<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, 2000
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)
210 Sixth Avenue, Pittsburgh, PA 15222-2611
(Address of principal executive offices)
Registrant's Telephone Number: (412) 316-2747
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 March 31, 2000: 14,908 shares
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INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Selected Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
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 13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
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ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Operations (Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
--------- ------
<S> <C> <C>
Sales $249.6 $183.9
------ ------
Operating Costs:
Cost of sales 231.4 158.9
Selling, general and administrative expenses 12.2 16.5
Depreciation and amortization 18.4 13.7
------ ------
Total Operating Costs 262.0 189.1
------ ------
Operating Loss (12.4) (5.2)
Net Gain on Disposal of Assets -- 0.1
Other Expense, Net -- (0.2)
Interest Income 1.0 0.5
Interest Expense (12.9) (6.3)
------ ------
Loss Before Income Taxes (24.3) (11.1)
Benefit for Income Taxes (9.3) (4.2)
------ ------
Loss Before Minority Interest (15.0) (6.9)
Minority Interest (0.8) (0.6)
------ ------
Net Loss $(15.8) $ (7.5)
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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ARISTECH CHEMICAL CORPORATION
Consolidated Balance Sheets
(Dollars in Millions)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 1.8 $ 22.5
Receivables (less allowance for doubtful accounts of $.4
at March 31, 2000, and $.3 at December 31, 1999) 26.0 36.7
Subordinated note receivable-related party 25.1 24.2
Inventories 133.6 128.8
Other current assets 2.6 1.7
-------- --------
Total Current Assets 189.1 213.9
Property, plant and equipment, net 938.3 950.4
Long-term receivables 7.7 7.8
Excess cost over assets acquired 155.1 156.4
Deferred income taxes 8.2 8.2
Other assets 7.0 11.7
-------- --------
Total Assets $1,305.4 $1,348.4
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 112.4 $ 107.7
Accounts payable-related parties 5.2 5.6
Payroll and benefits payable 9.2 8.8
Accrued taxes 7.0 8.6
Deferred income taxes 3.3 3.3
Short-term borrowings 25.0 40.0
Long-term debt due within one year 0.7 0.7
Other current liabilities 21.6 26.0
-------- --------
Total Current Liabilities 184.4 200.7
Long-term debt-related parties 278.8 278.0
Long-term debt-other 315.0 315.3
Deferred income taxes 146.6 155.8
Other liabilities 40.9 43.9
-------- --------
Total Liabilities 965.7 993.7
-------- --------
Minority Interest 12.5 11.7
-------- --------
Common stock ($.01 par value, 20,000 shares authorized, 14,908
shares issued at March 31, 2000 and December 31, 1999) -- --
Additional paid-in capital 382.5 382.5
Retained deficit (55.3) (39.5)
-------- --------
Total Stockholders' Equity 327.2 343.0
-------- --------
Total Liabilities and Stockholders' Equity $1,305.4 $1,348.4
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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ARISTECH CHEMICAL CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
--------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(15.8) $ (7.5)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 17.1 12.4
Amortization of excess cost over assets acquired 1.3 1.3
Deferred income taxes (9.2) (2.7)
Discount on sale of receivables 1.9 1.4
Gain on disposal of assets -- (0.1)
(Increase) decrease in receivables (4.3) 1.9
(Increase) decrease in inventories (4.8) 15.8
Increase (decrease) in accounts payable and other
current liabilities 3.5 (3.3)
Minority interest in consolidated subsidiaries 0.8 0.6
Other (4.7) 2.0
------ ------
Net Cash Provided by (Used in) Operating Activities (14.2) 21.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5.1) (64.6)
Other 0.1 0.1
------ ------
Net Cash Used in Investing Activities (5.0) (64.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings (15.0) 30.6
Repayment of long-term debt (36.1) (34.0)
Principal repayments under capital leases (0.2) (0.2)
Proceeds from issuance of long-term debt 36.8 70.0
Net increase (decrease) in receivables financing facility 12.2 (20.6)
Proceeds from corporate owned life insurance 4.4 --
Dividends paid (3.6) --
------ ------
Net Cash Provided by (Used in) Financing Activities (1.5) 45.8
NET INCREASE IN CASH AND EQUIVALENTS (20.7) 3.1
Cash and Equivalents, Beginning of Year 22.5 1.1
------ ------
Cash and Equivalents, End of Period $ 1.8 $ 4.2
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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ARISTECH CHEMICAL CORPORATION
Notes to the Consolidated Financial Statements
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The accompanying consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and generally accepted accounting principles
for interim financial reporting. They do not include all disclosures normally
made in financial statements contained in Form 10-K. In management's opinion,
all adjustments necessary for a fair presentation of the results of operations,
financial position and cash flows for the periods shown have been made. All such
adjustments are of a normal recurring nature. Results for the three months ended
March 31, 2000 are not necessarily indicative of expected results for the full
year of 2000.
ORGANIZATION
Aristech Chemical Corporation ("Aristech") was incorporated under the laws of
the State of Delaware on October 14, 1986 as a wholly owned subsidiary of USX
Corporation ("USX"). On December 4, 1986, USX transferred substantially all of
the assets and liabilities of its USS Chemicals Division to Aristech, and
Aristech's common stock was offered and sold to the public. The USS Chemicals
Division was formed by USX in 1966. On March 7, 1990, Mitsubishi Corporation
("MC"), certain other investors and certain members of Aristech's management
acquired Aristech in a going-private transaction. The interest of certain of the
investors, including the management investors, has subsequently been reacquired
and MC beneficially owns 82.3% of Aristech's outstanding common stock. The
"Company" refers to Aristech and its majority-owned consolidated subsidiaries.
NATURE OF OPERATIONS
The Company is a producer and marketer of chemical and polymer products that are
generally sold for further processing by manufacturers of automotive components,
construction materials and consumer products.
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Aristech include the
accounts of the Company and its majority-owned consolidated subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Investments in unconsolidated subsidiaries over which the Company does not
exercise control are accounted for under the equity method.
Certain reclassifications were made to the prior years' consolidated financial
statements to conform to the classifications used in the 2000 consolidated
financial statements.
ACCOUNTING CHANGES
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 as amended by SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133"
is effective for fiscal quarters of fiscal years beginning after June 15, 2000.
The Company has not yet determined the effect of this standard on its financial
position or results of operations.
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 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.
6
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ARISTECH CHEMICAL CORPORATION
Notes to the Consolidated Financial Statements
NOTE B - INVENTORIES
Inventories consist of the following at March 31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
(In Millions)
Raw materials $ 35.0 $ 36.8
Finished products 79.2 73.3
Supplies and sundry items 19.4 20.6
Lower of cost or market reserve -- (1.9)
------ ------
Total Inventory $133.6 $128.8
====== ======
</TABLE>
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at March 31, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
(In Millions)
Land $ 13.9 $ 13.9
Buildings 76.6 75.0
Machinery and equipment 1,193.7 1,160.9
Intangible assets 28.8 28.8
Construction in process 14.6 44.0
-------- --------
1,327.6 1,322.6
Accumulated depreciation (389.3) (372.2)
-------- --------
Property, Plant and Equipment, Net $ 938.3 $ 950.4
======== ========
</TABLE>
7
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ARISTECH CHEMICAL CORPORATION
Notes to the Consolidated Financial Statements
NOTE D - LONG-TERM DEBT
Long-term debt consists of the following at March 31, 2000 and December 31,
1999:
<TABLE>
<CAPTION>
Interest March 31, December 31,
Maturity Rate 2000 1999
-------- -------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
(In Millions)
Revolving Loan 1 - MIC 2002 Variable $ 70.0 $ 70.0
Revolving Loan 2 - MIC 2001 Variable 28.8 28.0
Term Loan - MIC 2002 Variable 130.0 130.0
Term Loan - MIC 2002 Variable 50.0 50.0
Revolving Loan - GFC/BCC 2001 Variable 150.0 150.0
6 7/8% Notes 2006 6.875% 149.3 149.2
Capital lease obligations 2000-2017 15.1 15.3
Other 1.3 1.5
------ ------
594.5 594.0
Less amount due within one year (0.7) (0.7)
------ ------
Total Long-term Debt $593.8 $593.3
====== ======
</TABLE>
Due to MC's long-term intent and ability to refinance the obligations due under
the MIC and GFC/BCC facilities due March 31, 2001, balances outstanding under
these loans continue to be classified as long-term debt on the March 31, 2000
balance sheet.
NOTE E - SEGMENT INFORMATION
Financial information about the Company's industry segments is summarized as
follows:
Three Months Ended
March 31,
2000 1999
------ ------
(Unaudited)
(In millions)
Sales:
Chemicals $129.5 $106.5
Polymers 123.6 79.9
Intersegment sales (3.5) (2.5)
------ ------
$249.6 $183.9
====== ======
Operating income (loss):
Chemicals $(11.9) $ .5
Polymers 4.0 2.3
Corporate (4.5) (8.0)
------ ------
$(12.4) $ (5.2)
====== ======
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ARISTECH CHEMICAL CORPORATION
Notes to the Consolidated Financial Statements
NOTE F - COMMITMENTS AND CONTINGENCIES
Aristech is obligated to indemnify 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 Aristech in 1986, including liabilities
under laws relating to the protection of the environment and the workplace. Such
known liabilities have been provided for in the consolidated financial
statements.
As of March 31, 2000 and December 31, 1999, the Company had outstanding
irrevocable standby letters of credit and surety bonds in the amount of $1.2
million, primarily in connection with environmental matters.
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 ("the Act") provides a safe
harbor for forward-looking statements made by or on behalf of the Company. The
Company and its representatives may from time to time make written or verbal
forward-looking statements, including any statements that may be contained in
the following "Management's Discussion and Analysis of Financial Condition and
Results of Operations", and including statements contained elsewhere in this and
other Company filings with the Securities and Exchange Commission. The Company
does not undertake to update or revise any forward-looking statement to reflect
changed assumptions, the occurrence of unanticipated events or changes to
operating results over time. All statements which address operating performance,
events or developments that we expect or anticipate will occur in the future,
including statements relating to sales growth and earnings growth or statements
expressing general optimism about future operating results, are forward-looking
statements within the meaning of the Act. These forward-looking statements can
be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "projected," "contemplates" or "anticipates"
or other comparable terminology. The forward-looking statements are and will be
based on management's then current views and assumptions regarding future events
and operating performance. The following are some of the factors that could
cause actual results to differ materially from estimates contained in the
Company's forward-looking statements: The ability to generate sufficient cash
flows to support capital expansion plans and general operating activities.
Competitive product and pricing pressures. A change in laws and regulations,
including changes in accounting standards, taxation requirements (including tax
rate changes, new tax laws and revised tax law interpretation) and laws in
domestic or foreign jurisdictions. Fluctuations in the cost and availability of
raw materials to the Company or to the Company's vendors and the ability to
maintain favorable supplier arrangements and relationships. The ability to
achieve earnings forecasts, which are generated based on projected sales of
different product types, some of which are more profitable than others. There
can be no assurance that we will achieve the projected level or mix of product
sales. The ability to penetrate new markets, which also depends on economic and
political conditions. The effectiveness of our marketing programs. The
uncertainties of litigation, as well as other risks and uncertainties detailed
from time to time in the Company's Securities and Exchange Commission filings.
The foregoing list of important factors is not exclusive.
9
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999.
The Company's net sales increased by $65.7 million or 36% from $183.9 million
for the three months ended March 31, 1999 to $249.6 million for the three months
ended March 31, 2000. This increase was due to a 23% increase in pounds shipped,
which primarily resulted from the capacity expansion projects completed during
1999, coupled with a 13% increase in the average selling price per pound. Net
Chemicals sales increased by $23.0 million or 22% over the three month period
ended March 31, 1999, primarily due to a 15% increase in pounds shipped as a
result of the completion of the third phenol unit at the Company's Haverhill,
Ohio plant in November of 1999. Also contributing to the higher sales revenues
for Chemicals was an increase in the average selling price per pound of 6%. Net
Polymers sales increased by $43.7 million or 55% over the three month period
ended March 31, 1999, primarily due to a 34% increase in pounds shipped as a
result of the completion of the new polypropylene line at the LaPorte, Texas
plant in September of 1999. An 18% increase in the average selling price per
pound for Polymers also contributed to the increased sales figure in 2000.
Total operating costs increased by $72.9 million or 39% from $189.1 million to
$262.0 million for the three-month periods ended March 31, 1999 and 2000,
respectively. The increase in operating costs was primarily driven by increases
in cost of sales due to a 65% increase in the average price per pound for raw
materials and a 34% increase in pounds produced due to expanded capacity. Also
contributing to the increase in operating costs, was an increase in depreciation
expense as a result of the plant additions completed in 1999. The Chemicals
operating segment's average raw materials price per pound, which includes
primarily cumene, increased by 61%, while the Polymers average raw materials
price per pound, which includes primarily propylene, increased by 69%. Partially
offsetting these increases, was a $4.3 million or 26% decrease in selling,
general and administrative expenses primarily as a result of personnel
reductions achieved through the voluntary early retirement and involuntary
separation programs implemented in 1999.
The Company's interest expense before interest capitalization was $13.2 million
for the three-month period ended March 31, 2000 as compared to $9.8 million for
the same period in 1999. This $3.4 million or 35% increase in interest expense
reflects a total net increase in borrowings of $55.5 million since March 31,
1999, primarily to fund the Company's capacity expansion program, and higher
interest rates in the year 2000. An increase in the discount on the
securitization of accounts receivable caused by the increased sales level in
2000 also contributed to the increase in interest expense when compared to the
first quarter of 1999. The Company's weighted-average cost of borrowing before
interest capitalization for the three months ended March 31, 2000 and 1999, was
6.7% and 6.1%, respectively. The Company capitalized interest in connection with
the capacity expansion program of $.3 million and $3.5 million for the three
months ended March 31, 2000 and 1999, respectively.
The Company's benefit for income taxes increased by $5.1 million from $4.2
million for the three months ended March 31, 1999, to $9.3 million for the same
period in 2000. The increase in the benefit for income taxes was caused
primarily by a $13.2 million increase in the pre-tax loss for the three-month
period ended March 31, 2000 when compared with the same period in 1999.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2000, the Company's working capital balance
decreased by $8.5 million from $13.2 million at December 31, 1999 to a balance
of $4.7 million at March 31, 2000. The decrease in working capital was due
primarily to decreases in cash and equivalents and accounts receivable. The
decrease in cash and equivalents resulted primarily from $15.0 million in net
repayments on the uncommitted line of credit with a commercial bank, an increase
in the Company's net loss as compared to the prior year and capital spending
related to the capacity expansion program. The decrease in receivables during
the first quarter of 2000 was due to the receipt of an $18.4 million federal
income tax refund in January of 2000, partially offset by an increase in trade
receivables as a result of the increased sales volumes in 2000. The Company's
net cash provided by or used in operating activities decreased $36.0 million
from cash provided by operations of $21.8 million for the three months ended
March 31, 1999 to cash used in operations of $14.2 million for the three months
ended March 31, 2000. The decrease in operating cash flows in 2000 occurred
primarily due to the increase
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in the Company's net loss compared to the first quarter of 1999 and an increase
in inventories during the first quarter of 2000 versus a significant reduction
of inventories during the first quarter of 1999.
Net cash provided by or used in financing activities decreased by $47.3 million
from cash provided by financing activities of $45.8 million for the three months
ended March 31, 1999 to cash used by financing activities of $1.5 million for
the three months ended March 31, 2000. This decrease was primarily due to net
borrowings during the first quarter of 1999 of $66.4 million, versus net
repayments on borrowings of $14.5 million during the first quarter of 2000. The
additional borrowings during the first quarter of 1999 were utilized to fund the
Company's capacity expansion program. Partially offsetting the impact of the net
decrease in borrowings was a $32.8 million increase in proceeds from the sale of
receivables under the receivables financing facility during the first quarter of
2000 as compared to the first quarter of 1999. This increase was due to the
increased sales activity during the first quarter of 2000 and an increase in the
total borrowing capacity on the receivables financing facility from $90.0
million to $100.0 million effective March 29, 2000.
The Company anticipates that the remaining outstanding fixed capital commitments
connected to the capacity expansion program and future working capital
requirements will be funded by cash flows from operations or, if necessary,
additional borrowings from existing or replacement credit facilities. At March
31, 2000, there was in excess of $60.0 million of additional borrowing capacity
available under existing lines of credit plus additional borrowing capacity
under the receivables financing facility.
CAPITAL EXPENDITURES
Capital expenditures decreased by $59.5 million from $64.6 million for the three
months ended March 31, 1999 to $5.1 million for the three months ended March 31,
2000. During the first quarter of 1999, significant capital expenditures were
made related to the Company's capacity expansion program. The capacity expansion
program included plant additions within the phenol product line at the
Haverhill, Ohio plant, the polypropylene product line at the LaPorte, Texas
plant and the acrylic sheet product line at the Florence, Kentucky plant.
Capital expenditures during the first quarter of 1999 were funded by cash flows
from operations and net cash provided by the Company's financing activities in
the form of additional net borrowings. The majority of the capacity expansion
projects were either completed or nearing completion by the end of 1999,
resulting in the significant decrease in capital spending during the first
quarter of 2000. Capital expenditures during the first quarter of 2000 were
primarily funded through cash and equivalents on hand at December 31, 1999. At
March 31, 2000, the Company had remaining outstanding fixed commitments for
capital expenditures totaling $9.2 million.
YEAR 2000 DISCLOSURE
The Company's Year 2000 ("Y2K") preparations were substantially completed in
late 1999 at a total cost of approximately $8.0 million. Remaining expenditures
related to system upgrades and other Y2K projects are expected to be minimal.
The Company experienced no significant problems as a result of Y2K, either
internally or from external sources such as suppliers and customers, and does
not anticipate any future problems to occur as a result of Y2K.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On an annual basis, approximately 85-90% of the Company's sales are sold
domestically, with the remaining 10-15% representing export sales. Sales in
currencies other than the US dollar are insignificant thereby minimizing any
market risk exposure due to changes in foreign exchange rates. However, the
Company, in connection with its capacity expansion program, purchased certain
machinery and equipment at amounts denominated in foreign currencies that were
hedged to optimize the US dollar value. The gains or losses that resulted from
the purchased machinery did not have a significant effect on the Company's
results of operations.
The Company does not currently engage in any significant investing activities as
available funds have been utilized to fund the business expansion, thereby
eliminating any investment-related market risk exposure.
The Company does, however, focus on its interest rate risk management primarily
to manage the overall cost of funding provided to the Company. The Company has
strategically financed its business expansion with diverse and cost-effective
debt instruments at both fixed and variable interest rates. The majority of the
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<PAGE> 12
Company's variable rate, long-term debt is currently based on the London
Interbank Offered Rate ("LIBOR"). During 1999, in an effort to further manage
the overall cost of borrowing, the Company entered into three interest rate swap
agreements with an aggregate notional principal amount of $100.0 million with a
commercial bank. The swap structure involves the exchange of interest cash flows
for a minimum of three years and potentially a maximum of seven years. For the
first three years beginning November 15, 1999, the Company will pay a weighted
average fixed interest rate of 6.185% in exchange for receiving a fixed interest
rate of 6.875%, resulting in a savings to the Company over the first three years
of approximately $2.1 million. Accordingly, interest expense was reduced by
approximately $.2 million for the three months ended March 31, 2000.
Subsequently, for the last four years of the agreements, the Company is
obligated to pay a variable interest rate equal to the six-month LIBOR in
exchange for receiving a fixed interest rate of 6.875%. The swap counterparty
has the option to terminate the agreements on selected dates during the final
four years of the agreements.
A hypothetical 1% increase in the interest rate for the Company's variable rate,
long-term debt would increase annual interest expense by approximately $4.3
million. Actual changes in interest rates may differ from hypothetical changes.
This analysis does not take into account other changes that might occur in the
economic environment due to such changes in short-term interest rates. The
Company's debt instruments are monitored daily to eliminate, to the extent
possible, any significant interest rate risk exposure. The carrying amount of
the Company's long-term debt as of March 31, 2000 was $594.5 million.
The Company does not enter into any material fixed purchase or fixed supply
contracts with its suppliers or customers, or engage in any material hedging
activities to mitigate any related commodity price risk.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company becomes involved from time to time in various claims and
lawsuits incidental to the ordinary course of its business. A
discussion of certain of these matters is included in Note F to the
Consolidated Financial Statements.
Aristech is involved, often along with other defendants, in product
liability lawsuits filed in federal and state courts in several
jurisdictions; many of these cases involve multiple plaintiffs.
Although Aristech is sometimes a named defendant, more typically
Aristech has assumed the defense for USX Corporation in these cases as
a result of contractual obligations to do so for claims arising out of
the business of the former USS Chemicals Division of USX Corporation. A
majority of these cases have typical and similar factual allegations,
that during the course of the plaintiffs' employment with other
companies they were exposed to benzene or benzene-containing products
manufactured by the various defendants, including the former USS
Chemicals Division of USX Corporation or Aristech. Plaintiffs contend
that the alleged exposures caused physical injuries. Plaintiffs in
these cases typically seek relief in the form of monetary damages,
often in unspecified amounts. The claimed monetary damages in these
cases, when taken in the aggregate may be substantial; however,
Aristech does not believe that the claimed monetary damages are a
realistic measure of either the cost to defend or resolve the cases.
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
The annual meeting of Stockholders was held in Tokyo, Japan on March
17, 2000. The following directors were elected at the meeting: Masatake
Bando, Takeru Ishibashi, Yasuo Sone, Muneo Suzuki, Noriyoshi
Kondo, Tatsuo Suzuki and Takuji Nakamura. All directors were elected by
unanimous vote of all shares entitled to vote at the meeting.
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<PAGE> 13
Item 5. OTHER INFORMATION
On April 1, 2000, David Siporin was elected Vice President - Corporate
Services by the Executive Committee of the Board of Directors of
Aristech.
On April 5, 2000, Takeru Ishibashi, the Company's Chairman, was elected
Chief Executive Officer by the Executive Committee of the Board of
Directors of Aristech. Mr. Ishibashi replaces Masatake Bando.
On April 5, 2000, Gregory Cummings was elected Vice President and Chief
Financial Officer by the Executive Committee of the Board of Directors
of Aristech. Mr. Cummings replaces Kevin A. Rupp who resigned on March
31, 2000.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
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/ GREGORY CUMMINGS
--------------------------------------------
Gregory Cummings
Vice President and Chief Financial Officer
May 15, 2000
13
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