<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
-------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . . to . . . . . . . . . .
Commission file number 333-76473
______________
EQUISTAR CHEMICALS, LP
(Exact name of registrant as specified in its charter)
______________
Delaware 76-0550481
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 McKinney Street, 77010
Suite 700, Houston, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (713) 652-7200
______________
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
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
EQUISTAR CHEMICALS, LP
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-----------------------------------------------
Millions of dollars 2000 1999
- ------------------- -------------------- ------------------
<S> <C> <C>
SALES AND OTHER OPERATING REVENUES:
Unrelated parties $1,388 $ 931
Related parties 419 173
---------- ----------
1,807 1,104
---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of sales:
Unrelated parties 1,283 832
Related parties 364 147
Selling, general and administrative expenses 44 61
Research and development expense 9 10
Amortization of goodwill and other intangibles 8 8
---------- ----------
1,708 1,058
---------- ----------
Operating income 99 46
Interest expense (46) (43)
Interest income 1 4
Other income, net 2 --
---------- ----------
NET INCOME AND COMPREHENSIVE INCOME $ 56 $ 7
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
EQUISTAR CHEMICALS, LP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, DECEMBER 31,
Millions of dollars 2000 1999
- ------------------- ----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 40 $ 108
Accounts receivable:
Trade, net 588 491
Related parties 208 209
Inventories 522 520
Prepaid expenses and other current assets 31 32
------------ ------------
Total current assets 1,389 1,360
Property, plant and equipment, net 3,889 3,926
Investment in PD Glycol 50 52
Goodwill, net 1,111 1,119
Deferred charges and other assets 265 279
------------ ------------
Total assets $6,704 $6,736
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable:
Trade $ 486 $ 424
Related parties 26 35
Current maturities of long-term debt 57 92
Other accrued liabilities 108 233
------------ ------------
Total current liabilities 677 784
Long-term debt, less current maturities 2,169 2,169
Other liabilities and deferred credits 136 121
Commitments and contingencies
Partners' capital 3,722 3,662
------------ -----------
Total liabilities and partners' capital $6,704 $6,736
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
EQUISTAR CHEMICALS, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------------------
Millions of dollars 2000 1999
- ------------------- ------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 56 $ 7
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 77 73
Increase in accounts receivable (96) (23)
Decrease in inventories 4 42
Increase (decrease) in accounts payable 53 (17)
Decrease in other accrued liabilities (123) (54)
Net change in other working capital accounts 1 5
Other 20 (12)
-------------- ------------
Net cash (used in) provided by operating activities (8) 21
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (20) (46)
Contributions and advances to affiliates (5) (8)
-------------- -------------
Net cash used in investing activities (25) (54)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under lines of credit (25) (552)
Borrowing of long-term debt - - 898
Payment of debt issuance costs - - (6)
Repayment of long-term debt (10) - -
Repayment of obligations under capital leases - - (205)
Distributions to partners - - (50)
-------------- -------------
Net cash (used in) provided by financing activities (35) 85
-------------- -------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (68) 52
Cash and cash equivalents at beginning of period 108 66
-------------- -------------
Cash and cash equivalents at end of period $ 40 $ 118
============== =============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
EQUISTAR CHEMICALS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal, recurring adjustments considered necessary for a fair
presentation, have been included. For further information, refer to the
consolidated financial statements and notes thereto for the year ended December
31, 1999 included in the Equistar Chemicals, LP ("Equistar" or "Partnership")
1999 Annual Report on Form 10-K pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. Certain amounts from prior periods have been
reclassified to conform to the current period presentation.
2. COMPANY OPERATIONS
Equistar is a Delaware limited partnership, which commenced operations on
December 1, 1997. Equistar is owned 41% by Lyondell Chemical Company
("Lyondell"), 29.5% by Millennium Chemicals Inc. ("Millennium), and 29.5% by
Occidental Petroleum Corporation ("Occidental").
Equistar owns and operates the petrochemicals and polymers businesses
contributed by Lyondell, Millennium and Occidental ("Contributed Businesses")
which consist of 17 manufacturing facilities on the U.S. Gulf Coast and in the
U.S. Midwest. The petrochemicals segment manufactures and markets olefins,
oxygenated chemicals, aromatics and specialty chemicals. Olefins include
ethylene, propylene and butadiene, and oxygenated chemicals include ethylene
oxide, ethylene glycol, ethanol and methyl tertiary butyl ether ("MTBE"). The
petrochemicals segment also includes the production and sale of aromatics,
including benzene and toluene. The polymers segment manufactures and markets
polyolefins, including high-density polyethylene ("HDPE"), low-density
polyethylene ("LDPE"), linear low-density polyethylene ("LLDPE"), polypropylene,
and performance polymers products, all of which are used in the production of a
wide variety of consumer and industrial products. The performance polymers
include enhanced grades of polyethylene, including wire and cable resins, and
polymeric powders. The concentrates and compounds business, which was part of
performance polymers, was sold effective April 30, 1999 (see Note 3).
3. SALE OF CONCENTRATES AND COMPOUNDS BUSINESS
Effective April 30, 1999, Equistar completed the sale of its concentrates and
compounds business. The transaction included two manufacturing facilities,
located in Heath, Ohio and Crockett, Texas, and related inventories. Equistar
recorded a net gain on the sale of approximately $42 million during the second
quarter 1999.
4. INVENTORIES
The components of inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
MILLIONS OF DOLLARS 2000 1999
- ------------------- ------------ -------------
<S> <C> <C>
Finished goods $ 275 $ 278
Work-in-process 18 10
Raw materials 135 137
Materials and supplies 94 95
------------- -------------
Total inventories $ 522 $ 520
============= =============
</TABLE>
4
<PAGE>
5. PROPERTY, PLANT AND EQUIPMENT, NET
The components of property, plant and equipment, at cost, and the related
accumulated depreciation consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
MILLIONS OF DOLLARS 2000 1999
- ------------------- ------------- -------------
<S> <C> <C>
Land $ 78 $ 78
Manufacturing facilities and equipment 5,699 5,656
Construction in progress 111 134
------------- -------------
Total property, plant and equipment 5,888 5,868
Less accumulated depreciation 1,999 1,942
------------- -------------
Property, plant and equipment, net $3,889 $3,926
============= =============
</TABLE>
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
MILLIONS OF DOLLARS 2000 1999
- ------------------- ------------- -------------
<S> <C> <C>
Accrued property taxes $ 33 $ 68
Accrued payroll costs 31 68
Accrued interest 24 50
Accrued severance and other employee-related costs 10 24
Other 10 23
------------- -------------
Other accrued liabilities $ 108 $ 233
============= =============
</TABLE>
During the fourth quarter 1999, Equistar recorded a total charge of $96 million
associated with decisions to shut down certain polymer reactors and to
consolidate certain administrative functions between Lyondell and Equistar. This
included severance and other employee-related costs of $24 million related to
the elimination of approximately 500 employee positions. Through March 31, 2000,
approximately 380 employees had been terminated and approximately $14 million of
severance and other employee-related costs had been paid and charged against the
accrued liability. Equistar expects that severance of the remaining employees
will be completed by the end of the second quarter 2000.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the three months ended March 31, 2000 and
1999 is as follows:
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------------------
Millions of dollars 2000 1999
- ------------------- ------------- -------------
<S> <C> <C>
Cash paid for interest $ 71 $ 38
Noncash investing and financing activities:
Inventory transfer from PD Glycol $ 6 $ 6
Noncash adjustment to contributed capital 4 --
</TABLE>
5
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
Equistar has various purchase commitments for materials, supplies and services
incident to the ordinary conduct of business. In the aggregate, such commitments
are not at prices in excess of current market.
Equistar is also subject to various lawsuits and proceedings. Subject to the
uncertainty inherent in all litigation, management believes the resolution of
these proceedings will not have a material adverse effect upon the financial
statements or liquidity of Equistar.
Equistar has agreed to indemnify and defend Lyondell and Millennium,
individually, against certain uninsured claims and liabilities which Equistar
may incur relating to the operation of the Contributed Businesses prior to
December 1, 1997 up to $7 million each within the first seven years of the
Partnership, subject to certain terms of the Asset Contribution Agreements.
Equistar has also agreed to indemnify Occidental up to $7 million on a similar
basis relating to the operation of the Occidental Contributed Business prior to
May 15, 1998. During the three months ended March 31, 2000 and 1999, Equistar
incurred and paid $2 million and $1 million, respectively, in expenses for these
uninsured claims and liabilities. Equistar has cumulatively paid $18 million
for these uninsured claims and liabilities since its formation in December 1997.
Equistar's policy is to be in compliance with all applicable environmental laws.
Equistar is subject to extensive environmental laws and regulations concerning
emissions to the air, discharges to surface and subsurface waters and the
generation, handling, storage, transportation, treatment and disposal of waste
materials. Some of these laws and regulations are subject to varying and
conflicting interpretations. In addition, Equistar cannot accurately predict
future developments, such as increasingly strict requirements of environmental
laws, inspection and enforcement policies and compliance costs therefrom which
might affect the handling, manufacture, use, emission or disposal of products,
other materials or hazardous and non-hazardous waste. Equistar had no reserves
for environmental matters as of March 31, 2000 and December 31, 1999.
In the opinion of management, any liability arising from the matters discussed
in this note is not expected to have a material adverse effect on the financial
statements or liquidity of Equistar. However, the adverse resolution in any
reporting period of one or more of these matters discussed in this note could
have a material impact on Equistar's results of operations for that period
without giving effect to contribution or indemnification obligations of co-
defendants or others, or to the effect of any insurance coverage that may be
available to offset the effects of any such award.
6
<PAGE>
9. SEGMENT AND RELATED INFORMATION
Equistar has identified two reportable segments in which it operates: (i)
petrochemicals; and (ii) polymers. Summarized financial information concerning
Equistar's reportable segments is shown in the following table:
<TABLE>
<CAPTION>
Millions of dollars Petrochemicals POLYMERS UNALLOCATED ELIMINATIONS TOTAL
- ------------------- -------------- -------- ------------ ------------ -----
<S> <C> <C> <C> <C> <C>
For the three months ended March 31, 2000:
Sales and other operating revenues:
Customers $1,231 $576 $- - $ - - $1,807
Intersegment 474 - - - - (474) - -
------------------------------------------------------------------
Total sales and operating revenues 1,705 576 - - (474) 1,807
Operating income 172 (31) (42) - - 99
Interest expense - - - - (46) - - (46)
Interest income - - - - 1 - - 1
Other income, net - - - - 2 - - 2
Net income 172 (31) (85) - - 56
FOR THE THREE MONTHS ENDED MARCH 31, 1999:
Sales and other operating revenues:
Customers $ 649 $455 $- - $ - - $1,104
Intersegment 258 - - - - (258) - -
------------------------------------------------------------------
Total sales and operating revenues 907 455 - - (258) 1,104
Operating income 91 11 (56) - - 46
Interest expense - - - - (43) - - (43)
Interest income - - - - 4 - - 4
Net income 91 11 (95) - - 7
</TABLE>
The "Operating income" amounts presented above in the "Unallocated" column
consist of expenses not allocated to the petrochemicals and polymers segments,
principally general and administrative expenses.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
GENERAL-- Raw material costs continued to increase during the first quarter 2000
as evidenced by crude oil prices, which peaked above $32 per barrel in early
March. The subsequent OPEC decision to increase production resulted in some
relief, however first quarter 2000 benchmark crude oil prices averaged 16%
higher than fourth quarter 1999 and 129% higher than first quarter 1999. These
crude oil price increases put upward pressure on Equistar's raw material costs.
While Equistar implemented sales price increases, in some cases, these lagged
behind the rise in raw material costs, putting pressure on product margins.
Unless otherwise indicated, the following analysis of operating results compares
the first quarter 2000 to the first quarter 1999. An analysis comparing first
quarter 2000 to fourth quarter 1999 is also included and is headed as such.
NET INCOME--Equistar's net income of $56 million in the first quarter 2000
increased from $7 million in the first quarter 1999. The $49 million increase
reflected the benefit of higher margins and volumes in Equistar's petrochemicals
segment, which was only partly offset by lower margins in the polymers segment.
In the petrochemicals segment, sales price increases outpaced cost increases for
raw materials, leading to improved margins. In the polymers segment, sales
price increases lagged behind raw material cost increases.
FIRST QUARTER 2000 VERSUS FOURTH QUARTER 1999
Equistar reported net income of $56 million in the first quarter 2000 compared
to a net loss of $51 million in the fourth quarter 1999. Excluding $96 million
of restructuring and other unusual charges, Equistar had net income of $45
million in the fourth quarter 1999. The $11 million improvement in the first
quarter 2000 primarily reflects lower unallocated general and administrative
costs partly offset by a decrease in polymers segment operating results. First
quarter 2000 unallocated costs benefited from cost reductions announced in the
fourth quarter. For the polymers segment, margins decreased as increases in
polymer prices lagged cost increases in polymer raw materials, primarily
ethylene and propylene. The margin decreases were partly offset by a 5% increase
in volumes. Compared to the fourth quarter 1999, the petrochemicals segment
operating results were flat as higher raw material costs were offset by higher
ethylene and co-product prices and the benefit from higher sales volumes.
8
<PAGE>
SEGMENT DATA
The following tables reflect selected actual sales volume data and summarized
financial information for Equistar's business segments.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------------------
IN MILLIONS 2000 1999
- ----------- --------------- ---------------
<S> <C> <C>
SELECTED PETROCHEMICALS PRODUCTS:
Olefins (pounds) 4,902 4,527
Aromatics (gallons) 102 85
POLYMERS PRODUCTS (pounds) 1,667 1,652
MILLIONS OF DOLLARS
- -------------------
SALES AND OTHER OPERATING REVENUES:
Petrochemicals segment $1,705 $ 907
Polymers segment 576 455
Intersegment eliminations (474) (258)
--------------- ---------------
Total $1,807 $1,104
=============== ===============
COST OF SALES:
Petrochemicals segment $1,531 $ 813
Polymers segment 590 424
Intersegment eliminations (474) (258)
--------------- ---------------
Total $1,647 $ 979
=============== ===============
OTHER OPERATING EXPENSES:
Petrochemicals segment $ 2 $ 3
Polymers segment 17 20
Unallocated 42 56
--------------- ---------------
Total $ 61 $ 79
=============== ===============
OPERATING INCOME:
Petrochemicals segment $ 172 $ 91
Polymers segment (31) 11
Unallocated (42) (56)
--------------- ---------------
Total $ 99 $ 46
=============== ===============
</TABLE>
PETROCHEMICALS SEGMENT
REVENUES--Revenues of $1.7 billion in the first quarter 2000 increased 88%
compared to the first quarter 1999, primarily due to higher sales prices and a
5% increase in volumes. The increase in sales prices is primarily in response
to the significant increases in raw material costs, which have risen steadily
since the first quarter 1999. Benchmark quoted ethylene prices averaged 28.33
cents per pound in the first quarter 2000, a 67% increase over 16.95 cents per
pound in the first quarter 1999. Raw material costs increased steadily and
peaked in early March 2000. Sales volumes increased due to demand growth, which
reflected the ongoing strength of the U.S. economy.
COST OF SALES--Cost of sales of $1.5 billion in the first quarter 2000 also
increased 88% compared to $813 million for the first quarter 1999. This
increase primarily reflected the significant increase in raw material costs and,
to a lesser extent, higher volumes.
OPERATING INCOME--Operating income of $172 million in the first quarter 2000
increased from $91 million in the first quarter 1999 due to higher product
margins, as sales prices increased more than raw material costs, and, to a
lesser extent, higher sales volumes.
9
<PAGE>
POLYMERS SEGMENT
REVENUES--Revenues of $576 million in the first quarter 2000 increased 27%
compared to $455 million in the first quarter 1999 primarily as a result of
higher sales prices as volumes were relatively flat. The sales price increases
reflect pressure from escalating raw material costs. The flat volumes reflect
the effect of the previously announced shutdown of HDPE and LDPE capacity during
the first quarter 2000, partly offset by new capacity at the Matagorda, Texas
facility, which started up in the fourth quarter 1999.
COST OF SALES--Cost of sales of $590 million in the first quarter 2000 increased
39% compared to $424 million for the first quarter 1999. This increase
primarily reflected the significant increase in raw material costs, primarily
ethylene and propylene.
OPERATING INCOME--For the first quarter 2000, the polymers segment had an
operating loss of $31 million compared to income of $11 million in the first
quarter 1999. The decrease was primarily due to decreases in polymers margins
as sales price increases lagged behind increases in polymers raw material costs.
UNALLOCATED ITEMS
The following discusses expenses that were not allocated to the petrochemicals
or polymers segments.
OTHER OPERATING EXPENSES--This caption includes general and administrative
expenses, research and development expense, and amortization of goodwill and
other intangibles. Unallocated expenses were $42 million in the first quarter
2000 and $56 million in the first quarter 1999. The decrease was primarily due
to previously announced cost reduction measures taken in the fourth quarter
1999. The first quarter 1999 also included nonrecurring transition service
costs related to the business contributed by Occidental in May 1998 and system
implementation costs.
INTEREST EXPENSE, NET--Net interest expense of $45 million in the first quarter
2000 increased from $39 million in the first quarter 1999. Interest expense
increased due to higher interest rates as a result of Equistar's debt
refinancing in the first quarter 1999.
FINANCIAL CONDITION
OPERATING ACTIVITIES--Operating activities used cash of $8 million in the first
quarter 2000 and provided $21 million in the first quarter 1999. The decrease
in cash provided by operating activities in 2000 primarily reflected an increase
in working capital in 2000 that more than offset the improvement in net income.
The working capital increase primarily reflects the effects of significantly
higher product prices and raw material costs on receivables and inventory.
These were only partly offset by higher payables, improved receivables
collection efficiency and higher inventory turnover in the first quarter 2000
compared to the prior year period.
INVESTING ACTIVITIES--Equistar's capital expenditures were $20 million in the
first quarter 2000 and $46 million in the first quarter 1999. Capital
expenditures in 2000 decreased due to the timing of projects and primarily
include low-cost, incremental capacity expansions. The most significant capital
expenditures in 1999 related to the 480-million-pound HDPE resin expansion
project at the Matagorda, Texas facility, which started operating in the fourth
quarter 1999. Equistar's capital budget for 2000 is $160 million.
FINANCING ACTIVITIES--Net cash used in financing activities was $35 million in
the first quarter 2000, including $25 million of net repayments of the five-year
credit facility and a $10 million scheduled debt repayment. There were no
distributions to partners.
LIQUIDITY AND CAPITAL RESOURCES-- Equistar has a $1.25 billion revolving credit
facility that extends until November 2002. At March 31, 2000, Equistar had
drawn $775 million, leaving $475 million available. Current maturities of long-
term debt were $57 million. The credit facility contains covenants relating to
liens, sale and leaseback transactions, debt incurrence, leverage and interest
coverage ratios, sales of assets and mergers and consolidations. As of March
31, 2000, Equistar was in compliance with all such covenants. Management
believes
10
<PAGE>
that business conditions will be such that cash balances, cash flow from
operations and availability under the revolving credit facility will be adequate
to meet Equistar's cash requirements for scheduled debt repayments and to fund
ongoing operations for the foreseeable future.
CURRENT BUSINESS OUTLOOK
In the near term, Equistar expects operations to benefit from continued strong
demand for products in the petrochemicals and polymers segments. This will be
tempered by the effects of a scheduled turnaround at the Morris, Illinois
facility during the second quarter 2000. If crude oil prices stabilize in the
targeted price range announced by OPEC, Equistar's results should benefit
significantly. Meanwhile, Equistar continues to take aggressive actions to
further reduce costs and increase cash flow. These include the implementation of
the shared services organization with Lyondell Chemical Company and other cost
reduction initiatives, which have helped reduce controllable costs.
Over the longer term, Equistar expects continued consolidation in the commodity
chemical industry, creating fewer but stronger competitors. Industry forecasts
project a continuing difficult business environment due to upcoming capacity
additions, which are expected to put pressure on product margins beginning late
in 2000. Management's priority in the current business environment is to
enhance Equistar's financial performance by actively managing its current
portfolio of assets and maximizing earnings and cash flow. While Equistar does
not control raw material costs or general market conditions, management plans to
maximize earnings and cash flow by focusing on the things that it can directly
influence such as continuing to reduce working capital, achieving cost
reductions and employing a disciplined capital program.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. Subsequently, the FASB delayed the effective
date by one year. The statement is effective for Equistar's calendar year 2001
with early adoption permitted. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending upon whether a derivative is designated as part
of a hedge transaction and, if it is, the type of hedge transaction. The gains
and losses on the derivative instrument that are reported in other comprehensive
income will be reclassified as earnings in the periods in which earnings are
impacted by the hedged item. The ineffective portion of all hedges will be
recognized in current-period earnings. Equistar is currently evaluating the
effect SFAS No. 133 implementation will have on its financial statements.
ITEM 3. DISCLOSURE OF MARKET RISK.
Equistar's exposure to market risks is described in Item 7a of its Annual Report
on Form 10-K for the year ended December 31, 1999. Equistar's exposure to
market risks has not changed materially in the period ended March 31, 2000.
FORWARD-LOOKING STATEMENTS
- --------------------------
Certain of the statements contained in this report are "forward-looking
statements" within the meaning of the federal securities laws. Although
Equistar believes the expectations reflected in such forward-looking statements
are reasonable, they do involve certain assumptions, risks and uncertainties,
and Equistar can give no assurance that such expectations will prove to have
been correct. Equistar's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the cyclical nature of the chemical industry, uncertainties associated
with the economy, current and potential governmental regulatory actions,
substantial chemical industry capacity additions resulting in oversupply and
declining prices and margins, raw material costs or supply arrangements,
Equistar's ability to implement cost reductions, and operating interruptions
(including leaks, explosions, fires, mechanical failure, unscheduled downtime,
labor difficulties, transportation interruptions, spills and releases and other
environmental risks). Many of such factors are beyond Equistar's ability
11
<PAGE>
to control or predict. Management cautions against putting undue reliance on
forward-looking statements or projecting any future results based on such
statements or present or prior earnings levels.
All forward-looking statements in this Form 10-Q are qualified in their entirety
by the cautionary statements contained in this section.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments with respect to Equistar's
legal proceedings previously reported in the 1999 Annual Report on Form
10-K.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
None.
13
<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.
Equistar Chemicals, LP
Dated: May 12, 2000 /s/ KELVIN R. COLLARD
----------------------------
Kelvin R. Collard
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 40
<SECURITIES> 0
<RECEIVABLES> 802
<ALLOWANCES> 6
<INVENTORY> 522
<CURRENT-ASSETS> 1,389
<PP&E> 5,888
<DEPRECIATION> 1,999
<TOTAL-ASSETS> 6,704
<CURRENT-LIABILITIES> 677
<BONDS> 2,169
0
0
<COMMON> 0
<OTHER-SE> 3,722
<TOTAL-LIABILITY-AND-EQUITY> 6,704
<SALES> 1,807
<TOTAL-REVENUES> 1,807
<CGS> 1,647
<TOTAL-COSTS> 1,647
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46
<INCOME-PRETAX> 56
<INCOME-TAX> 0
<INCOME-CONTINUING> 56
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
