<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 March 31, 1998
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)
Registrant's Telephone Number: (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 [ ]
Common Stock outstanding at April 30, 1998: 14,908 shares
<PAGE> 2
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Selected Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
2
<PAGE> 3
ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Income (Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Sales $ 224.2 $ 226.3
Operating Costs:
Cost of sales 174.3 192.8
Selling, general and administrative expenses 14.4 13.0
Depreciation and amortization 13.0 12.1
-------- --------
Total Operating Costs 201.7 217.9
-------- --------
Operating Income 22.5 8.4
Loss on Disposal of Assets (1.4) --
Other (Expense) Income, Net -- (0.9)
Interest Income 0.3 --
Interest Expense (6.7) (5.6)
-------- --------
Income Before Taxes on Income 14.7 1.9
Provision for Taxes on Income 6.0 0.9
-------- --------
Income Before Minority Interest 8.7 1.0
Minority Interest 0.7 --
-------- --------
Net Income $ 8.0 $ 1.0
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
ARISTECH CHEMICAL CORPORATION
Consolidated Balance Sheets
(Dollars in Millions)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 4.7 $ 3.9
Receivables (less allowance for doubtful accounts
of $.6 for March 31, 1998 and December 31, 1997) 116.5 105.8
Receivables - related parties 7.1 8.4
Inventories 128.0 123.5
Other current assets 0.9 1.4
---------- ----------
Total Current Assets 257.2 243.0
Property, plant and equipment, net of accumulated depreciation 705.9 662.8
Long-term receivables 8.1 7.9
Excess cost over assets acquired 166.1 167.4
Deferred income taxes 1.4 1.4
Other assets 14.8 15.0
---------- ----------
Total Assets $ 1,153.5 $ 1,097.5
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 77.4 $ 87.5
Accounts payable-related parties 3.4 1.6
Payroll and benefits payable 9.2 9.2
Accrued taxes 7.7 6.1
Deferred income taxes 3.9 3.9
Short-term borrowings 36.0 42.3
Long-term debt due within one year 0.6 0.6
Other current liabilities 19.2 16.9
---------- ----------
Total Current Liabilities 157.4 168.1
Long-term debt-related parties 248.0 187.0
Long-term debt-other 178.5 178.7
Deferred income taxes 162.6 162.9
Other liabilities 38.5 37.0
---------- ----------
Total Liabilities 785.0 733.7
---------- ----------
Minority Interest 3.7 3.0
---------- ----------
Common stock ($.01 par value, 20,000 shares authorized,
14,908 shares issued at March 31, 1998, and December 31, 1997) -- --
Additional paid-in capital 386.3 386.3
Retained deficit (21.5) (25.5)
---------- ----------
Total Stockholders' Equity 364.8 360.8
---------- ----------
Total Liabilities and Stockholders' Equity $ 1,153.5 $ 1,097.5
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
------- --------
<S> <C> <C>
Cash Flow From Operating Activities:
Net Income $ 8.0 $ 1.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 11.7 10.8
Amortization of excess cost over assets acquired 1.3 1.3
Loss on disposal of assets 1.4 --
Increase in receivables (9.4) (9.1)
(Increase) decrease in inventories (4.5) 7.0
Increase (decrease) in accounts payable
and other current liabilities (6.0) (8.5)
Minority interest in consolidated subsidiary 0.7 --
Other 3.6 (0.6)
------- --------
Net Cash Provided by Operating Activities 6.8 1.9
Cash Flows From Investing Activities:
Capital expenditures (56.4) (19.2)
Other (0.1) --
------- --------
Net Cash Used In Investing Activities (56.5) (19.2)
Cash Flows From Financing Activities:
Net increase (decrease) in short-term borrowings (6.3) 8.6
Repayment of long-term debt (0.2) (100.0)
Proceeds from issuance of long-term debt 61.0 108.0
Dividends paid (4.0) --
------- --------
Net Cash Provided by Financing Activities 50.5 16.6
Net Increase (Decrease) in Cash and Equivalents 0.8 (0.7)
Cash and Equivalents, Beginning of Year 3.9 1.9
------- --------
Cash and Equivalents, End of Year $ 4.7 $ 1.2
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
ARISTECH CHEMICAL CORPORATION
Notes to the Consolidated Financial Statements
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Aristech
Chemical Corporation (the "Company") and its majority owned
subsidiaries. All intercompany accounts and transactions have been
eliminated. Certain amounts previously reported in financial statement
captions have been reclassified to conform with the 1998 presentation.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130 "Reporting Comprehensive Income" in 1997. Adoption had no effect
on the Company's financial position or results of operations.
In June 1997, SFAS No. 131 "Disclosures about Segments of an Enterprise
and Related Information" was issued. SFAS No. 131 is effective for
financial statements issued for periods beginning after December 15,
1997. The Company has not yet determined the effect of this standard on
its financial reporting.
In February 1998, SFAS No. 132 "Employers' Disclosures about Pensions
and Other Postretirement Benefits" was issued. SFAS No. 132 is effective
for annual financial statements issued for periods beginning after
December 15, 1997. The Company has not yet determined the effect of this
standard on its financial reporting.
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 that the Company considers to be
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.
6
<PAGE> 7
ARISTECH CHEMICAL CORPORATION
Notes to the Consolidated Financial Statements
3. INVENTORIES
Inventories consist of the following at March 31, 1998, and December 31,
1997:
March 31, December 31,
1998 1997
----------- --------
(Unaudited)
(In millions)
Raw materials $ 38.5 $ 35.9
Finished products 69.6 68.0
Supplies and sundry items 19.9 19.6
-------- --------
$ 128.0 $ 123.5
======== ========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at March 31,
1998, and December 31, 1997:
March 31, December 31,
1998 1997
-------- --------
(Unaudited)
(In millions)
Land $ 14.1 $ 13.9
Buildings 59.5 54.8
Machinery and equipment 809.1 806.6
Construction in process 114.3 70.0
-------- --------
Total property, plant and equipment 997.0 945.3
Less accumulated depreciation 291.1 282.5
-------- --------
Net property, plant and equipment $ 705.9 $ 662.8
======== ========
5. DEBT
Debt consists of the following at March 31, 1998, and December 31, 1997:
<TABLE>
<CAPTION>
Interest March 31, December 31,
Maturity Rate 1998 1997
-------- -------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
(In millions)
Term Loan - MIC 2002 Variable $ 50.0 $ 50.0
Revolving Loan - MIC 2002 Variable 198.0 137.0
6-7/8% Notes 2006 6.875% 149.0 148.9
Note Payable to Avonite
Stockholder 2006 Variable 12.4 12.4
Priority Promissory Note 2006 Variable 1.2 1.2
Industrial Revenue Bond 2008 Variable 0.6 0.6
Capital lease obligations 1998-2017 15.9 16.2
-------- --------
427.1 366.3
Less amount due within one year 0.6 0.6
-------- --------
Total $ 426.5 $ 365.7
======== ========
</TABLE>
7
<PAGE> 8
ARISTECH CHEMICAL CORPORATION
Notes to the Consolidated Financial Statements
6. COMMITMENTS AND CONTINGENCIES
Contractual commitments for capital expenditures for property, plant and
equipment totaled $251.5 million at March 31, 1998, and $291.3 million
at December 31, 1997.
The Company is obligated to indemnify USX Corporation ("USX") against
certain claims or liabilities which USX may incur relating to USX's
prior ownership and operation of the business and facilities transferred
to the Company in 1986, including liabilities under laws relating to the
protection of the environment and the workplace. Such liabilities have
been provided for in the consolidated financial statements.
As of March 31, 1998, and December 31, 1997, the Company had outstanding
irrevocable standby letters of credit in the amount of $4.8 million and
$5.6 million, respectively, primarily in connection with environmental
matters.
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 lengthy 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 in Aristech's
favor on December 23, 1996. Phillips is appealing the judgment. The
Company believes that the outcome of this matter will not have a
material adverse effect on the Company.
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 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.
8
<PAGE> 9
ARISTECH CHEMICAL CORPORATION
Notes to the Consolidated Financial Statements
7. SUBSEQUENT EVENTS
On April 1, 1998, Aristech Chemical Corporation (hereinafter "Aristech")
entered into an agreement with Morgan Guaranty Trust Company of New York
and Delaware Funding Corporation (hereinafter "DFC") to finance its
trade receivables. Pursuant to the agreement, Aristech will sell its
trade receivables to Aristech Receivables Company LLC (hereinafter
"ARC"), a Delaware limited liability company in which Aristech holds a
100% ownership interest, as the receivables are generated through
operations. ARC, in turn, will sell an undivided interest in the trade
receivables to DFC on a nonrecourse basis, which will provide a
revolving financing facility for up to a maximum of $100.0 million.
Collections on the receivables will reduce the amount owed under the
facility. As new trade receivables are generated through operations,
those receivables will be sold to ARC and then an undivided interest in
those receivables will be sold to DFC. The agreement expires on March
31, 1999, and may be extended for additional periods not to exceed 364
days from the extension date. Concurrent with the execution of the
agreement with DFC, Aristech entered into an agreement with Aristech
Acrylics LLC (hereinafter "Acrylics"), a Kentucky limited liability
company in which Aristech holds a 90% ownership interest, to purchase
trade receivables originated by Acrylics which will be sold to ARC and
then an undivided interest in those receivables will be sold to DFC.
Initial proceeds from the sale amounted to $91.5 million and were used
primarily to reduce the amount outstanding on the Revolving Loan - MIC.
Ongoing costs of the financing will approximate DFC's cost of issuing
asset-backed commercial paper to fund the purchase plus a program fee of
.27%. Aristech accounted for the sale of receivables to ARC as a sale
under the provisions of Statement of Financial Accounting Standards No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities".
9
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating income for the three month period ending March 31, 1998 was $22.5
million on sales of $224.2 million compared with operating income of $8.4
million on sales of $226.3 million for the three month period ending March 31,
1997. Operating income was higher primarily due to improved chemicals margins.
On average, selling prices for the Company's products decreased 6.4%; however,
feedstock costs declined at a greater rate resulting in improved margins.
Selling prices for chemicals and polymers products were lower by 3.2% and 8.7%,
respectively. On average, sales volumes were higher by 6.1% in the three month
period ending March 31, 1998 as compared to the same period in 1997. Sales
volumes for chemical products were higher by 12.3% for the three month period
ending March 31, 1998 as compared to the same period in 1997. Sales volumes for
polymer products were lower by 4.4% for the three month period ending March 31,
1998 as compared to the same period in 1997.
Selling, general and administrative expenses increased by $1.4 million or 10.8%
in the three month period ending March 31, 1998 compared to the same period in
1997 primarily due to higher selling expenses in polymer products.
Loss on disposal of assets was $1.4 million in the three month period ending
March 31, 1998 due to the write-off of an obsolete asset.
Interest expense was $6.7 million for the three month period ending March 31,
1998 compared to $5.6 million for the same period in 1997. The $1.1 million
increase in interest expense resulted from increased funding for the capital
expansion program.
The provision for estimated taxes for the three month period ending March 31,
1998 was $6.0 million, compared with a provision for estimated taxes of $0.9
million for the same period in 1997. The Company's effective tax rate has
decreased to 41% in 1998 from 47% in 1997 as higher pre-tax income minimized the
effect of permanent tax differences in the calculation of the Company's
effective tax rate.
The Company's net income was $8.0 million for the three month period ending
March 31, 1998, an increase of $7.0 million compared with net income of $1.0
million in the same period in 1997.
10
<PAGE> 11
FINANCIAL CONDITION
Liquidity
Total working capital was $99.8 million at the end of the first quarter of 1998
with a ratio of current assets to current liabilities of 1.6 to 1. Total working
capital was $74.9 million at the end of 1997 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, higher
inventories and a decrease in accounts payable.
Cash flow from operating activities totaled $6.8 million for the three month
period ending March 31, 1998 compared to $1.9 million in the same 1997 period.
Cash generation during the first three months of 1998 was not sufficient to
satisfy capital expenditure requirements. During the first quarter of 1998, 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 of $268 per share of common stock was declared on March 18, 1998, and
paid on March 31, 1998, to holders of record as of March 6, 1998. The total
amount of dividends was $4.0 million.
The Company believes that cash from operations, supplemented as necessary with
cash available under the Company's revolving credit agreement, working capital
facility, and other third-party financings, will provide it with sufficient
resources to meet present and envisioned future working capital and cash needs.
Capital Expenditures
Fixed asset expenditures during the three month period ending March 31, 1998,
were $56.4 million. This compared to $19.2 million for the first quarter 1997.
The current quarter capital expenditures primarily reflect spending for phenol
and polypropylene capacity expansions at the Company's Haverhill, Ohio and
LaPorte, Texas manufacturing facilities, respectively.
11
<PAGE> 12
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 1998, the Company was not a party to any material derivative
financial instruments or any other market risk sensitive instruments, other than
the trade accounts receivable and trade accounts payable that by their nature
mature within one year, inventory that is not subject to commodity price risk,
and the long-term debt which is discussed in Note 5 to the financial statements.
The Company's exposure to market risk is minimal with regards to its trade
accounts receivable, trade accounts payable, inventory and long-term debt.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 6 to the Financial Statements.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1998.
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. PRENDERGAST
-----------------------------------
Michael J. Prendergast
Acting Chief Financial Officer
May 14, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,714
<SECURITIES> 0
<RECEIVABLES> 124,148
<ALLOWANCES> 554
<INVENTORY> 128,002
<CURRENT-ASSETS> 257,188
<PP&E> 996,953
<DEPRECIATION> 291,067
<TOTAL-ASSETS> 1,153,466
<CURRENT-LIABILITIES> 157,395
<BONDS> 426,501
0
0
<COMMON> 0
<OTHER-SE> 364,775
<TOTAL-LIABILITY-AND-EQUITY> 1,153,466
<SALES> 224,215
<TOTAL-REVENUES> 224,215
<CGS> 174,306
<TOTAL-COSTS> 201,741
<OTHER-EXPENSES> 1,079
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,732
<INCOME-PRETAX> 14,663
<INCOME-TAX> 6,046
<INCOME-CONTINUING> 7,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,972
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
