<PAGE>
================================================================================
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, 1996
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 1-10145
---------------
LYONDELL PETROCHEMICAL COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 95-4160558
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1221 McKINNEY STREET, 77010
SUITE 1600, HOUSTON, TEXAS (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 652-7200
---------------
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGE SINCE LAST REPORT)
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 [_]
NUMBER OF SHARES OF COMMON STOCK, $1.00 PAR VALUE, OUTSTANDING AS OF
MARCH 31, 1996: 80,000,000.
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<PAGE>
PART I. FINANCIAL INFORMATION
LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
MILLIONS OF DOLLARS EXCEPT PER SHARE -------------------
AMOUNTS 1996 1995
- ------------------------------------ -------- --------
<S> <C> <C>
SALES AND OTHER OPERATING REVENUES:
Unrelated parties $1,101 $1,084
Related parties 64 90
------ ------
1,165 1,174
OPERATING COSTS AND EXPENSES:
Cost of sales
Unrelated parties 983 852
Related parties 57 55
Selling, general and
administrative expenses 64 45
------ ------
1,104 952
------ ------
Operating income 61 222
Interest expense (20) (18)
Interest income 1 3
Minority interest in LYONDELL-CITGO
Refining Company Ltd. (4) (5)
------ ------
Income before income taxes 38 202
Provision for income taxes 14 75
------ ------
NET INCOME $ 24 $ 127
====== ======
EARNINGS PER SHARE $ .30 $ 1.59
====== ======
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
MILLIONS OF DOLLARS 1996 1995
- ------------------- -------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 41 $ 3
Restricted cash and cash
equivalents 10 7
Short-term investments 76 --
Accounts receivable:
Trade 346 340
Related parties 27 22
Inventories 287 265
Prepaid expenses and other current
assets 30 41
------- -------
Total current assets 817 678
------- -------
Fixed assets:
Property, plant and equipment 3,987 3,804
Less accumulated depreciation and
amortization (2,010) (1,990)
------- -------
1,977 1,814
Deferred charges and other assets 123 114
------- -------
Total assets $ 2,917 $ 2,606
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade 339 358
Related parties 2 1
Notes payable 16 103
Current maturities of long-term
debt 257 150
Other accrued liabilities 116 138
------- -------
Total current liabilities 730 750
------- -------
Long-term debt 1,076 807
Other liabilities and deferred credits 104 95
Deferred income taxes 117 115
Commitments and contingencies
Minority interest 505 459
Stockholders' equity:
Preferred stock, $.01 par value,
80,000,000 shares
authorized, none outstanding
Common stock, $1 par value,
250,000,000 shares
authorized, 80,000,000 issued
and outstanding 80 80
Additional paid-in-capital 158 158
Retained earnings 147 142
------- -------
Total stockholders' equity 385 380
------- -------
Total liabilities and stockholders'
equity $ 2,917 $ 2,606
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
-------------------
MILLIONS OF DOLLARS 1996 1995
- ------------------- --------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24 $ 127
Adjustments to reconcile net
income to net
cash (used in) provided by
operating activities
Depreciation and amortization 24 18
Deferred income taxes 2 (8)
(Increase) decrease in
accounts receivable (11) 34
(Increase) in inventories (22) (22)
Increase (decrease) in
accounts payable (7) 9
Net change in other working
capital accounts (11) 51
Minority interest 4 5
Other (5) 2
----- -----
Net cash (used in)
provided by operating
activities (2) 216
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (194) (101)
Purchases of short-term investments (76) --
----- -----
Net cash used in
investing activities (270) (101)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Minority owner contribution 42 72
Borrowings of long-term debt 376 --
Net repayments of notes payable (87) (20)
Dividends paid (18) (18)
----- -----
Net cash provided by 313 34
financing activities ----- -----
INCREASE IN CASH, RESTRICTED CASH AND
CASH EQUIVALENTS 41 149
Cash, restricted cash and cash
equivalents at beginning of period 10 94
----- -----
Cash, restricted cash and cash
equivalents at end of period $ 51 $ 243
===== =====
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
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, 1995 included in the Lyondell Petrochemical Company ("Company" or
"Lyondell") 1995 Annual Report and the Annual Report on Form 10-K pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. The year-end
condensed balance sheet data was derived from audited financial statements but
does not include all disclosures required by generally accepted accounting
principles. Certain amounts from prior periods have been reclassified to conform
to current period presentation.
2. COMPANY OPERATIONS
The Company operates in two business segments: petrochemicals and refining.
The petrochemicals segment manufactures a wide variety of petrochemicals
including olefins, polyolefins, methanol, MTBE and aromatics. The Company's
petrochemical products are used primarily in the manufacture of other chemicals
and products, which in turn are used in the production of a wide variety of
consumer and industrial products. The refining segment operates primarily
through the Company's interest in LYONDELL-CITGO Refining Company Ltd. ("LCR"),
a Texas limited liability company that is jointly owned by Lyondell and CITGO
Petroleum Corporation ("CITGO"), and manufactures refined petroleum products,
including gasoline, heating oil, jet fuel, fuel oil, aromatics and lubricants.
3. INVENTORIES
The categories of inventory and their recorded values at March 31, 1996 and
December 31, 1995 were:
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS 1996 1995
- ------------------- ------ ------
<S> <C> <C>
Crude oil $ 46 $ 55
Refined products 51 33
Petrochemicals 147 135
Materials and supplies 43 42
------ -------
Total inventories $ 287 $ 265
======= =======
</TABLE>
4. RESTRICTED FUNDS
As of March 31, 1996 and December 31, 1995, cash in the amount of $10 million
and $7 million, respectively, was restricted for use in connection with LCR
capital projects, including the upgrade project ("Upgrade Project") at the
Houston, Texas refinery ("Refinery") and other expenditures as determined by the
LCR owners. Presented below is a reconciliation of changes in restricted funds
for the three-month period ended March 31, 1996.
4
<PAGE>
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
- -------------------
<S> <C>
Restricted cash and cash equivalents at
December 31, 1995 $ 7
Minority owner investments:
Contributions 42
Distributable cash reinvested 4
Lyondell investments:
Loan for Upgrade Project 38
Other loans 10
Contributions 6
Proceeds from bank loan 76
Additions to fixed assets:
Upgrade Project (154)
Refining segment - other (19)
-----
Restricted cash and cash equivalents at
March 31, 1996 $ 10
=====
</TABLE>
5. ACQUISITION OF ALATHON HIGH-DENSITY POLYETHYLENE BUSINESS
On May 1, 1995, the Company acquired the assets associated with Occidental
Chemical Corporation's Alathon (R) high-density polyethylene ("HDPE") business
("ALATHON Business") for $356 million including certain direct costs, plus
approximately $64 million for inventory. Assets involved in the purchase include
resin production facilities at Victoria and Matagorda, Texas, associated
research and development activities and the rights to the Alathon (R) trademark.
These facilities have a combined annual production capacity of approximately 1.5
billion pounds of HDPE. The Company financed the acquisition from internal cash
and $230 million of short-term borrowings from its existing financing
arrangements.
The following unaudited pro forma information combines the results of operations
of the Company and the ALATHON Business for the three months ended March 31,
1995 and assumes that the acquisition of the ALATHON Business occurred on
January 1, 1995. This unaudited pro forma information may not be indicative of
results that would have actually resulted if this transaction had occurred on
January 1, 1995 or which may be obtained in the future.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31
MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS 1995
- -------------------------------------------- -------------------
<S> <C>
Sales and other operating revenues $1,321
Net income 142
Earnings per share 1.78
</TABLE>
6. FINANCING ARRANGEMENTS
In February 1996, the Company issued $300 million of debt securities ("Debt
Securities") consisting of $150 million of 6.5 percent notes due 2006 and $150
million of 7.55 percent debentures due 2026. Proceeds received from the sale of
the Debt Securities are intended to be used for retirement of maturing debt and
general corporate purposes. The Debt Securities are unsecured obligations and
rank on a parity with all other unsecured and unsubordinated debt of the
Company.
5
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
The Company 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.
In connection with the transfer of assets and liabilities from Atlantic
Richfield Company ("ARCO") to the Company, the Company agreed to assume certain
liabilities arising out of the operation of the Company's integrated
petrochemical and petroleum processing business prior to July 1, 1988. In
connection with the transfer of such liabilities, the Company and ARCO entered
into an agreement ("Cross-Indemnity Agreement") whereby the Company agreed to
defend and indemnify ARCO against certain uninsured claims and liabilities which
ARCO may incur relating to the operation of the business of the Company prior to
July 1, 1988, including certain liabilities which may arise out of pending and
future lawsuits.
ARCO has indemnified the Company under the Cross-Indemnity Agreement with
respect to other claims or liabilities and other matters of litigation not
related to the assets or business included in the consolidated financial
statements. ARCO has also indemnified the Company for all federal taxes which
might be assessed upon audit of the operations of the Company included in the
ARCO consolidated income tax returns prior to January 12, 1989 and for all state
and local taxes for the period prior to July 1, 1988.
In addition to lawsuits for which the Company has indemnified ARCO, the Company
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 Company's financial
statements.
The Company's policy is to be in compliance with all applicable environmental
laws. The Company 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, the Company 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.
Subject to the terms of the Cross-Indemnity Agreement, the Company is currently
contributing funds to the cleanup of two waste sites (French Ltd. and Brio, both
of which are located near Houston, Texas) under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") as amended by the Superfund
Amendments and Reauthorization Act of 1986. The Company is also subject to
certain assessment and remedial actions at the Refinery under the Resource
Conservation and Recovery Act ("RCRA"). In addition, the Company has negotiated
an order with the Texas Natural Resource Conservation Commission ("TNRCC") for
assessment and remediation of groundwater and soil contamination at the
Refinery.
During July 1994, the Company reported results of an independent investigation
conducted by the Audit Committee of the Board of Directors regarding the
compliance status of two process waste-water streams under the applicable
Benzene National Emissions Standard for Hazardous Air Pollutants ("NESHAPS")
regulations and certain related issues raised by an employee. Noncompliance
with the Benzene NESHAPS regulations and the related reporting requirements can
result in civil penalties and, under certain circumstances, substantial civil
and, potentially, criminal penalties. The Company received a notice of
violation regarding the two streams and paid a fine of $10,200 to the TNRCC. In
addition, the Company incurred approximately $2 million in capital costs in
connection with these waste water streams to achieve on-going compliance with
the Benzene NESHAPS regulations.
As of March 31, 1996, the Company has accrued $17 million related to CERCLA,
RCRA and TNRCC assessment and remediation costs, of which $2 million is included
in current liabilities while the remaining amounts are expected to be incurred
over the next two to seven years. In the opinion of management, there is
currently no material range of loss in excess of the amount accrued. However,
it is possible that new information about the sites
6
<PAGE>
for which the reserve has been established, new technology or future
developments such as involvement in other CERCLA, RCRA, TNRCC or other
comparable state law investigations, could require the Company to reassess its
potential exposure related to environmental matters.
In the opinion of management, any liability arising from the matters discussed
in this note will not have a material adverse effect on the consolidated
financial statements or liquidity of the Company. 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 the Company'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.
8. DIVIDENDS
On March 15, 1996, the Company paid a regular quarterly dividend of $.225 per
share of common stock to stockholders of record on February 23, 1996.
Additionally, on May 3, 1996 the Board of Directors declared a regular quarterly
dividend of $.225 per share of common stock, payable June 15, 1996 to
stockholders of record on May 24, 1996.
9. EARNINGS PER SHARE
Earnings per share for all periods presented are computed based on the weighted
average number of shares outstanding for the periods, which was 80,000,000
shares.
10. CAPITALIZED INTEREST
The Company's policy is to capitalize interest cost incurred on debt during the
construction of major projects that exceed one year. Total interest cost
incurred during the three months ended March 31, 1996 was approximately $25
million, of which approximately $5 million was capitalized. No interest was
capitalized during the three months ended March 31, 1995.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Lyondell Petrochemical Company ("Company" or "Lyondell") operates in two
business segments: petrochemicals and refining. The petrochemical segment
consists of olefins including ethylene, propylene, butadiene, butylenes and
specialty products; polyolefins including polypropylene, low-density
polyethylene and high-density polyethylene ("HDPE"); aromatics produced at the
Channelview petrochemical facility ("Channelview Facility") including benzene
and toluene; methanol; methyl tertiary butyl ether ("MTBE"); and refinery
blending stocks.
On May 1, 1995, the Company acquired from Occidental Chemical Corporation resin
production facilities at Victoria and Matagorda, Texas, with a combined annual
production capacity of approximately 1.5 billion pounds of HDPE, associated
research and development activities and the rights to the Alathon/R/ trademark
("ALATHON Business"). See Note 5 of "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)."
The refining segment consists of refined petroleum products, including gasoline,
heating oil and jet fuel; aromatics produced at the Houston, Texas refinery
("Refinery") including benzene, toluene, paraxylene and orthoxylene; lubricants,
including industrial and motor oils; olefins feedstocks; and crude oil resales.
On July 1, 1993, Lyondell and CITGO Petroleum Corporation ("CITGO") announced
the commencement of operations of LYONDELL-CITGO Refining Company Ltd. ("LCR"),
a Texas limited liability company owned by subsidiaries of the Company and
CITGO. LCR owns and operates the refining business formerly owned by the
Company. LCR is undertaking a major upgrade project at the Refinery to enable
the facility to process substantial additional volumes of very heavy crude oil
("Upgrade Project"). CITGO is providing a major portion of the funds for the
Upgrade Project, which through March 31, 1996 totaled approximately $370
million. In addition, through March 31, 1996, CITGO has contributed $100
million and reinvested approximately $33 million of cash distributions for
funding other capital projects. Lyondell currently expects the cost of the
Upgrade Project to be approximately $1.1 billion. Lyondell expects to fund one-
half of costs in excess of $1 billion in the form of subordinated loans. The
Upgrade Project is expected to be operational in early 1997.
Concurrent with the commencement of operations, LCR entered into a long-term
crude oil supply contract ("Crude Supply Contract") with Lagoven, S.A.
("LAGOVEN"), an affiliate of CITGO. In addition, under terms of a long-term
product sales agreement ("Products Agreement"), CITGO is currently purchasing
all of the light refined products produced at the Refinery. Both LAGOVEN and
CITGO are subsidiaries of Petroleos de Venezuela, S.A., the national oil company
of Venezuela.
The Crude Supply Contract incorporates a formula price based on the market value
of a slate of refined products deemed to be produced from each particular crude
oil or feedstock, less certain deemed and actual costs and a deemed margin which
varies according to the grade of crude oil or other feedstock delivered. The
actual refining margin earned by LCR under the Crude Supply Contract will vary
depending on, among other things, the efficiency with which LCR conducts its
operations during such period. If the actual yields, costs or volumes differ
substantially from those contemplated by the Crude Supply Contract, the benefits
of this agreement to LCR could be substantially different than anticipated.
Notwithstanding these limitations, however, the Crude Supply Contract is
designed to reduce the inherent earnings and cash flow volatility of the
refining operations of LCR irrespective of market fluctuations of either crude
oil or refined products.
8
<PAGE>
The following table sets forth sales volumes for the Company's major products
for the periods indicated. Sales volumes include production, purchases of
products for resale, propylene production from the product flexibility unit and
draws from inventory.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED MARCH 31
------------------
1996 1995
-------- -------
<S> <C> <C>
SELECTED PETROCHEMICAL PRODUCTS
(MILLIONS)
(EXCLUDING INTERSEGMENT SALES):
Ethylene, propylene and polyolefins
(lbs.) 1,791 1,513
Other olefins (lbs.) 250 294
Methanol (gallons) 49 51
Aromatics (gallons) 42 41
REFINED PRODUCTS (THOUSAND BARRELS PER
DAY)
(EXCLUDING INTERSEGMENT SALES):
Gasoline 110 105
Heating oil (no. 2 distillate) 50 55
Jet fuel 27 30
Aromatics 7 9
Other refined products 53 55
----- -----
Total refined products volumes 247 254
===== =====
</TABLE>
Summarized below is the segment data for the Company. Intersegment sales
between the petrochemical and refining segments include olefins feedstocks and
benzene produced at the Refinery and gasoline blending stocks produced at the
Channelview Facility and were made at prices that were based on current market
values.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31
-------------------
(MILLIONS OF DOLLARS) 1996 1995
- --------------------- ------- --------
<S> <C> <C>
SALES AND OTHER OPERATING REVENUES:
Petrochemical segment $ 578 $ 646
Refining segment 686 629
Intersegment sales (99) (101)
------ ------
$1,165 $1,174
====== ======
COST OF SALES:
Petrochemical segment $ 498 $ 437
Refining segment 641 571
Intersegment purchases (99) (101)
------ ------
$1,040 $ 907
====== ======
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES:
Petrochemical segment $ 31 $ 13
Refining segment 17 15
Unallocated 16 17
------ ------
$ 64 $ 45
====== ======
OPERATING INCOME:
Petrochemical segment $ 49 $ 196
Refining segment 28 43
Unallocated (16) (17)
------ ------
$ 61 $ 222
====== ======
</TABLE>
9
<PAGE>
Summarized below are intersegment sales for the two segments.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED MARCH 31
-----------------
(MILLIONS OF DOLLARS) 1996 1995
- --------------------- ------- ------
<S> <C> <C>
Petrochemical segment $ 58 $ 46
Refining segment 41 55
------ ------
$ 99 $ 101
====== ======
</TABLE>
RESULTS OF OPERATIONS
OVERVIEW
Net income for the first quarter of 1996 was $24 million or $.30 per share
compared to a net income of $127 million or $1.59 per share for the first
quarter of 1995. The $103 million decrease was primarily due to lower sales
margins for olefins and methanol.
Net income was $3 million lower for the first quarter of 1996 compared to the
fourth quarter of 1995. This decrease was primarily caused by lower sales
margins for petrochemicals, aromatics and lubricants and higher interest
expense, partially offset by higher refining sales margins and higher olefins
sales volumes.
PETROCHEMICAL SEGMENT
REVENUES Sales and other operating revenues, including intersegment sales, were
$578 million for the first quarter of 1996 compared to $646 million for the
first quarter of 1995. The $68 million decrease was primarily due to lower
petrochemical sales prices, partially offset by sales of HDPE resulting from the
acquisition of the ALATHON Business effective May 1, 1995. Compared to the
first quarter of 1995, which was a period of strong market conditions for
petrochemicals generally, sales prices for petrochemicals during the current
quarter were lower due to a decline in market conditions which began in the
latter part of 1995. This decline was due to additional olefins and polymers
capacity that came onstream in 1995, slower economic growth and inventory
corrections in olefins derivatives. Methanol sales prices were lower in 1996
due to the slower economic growth and higher industry supply.
COST OF SALES Cost of sales was $498 million in the first quarter of 1996
compared to $437 million in the first quarter of 1995, an increase of $61
million. This increase was due to the addition of the ALATHON Business and
higher feedstock costs in the olefins business.
SELLING EXPENSES Selling expenses for the first quarter of 1996 were $31
million, an increase of $18 million compared to the first quarter of 1995. This
increase was primarily caused by selling expenses associated with the ALATHON
Business.
OPERATING INCOME Operating income for the first quarter of 1996 was $49
million compared to $196 million in the first quarter of 1995. The $147 million
decrease was due to lower sales margins for olefins and methanol, partially
offset by the contribution from the ALATHON Business. The lower olefins sales
margins during the first quarter of 1996 compared to the first quarter of 1995
resulted primarily from lower sales prices. Olefins sales prices were lower due
to the decline in olefins market conditions which began to weaken during the
third quarter of 1995. Methanol sales margins were lower due to a significant
decline in prices which began late in the first
10
<PAGE>
quarter of 1995 due to a decline in MTBE-related demand for reformulated
gasoline and an increase in methanol supply.
Operating income for the first quarter of 1996 compared to the fourth quarter of
1995 decreased $3 million. This decrease was due to lower margins for olefins
and polymers, partially offset by higher olefins sales volumes. Olefins sales
margins declined primarily due to higher feedstock costs which was caused by
higher crude oil and refined product prices. The impact of this margin reduction
was offset by higher sales volumes which was caused by an improvement in demand
throughout the first quarter. Polymers margins declined primarily due to the
lower sales prices.
REFINING SEGMENT
REVENUES Sales and other operating revenues for the first quarter of 1996 were
$686 million compared to $629 million for the first quarter of 1995. This $57
million increase was primarily due to higher sales prices for crude oil resales
and light refined products which were due to higher industry petroleum prices.
COST OF SALES Cost of sales was $641 million during the first quarter of 1996
compared to $571 million during the first quarter of 1995. Contributing to this
$70 million increase were higher crude oil and other petroleum feedstock prices
and higher purchases of crude oil that were resold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses were $17 million in the first quarter of 1996, an
increase of $2 million compared to the first quarter of 1995. The increase was
primarily due to higher employee incentive compensation.
OPERATING INCOME Operating income for the first quarter of 1996 was $28 million
compared to $43 million for the first quarter of 1995. The $15 million decrease
was primarily due to lower refining margins and higher period costs and selling,
general and administrative costs. Refining margins were lower in 1996 primarily
due to decreased volumes of Venezuelan crude oil purchased under the Crude
Supply Contract and processed both in the cracking and coking modes. The
refining margin in the first quarter of 1995 also benefited from Venezuelan
crude oil drawn from inventory after a maintenance turnaround during the fourth
quarter of 1994. Period costs were higher during the current quarter compared
to the first quarter of 1995 primarily due to various higher outside services
costs and higher compensation.
Operating income for the first quarter of 1996 compared with the fourth quarter
of 1995 increased $4 million. This increase in operating income was primarily
due to higher refined products sales margins, partially offset by lower margins
for aromatics and lubricants. The improved refined products sales margins were
caused by higher processing rates for Venezuelan crude oil in the coking mode.
The lower margins for aromatics and lubricants were due to rising feedstock
costs.
UNALLOCATED
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses were
$16 million in the first quarter of 1996 compared to $17 million in the first
quarter of 1995. The $1 million decrease in the current quarter was primarily
due to a reduced charge for management incentive compensation related expense.
INTEREST EXPENSE Interest expense was $2 million higher during the first
quarter of 1996 compared to the first quarter of 1995. This increase in
interest expense resulted primarily from a net increase in debt outstanding
resulting from the issuance of $300 million of long-term notes and debentures
during February 1996.
11
<PAGE>
INTEREST INCOME Interest income decreased $2 million during the first quarter
of 1996 compared to the first quarter of 1995. This decrease resulted from
lower levels of excess cash available for investment due in part to the
acquisition of the ALATHON Business effective May 1, 1995.
MINORITY INTEREST IN LYONDELL-CITGO REFINING COMPANY LTD. Minority interest was
$4 million in the first quarter of 1996 and $5 million in the first quarter of
1995 representing the allocated share of LCR's net income to CITGO, the minority
owner of LCR.
INCOME TAX The effective income tax rate during the first quarter of 1996 was
37.2 percent. The income portion of the state franchise tax was the primary
difference between the effective tax rate and the 35 percent federal statutory
rate.
FINANCIAL CONDITION
Lyondell's cash used in operating activities was $2 million in the first quarter
of 1996, and cash provided by operating activities was $216 million during the
first quarter of 1995. This $218 million decrease is attributable to the $103
million decrease in net income as well as an increase in net working capital.
Cash used in investing activities during the first quarter of 1996 consisted of
capital expenditures of $194 million, of which $154 million was for the Upgrade
Project at the Refinery, $11 million was for environmentally related projects
primarily at the Refinery and $29 million was for other projects at the various
petrochemical plants and at the Refinery. Refinery upgrade expenditures during
the first quarter of 1996 were funded by $76 million from external borrowings by
LCR, $42 million of contributions made during the first quarter of 1996 by
CITGO, the minority owner of LCR, and $38 million from Lyondell in the form of
subordinated loans to LCR.
As of March 31, 1996, $10 million of cash and cash equivalents was restricted
for use in LCR capital projects, including the Upgrade Project, and
other expenditures as determined by the LCR owners.
In February 1996, the Company issued $300 million of debt securities ("Debt
Securities") consisting of $150 million of 6.5 percent notes due 2006 and $150
million of 7.55 percent debentures due 2026. A portion of the proceeds received
from the sale of the Debt Securities was used to repay short-term debt during
the first quarter of 1996, and it is intended that the remainder will be used
for retirement of maturing debt and general corporate purposes. The Debt
Securities are unsecured obligations and rank on a parity with all other
unsecured and unsubordinated debt of the Company.
On March 15, 1996, the Company paid a regular quarterly dividend of $.225 per
share of common stock to stockholders of record on February 23, 1996.
Additionally, on May 3, 1996, the Board of Directors declared a regular
quarterly dividend of $.225 per share of common stock, payable June 15, 1996 to
stockholders of record on May 24, 1996.
CURRENT BUSINESS OUTLOOK
Lyondell's results for most of the first quarter of 1996 reflected a
continuation of the weak business environment for petrochemicals and polymers
that began in the latter part of 1995. This market decline was caused by
additional olefins and polymers capacity that came on stream in 1995, slower
economic growth and inventory corrections in olefins derivatives. However,
beginning in the first quarter of 1996 and continuing into the second quarter,
demand for petrochemicals began to show signs of improvement and sales prices
began to improve although feedstocks costs also increased.
During the remainder of 1996, the supply fundamentals in olefins are expected to
be more favorable than in the latter part of 1995 and early 1996 with few
expected capacity additions and less significant anticipated downstream
12
<PAGE>
inventory corrections. Management believes that if demand growth in 1996 is
sustained at average historic levels, olefins market conditions should improve.
However, olefins market conditions will continue to be negatively impacted if
feedstock costs remain high.
Methanol business conditions returned to more typical levels in the latter part
of 1995 and first quarter of 1996 from the very favorable conditions that
existed during the early part of 1995. Although methanol demand growth is still
good and is expected to increase in 1996, substantial new capacity is expected
in various parts of the world over the next few years. While the Company
expects its methanol business to remain profitable, it is not likely that
methanol profitability will return in the near-term to the high levels of late
1994 and early 1995.
During the first quarter of 1996, profit performance from refined products
benefited from high processing rates of heavy Venezuelan crude oil. However,
this improvement was mostly offset by lower margins due to rising feedstock
costs for the approximately 40 percent of crude oil runs not covered by the
Crude Supply Agreement. Aromatics are in a weaker environment entering the
second quarter of 1996 due to lower margins resulting from higher feedstock
costs and continuing sales price decreases for paraxylene.
Management believes that the Company has improved its refining business with the
formation of LCR and the resulting benefits of the Crude Supply Contract and
Products Agreement. These arrangements are designed to diminish the impact of
market volatility and stabilize cash flows at attractive levels relative to
historic performance. Until the Upgrade Project is operational in early 1997,
the 40 percent of LCR's crude oil volume which is not purchased under the Crude
Supply Contract continues to be sensitive to market conditions. The poor market
conditions that have characterized the Gulf Coast refining business for the past
several years have generally continued in 1996.
Profitability and cash flows for the petrochemical and refining businesses are
affected by industry supply and demand, feedstock cost volatility, capital
expenditures required to meet more stringent environmental standards, repair and
maintenance costs and downtime of production units due to maintenance
turnarounds. Turnarounds on major units can have significant financial impacts
due to the associated loss of production, resulting in lower profitability. The
Company currently intends to perform a turnaround and debottleneck on one of its
olefins units beginning in the second quarter of 1996. LCR plans to perform a
turnaround of its fluid catalytic cracking unit in the second half of 1996.
The Company believes that business conditions will be such that cash balances,
cash generated from operating activities and existing lines of credit will be
adequate to meet future cash requirements for scheduled debt repayments,
necessary capital expenditures and to sustain for the reasonably foreseeable
future the regular quarterly dividend. However, the Company continually
evaluates its cash requirements and allocates cash in order to maximize
stockholder returns.
__________________________
Management cautions against projecting any future results based on present or
prior earnings levels because of the cyclical nature of the refining and
petrochemical industries and uncertainties associated with the United States and
worldwide economies and current and potential United States governmental
regulatory actions.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. On May 9, 1996 the Occupational Safety and Health Administration ("OSHA"),
LYONDELL-CITGO Refining Company Ltd. ("LCR") and the Oil, Chemical and
Atomic Workers - Local 4-227 ("OCAW") agreed to settlement involving two
citations LCR received for alleged violations of process safety management
regulations. As settlement for the citations LCR agreed to pay a fine of
$200,000 and to revise and update written plant safety procedures by
December 1997.
2. There have been no material developments with respect to the Company's
legal proceedings previously reported in the 1995 Annual Report on Form 10-
K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's annual meeting of stockholders was held May 3, 1996. The
stockholders elected all of the Company's eight nominees for director,
approved the adoption of the Restricted Stock Plan for Non-Employee
Directors and approved the appointment of Coopers & Lybrand L.L.P. as the
Company's independent auditors for 1996. The votes were as follows:
1. Election of Directors:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- ---------
<S> <C> <C>
William T. Butler 69,139,028 6,387,386
Curtis J. Crawford 69,140,084 6,386,330
Travis Engen 69,141,798 6,384,616
Bob G. Gower 69,058,696 6,467,718
Stephen F. Hinchliffe, Jr. 69,156,233 6,370,181
Dudley C. Mecum II 69,136,621 6,389,793
Dan F. Smith 69,141,724 6,384,690
Paul R. Staley 69,135,702 6,390,712
</TABLE>
2. Adoption of the Restricted Stock Plan for Outside Directors:
<TABLE>
<CAPTION>
<S> <C>
For: 72,649,434
Against: 1,923,346
Abstain: 953,634
3. Appointment of Coopers & Lybrand L.L.P.
For: 75,317,996
Against: 114,718
Abstain: 93,700
</TABLE>
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.5(a) Amendment No. 1, dated as of April 16, 1996 to the
LYONDELL-CITGO Refining Company Ltd. $70,000,000 Credit
Agreement.
4.6(a) Amendment No. 1, dated as of April 16, 1996 to the
LYONDELL-CITGO Refining Company Ltd. $450,000,000
Credit Agreement.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed during the
quarter ended March 31, 1996.
<TABLE>
<CAPTION>
Date of Report Item No. Financial Statements
- ------------------- -------- --------------------
<S> <C> <C>
January 31, 1996 5 None
February 6, 1996 7 Yes
February 15, 1996 7 None
</TABLE>
15
<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.
Lyondell Petrochemical Company
(Registrant)
Dated: May 14, 1996 JOSEPH M. PUTZ
--------------------------------
(Signature)
Joseph M. Putz
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
16
<PAGE>
EXHIBIT 4.5A
[Conformed Composite Copy]
FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT
dated as of April 16, 1996
LYONDELL-CITGO REFINING COMPANY LTD., a Texas limited liability
company (the "Borrower"), the LENDERS listed on the signature pages hereof and
any Lender hereafter becoming a party to the below-mentioned Agreement in
accordance with the provisions thereof, ABN AMRO BANK N.V., THE BANK OF NOVA
SCOTIA, CREDIT LYONNAIS, THE FIRST NATIONAL BANK OF CHICAGO and THE INDUSTRIAL
BANK OF JAPAN, LTD., as Co-Agents, and THE BANK OF NEW YORK, as Agent and as
Issuer, agree to this First Amendment (this "Amendment"), dated as of April 16,
1996 (the "Amendment Date"), to the Revolving Credit Agreement, dated as of May
5, 1995, among the Borrower, the Lenders parties thereto, such Co-Agents and
such Agent and Issuer (the "Agreement"; capitalized terms used but not otherwise
defined herein having the meanings assigned to them in the Agreement, and
references herein to Sections being references to Sections of the Agreement
unless indicated otherwise), as follows:
Section 1. Amendments. Subject to the terms and provisions herein
----------
set forth, effective as of the Amendment Date, the Agreement hereby is amended
in the following respects:
(a) In Section 1.01:
(i) "ABN AMRO Bank N.V.," is added between "means" and "The"
in the definition of "Co-Agents";
(ii) The following phrase is added immediately following "Loan"
in the definition of "Base Rate Loan": "made pursuant to
Section 2.01(a)";
(iii) The following definition is added immediately following
the definition of "Benefit Plan":
"Bid Rate" has the meaning specified in Section
2.01(d)(ii).;
(iv) The following definitions are added immediately following
the definition of "Commitment Increase Effective Date":
"Competitive Bid" means an offer by a Lender in the form
of Exhibit 2.01(d)-3 to make a Competitive Loan.
"Competitive Bid Acceptance" means a notification in the
form of Exhibit 2.01(d)-4 made by the Borrower pursuant to
Section 2.01(d)(iii) to accept a Competitive Bid.
<PAGE>
"Competitive Bid Rejection" means a notification in the
form of Exhibit 2.01(d)-5 made by the Borrower pursuant to
Section 2.01(d)(iii) to reject a Competitive Bid.
"Competitive Bid Request" means a request by the Borrower
in the form of Exhibit 2.01(d)-1 for Competitive Bids.
"Competitive Interest Period" means, for each Competitive
Loan, the period (a) commencing on the date such Loan is made and (b)
ending on the date requested by the Borrower in the Competitive Bid
Request for such Loan, which period shall be not less than seven days
or more than 180 days; provided, however, that: (a) Competitive
Interest Periods commencing on the same date for Competitive Loans
comprising part of the same Borrowing shall not have more than three
different durations; and (b) whenever the last day of any Competitive
Interest Period would otherwise occur on a day other than a Business
Day, the last day of such Competitive Interest Period shall be
extended to occur on the next succeeding Business Day, provided, that
if such extension would cause the last day of such Competitive
Interest Period to occur on or after the Termination Date of any
Lender making a Competitive Loan to which such Competitive Interest
Period relates, such Competitive Interest Period for such Competitive
Loan shall end on the next preceding Business Day.
"Competitive Loan" means a loan by a Lender to the
Borrower pursuant to Section 2.01(d).
"Competitive Loan Confirmation" means a confirmation by
the Agent to a Lender of the acceptance by the Borrower of any
Competitive Bid (or Portion thereof) made by that Lender, in
substantially the form of Exhibit 2.01(d)-6.
"Competitive Loan Note" has the meaning specified in
Section 2.01(d)(vii).;
(v) In the definition of "Default Rate," "Section 2.06(a)(i)
or (ii)," is changed to "Section 2.06(a)(i), (ii) or (iii),";
(vi) The definition of "Eurodollar Interest Period," consisting
of the definition of "Interest Period" in Section 1.01 immediately
prior to the Amendment Date, as modified pursuant to this clause (vi),
is added immediately after the definition of "Eurocurrency
Liabilities," such modifications of such definition of "Interest
Period" being as follows: (A) "Eurodollar Rate" is added immediately
before "Loans" in each instance the word "Loans" is used in the
2
<PAGE>
second sentence of such definition; and (B) "Eurodollar" is added
immediately before "Interest" in each instance the word "Interest"
is used in that sentence;
(vii) The following phrase is added immediately after "Loan" in
the definition of "Eurodollar Rate Loan": "made pursuant to Section
2.01(a)";
(viii) The definition of "Interest Period" is changed to read in
its entirety as follows:
"Interest Period" means any Competitive Interest Period
or Eurodollar Interest Period, as the case may be.";
(ix) The following definition is added immediately following
the definition of "Interest Rate Protection Agreement":
"Invitation To Bid" means an invitation by the Agent to a
Lender in the form of Exhibit 2.01(d)-2 to make a Competitive Bid.
(x) The definition of "Loan" is changed to read in its
entirety as follows:
"Loan" means a loan by a Lender to the Borrower (a)
pursuant to Section 2.01(a) or (b) unless the context otherwise
requires, Section 2.01(d); provided, however, that, as used in
the definitions of "Reduction Amount" and "Termination
Date" and Sections 2.01(a), 2.01(c), 2.02(a), 2.02(b), 2.02(c),
2.06(b) and 2.07, "Loan" means only a loan by a Lender to the
Borrower pursuant to Section 2.01(a).;
(xi) The following definitions are added immediately following
the definition of "Material Agreement":
"Maximum Offer" has the meaning specified in
Section 2.01(d)(ii).
"Maximum Request" has the meaning specified in
Section 2.01(d)(i);
(xii) The following phrase is added immediately after "Loans"
in the definition of "New Funds Amount": "made pursuant to Section
2.01(a)";
(xiii) In the definition of "Note," the period after "A" is
replaced with "or, unless the context other requires, a Competitive
Loan Note; provided, however, that, as used in the definition of
"Required Lenders" and Sections 2.01(b), 2.01(c) and 4.01(a), "Note"
means only a promissory note of the Borrower in the form of Exhibit
A.";
3
<PAGE>
(xiv) The definition of "Notice of Borrowing" is changed to
read in its entirety as follows:
"Notice of Borrowing" (a) has the meaning specified in
Section 2.02(a) in the case of Loans other than Competitive Loans
and (b) means a Competitive Bid Request and the related
Competitive Bid Acceptance in the case of any Competitive Loan.;
(xv) In subclause (a)(iii) of the definition of "Permitted
Investments," (A) "time deposits," is added before "certificates," and
(B) "Moody's," is changed to "Moody's and";
(xvi) The following subclause (a)(iv) is added to the definition
of "Permitted Investments":
(iv) money market funds organized under the laws of the United
States of America or any state thereof which invest primarily in
investments constituting any one or more of the types of
"Permitted Investments" described in subclauses (i), (ii) and
(iii) of this clause (a) without regard to the restrictions on the
maturities of such Permitted Investments,;
(xvii) The following definition is added immediately following
the definition of "Person":
"Portion" has the meaning specified in Section
2.01(d)(ii).;
(xviii) The following definition is added immediately following
the definition of "S&P":
"Submission Deadline" has the meaning specified in
Section 2.01(d)(ii).;
(xix) In the definition of "Type," "or a Eurodollar Rate Loan."
is changed to ", a Eurodollar Rate Loan or a Competitive Loan.";
(b) The following is added immediately following Section 2.01(c) as
Section 2.01(d):
(d) Competitive Loans. (i) The Borrower may make Competitive Bid
Requests by 12:00 Noon (New York City time) at least one Business Day
prior to the proposed date of Borrowing for one or more Competitive
Loans. The Borrower shall deliver each Competitive Bid Request to the
Agent (which on the same day of its receipt thereof shall give notice
thereof to each Lender by facsimile of an Invitation To Bid if the
Agent does not reject the Competitive Bid
4
<PAGE>
Request pursuant to this Section 2.01(d)(i)) in a written Competitive
Bid Request signed by the Borrower and by telephone during regular
business hours at the Agent's Office on the same Business Day. Each
Competitive Bid Request shall specify (A) the proposed date of the
Borrowing for the requested Competitive Loans, (B) the aggregate
amount of the requested Competitive Loans (the "Maximum Request"),
which shall (1) not exceed the Available Credit as of the proposed
date of the Borrowing specified in the Competitive Bid Request and (2)
be in an aggregate amount not less than $1,000,000 or an integral
multiple of $100,000 in excess thereof, (C) the Interest Period or
Interest Periods (up to a maximum of three in any Competitive Bid
Request) therefor and the last day of each such Interest Period and
(D) if more than one Interest Period is so specified, the principal
amount allocable to each such Interest Period (which amount in each
case shall not be less than $1,000,000 or an integral multiple of
$100,000 in excess thereof). The Agent shall reject each Competitive
Bid Request the Agent determines (which determination shall be
conclusive absent manifest error) does not conform to the requirements
of this Section 2.01(d)(i) and shall notify the Borrower of any such
rejection within one hour of the Agent's receipt of the telephonic
notice of such Competitive Bid Request.
(ii) Each Lender in its sole discretion may (but is not obligated
to) submit one or more Competitive Bids to the Agent in response to
any Competitive Bid Request not later than 10:30 A.M. (New York City
time) on the proposed date of Borrowing specified in such Competitive
Bid Request (the "Submission Deadline"), by facsimile or in writing,
and thereby irrevocably offer to make all or any part (any such part
being a "Portion") of any Competitive Loan described in the
Competitive Bid Request (A) at the rate of interest per annum (each a
"Bid Rate") specified in such offer and (B) in the aggregate amount
specified in such offer which shall be not less than $1,000,000 or an
integral multiple of $100,000 in excess thereof, provided that if the
Agent in its capacity as a Lender shall, in its sole discretion, elect
to make any Competitive Bid in response to any Competitive Bid
Request, it shall notify the Borrower of such offer not later than 30
minutes prior to the Submission Deadline for other Lenders respecting
such Competitive Bid Request. Multiple Competitive Bids may be
delivered to and by the Agent. The aggregate Portions of Competitive
Loans for any or all Interest Periods offered by each Lender in its
Competitive Bid may exceed the Maximum Request contained in the
relevant Competitive Bid Request, provided that each Competitive Bid
shall set forth the maximum aggregate amount of the Competitive Loans
offered thereby which the Borrower may accept (the "Maximum Offer"),
which Maximum Offer shall not exceed the Maximum Request. If any
Lender shall elect not to make a Competitive Bid, such Lender shall so
notify the Agent by facsimile not later than 30 minutes prior to the
Submission Deadline for such Competitive Bid; provided, however, that
the failure by any Lender to give any such notice shall not obligate
such Lender to make any Competitive Loan or subject such Lender to any
liability.
5
<PAGE>
(iii) In the case of each Competitive Bid Request, the Agent shall
promptly give notice by telephone (promptly confirmed in writing) to
the Borrower of all Competitive Bids received by the Agent by the
Submission Deadline applicable to such Competitive Bid Request which
comply in all material respects with Section 2.01(d)(ii). The Borrower
shall, in its sole discretion, but subject to Section 2.01(d)(iv),
irrevocably accept or reject each such Competitive Bid (or any Portion
thereof) not later than 12:00 Noon (New York City time) on the day of
the Submission Deadline by notice to the Agent by telephone (confirmed
in writing in the form of a Competitive Bid Acceptance or Competitive
Bid Rejection, as applicable, promptly the same day). Promptly on the
same day, the Agent, following its receipt of such telephonic notice
from the Borrower, will give notice to each Lender that submitted a
Competitive Bid as to the extent, if any, that such Lender's
Competitive Bid shall have been accepted. If the Agent fails to
receive notice from the Borrower of its acceptance or rejection of any
Competitive Bids at or prior to 12:00 Noon (New York City time) on
such day, all such Competitive Bids shall be deemed to have been
rejected by the Borrower, and the Agent will give to each Lender that
submitted a Competitive Bid notice of such rejection by telephone on
such day. In due course following the acceptance of any Competitive
Bid, the Agent shall notify each Lender that submitted a Competitive
Bid, in the form of a Competitive Loan Confirmation, of the amount,
maturity date and Bid Rate for each Competitive Loan.
(iv) If the Borrower accepts a Portion of a proposed Competitive
Loan for a single Interest Period at the Bid Rate provided therefor in
a Lender's Competitive Bid, such Portion shall be in a principal
amount of $1,000,000 (subject to such lesser allocation as may be made
pursuant to the provisions of this Section 2.01(d)(iv)) or an integral
multiple of $100,000 in excess thereof. The aggregate principal amount
of Competitive Loans accepted by the Borrower following Competitive
Bids responding to a Competitive Bid Request may be less than but
shall not exceed the Maximum Request. The aggregate principal amount
of Competitive Loans accepted by the Borrower pursuant to a Lender's
Competitive Bid shall not exceed the Maximum Offer therein contained.
If the Borrower accepts any Competitive Loans or Portion offered in
any Competitive Bid, the Borrower must accept Competitive Bids (and
Competitive Loans and Portions thereby offered) based exclusively on
the successively lowest Bid Rates within each Interest Period and no
other criteria. If two or more Lenders submit Competitive Bids with
identical Bid Rates for the same Interest Period and the Borrower
accepts any thereof, the Borrower shall, subject to the first three
sentences of this Section 2.01(d)(iv), accept all such Competitive
Bids as nearly as possible in proportion to the amounts of such
Lenders' respective Competitive Bids with identical Bid Rates for such
Interest Period, provided, that if the amount of Competitive Loans to
be so allocated is not sufficient to enable each such Lender to make
such Competitive Loan (or Portions thereof) in an aggregate
6
<PAGE>
principal amount of $1,000,000 or an integral multiple of $100,000 in
excess thereof, the Borrower shall round the Competitive Loans (or
Portions thereof) allocated to such Lender or Lenders as the Borrower
shall select as necessary to a minimum of $200,000 and, if greater
than $200,000, the nearest multiple of $100,000.
(v) Not later than 3:00 P.M. (New York City time) on the relevant
date of Borrowing, each lender whose Competitive Bid was accepted by
the Borrower shall make available for the account of its applicable
Lending Office to the Agent at the Agent's Office, in immediately
available funds, the proceeds of such Lender's Competitive Loan(s).
After the Agent's receipt of such funds and, upon fulfillment of the
applicable conditions set forth in Article IV, the Agent shall make
such funds available to the Borrower's account at the Agent's Office
or as otherwise designated in the related Notice of Borrowing,
provided that the Agent will not in any event be required to make such
funds so available until 4:00 P.M. (New York City time) on the
relevant date of Borrowing. In the case of any Lender whose
Competitive Bid is accepted by the Borrower, unless the Agent has
received from such Lender prior to 1:00 P.M. (New York City time) on
the date of the Borrowing consisting of such Lender's Competitive
Loan(s) that such Lender will not make available to the Agent the
proceeds of such Competitive Loan(s), the Agent may assume such Lender
has made such proceeds so available and, if the Agent makes that
assumption, the provisions of Section 2.02(c) shall apply as if such
proceeds represented such Lender's Ratable Portion of a Borrowing
consisting of Base Rate Loans. Competitive Loans shall be made only on
a Business Day.
(vi) All written notices required by this Section 2.01(d) shall be
given in accordance with Section 10.01.
(vii) The Competitive Loans made by each Lender shall be evidenced
by a promissory note of the Borrower, substantially in the form of
Exhibit 2.01(d)-7 (each as endorsed or modified from time to time, a
"Competitive Loan Note"), payable to the order of such Lender, and
dated ________, 1996. Each Competitive Loan made by each Lender shall
be due and payable in full on the first to occur of (A) the last day
of the Interest Period applicable thereto or (B) the Termination Date
for such Lender.;
(c) The following replaces the period at the end of the first
sentence of Section 2.02(a):
; provided, however, that if the Borrower makes a Competitive Bid Request
and does not accept Competitive Loans in an aggregate amount equal to the
Maximum Request included in that Competitive Bid Request, the Borrower, by
giving such notice not later than 12:00 Noon (New York City time) on the
date of Borrowing specified in that
7
<PAGE>
Competitive Bid Request, may make a Borrowing of Base Rate Loans on that
date in the aggregate principal amount equal to (i) that Maximum Request,
minus (ii) the aggregate principal amount of Competitive Loans, if any, the
Borrower does so accept;
(d) The following is added as the third sentence of Section 2.04: "For
purposes of this Section 2.04, the unused portion of the Total Commitment at any
time is the amount equal to the Available Credit at that time.";
(e) The following is added between "Credit" and "from" in the third
line of Section 2.05(a): "(determined without deduction for any outstanding
Competitive Loans)";
(f) In Section 2.06(a): (i) subparagraph (iii) is redesignated as
subparagraph (iv), and all references in the Loan Documents to this subparagraph
shall reflect this redesignation; and (ii) the following is added as
subparagraph (iii):
(iii) Competitive Loans. For each Competitive Loan made by such
Lender, a rate per annum equal at all times during the Interest Period for
such Loan to the Bid Rate applicable to such Loan pursuant to Section
2.01(d), payable on (A) the last day of such Interest Period and, in the
case of a Competitive Loan having an Interest Period of longer than three
months, on the three-month anniversary of the first day of such Interest
Period and (B) the Termination Date for such Lender.;
(g) The third sentence of Section 3.01(a) is changed to read in its
entirety as follows:
The Agent will promptly thereafter cause to be distributed (i) like funds
relating to the payment of interest or principal or fees payable to the
Lenders (to the extent received by the Agent), in each case to each Lender
for the account of its applicable Lending Office, (A) first, ratably
according to the amount of interest which is then due and payable to the
Lenders, (B) second, ratably according to the amount of principal which is
then due and payable to the Lenders and (C) third, ratably according to the
amount of fees which is then due and payable to the Lenders and (ii) like
funds relating to the payment of any other amount payable to any Lender (to
the extent received by the Agent) to such Lender for the account of its
Lending Office; and in all cases, the funds distributed shall be applied in
accordance with the terms of this Agreement.;
(h) The following is added immediately following "Adjusted
Eurodollar Rate" in Section 3.01(c): "or on any Bid Rate";
(i) In Section 3.01(e): (i) the following is added between "Loans"
and "shall" in the first sentence: "(other than Competitive Loans)"; and (ii)
the following is added between "Loans" and "prior" in the second sentence: "or
Competitive Loans";
8
<PAGE>
(j) The following is added immediately following "Loans" in the
caption of Section 3.04: "or Competitive Loans";
(k) Section 3.04(c) is redesignated as Section 3.04(d), and all
references in the Loan Documents to this Section shall reflect this
redesignation;
(l) The following is added as Section 3.04(c):
(c) If (i) any payment of principal of any Competitive Loan is made
other than on the last day of the Interest Period relating to such Loan for
any reason or (ii) the Borrower fails to (A) fulfill on the date of any
proposed Borrowing of Competitive Loans the applicable conditions set forth
in Article IV or (B) make a Borrowing of Competitive Loans after it shall
have accepted any Competitive Bid with respect thereto in accordance with
Section 2.01(d), the Borrower shall indemnify each Lender against, and shall
pay directly to such Lender on such Lender's demand the amount (calculated
by such Lender using any method chosen by such Lender which customarily is
used by such Lender for such purpose) equal to, any losses or reasonable
expenses such Lender actually incurs as a result of such payment or failure,
including (A) the costs and expenses incurred by such Lender in connection
with, or by reason of, such event (including those attributable to the
liquidation, employment or reemployment of deposits or other funds) and (B)
the net amount of operating margin actually lost by such Lender.;
(m) In Section 7.09(f), "$5,000,000" is changed to "$10,000,000";
(n) In Sections 10.06(c)and 10.06(d), "or Notes, as the case may be,"
is added immediately following "Note";
(o) The following Exhibits in the respective forms thereof attached to
this Amendment are included in the Exhibits immediately following Exhibit
2.01(c)-2 and in the Table of Contents of the Agreement immediately below
Exhibit 2.01(c)-2:
Exhibit 2.01(d)-1 Form of Competitive Bid Request
Exhibit 2.01(d)-2 Form of Invitation To Bid
Exhibit 2.01(d)-3 Form of Competitive Bid
Exhibit 2.01(d)-4 Form of Competitive Bid Acceptance
Exhibit 2.01(d)-5 Form of Competitive Bid Rejection
Exhibit 2.01(d)-6 Form of Competitive Loan Confirmation
Exhibit 2.01(d)-7 Form of Competitive Loan Note; and
(p) In clause (iii) of each of parts 3A, 3B and 3C of Annex I in
Exhibit 10.06(a), "Competitive Loans $_________" is added immediately below
"Eurodollar Rate Loans $____________".
9
<PAGE>
Section 2. Conditions to Effectiveness. The effectiveness of the
amendments made by this Amendment to the Agreement is subject to its execution
by the Agent and the Issuer and the Agent's receipt on or before the Amendment
Date of (a) counterparts of this Amendment signed by the Borrower and the
Required Lenders, (b) a duly executed Competitive Loan Note (as defined in
Section 1(a)(iii) of this Amendment) for each Lender and (c) each of the
following, in sufficient number for each of the Lenders, the Co-Agents and the
Issuer and in form and substance reasonably satisfactory to the Agent: (i) a
copy, certified by the Secretary of the Borrower under date of the Amendment
Date, of the resolutions adopted by Owners Committee Action taken by the Owners
Committee in accordance with the applicable requirements of the Regulations to
authorize the execution and delivery of this Amendment and the carrying out of
the provisions hereof and of the Agreement as amended hereby; (ii) a certificate
of a Responsible Officer, dated the Amendment Date, to the effect that, on and
as of the Amendment Date, (A) the representations and warranties set forth in
Article V of the Agreement (other than in Section 5.06(a)(ii)) are true and
correct in all material respects (unless made as of a specific date as set forth
in that Article); and (B) no Default exists or would exist as a result of this
Amendment; and (iii) an opinion of the general counsel of the Borrower, dated
the Amendment Date, to the effect that this Amendment and the Competitive Loan
Notes have been duly authorized by Owners Committee Action and validly executed
and delivered by the Borrower.
Section 3. Miscellaneous. This Amendment is governed by the terms
and other provisions of Sections 1.02, 1.03, 10.05, 10.07, 10.10 (the first
sentence thereof) and 10.12 as if this Amendment were the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers all as of April 16,
1996.
LYONDELL-CITGO REFINING COMPANY LTD.
By: /s/ D. Lyndon James
----------------------------------
Name: D. Lyndon James
Title: Vice President and Controller
THE BANK OF NEW YORK,
As Agent, as Issuer and as a Lender
By: /s/ Ian K. Stewart
-----------------------------------
Name: Ian K. Stewart
10
<PAGE>
Title: Senior Vice President
OTHER LENDERS:
ABN AMRO BANK N.V. HOUSTON AGENCY
By: ABN AMRO North America, Inc., as
Agent
By: /s/ Robert Cunningham
-----------------------------------
Name: Robert Cunningham
Title: Vice President & Director
By: /s/ W. Bryan Chapman
-----------------------------------
Name: W. Bryan Chapman
Title: Vice President & Director
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
BANQUE NATIONALE DE PARIS,
HOUSTON AGENCY
By: /s/ John L. Stacy
------------------------------------
11
<PAGE>
Name: John L. Stacy
Title: Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
By: /s/ Dean Balice
------------------------------------
Name: Dean Balice
Title: Senior Vice President
Branch Manager
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: /s/ Pascal Poupelle
-----------------------------------
Name: Pascal Poupelle
Title: Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Helen A. Carr
-----------------------------------
Name: Helen A. Carr
Title: Attorney in Fact
THE INDUSTRIAL BANK OF JAPAN, LTD.
By: /s/ Robert W. Ramage, Jr.
------------------------------------
Name: Robert W. Ramage, Jr.
Title: Senior Vice President
12
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By: /s/ Paul A. Squires
------------------------------------
Name: Paul A. Squires
Title: Senior Vice President
THE NIPPON CREDIT BANK, LTD.
NEW YORK BRANCH
By: /s/ Yoshihide Watanabe
------------------------------------
Name: Yoshihide Watanabe
Title: Vice President & Manager
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Tamara R. O'Connor
------------------------------------
Name: Tamara R. O'Connor
Title: Vice President
ROYAL BANK OF CANADA
By: /s/ J.D. Frost
------------------------------------
Name: J.D. Frost
Title: Senior Manager
13
<PAGE>
THE SANWA BANK LIMITED
DALLAS AGENCY
By: /s/ L.J. Perenyi
------------------------------------
Name: L.J. Perenyi
Title: Vice President
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ Anthony C. Quaglietta
------------------------------------
Name: Anthony C. Quaglietta
Title: Vice President
THE TOYO TRUST AND BANKING CO., LTD.
NEW YORK BRANCH
By: /s/ Hiroyuki Fukuro
------------------------------------
Name: Hiroyuki Fukuro
Title: Vice President
WESTDEUTSCHE LANDESBANK GIROZENTRALE,
NEW YORK AND CAYMAN
ISLANDS BRANCHES
By: /s/ Richard R. Newman
------------------------------------
Name: Richard R. Newman
Title: Vice President
14
<PAGE>
By: /s/ R. Carino
------------------------------------
Name: R. Carino
Title: Vice President
THE YASUDA TRUST AND BANKING COMPANY,
LTD. NEW YORK BRANCH
By: /s/ Gerald Gill
------------------------------------
Name: Gerald Gill
Title: Vice President
15
<PAGE>
EXHIBIT 4.6A
[Conformed Composite Copy]
FIRST AMENDMENT TO CREDIT AGREEMENT
dated as of April 16, 1996
LYONDELL-CITGO REFINING COMPANY LTD., a Texas limited liability
company (the "Borrower"), the LENDERS listed on the signature pages hereof and
any Lender hereafter becoming a party to the below-mentioned Agreement in
accordance with the provisions thereof, ABN AMRO BANK N.V., THE BANK OF NOVA
SCOTIA, CREDIT LYONNAIS, THE FIRST NATIONAL BANK OF CHICAGO and THE INDUSTRIAL
BANK OF JAPAN, LTD., as Co-Agents, and THE BANK OF NEW YORK, as Agent, agree to
this First Amendment (this "Amendment"), dated as of April 16, 1996 (the
"Amendment Date"), to the Credit Agreement, dated as of May 5, 1995, among the
Borrower, the Lenders parties thereto, such Co-Agents and such Agent (the
"Agreement"; capitalized terms used but not otherwise defined herein having the
meanings assigned to them in the Agreement, and references herein to Sections
being references to Sections of the Agreement unless indicated otherwise), as
follows:
Section 1. Amendments. Subject to the terms and provisions herein
----------
set forth, effective as of the Amendment Date, the Agreement hereby is amended
in the following respects:
(a) In Section 1.01:
(i) "ABN AMRO Bank N.V.," is added between "means" and "The" in
the definition of "Co-Agents";
(ii) The number "ten" in clause (c) of the definition of
"Interest Periods" is changed to "15";
(iii) In subclause (a)(iii) of the definition of "Permitted
Investments," (A) "time deposits," is added before "certificates,"
and (B) "Moody's," is changed to "Moody's and";
(iv) The following subclause (a)(iv) is added to the definition
of "Permitted Investments": and
(iv) money market funds organized under the laws of the United
States of America or any state thereof which invest primarily in
investments constituting any one or more of the types of "Permitted
Investments" described in subclauses (i), (ii) and (iii) of this
clause (a) without regard to the restrictions on the maturities of
such Permitted Investments,
; and
1
<PAGE>
(b) In Section 7.09(f), "$5,000,000" is changed to "$10,000,000".
Section 2. Conditions to Effectiveness. The effectiveness of the
---------------------------
amendments made by this Amendment to the Agreement is subject to its execution
by the Agent and the Agent's receipt on or before the Amendment Date of (a)
counterparts of this Amendment signed by the Borrower and the Required Lenders
and (b) each of the following, in sufficient number for each of the Lenders and
the Co-Agents and in form and substance reasonably satisfactory to the Agent:
(i) a copy, certified by the Secretary of the Borrower under date of the
Amendment Date, of the resolutions adopted by Owners Committee Action taken by
the Owners Committee in accordance with the applicable requirements of the
Regulations to authorize the execution and delivery of this Amendment and the
carrying out of the provisions hereof and of the Agreement as amended hereby;
(ii) a certificate of a Responsible Officer, dated the Amendment Date, to the
effect that, on and as of the Amendment Date, (A) the representations and
warranties set forth in Article V of the Agreement (other than in Section
5.06(a)(ii)) are true and correct in all material respects (unless made as of a
specific date as set forth in that Article); and (B) no Default exists or would
exist as a result of this Amendment; and (iii) an opinion of the general counsel
of the Borrower,dated the Amendment Date, to the effect that this Amendment has
been duly authorized by Owners Committee Action and validly executed and
delivered.
Section 3. Miscellaneous. This Amendment is governed by the terms
-------------
and other provisions of Sections 1.02, 1.03, 10.05, 10.07, 10.10 (the first
sentence thereof) and 10.12 as if this Amendment were "the Agreement."
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers all as of April 16,
1996.
LYONDELL-CITGO REFINING COMPANY LTD.
By: /s/ D. Lyndon James
---------------------------------
Name: D. Lyndon James
Title: Vice President and Controller
THE BANK OF NEW YORK,
As Agent and as a Lender
By: /s/ Ian K. Stewart
----------------------------------
Name: /s/ Ian K. Stewart
2
<PAGE>
Title: Senior Vice President
OTHER LENDERS:
ABN AMRO BANK N.V. HOUSTON AGENCY
By: ABN AMRO North America, Inc.,
as Agent
By: /s/ Robert Cunningham
------------------------------------
Name: Robert Cunningham
Title: Vice President & Director
By: /s/ W. Bryan Chapman
------------------------------------
Name: W. Bryan Chapman
Title: Vice President & Director
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
3
<PAGE>
BANQUE NATIONALE DE PARIS,
HOUSTON AGENCY
By: /s/ John L. Stacy
------------------------------------
Name: John L. Stacy
Title: Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE
By: /s/ Dean Balice
------------------------------------
Name: Dean Balice
Title: Senior Vice President
Branch Manager
CO BANK ACB
By: /s/ James M. Papai
-----------------------------------
Name: James M. Papai
Title: Vice President
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: /s/ Pascal Poupelle
-----------------------------------
Name: Pascal Poupelle
Title: Senior Vice President
4
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Helen A. Carr
-----------------------------------
Name: Helen A. Carr
Title: Attorney in Fact
THE INDUSTRIAL BANK OF JAPAN, LTD.
By: /s/ Robert W. Ramage, Jr.
-----------------------------------
Name: Robert W. Ramage, Jr.
Title: Senior Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ Paul A. Squires
-----------------------------------
Name: Paul A. Squires
Title: Senior Vice President
THE NIPPON CREDIT BANK, LTD.
NEW YORK BRANCH
By: /s/ Yoshihide Watanabe
-----------------------------------
Name: Yoshihide Watanabe
Title: Vice President & Manager
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 51
<SECURITIES> 76
<RECEIVABLES> 346
<ALLOWANCES> 3
<INVENTORY> 287
<CURRENT-ASSETS> 817
<PP&E> 3,987
<DEPRECIATION> 2,010
<TOTAL-ASSETS> 2,917
<CURRENT-LIABILITIES> 730
<BONDS> 1,076
0
0
<COMMON> 80
<OTHER-SE> 305
<TOTAL-LIABILITY-AND-EQUITY> 2,917
<SALES> 1,165
<TOTAL-REVENUES> 1,165
<CGS> 1,040
<TOTAL-COSTS> 1,040
<OTHER-EXPENSES> 64
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 38
<INCOME-TAX> 14
<INCOME-CONTINUING> 24
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
