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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 March 31, 1999
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: 77,879,586 shares of Common
Stock, par value $.01 per share, as of May 12, 1999.
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<PAGE>
MILLENNIUM CHEMICALS INC.
Table of Contents
Part 1
Item 1 Financial Statements..........................................
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................
Item 3 Quantitative and Qualitative Disclosures about Market Risk....
Part II
Item 6 Exhibits and Reports on Form 8-K..............................
Signature ...........................................................
Exhibit Index.........................................................
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 titanium dioxide, ethylene and polyethylene, 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; failure to
achieve the Company's and Equistar's productivity improvement and cost reduction
targets or to complete construction projects on schedule; difficulties in
addressing Year 2000 issues on a timely basis by the Company, Equistar, their
suppliers or their customers; and, other unforeseen circumstances. 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
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
March 31, December 31,
1999 1998
------------- -------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 121 $ 103
Trade receivables, net 251 242
Inventories 293 334
Assets of discontinued interests 26 148
Other current assets 123 109
------------- -------------
Total current assets 814 936
Property, plant and equipment, net 988 1,044
Investment in Equistar 1,502 1,519
Other assets 191 189
Goodwill 411 412
------------- -------------
Total assets $ 3,906 $ 4,100
============= =============
Liabilities and shareholders' equity
Current liabilities
Notes payable $ 27 $ 29
Current maturities of long-term debt 10 14
Trade accounts payable 107 113
Income taxes payable 21 23
Accrued expenses and other liabilities 184 200
------------- -------------
Total current liabilities 349 379
Long-term debt 966 1,039
Deferred income taxes 246 334
Other 833 755
liabilities
------------- -------------
Total liabilities 2,394 2,507
------------- -------------
Commitments and contingencies (Note 6)
Minority interest 10 15
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
77,873,586 shares each in 1999 and
1998) 1 1
Paid in capital 1,333 1,333
Retained earnings 303 294
Treasury stock (at cost; 3,437,781 shares
and 502,572 shares in 1999 and 1998,
respectively) (61) (7)
Unearned restricted shares (32) (35)
Cumulative other comprehensive income (52) (15)
Deferred compensation 10 7
------------- -------------
Total shareholders' equity 1,502 1,578
------------- -------------
Total liabilities and
shareholders' equity $ 3,906 4,100
============= =============
See Notes to Consolidated Financial Statements
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
Three Months Ended March 31,
1999 1998
-------------------------------
(Unaudited)
Net sales $ 383 $ 399
Operating costs and expenses
Cost of products sold 274 285
Depreciation and amortization 24 23
Selling, development and administrative
expense 45 33
------------- -------------
Operating income 40 58
Interest expense (18) (20)
Interest income 1 1
Equity in (loss) earnings of Equistar (4) 45
Other expense, net (4) (2)
------------- -------------
Income from continuing operations before
provision for income taxes and minority
interest 15 82
Provision for income taxes (6) (36)
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Income from continuing operations before
minority interest 9 46
Minority interest - -
------------- -------------
Income from continuing operations 9 46
Income from discontinued operations
(net of income taxes of $3) - 4
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Net income $ 9 $ 50
============= =============
Income per share from continuing $ 0.12 $ 0.61
operations
Income per share from discontinued
operations - 0.06
------------- -------------
Net income per share - basic $ 0.12 0.67
============= =============
Net income per share - diluted $ 0.12 $ 0.66
============= =============
See Notes to Consolidated Financial Statements
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Three Months Ended March 31,
1999 1998
------------------------------
(Unaudited)
Cash flows from operating activities
Income from continuing operations $ 9 $ 46
Adjustments to reconcile net income to
net cash provided
by operating activities
Depreciation and amortization 24 23
Provision for deferred income taxes 5 21
Restricted stock amortization 3 3
Equity (earnings) loss 4 (45)
Unrealized translation loss 3 -
Changes in assets and liabilities
Increase in trade receivables (16) (15)
Decrease in inventories 31 3
Increase in other current assets (14) -
Increase in investments and other assets (5) (3)
Decrease in trade accounts payable (2) (1)
Decrease in accrued expenses and other
liabilities and income taxes payable (12) (23)
Decrease in other liabilities (16) (8)
------------- -------------
Cash provided by operating activities 14 1
Cash flows from investing activities
Capital expenditures (29) (27)
Accounts receivable collection through Equistar - 205
Distributions from Equistar, net of
liabilities paid in 1998 15 44
Proceeds from syngas transactions 123 -
Proceeds from sale of fixed assets 8 4
------------- -------------
Cash provided by investing activities 117 226
Cash flows from financing activities
Repurchases of common stock (51) -
Dividend to shareholders - (11)
New borrowings 7 -
Repayment of long-term debt (64) (288)
(Decrease) increase in notes payable (2) 56
------------- -------------
Cash used in financing activities (110) (243)
Effect of exchange rate changes on cash (3) 10
------------- -------------
Increase (decrease) in cash and cash equivalents 18 (6)
Cash and cash equivalents at beginning of year 103 64
------------- -------------
Cash and cash equivalents at end of period $ 121 $ 58
============= =============
See Notes to Consolidated Financial Statements
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN MILLIONS)
<TABLE>
<CAPTION>
Cumulative
Unearned Other
Common Stock Treasury Deferred Paid In Retained Restricted Comprehensive
Shares Amount Stock Compensation Capital Earnings Shares Income Total
------- ------- --------- ------------- -------- ---------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 77 $ 1 $ (7) $ 7 $ 1,333 $ 294 $ (35) $ (15) $ 1,578
Comprehensive income
Net income 9 9
Other comprehensive income -
Currency translation
adjustment (37) (37)
------- ------- --------- ------------ --------- --------- ------------ -------------- ---------
Total comprehensive income - - - - - 9 - (37) (28)
Amortization and adjustment of
unearned restricted shares 3 3
Shares held by rabbi trust (3) 3 -
Repurchase of common stock (51) (51)
------- ------- --------- ------------ --------- --------- ------------ -------------- ---------
Balance at March 31, 1999
(unaudited) 77 $ 1 $ (61) $ 10 $ 1,333 $ 303 $ (32) $ (52) $ 1,502
======= ======= ========= ============ ========= ========= ============ ============== =========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except share data)
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
subsidiaries: Millennium Inorganic Chemicals Inc. (and its non-United States
affiliates), Millennium Petrochemicals Inc., and Millennium Specialty Chemicals
Inc.; and, beginning December 1, 1997, through its interest in Equistar
Chemicals, LP ("Equistar"), a joint venture formed by the Company and Lyondell
Chemical Company ("Lyondell") to jointly own and operate the petrochemical and
polymer 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, ethylene glycol and other ethylene oxide 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 ("Common Stock") were distributed pro rata
to Hanson's shareholders (the "Demerger").
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the financial statements include all
adjustments necessary for a fair statement of the results of operations and
financial position for the periods presented in conformity with generally
accepted accounting principles. 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
petrochemical and polymer businesses of the Company and Lyondell. The Company
contributed to Equistar substantially all of the net assets of its polyethylene,
performance polymer 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 guarantees $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, ethylene glycol and other ethylene oxide
derivatives 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. No gain
or loss resulted from this transaction.
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 the representatives of the three
partners. All decisions of Equistar's Governance Committee that do not require
unanimity among the partners may be made by Lyondell's representatives alone.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except share data)
Note 2-Acquisitions and Dispositions--Continued
The investment in Equistar at the date of contribution represented the carrying
value of the Company's contributed net assets, less cash received, and
approximated 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. The Company accounts for its interest in
Equistar using the equity method.
On July 1, 1998, the Company completed the acquisition of 99% of the voting
shares and 72% of total shares of Titanio do Brazil S.A. ("Tibras"), Brazil's
only integrated TiO2 producer, for $129, including assumed debt. This
acquisition was accounted for using the purchase method of accounting with the
purchase price allocated to the net assets acquired, principally property, plant
and equipment and working capital based on their fair value. The two operations
comprising Tibras included a plant which has capacity to produce approximately
60 thousand metric tons per year of TiO2 and a mineral sands mine with over 2
million metric tons of recoverable reserves.
On January 18, 1999, the Company completed transactions with Linde AG ("Linde")
relating to the Company's synthesis gas ("syngas") unit in La Porte, Texas, and
a 15% interest in its methanol business, whereby the Company received $122.5 in
cash. Linde operates the syngas facility under a long-term lease with a purchase
option. In addition, Linde operates and holds a 15% interest in the methanol
facility. No gain or loss resulted from these transactions.
In March 1996, the Company 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, 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 retained a combined
subordinated and general partnership interest of 26.4% in Suburban Propane
Partners, L.P. and Suburban Propane, L.P. (collectively "Suburban Propane"). On
November 27, 1998, the Company entered into an agreement to sell its remaining
interest to Suburban Propane and its management for $75 in cash, with an
expected net after-tax gain of approximately $30. As such, Suburban Propane is
reflected as a discontinued operation for all periods presented and the
Company's interest at March 31, 1999 is included in Assets of discontinued
interests. This transaction is expected to be completed in the second quarter of
1999.
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.
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, or methods which
approximate FIFO, are used by all other subsidiaries.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except share data)
Note 3-Significant Accounting Policies--Continued
March 31, December 31,
1999 1998
------------- -------------
(Unaudited)
Inventories
Finished products $ 138 $ 139
In-process products 26 28
Raw materials 79 117
Other inventories 50 50
------------- -------------
$ 293 $ 334
============= =============
Inventories valued on a LIFO basis were approximately $41 less than the amount
of such inventories valued at current cost at March 31, 1999 and December 31,
1998, respectively.
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 March 31, 1999.
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 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. Resulting translation
adjustments are recorded as a currency translation adjustment in Shareholders'
equity. Gains and losses resulting from foreign exchange changes on transactions
denominated in currencies other than the functional currency are recognized in
income in the Consolidated Statements of Income except for gains and losses on
hedges of net investments which are included as a component of Shareholders'
equity.
Federal Income Taxes: Deferred tax assets and liabilities are computed based on
the difference between the financial statement basis and income tax basis of
assets and liabilities using enacted marginal tax rates of the respective tax
jurisdictions. Deferred income tax expense (credit) is based on the changes in
the assets and liabilities from period to period.
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 Company's subsidiaries.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except share data)
Note 3-Significant Accounting Policies--Continued
Earnings per share: The weighted-average number of common equivalent shares
outstanding used in computing earnings per share for 1999 and 1998 was as
follows:
March 31,
1999 1998
-------------------------------
(Unaudited)
Basic 73,777,860 75,099,648
Options 140 112,665
Restricted shares 350,603 114,685
------------- -------------
Diluted 74,128,603 75,326,998
============= =============
Note 4-Long-Term Debt and Credit Arrangements
March 31, December 31,
1999 1998
----------- -------------
(Unaudited)
Revolving Credit Facility bearing
interest at the bank's prime lending rate,
or at LIBOR or NIBOR plus .275%, at the
option of the Company, plus a Facility
Fee of .15% to be paid quarterly $ 184 $ 235
7% Senior Notes due 2006 (net of unamortized
discount of $.5 and $.5) 500 500
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 22% 43 69
Less current maturities of long-term debt (10) (14)
------------- -------------
$ 966 $ 1,039
============= =============
Under the Revolving Credit Agreement, as amended on 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" or the "Revolving Credit Facility"). 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.
The Credit Agreement contains covenants and provisions that restrict, among
other things, the ability of the Company and its material subsidiaries to: (i)
create liens on any of its property or assets, or assign any rights to or
security interests in future revenues; (ii) engage in sale-and-leaseback
transactions; (iii) engage in mergers, consolidations or sales of all or
substantially all of their assets on a consolidated basis; (iv) enter into
agreements restricting dividends and advances by their subsidiaries; and (v)
engage in transactions with affiliates other than those based on arm's-length
negotiations. The Credit Agreement also limits the ability of certain
subsidiaries of the Company to incur indebtedness or issue preferred stock. In
addition, the Credit Agreement requires the Company to satisfy certain financial
performance criteria.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except share data)
Note 4-Long-Term Debt and Credit Arrangements -- Continued
The Senior Notes and Senior Debentures were issued by Millennium America Inc., a
wholly owned subsidiary of the Company, and are guaranteed by the Company. The
indenture under which the Senior Notes and Senior Debentures were issued
contains certain covenants that limit, among other things: (i) the ability of
Millennium America Inc. and its Restricted Subsidiaries (as defined) to grant
liens or enter into sale-and-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 5-Related Party Transactions
One of the Company's subsidiaries purchases ethylene from Equistar at
market-related prices pursuant to an agreement made in connection with the
formation of Equistar. Under the agreement the subsidiary is required to
purchase 100% of its ethylene requirements for its La Porte, Texas, facility up
to a maximum of 330 million pounds per year. The initial term of the contract
expires December 1, 2000. Thereafter, the contract automatically renews
annually. Either party may terminate on one year's notice.
Note 6-Commitments and Contingencies
The Company is subject, among other things, to several proceedings under the
Federal Comprehensive Environmental Response Compensation and Liability Act and
other federal and state statutes or agreements with third parties. These
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
$176 and has accrued $176 as of March 31, 1999.
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 1-to 8-year contracts
with competitive prices generally determined at a fixed amount subject to
escalation for inflation. Total commitments to purchase ore for TiO2 aggregate
approximately $1,100 and expire between 1999 and 2002. Commitments to acquire
crude sulfate turpentine, used in the production of fragrance chemicals, are
generally pursuant to 1-to 5-year contracts with prices based on the market
price and which expire between 1999 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 stock dividend for United Kingdom tax purposes for Hanson and
Hanson's 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
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except share data)
Note 6-Commitments and Contingencies -- Continued
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 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 though the underlying value
of the assets may not actually have appreciated (due to currency movements).
Since it is impossible to predict the future value of the Company's assets,
currency movements and inflation rates, it is impossible to predict the
magnitude of such liability, should it arise.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except share data)
Note 7-Operations by Industry Segment
The Company's principal operations are grouped into three business segments:
titanium dioxide, acetyls and specialty fragrance chemicals.
The following is a summary of the Company's operations by industry segment:
Three Months Ended
March 31,
1999 1998
------------------------------
(Unaudited)
Net sales
Titanium dioxide $ 300 $ 282
Acetyls 49 78
Specialty fragrance chemicals 34 39
------------- -------------
$ 383 $ 399
============= =============
Depreciation and amortization
Titanium dioxide $ 18 $ 16
Acetyls 4 6
Specialty fragrance chemicals 2 1
------------- -------------
$ 24 $ 23
============= =============
Operating income
Titanium dioxide $ 27 $ 35
Acetyls 4 11
Specialty fragrance chemicals 9 12
------------- -------------
$ 40 58
============= =============
Capital expenditures
Titanium dioxide $ 25 $ 15
Acetyls 2 9
Specialty fragrance chemicals 2 3
------------- -------------
$ 29 $ 27
============= =============
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except share data)
Note 8-Information on Millennium America Inc.
Millennium America Inc., a wholly owned indirect subsidiary of the Company, is a
holding company for all of the Company's operating subsidiaries other than its
operations in the United Kingdom, France, Brazil and Australia. Millennium
America Inc. is the issuer of the 7% Senior Notes due November 15, 2006 and the
7.625% Senior Debentures due November 15, 2026, is a borrower under the
Company's Revolving Credit Agreement and guarantees $750 borrowed by Equistar
under an Equistar credit facility. Accordingly, the following summarized
financial information is provided for Millennium America Inc.
March 31, December 31,
1999 1998
------------- -------------
(Unaudited)
Current assets $ 430 $ 538
Investment in Equistar 1,502 1,519
Noncurrent assets 1,069 1,060
Receivable from affiliates 462 491
------------- -------------
Total assets $ 3,463 3,608
============= =============
Current liabilities $ 204 211
Noncurrent liabilities 1,935 2,000
Invested capital 1,009 1,052
Payable to parent and affiliates 315 345
------------- -------------
Total liabilities and invested
capital $ 3,463 $ 3,608
============= =============
Three Months Ended
March 31,
1999 1998
------------- -------------
(Unaudited)
Net sales $ 224 258
Operating income 25 36
Net income 8 34
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except share data)
Note 9-Information on Equistar
The following is summarized financial information for Equistar:
March 31, December 31,
1999 1998
------------- -------------
(Unaudited)
Current assets $ 1,161 1,130
Noncurrent assets 5,541 5,538
------------- -------------
Total assets $ 6,702 $ 6,668
============= =============
Current liabilities $ 574 $ 638
Noncurrent liabilities 2,286 2,145
Partners' capital 3,842 3,885
------------- -------------
Total liabilities and partners'
capital $ 6,702 $ 6,668
============= =============
Three Months Ended
March 31,
1999 1998
------------- -------------
(Unaudited)
Net sales $ 1,104 1,021
Operating income 47 146
Net income 7 121
<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 three business segments: titanium dioxide, acetyls and specialty fragrance
chemicals. The Company also holds a 29.5% interest in Equistar Chemicals, LP
("Equistar"). From December 1, 1997 to May 15, 1998, the Company had a 43%
interest in Equistar. The Company's interest in Equistar is accounted for using
the equity method. (See Note 2 to the Consolidated Financial Statements.) A
discussion of Equistar's financial results for the relevant period is included
below since the Company's interest in Equistar is a significant component of its
business.
The following information should be 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
The Company had operating income of $40 million for the three months ended March
31, 1999, a decrease of $18 million (31%) from the same period of 1998. All
three business segments had lower earnings than in last year's first quarter.
In the TiO2 segment, higher costs from planned and unplanned production
slowdowns negatively impacted profits. In addition, price competition in Europe
limited sales to the region, where sales volumes were 27% lower than in the
first quarter of 1998. The addition of the TiO2 operations in Brazil last July
helped soften the negative impact to profits. The acetyl segment continued to
experience pricing difficulties in oversupplied markets. Specialty fragrance
chemicals was also impacted by lower demand and lower prices due in part to
increased industry capacity.
Net income for the three months ended March 31, 1999 was $9 million, an 82%
decrease from the quarter ended March 31, 1998 of $50 million. In addition to
the lower results from the Company's principal operations, Equistar's earnings
were also lower. The Company's equity earnings in Equistar fell from $45 million
for the first quarter of 1998 to a $4 million loss for the first quarter of
1999. Again, lower pricing was the major contributing factor due to overcapacity
in the ethylene and derivatives marketplace.
Titanium dioxide: First quarter 1999 operating profit of $27 million compared to
$35 million for the first quarter 1998, down $8 million (23%). Higher costs from
planned and unplanned production slowdowns offset higher selling prices. Also
contributing to the lower profits from period to period was the devaluation of
the Brazilian real, which negatively impacted operating profits by $3 million.
In addition, the recent plant expansion at the Stallingborough, United Kingdom,
location resulted in a $3 million write-off of redundant assets.
Overall sales volume for the first quarter, including volume from the Brazilian
operations acquired in July 1998, was up only 1% from the prior year's first
quarter. Although first quarter European sales were down considerably (27%) from
the first quarter of 1998, demand improved 15% in the Asia/Pacific markets over
the first quarter of 1998. European sales were lower this quarter, reflecting a
strong first quarter in 1998 and customer destocking in 1999. Demand slowed and
pricing became more competitive in that region, although some improvement was
seen in March of this year, with volume up 28% from February.
First quarter 1999 average selling prices were up 6.5% over the comparable
period last year. Price increases were implemented in all markets and regions.
As discussed above, prices have recently been pressured by strong competition in
Europe, with first quarter 1999 average prices 2% lower than the last quarter of
1998. Such pressure is expected to continue through the second quarter.
<PAGE>
The overall plants' operating rate for the first quarter of 1999 fell from the
same period last year from 97% to 81%. This rate was based on an annual
effective capacity of 712,000 metric tons in 1999 compared with 671,000 metric
tons in 1998. The decline in the operating rate was due primarily to production
restrictions to help balance supply and demand and to unexpected production
difficulties. Operating rates and costs are expected to improve as production is
ramped up for the seasonal increase in demand and production difficulties are
resolved.
Acetyls: This segment suffered in all product lines. Operating profit was down
64% from the first quarter of 1998 to $4 million for the three months ended
March 31, 1999. Lower sales volume and prices offset improved production costs
within the business.
Methanol prices were down 36%, acetic acid prices were down 16%, and vinyl
acetate monomer ("VAM") prices were down 15% during the first quarter 1999
compared to last year's first quarter. Soft demand and customer outages were the
cause for lower volume in all areas during the period. VAM profits have also
been affected by higher ethylene costs.
Although continued weakness in Asia has affected acetic acid sales volume,
demand for VAM in that region has somewhat improved. Temporary relief from
oversupply in the methanol markets was experienced late in the quarter as a
number of competitor plants were shut down due to poor profitability. Business
conditions are expected to be difficult, particularly for methanol and acetic
acid, for the remainder of the year.
Specialty fragrance chemicals: Operating income for the three months ended March
31, 1999 was $9 million compared to $12 million for the first quarter of 1998.
First quarter sales volume was down 11% compared to the first quarter of last
year. Weakness in global fragrance demand and the addition of new competitors
into the marketplace have put pressure on sales volume as well as prices.
Average selling prices declined 2% compared to the first quarter of 1998.
Offsetting some of this weakness is the declining price of crude sulfate
turpentine ("CST"), a key raw material used in the manufacture of specialty
fragrance chemicals. First quarter average cost of $1.69 per gallon was 18%
lower than the same period last year. Effective April 1, 1999, the price of CST
decreased another $0.25 per gallon.
Competitive conditions are expected to remain difficult through the first half
of 1999, with some recovery expected later in the year.
Equistar: The Company's share of Equistar's reported operating income was $8
million for the first quarter of 1999, after allocated expenses. This compares
to $56 million for the same period of 1998, as trough conditions in the ethylene
and ethylene derivative businesses that began in the second half of 1998
continue to be experienced. Both quarters exclude one-time transition costs to
form the venture of $1 million and $3 million, respectively, which are included
in Other income (expense), net.
Industry production cut backs, both planned and unplanned, and strong demand
conditions for olefins reduced inventories and tightened supply in the first
quarter compared to the end of 1998, resulting in increasing ethylene prices.
However, feedstock costs increased during the period and partially offset the
margin improvement from higher ethylene prices.
The Company's 29.5% interest in Equistar resulted in a $4 million (after
interest) loss for the quarter as compared to $45 million (after interest)
earnings for the first quarter of 1998.
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, France, Brazil and Australia) is the local currency. The impact of
currency translation in combining the results of operations and financial
position of such operations has historically not been material to the
consolidated financial position of the Company. The devaluation of Brazil's
currency, the real, during the first quarter of 1999, however, resulted in a
reduction in consolidated shareholders' equity of $28 million. Future events,
which may significantly increase or decrease the risk of future movement in the
real, cannot be predicted.
<PAGE>
EURO CONVERSION
On January 1, 1999, eleven of fifteen member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
("legacy currencies") and the European Union's common currency, the euro. As of
that date, the euro began trading on currency exchanges and may be used in
business transactions. The legacy currencies will remain legal tender in the
participating countries for a transition period between January 1, 1999 and at
least January 1, 2002 (but not later than July 1, 2002).
The Company has begun to identify issues associated with the conversion to the
euro, including, among others, the need to adapt computer and financial systems
to accommodate euro-denominated transactions and the impact of one common
currency on pricing. Since financial systems and processes currently accommodate
multiple currencies, the Company does not anticipate system-conversion costs to
be material. Since the euro conversion may affect cross-border competition by
creating cross-border price transparency, the Company will be assessing its
pricing strategies to ensure it remains competitive in a broader European
market.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $14 million and $1 million for the
three months ended March 31, 1999 and 1998, respectively. The increase was due
to favorable changes in working capital levels.
Net cash provided by investing activities was $117 million and $226 million for
the first quarter of 1999 and 1998, respectively. The 1999 period reflects the
proceeds of $123 million from the syngas and methanol transactions and a
distribution of $15 million from Equistar, partially offset by capital
expenditures of $29 million. 1998 reflects $205 million of accounts receivable
collections related to the businesses contributed to Equistar and $44 million in
distributions from Equistar.
Net cash used in financing activities was $110 million and $243 million for the
three months ended March 31, 1999 and 1998, respectively. Included in first
quarter 1999 financing activities was $51 million used to repurchase company
stock and $64 million used to repay debt during the 1999 period. The $288
million debt reduction during the first three months of 1998 was funded
primarily by the accounts receivable collections mentioned above and $44 million
in distributions from Equistar.
The Company expects to spend approximately $120 million in 1999 for capital
expenditures, which include a new TiO2 research and development center in the
United States and the completion of the SAP implementation.
The Company expects to receive $76 million during the second quarter relating to
the sale of its investment in Suburban Propane partnership.
The Board of Directors has authorized the Company to spend up to $200 million to
repurchase shares of the Company's outstanding common stock. Through May 10,
1999, 3,731,600 shares have been repurchased at a cost of approximately $73
million.
YEAR 2000
Each of the Company's three business units and its corporate headquarters has
established a team to address Year 2000 compliance issues. Plans have been
established by each team and actions taken toward the goal of Year 2000
compliance are reported, on a regular basis, to the Company's Operations
Committee and its Board of Directors.
<PAGE>
The Company has focused its Year 2000 efforts on three major exposure areas:
information systems (which includes application software and technical
infrastructure), manufacturing process controls (non-IT systems) and supply
chain (which includes the Company's significant suppliers and customers). The
project phases common to all exposure areas are: 1) inventory/assessment; 2)
remediation; 3) testing; 4) implementation; and, 5) designing contingency plans.
Key components of each of these phases follows:
-The inventory/assessment phase involves identifying significant hardware
and software that exist throughout the Company. The Company then assigns a
business risk to each system and prioritizes each system to determine
optimal allocation of resources and funds for Year 2000 remediation work.
-The remediation phase involves determining whether individual systems will
be repaired, replaced or retired and develops plans, schedules and costs
for correction. This phase also includes an allocation of resources and
execution of a remedial plan.
-During the testing phase, the performance, functionality and integration
of converted or replaced systems are tested.
-Thereafter, the implementation phase provides for the implementation of
fully tested systems into the production environment.
-Contingency planning safeguards the Company in the event that risk
assessments and action plans do not result in Year 2000 compliance or the
timetable in which actions are scheduled to be taken is not adequate to
ensure compliance by the Year 2000.
During 1997, as a part of a separate project to improve the quality of and
access to business information, the Company began a company-wide implementation
of the SAP R/3 enterprise system software from SAP America, Inc. ("SAP"). This
system integrates information, including financial, human resources, customer
and supply chain information, in a single database. The Company has received
representations from SAP that the SAP R/3 system has been designed to be Year
2000 compliant. As part of the implementation, system interfaces with the SAP
R/3 system have been minimized. Two of the Company's three business units
completed their SAP implementations during 1998. The third business unit,
Millennium Inorganic Chemicals, has recently completed its first regional
implementation of SAP and is on schedule to complete the remaining
implementations by the third quarter 1999. The Company has also completed
modifications to existing business information systems for Millennium Inorganic
Chemicals, as a contingency plan, in the unlikely event that the SAP
implementation is not completed on schedule. The Company has outsourced the
technical infrastructure for the SAP R/3 system to an internationally recognized
provider of these services and has received assurances from the provider that
all hardware and related system software are Year 2000 compliant. The Company
has not deferred any of its currently planned projects as a result of Year 2000
efforts.
The Company's three business units have completed the inventory phase of the
Year 2000 project for non-IT systems. The inventory and assessment phases are
substantially complete at all business units. Remediation of non-compliant items
is 90% complete at one business unit, 86% at the second and 40% at the third.
The Company has targeted October 1999 as the completion date for all five phases
of the Year 2000 project. The Company has engaged independent consultants at
certain locations to monitor remediation programs for certain systems and to
provide additional expertise.
The Company has requested and received Year 2000 compliance information from
most of its critical suppliers, customers and other third parties. The Company
is in the process of evaluating and assessing these responses. The more
significant third-party relationships include suppliers of ores, electrical
power, natural gas and industrial gases and providers of transportation such as
pipelines, rail and barges. Contingency plans will be developed for significant
third-party risks identified by the Company as a result of its evaluations and
assessments. Although the Company has planned these actions to address
third-party issues and potential impacts to the Company, it often has little
direct ability to influence the compliance actions of other parties.
The Company estimates that it will spend $84 million related to the company-wide
implementation of SAP, consisting of $48 million for consulting costs, $6
million for hardware, $6 million for software, $13 million for internal human
resources, and $11 million for training and incidental costs. The Company
estimates that it will spend an additional $15 million for required
modifications and replacements of non-IT systems to become Year 2000 compliant,
excluding internal human resources costs, which the Company does not measure
separately. This estimate excludes Year 2000 costs that may be incurred by
Equistar. The total amount spent on the Year 2000 project, to date, was
approximately $64 million, of which $56 million was capitalized and $8 million
was expensed.
<PAGE>
The Company owns a 29.5% interest in Equistar. Equistar has formed a steering
committee to oversee all Year 2000 remediation efforts. The chairman of the
Equistar Year 2000 Steering Committee reports project progress regularly to the
Equistar Governance Committee, which includes representatives from the Company's
senior management. The Equistar Year 2000 Steering Committee is in the process
of completing an assessment of the state of readiness of the information
technology and non-IT systems of Equistar. These assessments cover manufacturing
systems, including laboratory information systems and field instrumentation, and
significant third-party vendor and supplier systems, including employee
compensation and benefit plan maintenance systems. The Steering Committee is
also in the process of assessing the readiness of significant customers and
suppliers. The inventory, assessment and remediation phases for Equistar are
nearly complete, with the majority of the testing and final implementation to
take place in 1999. In addition, Equistar is in the process of replacing the
business information systems for the operations contributed by Millennium and
Occidental with SAP-based systems. In November 1998, Equistar completed a
system-wide implementation of SAP for its polymer business and a portion of its
petrochemical business. Conversion of its remaining businesses is expected to be
completed in the first half of 1999. The operations of Millennium Petrochemicals
are integrally related to those of Equistar's La Porte, Texas, facility from
which materials and utilities are sourced. As a result, any Year 2000-related
interruption in Equistar's operations at this location could severely impact
Millennium Petrochemicals' ability to manufacture and ship products to
customers.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. In particular, if suppliers fail to provide the Company with raw
materials necessary to manufacture its products, sufficient electrical power and
other utilities to sustain its manufacturing processes, or adequate, reliable
means of transporting its products to its customers, then any such failure could
result in the temporary inability to manufacture and/or ship products to
customers. This risk may be mitigated to some extent at Millennium Inorganic
Chemicals, where manufacturing capacity is distributed among seven manufacturing
locations. Due to the uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of third-party
suppliers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures, if any, would have a material impact on the
Company's results of operations and/or financial condition.
The costs of the Company's Year 2000 project and the dates on which the Company
believes it will complete such efforts are based on management's current best
estimates, which were derived using numerous assumptions regarding future
events, including the continued availability of certain resources and the
continued progression toward the implementation of SAP at various facilities.
There can be no assurance that these estimates will prove to be accurate and,
therefore, actual results could differ materially from those anticipated.
Specific factors that could cause material differences with actual results
include, but are not limited to, the results of testing and the timeliness and
effectiveness of remediation efforts of third parties.
Formal contingency plans for certain Year 2000-related risks have not yet been
developed but are expected to include identification of alternate suppliers,
allowing for sufficient inventory levels in the event of manufacturing or
transportation interruption and replacing electronic applications with manual
processes. These plans are expected to be completed by the end of the third
quarter of 1999.
The Company's Year 2000 project is expected to reduce the Company's level of
uncertainty about the Year 2000 problem and, in particular, the Year 2000
readiness of its significant suppliers and customers. The Company believes that
the Year 2000 issues will be addressed on a timely basis. However, in the event
that the Year 2000 issues of the Company and/or third parties with whom the
Company transacts business are not addressed on a timely basis, it is possible
that such issues could have an adverse impact on the Company's operations and/or
financial condition.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussion under the caption "Foreign Currency Matters" in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 2 of this Quarterly Report is incorporated by reference herein.
<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) No Current Reports on Form 8-K were filed during the quarter ended March 31,
1999 and through the date hereof.
<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: May 14, 1999 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
MILLENNIUM CHEMICALS INC.
COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1
<TABLE>
<CAPTION>
Weighted
Shares Average Earnings
Basic Outstanding # of Shares Per Share
----------------------------------------
<S> <C> <C>
Shares of Common Stock outstanding at December 31, 1997 75,099,648 75,099,648
===========================
Shares of Common Stock outstanding at March 31, 1998 75,099,648 75,099,648
===========================
Income from continuing operations 46,000,000
-------------
Weighted average shares outstanding 75,099,648
Basic earnings per share 0.61
Net income 50,000,000
-------------
Weighted average shares outstanding 75,099,648
Basic earnings per share 0.67
Shares of Common Stock outstanding at December 31, 1998 75,170,692 75,170,692
January, 1999 share repurchases (82,800) (82,800)
February, 1999 share repurchases (1,240,300) (826,866)
March, 1999 share repurchases (1,449,500) (483,166)
---------------------------
Shares of Common Stock outstanding at March 31, 1999 72,398,092 73,777,860
===========================
Income from continuing operations 9,000,000
-------------
Weighted average shares outstanding 73,777,860
Basic earnings per share 0.12
Net income 9,000,000
-------------
Weighted average shares outstanding 73,777,860
Basic earnings per share 0.12
Diluted
Shares of Common Stock outstanding at December 31, 1997 75,099,648 75,099,648
Options 403,000 112,665
Time-vested restricted stock 614,327 114,685
---------------------------
Shares of Common Stock and Common Stock equivalents
at March 31, 1998 76,116,975 75,326,998
===========================
Income from continuing operations 46,000,000
-------------
Weighted average shares outstanding 75,326,998
Basic earnings per share 0.61
Net income 50,000,000
-------------
Weighted average shares outstanding 75,326,998
Basic earnings per share 0.66
Shares of Common Stock outstanding at December 31, 1998 75,170,692 75,170,692
January, 1999 share repurchases (82,800) (82,800)
February, 1999 share repurchases (1,240,300) (826,866)
March, 1999 share repurchases (1,449,500) (483,166)
Options 502,000 140
Time-vested restricted stock 614,327 290,828
Performance-based restricted stock 1,842,982 59,775
---------------------------
Shares of Common Stock and Common Stock equivalents
at March 31, 1999 75,357,401 74,128,603
===========================
Income from continuing operations 9,000,000
-------------
Weighted average shares outstanding 74,128,603
Basic earnings per share 0.12
Net income 9,000,000
-------------
Weighted average shares outstanding 74,128,603
Basic earnings per share 0.12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 121
<SECURITIES> 0
<RECEIVABLES> 251
<ALLOWANCES> 4
<INVENTORY> 293
<CURRENT-ASSETS> 814
<PP&E> 988
<DEPRECIATION> 609
<TOTAL-ASSETS> 3906
<CURRENT-LIABILITIES> 349
<BONDS> 966
0
0
<COMMON> 1
<OTHER-SE> 1501
<TOTAL-LIABILITY-AND-EQUITY> 3906
<SALES> 0
<TOTAL-REVENUES> 383
<CGS> 274
<TOTAL-COSTS> 343
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 15
<INCOME-TAX> 6
<INCOME-CONTINUING> 9
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
