<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended June 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 333-17961
ARISTECH CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 25-1534498
(State of Incorporation) (I.R.S. Employer Identification Number)
600 Grant Street, Pittsburgh, Pennsylvania 15219-2704
(Address of principal executive offices)
Tel. No. (412) 433-2747
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 in each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at July 28, 1997
----- ----------------------------
<S> <C>
Common shares, $.01 stated value 14,908 shares
</TABLE>
<PAGE> 2
ARISTECH CHEMICAL CORPORATION
SEC FORM 10-Q
QUARTER ENDED JUNE 30, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Income 2
Consolidated Balance Sheets 3
Consolidated Statements of Cash Flows 4
Selected Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 11
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Income (Unaudited)
(Dollars in Millions)
- ---------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $232.1 $217.7 $458.4 $459.7
Operating Costs:
Cost of Sales 190.2 171.9 383.0 354.3
Selling, general and administrative expenses 13.6 10.2 26.6 21.6
Depreciation and amortization 12.1 11.8 24.2 23.6
------ ------ ------ ------
Total Operating Costs 215.9 193.9 433.8 399.5
------ ------ ------ ------
Operating Income 16.2 23.8 24.6 60.2
Loss on Disposal of Assets -- (2.6) -- (6.5)
Other Expense (0.1) (.3) (1.0) (.5)
Interest Income -- .3 -- .7
Interest Expense (6.1) (11.1) (11.7) (22.1)
------ ------ ------ ------
Income Before Provision for Taxes on Income 10.0 10.1 11.9 31.8
Provision for Taxes on Income 4.5 3.1 5.4 12.3
------ ------ ------ ------
Net Income $ 5.5 $ 7.0 $ 6.5 $ 19.5
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
ARISTECH CHEMICAL CORPORATION
Consolidated Balance Sheets
(Dollars in Millions)
- -----------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 1.2 $ 1.9
Receivables (less allowance for doubtful accounts
of $.5 for June 30, 1997 and $.6 for December 31, 1996) 128.6 110.2
Inventories 109.0 113.1
Other current assets 1.6 2.1
-------- --------
Total Current Assets 240.4 227.3
Property, plant and equipment, net of accumulated
depreciation 615.8 598.0
Excess cost over assets acquired 170.0 172.6
Deferred income taxes 1.5 1.5
Other assets 18.2 14.4
-------- --------
Total Assets $1,045.9 $1,013.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 77.1 $ 69.0
Payroll and benefits payable 10.8 12.0
Accrued taxes 3.5 13.1
Deferred income taxes .7 .7
Short-term borrowings 42.0 40.4
Long-term debt due within one year 0.1 .1
Other current liabilities 20.7 17.2
-------- --------
Total Current Liabilities 154.9 152.5
Long-term debt-related parties 191.3 160.3
Long-term debt-other 149.6 149.6
Deferred income taxes 164.3 164.7
Other liabilities 33.9 33.1
-------- --------
Total Liabilities 694.0 660.2
Common stock ($.01 par value, 20,000 shares authorized,
14,908 shares issued at June 30, 1997 and December 31, 1996) -- --
Additional paid-in capital 378.8 378.8
Retained deficit (26.9) (25.2)
-------- --------
Total Stockholders' Equity 351.9 353.6
-------- --------
Total Liabilities and Stockholders' Equity $1,045.9 $1,013.8
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Millions)
- -------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 6.5 $ 19.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 21.6 21.0
Amortization of excess cost over assets acquired 2.6 2.6
Deferred income taxes (0.4) (5.1)
Loss on disposal of assets -- 6.5
Increase in accounts receivable (18.4) (8.6)
Decrease in inventories 4.1 4.0
Increase (Decrease) in accounts payable
and other current liabilities 0.8 (10.6)
All other (0.4) (0.7)
------- -------
Net Cash Provided by Operating Activities 16.4 28.6
Cash Flows From Investing Activities:
Capital expenditures (39.9) (19.7)
Cash received on disposal of assets -- 39.0
Note receivable funded (1.5) --
Maturity of short-term investment -- 17.0
------- -------
Net Cash (Used in) Provided by Investing Activities (41.4) 36.3
Cash Flows From Financing Activities:
Short-term debt increase (decrease) 1.6 (2.3)
Repayment of long-term debt (100.0) (103.0)
Proceeds from issuance of long-term debt 131.0 63.0
Dividends (8.3) (22.6)
------- -------
Net Cash Provided by (Used in) Financing Activities 24.3 (64.9)
Net Decrease in Cash and Equivalents (.7) --
Cash and Equivalents, Beginning of Period 1.9 .4
------- -------
Cash and Equivalents, End of Period $ 1.2 $ .4
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
ARISTECH CHEMICAL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Aristech
Chemical Corporation (the "Company") and its wholly and majority owned
subsidiaries. Investments in other entities over which the Company
exercises significant influence are carried on the equity basis. All
intercompany accounts and transactions have been eliminated.
In 1997 the Company adopted Statement of Position ("SOP") 96-1,
"Environmental Remediation Liabilities". The adoption of SOP 96-1 did not
have a material effect on the consolidated financial statements.
In the opinion of management, the unaudited financial information reflects
all adjustments necessary to fairly state the results of operations and the
changes in financial position for such interim period. Such adjustments
are of a normal recurring nature.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and contingent 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.
2. NATURE OF OPERATIONS
The Company's operations are conducted in one business segment, the
production and marketing of chemical and polymer products. The major
chemical products include phenol, acetone, bisphenol-A, aniline, phthalic
anhydride, 2-ethylhexanol and plasticizer. Major polymer products include
polypropylene and acrylic sheet. Approximately 85% of the total sales are
of products which are considered commodity chemicals. The Company's
products are generally sold for further processing by manufacturers of
automotive components, construction materials and consumer products.
The Company's product line provides it with a diverse revenue base. The
Company does not derive significant revenue from any single customer.
International sales are made primarily to Japan, Canada and Taiwan.
5
<PAGE> 7
ARISTECH CHEMICAL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. INVENTORIES
Inventories at June 30, 1997 and December 31, 1996 consist of the following
categories:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
(In millions)
Raw materials $ 25.1 $ 24.8
Finished products 63.3 70.8
Supplies and sundry items 20.6 17.5
------ ------
Total Inventory $109.0 $113.1
====== ======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at June 30, 1997
and December 31, 1996:
<TABLE>
<CAPTION>
(In millions) 1997 1996
---- ----
<S> <C> <C>
Land $ 13.8 $ 13.8
Buildings 36.8 36.8
Machinery and equipment 827.0 793.0
------ ------
Total property, plant and equipment 877.6 843.6
Less accumulated depreciation 261.8 245.6
------ ------
Net property, plant and equipment $615.8 $598.0
====== ======
</TABLE>
5. DEBT
<TABLE>
<CAPTION>
Interest June 30, December 31,
(In millions) Maturity Rates 1997 1996
-------- ----- ---- ----
<S> <C> <C> <C> <C>
Term Loan - MC 2002 Variable $ -- $100.0
Revolving Loan - MIC 2002 Variable 179.0 48.0
6-7/8% Notes 2006 6.875% 148.9 148.9
Note payable to Avonite
stockholder 2006 Variable 11.2 11.2
Priority Promissory Note 2006 Variable 1.1 1.1
Industrial Revenue Bond 2008 Variable .6 .6
Capital lease obligations 1997-1999 .2 .2
------ ------
341.0 310.0
Less amount due within one year .1 .1
------ ------
Total $340.9 $309.9
====== ======
</TABLE>
6
<PAGE> 8
ARISTECH CHEMICAL CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. DEBT (CONTINUED)
On March 3, 1997, the $100.0 million Mitsubishi Corporation (MC) Term
Loan was prepaid in its entirety using proceeds from the Mitsubishi
International Corporation (MIC) Revolving Loan by increasing the
commitment amount of the facility to $250.0 million. The guarantee
fee payable to MC has been reduced to .1875% per annum for guaranteed
loans effective March 3, 1997, and thereafter.
6. COMMITMENTS AND CONTINGENCIES
Contract commitments for capital expenditures for property, plant and
equipment totaled $21.5 million at June 30, 1997 and $16.8 million at
December 31, 1996.
As of December 31, 1996, the Company had outstanding irrevocable
standby letters of credit in the amount of $15.2 million, primarily in
connection with environmental matters. The outstanding irrevocable
standby letters of credit have been reduced to $14.8 million as of
June 30, 1997.
The Company is a defendant in a patent infringement suit filed by
Phillips Petroleum Company ("Phillips") in 1987, in the United States
District Court for the Southern District of Texas, captioned Phillips
Petroleum Company v. Aristech Chemical Corporation, Civil Action No.
H87-3445. The complaint alleges infringement of two patents related
to the production of polypropylene, which have since expired. The
Company and Phillips each filed motions for summary judgment which
were referred to a Special Master. The Special Master issued a
recommendation to find in the Company's favor, and Phillips filed a
motion to reject the Special Master's recommendation. A hearing on
this motion was held on October 21, 1996. On November 13, 1996, the
District Court granted the Company's motion for summary judgment and
entered an order to that effect on November 19, 1996. A final
judgment was entered on December 23, 1996. Phillips appealed the
judgement and the appellate process is ongoing.
The Company is subject to pervasive environmental laws and regulations
concerning the production, handling, storage, transportation, emission
and disposal of waste materials and is also subject to other federal
and state laws and regulations regarding environmental, health and
safety matters. These laws and regulations are constantly evolving,
and it is impossible to predict accurately the effect these laws and
regulations will have on the Company in the future.
The Company is also the subject of, or party to, a number of other
pending or threatened legal actions involving a variety of matters.
In the opinion of management, any ultimate liability arising from
these contingencies, to the extent not otherwise provided for, should
not have a material adverse effect on the consolidated financial
position, results of operations, or cash flows of the Company.
7
<PAGE> 9
Item 2.
ARISTECH CHEMICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in connection with the information contained in
the Financial Statements and Selected Notes to Financial Statements. The
following discussion may contain forward-looking terms such as "believes,"
"expects," "may," "will," "should," "projected," or "anticipates," or the
negative of these terms. No assurance can be given that future results covered
by such forward-looking statements will be achieved.
RESULTS OF OPERATIONS
Operating income for the three month period ending June 30, 1997 was $16.2
million on sales of $232.1 million compared with operating income of $23.8
million on sales of $217.7 million for the three month period ending June 30,
1996. Despite a favorable effect from slightly higher sales volumes,
operating income was lower primarily due to higher feedstock costs and higher
levels of planned and unplanned maintenance turnaround activity than in the
same period in the prior year. On average, selling prices for the Company's
products increased 2.4%. Feedstock costs, on average, increased 14.3%. Sales
volumes were higher by 1.7% in the three month period ending June 30, 1997 as
compared to the same period in 1996. Sales volumes for chemical products and
polymer products were higher by 0.2% and 4.7%, respectively.
Selling, general and administrative expenses increased $3.4 million or 33.3% in
the three month period ending June 30, 1997 compared to the same period in 1996
primarily due to the consolidation of expenses relating to Avonite, Inc.
Selling, general and administrative expenses for Avonite, Inc. were $1.4
million in the three month period ending June 30, 1997. Avonite, Inc. became
a consolidated subsidiary of the Company on July 1, 1996.
Interest expense was $6.1 million for the three month period ending June 30,
1997 compared to $11.1 million for the same period in 1996. The $5.0 million
decrease in interest expense resulted primarily from the conversion of $179.6
million in principal amount of the Company's Payment-in-Kind Debentures to
Common Stock on September 30, 1996.
The provision for estimated taxes for the three month period ending June 30,
1997 was $4.5 million, compared with a provision for estimated taxes of $3.1
million for the same period in 1996. The Company's effective tax rate has
increased to 45% in 1997 from 31% in 1996 as a result of the amortization of
non-deductible goodwill and lower pre-tax income.
The Company's net income was $5.5 million for the three month period ending
June 30, 1997, a decrease of $1.5 million compared with net income of $7.0
million in the same period in 1996.
8
<PAGE> 10
ARISTECH CHEMICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Operating income for the first six months of 1997 was $24.6 million on sales
of $458.4 million compared with operating income of $60.2 million on sales of
$459.7 million in the first six months of 1996. The reduction in operating
income reflects reduced sales volumes and margins in most of the Company's
product lines and more extensive planned and unplanned maintenance turnaround
activity than in the same period in the prior year. The lower margins in the
first six months of 1997 are principally due to rising feedstock costs
outpacing increases in selling prices.
Lower operating rates at the Company's facilities due to unplanned maintenance,
and higher levels of planned maintenance activity, also adversely affected
operating income. In addition, the Company's operating income was reduced due
to the sale of the Company's coal chemicals business in March 1996. This
business contributed $2.6 million in operating income in the first six months
of 1996. On average, selling prices for the Company's products increased 4.3%.
Feedstock costs, on average, increased 21.3%. Sales volumes were lower by 2.6%
in the first six months of 1997 as compared to the first six months of 1996.
Sales volumes for chemical products and polymer products were lower by 3.6% and
0.6%, respectively.
Selling, general and administrative expenses increased $5.0 million or 23.1% in
the first six months of 1997 compared to the same period in 1996 primarily due
to the consolidation of expenses relating to Avonite, Inc. Selling, general
and administrative expenses for Avonite, Inc. were $2.9 million in the first
six months of 1997. Avonite, Inc. became a consolidated subsidiary of the
Company on July 1, 1996.
Interest expense was $11.7 million for the first six months of 1997 compared to
$22.1 million for the first six months of 1996. The $10.4 million decrease in
interest expense resulted primarily from the conversion of $179.6 million in
principal amount of the Company's Payment-in-Kind Debentures to Common Stock on
September 30, 1996.
The provision for estimated taxes in the first six months of 1997 was $5.4
million, compared with a provision of $12.3 million in the first six months of
1996. The Company's effective tax rate has increased to 45% in 1997 from 39%
in 1996 as a result of the amortization of non-deductible goodwill and lower
pre-tax income.
The Company's net income was $6.5 million in the first six months of 1997, a
decrease of $13.0 million compared with net income of $19.5 million in the same
period in 1996.
9
<PAGE> 11
ARISTECH CHEMICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION
Liquidity
Total working capital was $85.5 million at the end of the second quarter of
1997 with a ratio of current assets to current liabilities of 1.6 to 1. Total
working capital was $74.8 million at the end of 1996 with a ratio of current
assets to current liabilities of 1.5 to 1. The increase in the Company's
working capital balance is principally due to an increase in trade accounts
receivable.
Cash from operations totaled $16.4 million in the six month period ending June
30, 1997 compared to $28.6 million in the six month period ending June 30,
1996. Cash generation during the first six months of 1997 was not sufficient
to satisfy capital expenditure needs. In the first six months of 1997, the
Company supplemented its cash from operations with cash available under its
short term and revolving credit agreements in order to meet its current cash
requirements.
A dividend was declared for $558 per share of common stock and was paid on
April 24, 1997 to holders of record as of February 26, 1997. The total amount
of dividends was $8.3 million.
On March 3, 1997, the $100.0 million MC Term Loan was prepaid in its entirety
using proceeds from the MIC Revolving Loan by increasing the commitment amount
of the facility to $250.0 million. The previous commitment amount of the MIC
Revolving Loan was $150.0 million. Concurrently, the guarantee fee payable to
MC was reduced .1125% to .1875% per annum for guaranteed loans effective March
3, 1997, and thereafter.
The Company believes that cash from operations, supplemented as necessary with
cash expected to be available under the Company's revolving credit agreement
and working capital facility, will provide it with sufficient resources to meet
present and foreseeable future working capital and cash needs.
Capital Expenditures
Fixed asset expenditures during the three month period ending June 30, 1997
were $20.7 million resulting in year-to-date 1997 fixed asset expenditures of
$39.9 million. This compared to $9.0 million for the second quarter 1996 and
year-to-date 1996 expenditures of $19.7 million. The current year expenditures
primarily reflect spending for the phthalic anhydride expansion and equipment
upgrades at Pasadena, Texas, installation of bulk raw material handling
facilities for the acrylics unit at Florence, Kentucky, and capacity expansion
at Haverhill, Ohio for phenol and related products.
10
<PAGE> 12
ARISTECH CHEMICAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Contract commitments for property, plant and equipment as of June 30, 1997 and
December 31, 1996 were $21.5 million and $16.8 million, respectively. Projects
at the Company's Haverhill, Ohio facility account for 54.3% of the outstanding
commitments including expansion of facilities for production of phenol and
related products and related equipment upgrades. Large commitments also exist
for equipment upgrades at the Company's Pasadena, Texas facility and for
equipment to be installed at the Company's new polypropylene technical center
in Pittsburgh, Pennsylvania.
Cash available from operations, together with funds available under the
Company's revolving credit agreement, will be utilized to fund the Company's
current year capital spending program.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
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.
Aristech Chemical Corporation
By /s/ Michael J. Egan
---------------------------
Michael J. Egan
Senior Vice President & Chief
Financial Officer
July 28, 1997
11
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000804104
<NAME> ARISTECH CHEMICAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,200
<SECURITIES> 0
<RECEIVABLES> 129,100
<ALLOWANCES> (500)
<INVENTORY> 109,000
<CURRENT-ASSETS> 240,400
<PP&E> 877,600
<DEPRECIATION> 261,800
<TOTAL-ASSETS> 1,045,900
<CURRENT-LIABILITIES> 154,900
<BONDS> 340,900
0
0
<COMMON> 0
<OTHER-SE> 351,900
<TOTAL-LIABILITY-AND-EQUITY> 1,045,900
<SALES> 458,400
<TOTAL-REVENUES> 458,400
<CGS> 383,000
<TOTAL-COSTS> 407,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,700
<INCOME-PRETAX> 11,900
<INCOME-TAX> 5,400
<INCOME-CONTINUING> 6,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,500
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
