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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, 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: 68,879,860 shares of Common
Stock, par value $.01 per share, as of August 11, 1999, excluding 9,002,726
treasury shares held by the registrant, its subsidiaries and rabbi trusts.
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<PAGE>
MILLENNIUM CHEMICALS INC.
Table of Contents
Part
Item 1 Financial Statements............................................... 3
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 16
Part II
Item 3 Quantitative and Qualitative Disclosures About Market Risk........ 23
Item 4 Submission of Matters to a Vote of Security Holders............... 24
Item 6 Exhibits and Reports on Form 8-K.................................. 25
Signature ............................................................... 26
Exhibit Index............................................................. 27
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
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
June 30, December 31,
1999 1998
-------- --------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 79 $ 103
Trade receivables, net 260 242
Inventories 315 334
Assets of discontinued interests - 148
Other current assets 104 109
------- -------
Total current assets 758 936
Property, plant and equipment, net 980 1,044
Investment in Equistar 1,488 1,519
Other assets 193 189
Goodwill 408 412
------- -------
Total assets $ 3,827 $ 4,100
======= =======
Liabilities and shareholders' equity
Current liabilities
Notes payable $ 63 $ 29
Current maturities of long-term debt 10 14
Trade accounts payable 117 113
Income taxes payable (1) 23
Accrued expenses and other liabilities 161 200
------- -------
Total current liabilities 350 379
Long-term debt 953 1,039
Deferred income taxes 200 334
Other liabilities 894 755
------- -------
Total liabilities 2,397 2,507
------- -------
Commitments and contingencies (Note 6)
Minority interest 11 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 77,882,586
shares in 1999 and 77,873,586 in 1998) 1 1
Paid in capital 1,338 1,333
Retained earnings 332 294
Treasury stock (at cost, 7,823,462 shares and 502,572
shares in 1999 and 1998, respectively) (168) (7)
Unearned restricted shares (35) (35)
Cumulative other comprehensive income (58) (15)
Deferred compensation 9 7
------- -------
Total shareholders' equity 1,419 1,578
------- -------
Total liabilities and shareholders' equity $ 3,827 $ 4,100
======= =======
See Notes to Consolidated Financial Statements
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
------------------------------- -------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 406 $ 408 $ 789 $ 807
Operating costs and expenses
Cost of products sold 281 279 555 564
Depreciation and amortization 25 24 49 47
Selling, development and administrative
expense 55 39 100 72
------------- ------------- ------------- -------------
Operating income 45 66 85 124
Interest expense (18) (18) (36) (38)
Interest income 1 1 2 2
Equity in (loss) earnings of Equistar (7) 10 (11) 55
Other income, net 13 12 9 10
------------- ------------- ------------- -------------
Income from continuing operations before
provision for income taxes and minority
interest 34 71 49 153
Provision for income taxes (16) (25) (22) (61)
------------- ------------- ------------- -------------
Income from continuing operations before
minority interest 18 46 27 92
Minority interest 1 - 1 -
------------- ------------- ------------- -------------
Income from continuing operations 17 46 26 92
Income (loss) from discontinued operations
(net of income taxes of $(17), $2, $(17),
and $(1)) 31 (3) 31 1
============= ============= ============= =============
Net income $ 48 $ 43 $ 57 $ 93
============= ============= ============= =============
Income per share from continuing operations $ 0.24 $ 0.61 $ 0.36 $ 1.23
Income (loss) per share from discontinued
operations 0.45 (0.04) 0.43 0.01
------------- ------------- ------------- -------------
Net income per share - basic $ 0.69 $ 0.57 $ 0.79 $ 1.24
============= ============= ============= =============
Net income per share - diluted $ 0.68 $ 0.57 $ 0.79 $ 1.23
============= ============= ============= =============
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
Six Months Ended June 30,
1999 1998
-------------------------
(Unaudited)
Cash flows from operating activities
Income from continuing operations $ 26 $ 92
Adjustments to reconcile income to net cash (used)
provided
by operating activities
Depreciation and amortization 49 47
Provision for deferred income taxes 6 26
Restricted stock amortization 5 6
Equity loss (earnings) 11 (55)
Gain on Equistar's asset sale (12) -
Unrealized foreign exchange loss 3 -
Changes in assets and liabilities
Increase in trade receivables (24) (31)
Decrease (increase) in inventories 2 (18)
Decrease (increase) in other current assets 3 (22)
Increase in investments and other assets (4) (6)
Increase in trade accounts payable 5 28
Decrease in accrued expenses and other
liabilities and income taxes payable (66) (9)
Decrease in other liabilities (13) (10)
----- -----
Cash (used) provided by operating activities (9) 48
Cash flows from investing activities
Capital expenditures (56) (69)
Accounts receivable collection through Equistar - 225
Distributions from Equistar, net of liabilities
paid in 1998 37 142
Proceeds from syngas and methanol transactions 123 -
Proceeds from sale of Suburban Propane 75 -
Proceeds from sale of fixed assets 14 7
----- -----
Cash provided by investing activities 193 305
Cash flows from financing activities
Repurchases of common stock (159) -
Dividend to shareholders (19) (23)
New borrowings 74 84
Repayment of long-term debt (134) (365)
Increase in notes payable 34 17
----- -----
Cash used in financing activities (204) (287)
Effect of exchange rate changes on cash (4) (15)
----- -----
(Decrease) increase in cash and cash equivalents (24) 51
Cash and cash equivalents at beginning of year 103 64
----- -----
Cash and cash equivalents at end of period $ 79 $ 115
===== =====
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 57 57
Other comprehensive income -
Currency translation
adjustment (43) (43)
------ ------- --------- ------------ --------- --------- ------------ -------------- ---------
Total comprehensive income - - - - - 57 - (43) 14
Amortization and adjustment of
unearned restricted shares 5 5
Shares held by rabbi trust (2) 2 -
Repurchase of common stock (7) (159) (159)
Dividend to shareholders (19) (19)
------ ------- --------- ------------ --------- --------- ------------ -------------- ---------
Balance at June 30, 1999 70 $ 1 $ (168) $ 9 $ 1,338 $ 332 $ (35) $ (58) $ 1,419
====== ======= ========= ============ ========= ========= ============ ============== =========
</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 through its interest in Equistar Chemicals, LP ("Equistar"), a joint
venture between the Company, Lyondell Chemical Company ("Lyondell") and
Occidental Petroleum Corporation's ("Occidental") chemical subsidiary.
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 in exchange for a 43%
partnership interest and 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.
On May 15, 1998, 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.
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.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except share data)
Note 2-Acquisitions and Dispositions--Continued
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.
On May 26, 1999, the Company sold its combined subordinated and general
partnership interest of 26.4% in Suburban Propane Partners, L.P. and Suburban
L.P. (collectively "Suburban Propane") to its management for $75 in cash,
resulting in an after-tax gain of $31. As such, Suburban Propane is reflected as
a discontinued operation for all periods presented.
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
June 30, December 31,
1999 1998
------------- ------------
(Unaudited)
Inventories
Finished products $ 136 $ 139
In-process products 28 28
Raw materials 106 117
Other inventories 45 50
------------- -------------
$ 315 $ 334
============= =============
Inventories valued on a LIFO basis were approximately $40 and $41 less than the
amount of such inventories valued at current cost at June 30, 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 June 30, 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:
June 30,
1999 1998
------------------------------
(Unaudited)
Basic 69,798,834 75,102,448
Options 93,996 136,499
Restricted shares 588,310 278,333
------------ ------------
Diluted 70,481,140 75,517,280
============ ============
Note 4-Long-Term Debt and Credit Arrangements
June 30, 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 $ 175 $ 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 $1.0 and $1.1) 250 249
Debt payable through 2007 at interest rates
ranging from 2.4% to 22% 38 69
Less current maturities of long-term debt (10) (14)
------------ -------------
$ 953 $ 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
$169 and has accrued $169 as of June 30, 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.
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.
<PAGE>
MILLENNIUM CHEMICALS INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except share data)
Note 6-Commitments and Contingencies -- Continued
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 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 chemicals.
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,
1999 1998 1999 1998
-------------------------------- --------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales
Titanium dioxide $ 321 $ 305 $ 621 $ 587
Acetyls 53 65 102 143
Specialty chemicals 32 38 66 77
------------- ------------- ------------- -------------
$ 406 $ 408 $ 789 $ 807
============= ============= ============= =============
Depreciation and amortization
Titanium dioxide $ 18 $ 16 $ 36 $ 32
Acetyls 5 6 9 12
Specialty chemicals 2 2 4 3
------------- ------------- ------------- -------------
$ 25 $ 24 $ 49 $ 47
============= ============= ============= =============
Operating income
Titanium dioxide $ 32 $ 46 $ 59 $ 81
Acetyls 5 8 9 19
Specialty chemicals 8 12 17 24
------------- ------------- ------------- -------------
$ 45 $ 66 $ 85 $ 124
============= ============= ============= =============
Capital expenditures
Titanium dioxide $ 21 $ 27 $ 46 $ 42
Acetyls 4 9 6 18
Specialty chemicals 2 6 4 9
------------- ------------- ------------- -------------
$ 27 $ 42 $ 56 $ 69
============= ============= ============= =============
</TABLE>
<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.
June 30, December 31,
1999 1998
------------- -------------
(Unaudited)
Current assets $ 409 $ 538
Investment in Equistar 1,488 1,519
Noncurrent assets 1,073 1,060
Receivable from affiliates 452 491
------------- -------------
Total assets $ 3,422 $ 3,608
============= =============
Current liabilities $ 209 $ 211
Noncurrent liabilities 1,946 2,000
Invested capital 948 1,052
Payable to parent and affiliates 319 345
------------- -------------
Total liabilities and invested capital $ 3,422 $ 3,608
============= =============
Three Months Ended Six Month Ended
June 30, June 30,
1999 1998 1999 1998
------------------------- -------------------------
(Unaudited) (Unaudited)
Net sales $ 233 $ 266 $ 457 $ 524
Operating income 23 37 48 73
Net income 39 22 47 56
<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:
June 30, December 31,
1999 1998
-------- ---------
(Unaudited)
Current assets $ 1,122 $ 1,130
Noncurrent assets 5,477 5,538
-------- --------
Total assets $ 6,599 $ 6,668
======== ========
Current liabilities $ 528 $ 638
Noncurrent liabilities 2,262 2,145
Partners' capital 3,809 3,885
-------- --------
Total liabilities and partners' capital $ 6,599 $ 6,668
======== ========
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------------- -------------------
(Unaudited) (Unaudited)
Net sales $ 1,210 $ 1,093 $ 2,311 $ 2,114
Operating income 40 78 87 224
Net income 42 44 49 165
<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 ("TiO2"), acetyls and specialty
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
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
The Company had operating income of $45 million for the three months ended June
30, 1999, a decrease of $21 million (32%) from the same period of 1998. All
three business segments had lower earnings than in last year's second quarter.
Higher costs from unplanned production slowdowns and higher functional costs
negatively impacted profits from the TiO2 segment. The acetyl segment continued
to experience pricing difficulties in oversupplied markets. Specialty chemicals
also reported lower profits than in the prior year due to lower prices and
competition for volume in worldwide fragrance chemical markets.
Net income for the three months ended June 30, 1999 was $48 million, a 12%
increase from the quarter ended June 30, 1998 of $43 million. 1999 included a
$31 million after tax gain from the sale of Suburban Propane and a $6 million
after tax gain from Equistar's sale of its colors and compounds business.
Excluding these gains, net income for the second quarter of 1999 would have been
$11 million. In addition to the lower results from the Company's principal
operations, Equistar's earnings were also lower than in 1998. The Company's
equity earnings in Equistar fell from $10 million for the second quarter of 1998
to a loss of $7 million for the second quarter of 1999, due to the downturn in
the petrochemical industry.
Titanium dioxide: Second quarter 1999 operating income was $32 million compared
to $46 million for the second quarter 1998, down $14 million (30%). Higher costs
from unplanned production difficulties at certain facilities and increased costs
from the implementation of new SAP-based systems more than offset slightly
higher selling prices.
Overall sales volume for the second quarter, including volume from the Brazilian
operations acquired in July 1998, was up only 3% from the prior year's second
quarter. Although second quarter European sales were down 9% from the second
quarter of 1998, demand improved 15% in the Asia/Pacific markets over the second
quarter of 1998. The lower European sales volume reflected a strong second
quarter in 1998 and customer destocking in 1999. Demand slowed and pricing
became more competitive in that region during the quarter.
Second quarter 1999 average selling prices were up 1% over the comparable period
last year. Strong competition in Europe has put pressure on pricing. Pricing in
North America has been stable while increases have been realized in the
Asia/Pacific markets, where economies are strengthening.
The overall plants' operating rate for the second quarter of 1999 fell from 102%
in the same period last year to 91%. 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
difficulties at certain facilities, driving costs higher during the quarter. As
these difficulties are resolved, operating rates should improve.
Acetyls: This segment continued to suffer in all product lines during the second
quarter. Operating income was down 17% from the second quarter of 1998 to $5
million for the three months ended June 30, 1999. Lower sales volume and prices
more than offset lower production costs within the business.
Methanol prices were down 13% from the second quarter of 1998 but up 11% since
the first quarter. Rising natural gas prices, however, increased methanol
production costs and negatively impacted profits. Acetic acid prices were down
14%, but demand for acetic acid showed some improvement during June. Vinyl
acetate monomer ("VAM") prices were down 8% from the second quarter 1998
although both the U.S. and the Asian VAM markets began to strengthen during May
and June. Price increases in VAM and acetic acid were announced during the
second quarter with effective dates of July 1, 1999.
Overall business conditions are expected to be difficult for the remainder of
the year.
Specialty chemicals: Operating income for the three months ended June 30, 1999
was $8 million compared to $12 million for the second quarter of 1998. Second
quarter sales volume was down 22% compared to the second quarter of last year.
Weakness in global fragrance demand and the addition of new competitors into the
marketplace have resulted in a highly competitive marketplace. While overall
average selling prices increased 7% compared to the second quarter of 1998, due
solely to product mix, competitive price reductions have taken place in most
individual products.
Offsetting some of this weakness is the declining price of crude sulfate
turpentine ("CST"), a key raw material used in the manufacture of fragrance
chemicals. Second quarter average cost of $1.38 per gallon was 32% lower than
the same period last year. Effective July 1, 1999, the price of CST decreased
another $0.25 per gallon. CST prices have declined approximately $0.75 per
gallon since the second quarter of 1998.
Competitive conditions are expected to continue for the remainder of the year.
Equistar: The Company's 29.5% interest in Equistar resulted in a $7 million
(after interest) loss for the quarter as compared to $10 million (after
interest) of earnings for the second quarter of 1998. The Company's share of
Equistar's reported operating income was $7 million for the second quarter of
1999, before interest but after allocated expenses. This compares to $20 million
for the same period of 1998. Both quarters exclude any one-time transition costs
to form the venture and 1999 excludes a $12 million pre-tax gain, representing
the Company's share of Equistar's gain on the sale of its colors and compounds
business which is included in Other income, net.
Compared with the second quarter of last year, significant declines in ethylene
and polyethylene pricing have resulted from the downturn in the petrochemicals
cycle which began in late 1998. However, conditions have improved during 1999,
particularly in the second quarter. Ethylene prices increased 23% in the second
quarter over the first quarter of 1999, and polyethylene prices increased an
average of 13%. Polyethylene demand was strong during the second quarter driven
by end-use demand growth and customer attempts to restock very low inventories
ahead of announced price increases. Total price increases for polyethylene of
$0.13 per pound on average have been announced during the first half of 1999.
Another $0.05 per pound increase has been announced effective July 1. While
higher feedstock costs are eroding margin improvement, they are also providing
support for further increases in selling price.
<PAGE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
The Company had operating income of $85 million for the six months ended June
30, 1999, a decrease of $39 million (31%) from the same period of 1998. All
three business segments had lower earnings than during the first six months of
1998.
In the TiO2 segment, higher costs from planned and unplanned production
slowdowns negatively impacted profits. The acetyl segment continued to
experience pricing difficulties in oversupplied markets. Specialty chemicals was
also impacted by lower volume and lower prices due in part to increased industry
capacity and competition.
Net income for the six months ended June 30, 1999 was $57 million, a 39%
decrease from the same period ended June 30, 1998 of $93 million. In addition to
the lower results from the Company's wholly owned operations, Equistar's
earnings were also lower. The Company's equity earnings in Equistar fell from
$55 million for the first six months of 1998 to an $11 million loss for the
first six months of 1999. Lower pricing was the major contributing factor due to
overcapacity in the ethylene and derivatives marketplace. Partially offsetting
this was a $31 million after-tax gain from the sale of Suburban Propane and a $6
million after-tax gain from the Company's share of Equistar's gain on the sale
of its colors and compounds business during the second quarter of 1999.
Titanium dioxide: Operating income for the first six months of 1999 of $59
million compared to $81 million for the comparable period in 1998. Costs were
higher as a result of lower production levels at all facilities and increased
functional costs from the implementation of new SAP systems. This more than
offset the impact of slightly higher selling prices.
Overall sales volume for the first six months of 1999, including volume from the
Brazilian operations acquired in July 1998, was up 2% from the prior year's
first half. Although year-to-date European sales volumes were down 19% from the
first half of 1998, demand improved 6% in the Asia/Pacific markets over the same
period of 1998. The first half of 1998 reflected peak demand in Europe. Since
then, demand has slowed and pricing has become more competitive in Europe.
Year-to-date 1999 average selling prices were up 4% over the comparable period
last year due to increases implemented through the course of 1998. As discussed
above, prices in early 1999 have come under pressure primarily from slowing
demand and strong competition in Europe.
The overall plants' operating rate for the first six months of 1999 fell from
the same period last year from 99% to 86%. 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 planned and
unplanned production slowdowns at certain facilities, driving costs higher.
During the first quarter, production was restricted to help balance supply and
demand. Unexpected production difficulties during the first and second quarters,
most notably related to the Stallingborough expansion, also resulted in lower
production levels.
Acetyls: This segment continues to suffer in all product lines. Operating profit
was down 53% from the first half of 1998 to $9 million for the six months ended
June 30, 1999. Lower sales prices and volume more than offset lower production
costs within the business.
Methanol prices were down 25% from the first half of 1998. Rising natural gas
prices increased methanol production costs. Acetic acid prices were down 16%,
but demand for acetic acid has shown some improvement during June. VAM prices
were down 12% from the same period of 1998. Both the U.S. and the Asian VAM
markets began to strengthen during May and June. Price increases in VAM and
acetic acid were announced in the second quarter with effective dates of July 1,
1999.
Overall business conditions are expected to be difficult for the remainder of
the year.
<PAGE>
Specialty chemicals: Operating income for the first six months ended June 30,
1999 was $17 million compared to $24 million for the first half of 1998.
Weakness in global fragrance demand and the addition of new competitors into the
marketplace have put pressure on sales volume. Sales volume was down 16%
compared to the first half of last year. While overall average selling prices
increased 2% compared to the same period of 1998, due solely to product mix,
competitive price reductions are evident in most individual products.
Offsetting some of this weakness is the declining price of CST, a key raw
material used in the manufacture of specialty fragrance chemicals. The average
cost of $1.53 per gallon was 25% lower than the same period last year. Effective
July 1, 1999, the price of CST decreased another $0.25 per gallon. CST prices
have declined approximately $0.75 per gallon since the second quarter of 1998.
Competitive conditions are expected through the third quarter of 1999.
Equistar: The Company's 29.5% interest in Equistar resulted in a $11 million
(after interest) loss for the first six months as compared to $55 million (after
interest) of earnings for the same period of 1998. The Company's share of
Equistar's reported operating income was $15 million for the first half of 1999,
before interest but after allocated expenses. This compares to $76 million for
the same period of 1998. Both periods exclude any one-time transition costs to
form the venture and gains/losses from the sale of assets, which are included in
Other income, net.
Ethylene and polyethylene prices have been increasing during the first six
months of 1999 after their fall during the second half of 1998. Plant outages
during the first half of 1999 have kept industry ethylene supply tight, with
demand steady. Polyethylene demand remains strong, driven by end-use demand
growth and customer attempts to restock very low inventories ahead of announced
price increases. Polyethylene pricing continues solid with total price increase
announcements of $0.13 per pound on average during the first half of 1999.
Another $0.05 per pound increase has been announced for a July 1 start date.
While higher feedstock costs are eroding margin improvement, they are also
providing support for further increases in selling price.
FOREIGN CURRENCY MATTERS
The functional currency of each of the Company's non-United States operations is
the local currency. The impact of currency translation in consolidating 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, in January and the partial recovery
through June, however, resulted in a reduction in consolidated shareholders'
equity of approximately $25 million. Future events, which may significantly
increase or decrease the risk of future movement in the real or any other
currency, cannot be predicted.
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 used by operating activities was $9 million compared to $48 million
provided for the six months ended June 30, 1999 and 1998, respectively.
Unfavorable changes in working capital the primary reason for the decrease.
Net cash provided by investing activities was $193 million and $305 million for
the first six months of 1999 and 1998, respectively. The 1999 period reflects
the proceeds of $123 million from the syngas and methanol transactions with
Linde AG, as discussed in Note 2 to the Consolidated Financial Statements,
distributions of $37 million from Equistar and proceeds of $75 million from the
sale of Suburban Propane, more than offsetting capital expenditures of $56
million. 1998 reflects $225 million of accounts receivable collections related
to the businesses contributed to Equistar and $142 million in distributions from
Equistar.
Net cash used in financing activities was $204 million and $287 million for the
six months ended June 30, 1999 and 1998, respectively. Included in the first six
months of 1999 financing activities was $159 million used to repurchase company
stock and $134 million used to repay debt. A $365 million debt reduction during
the first six months of 1998 was funded primarily by the accounts receivable
collections mentioned above and $142 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 business systems implementation.
In January, the Board of Directors authorized the Company to spend up to $200
million to repurchase shares of the Company's outstanding common stock. Through
August 6, 1999, over 8 million shares have been repurchased at a cost of
approximately $180 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 are being implemented. 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.
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
America"). This system integrates information, including financial, human
resources, customer and supply chain information, in a single database. The
Company has received representations from SAP America 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. All three of the
Company's business units have completed their SAP R/3 implementation with the
exception of the payroll portion of the SAP Human Resources Module. The Company
plans to implement this payroll portion in January 2000. Efforts are underway to
ensure that the current payroll system will be Year 2000 compliant. 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 and assessment
phases of the Year 2000 project for non-IT systems. Remediation of non-compliant
items is 100% complete at one business unit, 95% at the second and 60% 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 $97 million related to the company-wide
implementation of SAP, consisting of $46 million for consulting costs, $4
million for hardware, $6 million for software, $24 million for internal human
resources, and $17 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 SAP project, to date, was approximately
$82 million, of which $72 million was capitalized and $10 million was expensed.
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 has substantially
completed 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 were
substantially completed in the first quarter of 1999, with the completion of the
testing and final implementation taking place in the remainder of 1999. Equistar
has completed the system-wide replacement of its business information systems
with SAP-based systems, including the systems for the operations contributed by
Millennium and Occidental. The new systems and software have been designed to be
Year 2000 compliant. Equistar has substantially completed contingency plan
preparation with the assistance of an outside consultant. These plans are
intended to avoid material interruption of core business operations through the
year 2000 and beyond, while ensuring safe operations and responsible financial
performance. Final testing of these plans will be completed in the last half of
the year. 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.
During the first quarter of 1999, the Company developed a process for creating
Year 2000 contingency plans. This process includes the evaluation of the
Company's existing business and disaster recovery plans and the identification
of additional prudent steps that may be necessary to prepare for certain
contingencies. These contingency plans have not yet been completed, 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 November 1, 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>
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 14, 1999. The
stockholders elected two directors nominated for election and ratified the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for 1999. 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 7, 1999, which is incorporated herein by
reference.
For Withheld
1. Election of Directors
William M. Landuyt 63,752,375 312,190
Martin G. Taylor 63,767,991 296,574
For Against Abstain
2. Appointment of PricewaterhouseCoopers LLP 63,903,455 92,375 68,735
<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 June
30, 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: August 16, 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
COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1
<TABLE>
<CAPTION>
BASIC 1998 WEIGHTED AVERAGE # SHARES
- ------------------------ -----------------------------------------
YEAR
SHARES QUARTER TO DATE
------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
SHARES OF COMMON STOCK
OUTSTANDING
AT DECEMBER 31, 1997 75,099,648 75,099,648 75,099,648
ISSUED APRIL 1, 1998 5,600 5,600 2,800
------------- -------------- ----------------
SHARES OF COMMON STOCK
OUTSTANDING
AT JUNE 30, 1998 75,105,248 75,105,248 75,102,448
============= ============== ================
EPS EPS
INCOME FROM CONTINUING
OPERATIONS $46,000,000 $92,000,000
-------------- ----------------
WEIGHTED AVG SHARES 75,105,248 $0.61 75,102,448 $1.23
OUTSTANDING
NET INCOME $43,000,000 $93,000,000
-------------- ----------------
WEIGHTED AVG SHARES 75,105,248 $0.57 75,102,248 $1.24
OUTSTANDING
1999
---------
SHARES OF COMMON STOCK
OUTSTANDING
AT DECEMBER 31, 1998 75,170,692 75,170,692 75,170,692
SHARE REPURCHASES:
JANUARY (82,800) (82,800) (82,800)
FEBRUARY
MARCH
APRIL
MAY
JUNE
APRIL ISSUE
JUNE ISSUE
(1,240,300) (1,240,300) (1,033,583)
(1,449,500) (1,449,500) (966,333)
(639,000) (639,000) (319,500)
(2,125,100) (1,417,442) (708,367)
(1,651,100) (549,816) (275,183)
6,000 6,000 3,000
3,000 1,000 500
------------- -------------- ----------------
SHARES OF COMMON STOCK
OUTSTANDING
AT JUNE 30, 1999 67,991,892 69,798,834 71,788,426
============= ============== ================
INCOME FROM CONTINUING
OPERATIONS $17,000,000 $26,000,000
-------------- ----------------
WEIGHTED AVG SHARES 69,798,834 $0.24 71,788,426 $0.36
OUTSTANDING
NET INCOME $48,000,000 $57,000,000
-------------- ----------------
WEIGHTED AVG SHARES 69,798,834 $0.69 71,788,426 $0.79
OUTSTANDING
<PAGE>
DILUTED 1998
- ------------------------
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
------------- --------------
SHARES OF COMMON STOCK
OUTSTANDING
AT JUNE 30, 1998 75,105,248 75,567,815 75,517,280
============= ============= ==============
INCOME FROM CONTINUING
OPERATIONS $46,000,000 $92,000,000
------------- --------------
WEIGHTED AVG SHARES 75,567,815 $0.61 75,517,280 $1.22
OUTSTANDING
NET INCOME $43,000,000 $93,000,000
------------- --------------
WEIGHTED AVG SHARES 75,567,815 $0.57 75,517,280 $1.23
OUTSTANDING
1999
---------
SHARES OF COMMON STOCK
OUTSTANDING
AT DECEMBER 31, 1998 75,170,692 75,170,692 75,170,692
SHARE REPURCHASES:
JANUARY (82,800) (82,800) (82,800)
FEBRUARY (1,240,300) (1,240,300) (1,033,583)
MARCH (1,449,500) (1,449,500) (966,333)
APRIL (639,000) (639,000) (319,500)
MAY (2,125,100) (1,417,442) (708,367)
JUNE (1,651,100) (549,816) (275,183)
APRIL ISSUE 6,000 6,000 3,000
JUNE ISSUE 3,000 1,000 500
OPTIONS 543,000 93,996 45,620
TIME VESTED RESTRICTED STOCK 614,328 414,886 384,477
PERFORMANCE BASED RESTRICTED STOCK 1,842,982 173,424 155,530
------------- ------------- --------------
SHARES OF COMMON STOCK
OUTSTANDING
AT JUNE 30, 1999 70,992,202 70,481,140 72,374,053
============= ============= ==============
INCOME FROM CONTINUING
OPERATIONS $17,000,000 $26,000,000
------------- --------------
WEIGHTED AVG SHARES 70,481,140 $0.24 72,374,053 $0.36
OUTSTANDING
NET INCOME $48,000,000 $57,000,000
------------- --------------
WEIGHTED AVG SHARES 70,481,140 $0.68 72,374,053 $0.79
OUTSTANDING
</TABLE>
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0
0
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