polymers and ethyl alcohol businesses. The Company retained $250
from the proceeds of accounts receivable collections and substantially all the
accounts payable and accrued expenses of its contributed businesses existing on
December 1, 1997, and received proceeds of $750 from borrowings under a new
credit facility entered into by Equistar. The Company used the $750 which it
received to repay debt. A subsidiary of the Company guaranteed $750 of
Equistar's credit facility. Equistar was owned 57% by Lyondell and 43% by the
Company until May 15, 1998 when the Company and Lyondell expanded Equistar with
the addition of the ethylene, propylene, ethylene oxide and derivates businesses
of Occidental's chemical subsidiary. Occidental contributed the net assets of
those businesses (including approximately $205 of related debt) to Equistar. In
exchange, Equistar borrowed an additional $500, $420 of which was distributed to
Occidental and $75 to the Company. Equistar is now owned 41% by Lyondell, 29.5%
by Occidental and 29.5% by the Company. Equistar is managed by a Partnership
Governance Committee consisting of representatives of each partner. Approval of
Equistar's strategic plans and other major decisions requires the consent of
representatives of the three partners. All decisions of Equistar's Governance
Committee that do not require unanimity between the partners may be made by
Lyondell's representatives alone.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 2-Acquisitions and Dispositions--Continued
The Company accounts for its interest in Equistar using the equity method. The
investment in Equistar represents the carrying value of the Company's
contributed net assets less cash received and approximates the fair market value
of its interest in Equistar based upon independent valuation. The difference
between the carrying value of the Company's investment and its underlying equity
in the net assets of Equistar has been reduced from $617 to $404 as a result of
adding Occidental as a partner and is being amortized over 25 years.
On December 31, 1997 the Company completed the purchase of the shares of
Rhone-Poulenc Chimie S.A.'s Thann et Mulhouse titanium dioxide ("TiO2") and
specialty and intermediate chemicals subsidiary for $185, including assumed
debt. The purchase price was allocated to the net assets acquired, principally
property, plant and equipment and working capital based on their fair value.
Note 3-Significant Accounting Policies
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts 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. In addition, investments and other assets include approximately $91 and
$83 in restricted cash at June 30, 1998 and December 31, 1997, respectively,
which is on deposit primarily to satisfy insurance claims.
Inventories: Inventories are stated at the lower of cost or market value. For
certain United States 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.
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.
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 June 30, 1998.
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: 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.
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 and liability from
period to period.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 3-Significant Accounting Policies--Continued
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.
Earnings Per Share: Earnings per share ("EPS") are computed under the provisions
of SFAS No. 128. The weighted average number of common and common equivalent
shares outstanding used in computing EPS was as follows:
June 30,
1998 1997
------------- -------------
(Unaudited)
Basic 75,102,448 74,412,283
Options 136,499 -
Restricted shares 278,333 -
------------- -------------
Diluted 75,517,280 74,412,283
============= =============
Comprehensive Income: SFAS No 130 requires reporting comprehensive income in the
financial statements which includes net income and other changes in equity. The
Company adopted this pronouncement effective January 1, 1998 and elected to
report such income within the consolidated statement of changes in shareholders'
equity.
Note 4-Supplemental Information
June 30, December 31,
1998 1997
------------- -------------
(Unaudited)
Trade receivables
Trade receivables $ 291 $ 371
Less allowance for doubtful accounts (3) (2)
------------- -------------
$ 288 $ 369
============= =============
Inventories
Finished products $ 133 $ 121
In-process products 17 21
Raw materials 88 89
Other inventories 53 42
------------- -------------
$ 291 $ 273
============= =============
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 4-Supplemental Information--Continued
Inventories valued on a LIFO basis were approximately $34 and $32 less than the
amount of such inventories valued at current costs at June 30, 1998 and December
31, 1997, respectively.
June 30, December 31,
1998 1997
------------- -------------
(Unaudited)
Property, Plant and Equipment
Land and buildings $ 184 $ 217
Machinery and equipment 1,253 1,205
------------- -------------
1,437 1,422
Less allowance for depreciation and
amortization (578) (571)
------------- -------------
$ 859 $ 851
============= =============
Goodwill $ 528 $ 528
Less accumulated amortization (67) (60)
------------- -------------
$ 461 $ 468
============= =============
Note 5-Long-Term Debt and Credit Arrangements
June 30, December 31,
1998 1997
------------- -------------
(Unaudited)
Revolving Credit Agreement 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 $ 268 $ 546
7% Senior Notes due 2006 (net of unamortized
discount of $1 and $.5) 499 500
7.625% Senior Debentures due 2026 (net of
unamortized discount of $1.1 and $1.1) 249 249
Debt payable through 2007 at interest rates
ranging from 2.4% to 11% 48 52
Less current maturities of long-term debt (20) (20)
------------- -------------
$ 1,044 $ 1,327
============= =============
Under the Revolving Credit Agreement, as amended as of October 20, 1997, certain
of the Company's subsidiaries may borrow up to $500 under an unsecured
multi-currency revolving 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.
The proceeds from these borrowings may be used to provide working capital and
for general corporate purposes.
The Credit Agreement contains covenants and provisions that restrict, among
other things, and with certain exceptions, the ability of the Company and its
material subsidiaries to: (i) create liens on any of their property or assets,
or assign any rights to or security interests in future revenues; (ii) engage in
sale and leaseback transactions; (iii) engage in mergers, consolidations and
sales of all or substantially all of their assets on a consolidated basis; (iv)
enter into agreements restricting dividends and advances by their subsidiaries;
and, (v) engage in transactions with affiliates other than those based on
arm's-length negotiations. The Credit Agreement also limits the ability of
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 5-Long-Term Debt and Credit Arrangements--Continued
certain subsidiaries of the Company to incur indebtedness or issue preferred
stock. In addition, the Credit Agreement requires the Company to satisfy certain
financial-performance criteria.
The indenture under which the Senior Notes and Senior Debentures are issued
contains certain covenants that limit, among other things, and with certain
exceptions: (i) the ability of Millennium America Inc. and its Restricted
Subsidiaries (as defined) to grant liens or enter into sale and leaseback
transactions; (ii) the ability of the Restricted Subsidiaries to incur
additional indebtedness; and, (iii) the ability of Millennium America Inc. and
the Company to merge, consolidate or transfer substantially all of their
respective assets.
Note 6-Financial Instruments
Fair Value of Financial Instruments: The fair value of all short-term financial
instruments approximate their carrying value due to their short maturity. The
fair value of long-term financial instruments approximates carrying value as
they were based on terms that continue to be available to the Company from its
lenders.
Off Balance Sheet Risk: The Company has certain receivables, payables and
short-term borrowings denominated in currencies other than the functional
currencies of the Company and/or its subsidiaries. During the quarter, the
Company has hedged certain of these exposures by entering into forward exchange
contracts. Gains and losses related to these hedges are recognized in income as
part of, and concurrent with, the hedged transactions. The Company does not use
derivative financial instruments for trading or speculative purposes.
SFAS 133: On June 15, 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivatives and Hedging Activities", effective for
fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company).
SFAS 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or as comprehensive income, depending on whether
a derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. The Company is currently evaluating the implications
of this new pronouncement, but due to the Company's limited use of derivative
instruments, the adoption of SFAS 133 is not expected to have a significant
effect on the Company's results of operations or its financial position.
Note 7-Long-Term Incentive Plan
The Company 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 its shareholders. A maximum of 3,909,000 shares of Common Stock may
be issued or used for reference purposes pursuant to the Stock Incentive Plan.
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. The vesting schedule for granted restricted stock awards
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 "value
creation" performance criteria established by the Compensation Committee for
each of the three performance cycles commencing January 1, 1997 and ending
December 31, 1999, 2000 and 2001, respectively. If and to the extent such
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 7-Long-Term Incentive Plan--Continued
criteria are achieved, half of the earned portion of a 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.
Options granted under the Stock Incentive Plan vest three years from the date of
grant and expire ten years from the date of grant. All grants under the Stock
Incentive Plan fully vest in the event of a change-in-control (as defined by the
plan) of the Company, or in the case of employees of a subsidiary of the
Company, a change-in-control of the relevant subsidiary.
The Company has authorization under the Stock Incentive Plan to grant awards for
up to an additional 310,964 shares at June 30, 1998.
Unearned restricted stock, based on the market value of the shares at each
balance sheet date, is included as a separate component of shareholders' equity
and amortized over the restricted period. Compensation expense recognized in
accordance with Accounting Principles Board Opinion No. 25 was $5 and $6 for
June 30, 1998 and 1997, respectively.
Note 8-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 these matters, collectively, which
primarily relate to environmental remediation activities, is between $150 and
$184 and has accrued $184 as of June 30, 1998.
The Company has various contractual obligations to purchase raw materials used
in its production of TiO2 and fragrance and flavor chemicals. Commitments to
purchase ore used in the production of TiO2 are generally three- to eight-year
contracts with competitive prices generally determined at a fixed amount subject
to escalation for inflation. Total commitments to purchase ore for TiO2
production approximates $1,100 and expire between 1998 and 2002. Commitments to
acquire crude sulfate turpentine, used in the production of fragrance and flavor
chemicals, are generally pursuant to one- to ten-year contracts with prices
based on the market price, and which expire between 1998 and 2008.
The Company is organized under the laws of Delaware and is subject to United
States federal income taxation of corporations. However, in order to obtain
clearance from the United Kingdom Inland Revenue as to the tax-free treatment of
the Demerger for United Kingdom tax purposes for Hanson and Hanson shareholders,
Hanson agreed with the United Kingdom Inland Revenue that the Company will
continue to be centrally managed and controlled in the United Kingdom 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 United Kingdom 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 United
Kingdom Inland Revenue and to indemnify Hanson against any liability and
penalties arising out of a breach of such agreement. The Company's By-Laws
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 8-Commitments and Contingencies--Continued
provide for similar constraints. The Company and Hanson estimate that such
indemnification obligation would have amounted to approximately $421 if it had
arisen during the twelve months ended September 30, 1997, and that such
obligation will decrease by approximately $84 on each October 1, prior to
October 1, 2001, when it will expire.
If the Company ceases to be a United Kingdom tax resident at any time, the
Company will be deemed for purposes of United Kingdom 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 United Kingdom corporation tax on
chargeable gains on the amount by which the fair market value of those assets at
the time of such deemed disposition exceeds the Company's tax basis in those
assets. The tax basis of the assets would be calculated in pounds sterling,
based on the fair market value of the assets (in pounds sterling) at the time of
acquisition of the assets by the Company adjusted for United Kingdom inflation.
Accordingly, in such circumstances, the Company could incur a tax liability even
though it has not actually sold the assets and even thought the underlying value
of the assets may not actually have appreciated (due to currency movements).
Since it is impossible to predict the future value of the Company's assets,
currency movements and inflation rates, it is impossible to predict the
magnitude of such liability, should it arise.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 9-Operations by Industry Segment
The Company's principal operations are grouped into four business segments:
titanium dioxide and related products, acetyls, specialty chemicals and
polyethylene, alcohol and related products.
The following is a summary of the Company's operations by industry segment:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------------- ------------- -------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales:
Titanium dioxide and related products $ 305 $ 215 $ 587 $ 422
Acetyls 65 69 143 128
Specialty chemicals 38 38 77 76
Polyethylene, alcohol and related
products (1) - 491 - 981
------------- ------------- -------------- -------------
Total $ 408 $ 813 $ 807 $ 1,607
============= ============= ============== =============
Depreciation and amortization:
Titanium dioxide and related products $ 16 $ 11 $ 32 $ 22
Acetyls 6 6 12 13
Specialty chemicals 2 1 3 2
Polyethylene, alcohol and related
products (1) - 35 - 69
------------- ------------- -------------- -------------
Total $ 24 $ 53 $ 47 $ 106
============= ============= ============== =============
Operating Income:
Titanium dioxide and related products $ 46 $ 11 $ 81 $ 16
Acetyls 8 15 19 17
Specialty chemicals 12 12 24 23
Polyethylene, alcohol and related
products (1) - 94 - 142
------------- ------------- -------------- -------------
Total $ 66 $ 132 $ 124 $ 198
============= ============= ============== =============
</TABLE>
1) Segment information for 1997 has been restated to combine information for the
polyethylene, alcohol and performance polymers businesses which have been
contributed to Equistar as one segment. The Company's interest in Equistar is
excluded from this segment beginning December 1, 1997, at which time the equity
method is used to account for this investment.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 10-Summary financial Information for Millennium America Inc.
Millennium America Inc. 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 outside the United States. Millennium America Inc. is the issuer of
the Senior Notes and Senior Debentures and a borrower under the Credit
Agreement. Accordingly, the following summarized financial information is
provided for Millennium America Inc.:
June 30, December 31,
1998 1997
------------- -------------
(Unaudited)
Current assets $ 408 $ 528
Investment in Equistar 1,706 1,934
Noncurrent assets 1,659 1,428
------------- -------------
Total assets $ 3,773 $ 3,890
============= =============
Current liabilities $ 264 $ 296
Noncurrent liabilities 2,507 2,647
Invested capital 1,002 947
------------- -------------
Total liabilities and invested capital $ 3,773 $ 3,890
============= =============
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------------ ------------ ------------- -------------
(Unaudited) (Unaudited)
Net sales $ 266 $ 729 $ 524 $ 1,442
Operating income 37 130 73 194
Net income 22 82 56 104
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(In $ Millions Unless Otherwise Indicated)
Note 11 -Summary financial Information for Equistar
The following is summarized financial information for Equistar:
June 30, December 31,
1998 1997
------------- -------------
(Unaudited)
Current assets $ 1,448 $ 1,209
Noncurrent assets 5,501 3,408
------------- -------------
Total assets $ 6,949 $ 4,617
============= =============
Current liabilities $ 454 $ 353
Noncurrent liabilities 2,508 1,546
Partners' capital 3,987 2,718
------------- -------------
Total liabilities and partners' capital $ 6,949 $ 4,617
============= =============
Three Months Six Months
Ended Ended
June 30, June 30,
1998 1998
------------- -------------
(Unaudited)
Net sales $ 1,093 $ 2,114
Operating income 78 224
Net income 44 165
Note 12-Subsequent Event
On July 1, 1998 the Company completed the acquisition of 99% of the voting
shares and 72% of total shares of two TiO2 operations in Brazil. The acquisition
of Constructora Andrade Gutierrez S.A.'s and Bayer S.A.'s equity interests in
Titanio do Brazil S.A. ("Tibras") add approximately 60,000 metric tons per year
of TiO2 capacity and a mineral sands mine with over 2 million metric tons of
recoverable reserves.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Millennium Chemicals Inc.'s (the "Company") principal operations are grouped
into four business segments: titanium dioxide and related products ("TiO2"),
acetyls, specialty chemicals and polyethylene, alcohol and related products. The
Company's businesses comprising the polyethylene, alcohol and related products
segment were contributed to Equistar Chemicals, LP ("Equistar"), a joint venture
partnership formed by the Company and Lyondell Petrochemical Company
("Lyondell") on December 1, 1997, to own and operate the olefins and polymers
businesses of the partners. Results of the Company's businesses for the first
eleven months of 1997, before the formation of Equistar, are consolidated. The
Company's 43% interest in Equistar was reduced on May 15, 1998 to 29.5% with the
addition of the ethylene, propylene, ethylene oxide and derivatives businesses
of Occidental Petroleum Corporation's ("Occidental") chemical subsidiary. The
results of Equistar are accounted for using the equity method. See Note 2 to the
Consolidated Financial Statements.
The following information should read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto. In connection with the
forward-looking statements that appear in the following information, the
Cautionary Statements referred to in "Disclosure Concerning Forward-Looking
Statements" should be reviewed carefully.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
The Company had operating income of $66 million for the three months ended June
30, 1998, a decrease of $66 million (50%) from the three months ended June 30,
1997. The second quarter of 1997 included $94 million related to the
polyethylene, alcohol and related products businesses contributed to Equistar on
December 1, 1997. Excluding these earnings, operating income for the second
quarter of 1998 from the Company's wholly owned subsidiaries increased $28
million (74%) over the 1997 period, principally as a result of improved TiO2
prices. Average TiO2 prices for the second quarter of 1998 were 11% higher than
in the second quarter of 1997.
Income before provision for income tax for the second quarter of 1998 of $66
million decreased $75 million (53%) from the second quarter of 1997. A $46
million insurance settlement is included in other income in the three months
ended June 30, 1997 and $11 million from two insurance settlements is included
in the three months ended June 30, 1998. Excluding these insurance settlements
in both the 1998 and 1997 periods, income before income taxes for the second
quarter of 1998 decreased $40 million (42%) compared to the comparable quarter
of 1997. The downturn in the polyethylene and related products business
significantly impacted Equistar's results for the second quarter of 1998
compared to earnings of the Company's contributed businesses in the comparable
quarter of 1997, offsetting the improved results from wholly owned operations
discussed above.
Net income for the second quarter of 1998 was $43 million or $0.57 per share
(Basic EPS), while net income for the same quarter of 1997 was $82 million or
$1.10 per share including the insurance settlements mentioned above. The
effective tax rate for the second quarter of 1998 is 7 percentage points lower
than 1997 as a result of the geographic mix of profit and debt in the 1998
period.
Titanium dioxide and related products: Operating income for the second quarter
of 1998 was $46 million, more than four times the $11 million earned in the
second quarter of 1997. Net sales were $90 million (42%) higher than the same
period of last year. Higher selling prices accounted for the majority of the
increase. Average prices rose 11% over the comparable quarter of 1997 with
increases evident in all regions in local currency terms. Sales volumes were up
28% from the second quarter of 1997 due to added volume from the French
operations acquired on December 31, 1997. Excluding the operations in France,
sales volumes were 3% above the second quarter of last year. Some weakness is
being experienced in the Asian markets due to the overall poor performance of
economies in that region. Markets in Europe and North America remain strong,
offsetting weaker demand in the Asian markets.
<PAGE>
Capacity utilization was above the second quarter of 1997 at approximately 100%,
including the French plants. Excluding French production, the quarterly
operating rate was slightly over 100%, reflecting strong demand in Europe and
North America. Production is being maximized in preparation of the third quarter
shutdown in Stallingborough to bring on its expansion capacity of 41,000 metric
tons per year.
Conditions are expected to be favorable for the balance of 1998 as pricing
trends continue to improve on steady European and North American demand.
On July 1, 1998, the Company completed the acquisition of a majority share of
two titanium dioxide operations in Brazil consisting of a 60,000 metric ton per
year plant and a mineral sands mine with over 2 million metric tons of
recoverable reserves. The acquisition represents 72 percent of the outstanding
equity capital and 99 percent of voting shares. This transaction will be treated
as a purchase effective July 1, 1998.
Acetyls: Net sales for the second quarter of 1998 decreased 6% to $65 million.
Operating profits of $8 million for the second quarter of 1998 decreased $7
million from second quarter of 1997.
Higher sales volumes in methanol and vinyl acetate monomer ("VAM") were more
than offset by lower selling prices in all product lines. New competitor
capacity has created an oversupply in the global methanol markets putting
pressure on price as well as sales volume, while demand for acetic acid and VAM
has weakened in the Asian regions.
Methanol prices were down 35% from the second quarter of 1997 due to oversupply
from new global capacity, strong U.S. production and weaker demand from the MTBE
sector of the market. Delays and difficulties with the conversion of the Syngas
unit to natural gas feed in early 1997 negatively impacted profits in the second
quarter of 1997. Since the conversion, methanol production costs have decreased
and production has increased. Conditions are at near break-even levels and
expected to show little improvement for the balance of the year.
During the second quarter of 1998, domestic demand was strong in the acetic acid
market. However, conditions in Asia remain difficult with weaker demand in that
region. Sales volume was slightly less than the second quarter of 1997. Prices
were down 11% from the comparable quarter of 1997. While steady demand in the
domestic market is anticipated for the remainder of the year, continued price
pressure is expected to negatively impact results.
Second quarter 1998 VAM prices were down 15% from the same quarter of 1997.
Prices have fallen due to lower ethylene costs and excess supply in Asia. While
VAM volumes for the quarter were 14% above 1997, the Asian economic crisis is
adversely affecting demand and pricing in these markets. Although the North
American market is stable, excess supply in Europe and Asia is putting pressure
on price. Such conditions are expected to continue for the balance of the year.
Specialty chemicals: Second quarter operating profits of $12 million were equal
to the second quarter of 1997. Net sales for the 1998 quarter were in line with
the 1997 quarter of $38 million. Favorable product mix and demand for higher-
margin products were offset by lower volumes and higher crude sulfate turpentine
("CST") costs. CST costs for the quarter were 23% higher than in the same
quarter of 1997. At the start of the third quarter, CST costs declined
approximately 10 cents/gallon effective July 1, 1998. Demand remains strong in
the global markets, but price competition is being felt as strong European
currencies relative to the U.S. dollar provide an advantage to non U.S.
competitors. Both of the Company's fragrance and flavor chemical plants have
operated at high capacity utilization rates due to firm demand for most
products.
Equistar: On December 1, 1997, the Company's polyethylene, alcohol and related
products businesses were contributed to Equistar. Since that time, the Company
has accounted for its share of Equistar as equity earnings. Post-interest equity
earnings from Equistar from the second quarter of 1998 was $10 million, compared
to $45 million in the first quarter of 1998. Declining ethylene prices coupled
with higher maintenance and lower production as a result of a mini-turnaround at
the Channelview, Texas facility contributed to the decrease in profits during
the second quarter. Ethylene prices fell 16% during the second quarter and 33%
since last year-end, as excess supply levels exist from new competitor capacity
coming on-stream during the year. Even though feedstock costs have also remained
low during the quarter, margins have suffered. The decline in ethylene prices is
also affecting its derivative products including polyethylene. Overall
polyethylene prices have fallen an average of 6% during the second quarter of
1998 and average 20% lower than the second quarter of 1997.
<PAGE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
The Company had operating income of $124 million for the first half of 1998, a
decrease of $74 million (37%) from the same period of 1997. The first six months
of 1997 included $142 million of operating income related to the polyethylene,
alcohol and related products businesses contributed to Equistar on December 1,
1997. Excluding these earnings, 1998 operating income increased $68 million
(121%) over 1997 primarily from increases in TiO2 profits. TiO2 operating profit
for the first six months of 1998 was $81 million, an increase of $65 million,
more than quadrupling the comparable 1997 period. TiO2 prices, which had started
to improve in the first half of 1997, continued to improve through the first
half of 1998. Year-to-date average TiO2 selling prices have increased 10% over
the same period last year.
Titanium dioxide and related products: Operating income for the first six months
of 1998 was $81 million compared to $16 in the first six months of 1997. Net
sales were 39% higher than 1997 at $587 million. On December 31, 1997, the
Company acquired Rhone-Poulenc Chimie S.A.'s French TiO2 operations, Thann et
Mulhouse, which included two plants providing 138,000 metric tons per year of
TiO2 capacity along with certain specialty and intermediate chemical businesses.
Higher selling prices account for most of the sales increase along with higher
sales volumes, 24% above last year, due mainly to the addition of the French
operations. TiO2 prices, which had started to improve in the first half of 1997,
continued to improve through the first half of 1998. Average TiO2 selling prices
for the first half of 1998 have increased 10% over the comparable 1997 period.
Some weakness is being experienced in the Asian markets due to the overall
declining economic conditions in that region. Markets in Europe and North
America however, remain strong, offsetting weaker demand in the Asian markets.
This is expected to continue through year end. Capacity utilization for the
first half of 1998 was 99.3%.
The expansion project at the Stallingborough, United Kingdom plant is on
schedule to be completed for start-up on January 1, 1999, which will add an
additional 41,000 metric tons per year of TiO2 capacity.
Acetyls: Operating income of $19 million for the first half of 1998 is 12%
higher than for the same period of 1997. Net sales of $143 million increased 11%
over 1997. Favorable costs were realized during 1998 as a result of the 1997
Syngas plant conversion to natural gas feed. During the first half of 1997,
difficulties with this conversion were experienced, hampering production and
increasing costs. By late 1997, such problems were resolved. Selling prices were
down considerably from the same period last year. Somewhat offsetting the lower
selling prices were lower ethylene and natural gas costs.
Specialty Chemicals: Operating income for the first six months of 1998 was $24
million compared to $23 million in 1997. Net sales for the first six months
ended June 30, 1998 were in line with the 1997 period at $77 million. Favorable
product mix and demand for higher-margin products were offset by lower volumes
and higher CST costs. CST costs were 27% higher than in the same period of 1997.
With the start of the third quarter, CST costs declined approximately 10
cents/gallon effective July 1, 1998. Demand remains strong in the global
markets, but price competition is being felt as strong European currencies
relative to the U.S. dollar provide an advantage to non U.S. competitors.
Equistar: On December 1, 1997, the Company's polyethylene, alcohol and related
products businesses were contributed to Equistar. Since that time, the Company
has accounted for its share of Equistar as equity earnings. Post-interest equity
earnings from Equistar for the first six months of 1998 were $55 million, and
compare to operating income for the first six months of 1997 of $142 million for
the businesses contributed to Equistar. Ethylene and ethylene derivative markets
started their decline towards the end of the first quarter of 1998. Ethylene
prices dropped 44% during the first half of 1998 as compared to 1997.
Polyethylene prices dropped dramatically during the first half of 1998 as
compared to 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are provided by operations and
borrowings under the Company's revolving credit facility. Net cash provided by
operating activities was $48 million for the six months ended June 30, 1998
compared to $318 million provided for the first six months ended June 30, 1997.
The decrease of $270 million is due primarily to the polyethylene, alcohol and
related products businesses included in 1997 but not in 1998 and proceeds of $49
million received from an insurance settlement in 1997. Since December 1, 1997,
such businesses were part of Equistar and cash distributed by the partnership in
the first six months of 1998 of $142 million is included as cash from investing
activities. The remaining difference is attributable to the timing of payments
for accrued expenses and other liabilities.
Net cash provided by investing activities was $80 million in the first six
months of 1998, while $74 million was used in the first six months of 1997. 1998
distributions from Equistar of $142 million, including $75 million relating to
Equistar's addition of Occidental as a partner, accounted for the variance.
Capital spending for the full year 1998 is expected to be approximately $210
million, including spending on the Stallingborough, United Kingdom plant
expansion, SAP-based business systems projects and capacity expansions at the
specialties chemicals segment.
Net cash used in financing activities for the first six months of 1998 was $62
million compared to $619 million in the first six months of 1997. The 1998
period reflects gross debt repayment of $365 million, principally funded by $225
million from the collection of accounts receivable related to the businesses
contributed to Equistar. The 1997 period reflects gross debt repayment of $580
million. At June 30, 1998, the Company had net debt of $966 million, or $317
million less than at December 31, 1997.
Net debt at the end of 1998 is expected to be near or lower than current levels.
The additional debt of $84 million incurred to acquire Tibras on July 1, 1998
was offset by the $150 million special cash distribution received from Equistar
in July due to Lyondell's repayment of its note to Equistar.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of stockholders was held May 15, 1998. The
stockholders elected all three directors nominated for election and ratified the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for 1998. The names of the Company's other Directors and detailed
descriptions of the proposals considered at the meeting are contained in the
Company's Proxy Statement, dated April 8, 1998, which is incorporated herein by
reference.
For Withheld
1. Election of Directors
Lord Glenarthur 61,548,153 733,489
Worley H. Clark, Jr. 61,654,326 627,316
Robert E. Lee 61,576,775 704,867
For Against Abstain
2. Appointment of PricewaterhouseCoopers LLP
62,112,215 78,818 90,609
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
(b) The following Current Report on Form 8-K was filed during the quarter
ended June 30, 1998 and through the date hereof:
Date of Report Item No. Financial Statements
May 29, 1998 5 None
(regarding Equistar)
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MILLENNIUM CHEMICALS INC.
Date: August 13, 1998 John E. Lushefski
---------------------------------
John E. Lushefski
Senior Vice President and
Chief Financial Officer
(as duly authorized officer and
principal financial officer)
<PAGE>
EXHIBIT INDEX
11.1 Statement re: computation of per share earnings
27.1 Financial Data Schedule
<PAGE>
COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 PAGE 1 OF 3
<TABLE>
<CAPTION>
BASIC
- ------------
1997 WEIGHTED AVERAGE # SHARES
- ------------ --------------------------------------------
SHARES YEAR
O/S QUARTER TO DATE
-------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1996 74,412,283 74,412,283 74,412,283
-------------- ------------- --------------
BALANCE AT MARCH 31, 1997 74,412,283 74,412,283 74,412,283
-------------- ------------- --------------
EPS EPS
----------------- ----------
NET INCOME 20,000,000 20,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 0.27 74,412,283 0.27
BALANCE AT JUNE 30, 1997 74,412,283 74,412,283 74,412,283
-------------- ------------- --------------
NET INCOME 82,000,000 102,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 1.10 74,412,283 1.37
1998
- ------------
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1997 75,099,648 75,099,648 75,099,648
BALANCE AT MARCH 31, 1998 75,099,648 75,099,648 75,099,648
-------------- ------------- --------------
NET INCOME 50,000,000 50,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,099,648 0.67 75,099,648 0.67
ISSUED APRIL 1, 1998 5,600 5,600 2,800
-------------- ------------- --------------
BALANCE AT JUNE 30, 1998 75,105,248 75,105,248 75,102,448
-------------- ------------- --------------
NET INCOME
WEIGHTED AVG SHARES OUTSTANDING 43,000,000 93,000,000
------------- --------------
75,105,248 0.57 75,102,248 1.24
<PAGE>
COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1
PAGE 2 OF 3
DILUTED
- ------------
WEIGHTED AVERAGE # SHARES
--------------------------------------------
SHARES YEAR
O/S QUARTER TO DATE
-------------- ------------- --------------
1997
- ------------
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1996 74,412,283 74,412,283 74,412,283
-------------- ------------- --------------
BALANCE AT MARCH 31, 1997 74,412,283 74,412,283 74,412,283
-------------- ------------- --------------
EPS EPS
----------- ----------
NET INCOME 20,000,000 20,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 0.27 74,412,283 0.27
BALANCE AT JUNE 30, 1997 74,412,283 74,412,283 74,412,283
-------------- ------------- --------------
NET INCOME 82,000,000 102,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 74,412,283 1.10 74,412,283 1.37
1998
- ------------
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1997 75,099,648 75,099,648 75,099,648
OPTIONS 112,665 112,665
TIME-VESTED RESTRICTED STOCK 114,685 114,685
------------- --------------
BALANCE AT MARCH 31, 1998 75,326,998 75,326,998
------------- --------------
NET INCOME 50,000,000 50,000,000
------------- --------------
WEIGHTED AVG SHARES OUTSTANDING 75,326,998 0.67 75,326,998 0.66
<PAGE>
COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 PAGE 3 OF 3
SHARES OF COMMON STOCK OUTSTANDING
AT DECEMBER 31, 1997 75,099,648 75,099,648 75,099,648
ISSUED 4/1/98 5,600 5,600 2,800
OPTIONS 159,596 136,499
TIME-VESTED RESTRICTED STOCK 302,971 278,333
-------------- ------------- -----------------
BALANCE AT JUNE 30, 1998 75,105,248 75,567,815 75,517,280
-------------- ------------- -----------------
NET INCOME 43,000,000 93,000,000
------------- -----------------
WEIGHTED AVG SHARES OUTSTANDING 75,567,815 0.57 75,517,280 1.23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 115
<SECURITIES> 0
<RECEIVABLES> 288
<ALLOWANCES> 3
<INVENTORY> 291
<CURRENT-ASSETS> 825
<PP&E> 859
<DEPRECIATION> 578
<TOTAL-ASSETS> 4,093
<CURRENT-LIABILITIES> 408
<BONDS> 1,044
0
0
<COMMON> 1
<OTHER-SE> 1,517
<TOTAL-LIABILITY-AND-EQUITY> 4,093
<SALES> 0
<TOTAL-REVENUES> 807
<CGS> 564
<TOTAL-COSTS> 683
<OTHER-EXPENSES> (10)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 155
<INCOME-TAX> 62
<INCOME-CONTINUING> 93
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.23
</TABLE>
