<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 JUNE 30, 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)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 652-7200
------------
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED 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 JUNE 30,
1996: 80,000,000.
<PAGE>
PART I. FINANCIAL INFORMATION
LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
MILLIONS OF DOLLARS EXCEPT -------------------- -----------------
PER SHARE AMOUNTS 1996 1995 1996 1995
- -------------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES AND OTHER OPERATING REVENUES:
Unrelated parties $1,166 $1,271 $2,267 $2,355
Related parties 73 99 137 189
------ ------ ------ ------
1,239 1,370 2,404 2,544
OPERATING COSTS AND EXPENSES:
Cost of sales
Unrelated parties 1,069 1,021 2,052 1,873
Related parties 67 64 124 119
Selling, general and
administrative expenses 58 48 122 93
------ ------ ------ ------
1,194 1,133 2,298 2,085
------ ------ ------ ------
Operating income 45 237 106 459
Interest expense (23) (21) (43) (39)
Interest income 1 2 2 5
Minority interest in LYONDELL-CITGO
Refining Company Ltd. -- (3) (4) (8)
------ ------ ----- ------
Income before income taxes 23 215 61 417
Provision for income taxes 8 80 22 155
------ ------ ------ ------
NET INCOME $ 15 $ 135 $ 39 $ 262
====== ====== ====== ======
EARNINGS PER SHARE $.19 $1.68 $.49 $3.27
====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
MILLIONS OF DOLLARS 1996 1995
- ------------------- ------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3
Restricted cash and cash $ 7 7
equivalents
Accounts receivable:
Trade 364 340
Related parties 24 22
Inventories 329 265
Prepaid expenses and other current
assets 42 41
------ ------
Total current assets 766 678
------ ------
Fixed assets:
Property, plant and equipment 4,130 3,804
Less accumulated depreciation and
amortization (2,030) (1,990)
------- -------
2,100 1,814
Deferred charges and other assets 142 114
------- -------
Total assets $ 3,008 $ 2,606
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 402 $ 358
Related parties 2 1
Notes payable 102 103
Current maturities of long-term
debt 112 150
Other accrued liabilities 100 138
------- -------
Total current liabilities 718 750
------ ------
Long-term debt 1,134 807
Other liabilities and deferred credits 110 95
Deferred income taxes 123 115
Commitments and contingencies
Minority interest 542 459
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 143 142
------- -------
Total stockholders' equity 381 380
------- -------
Total liabilities and stockholders'
equity $ 3,008 $ 2,606
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
LYONDELL PETROCHEMICAL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30
---------------------
MILLIONS OF DOLLARS 1996 1995
- ------------------- ---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 39 $ 262
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 49 38
Deferred income taxes 8 (3)
Increase in accounts
receivable (27) (86)
Increase in inventories (64) (78)
Increase in accounts payable 75 36
Net change in other working
capital accounts (38) 7
Minority interest 4 8
Other (24) 3
----- -----
Net cash provided by
operating activities 22 187
------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (356) (593)
Sales of short-term investments 76 --
Purchases of short-term investments (76) --
----- -----
Net cash used in
investing activities (356) (593)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Minority owner contribution 79 145
Net change in short-term debt (1) 217
Borrowings of long-term debt 439 31
Repayments of long-term debt (150) (10)
Dividends paid (36) (36)
----- -----
Net cash provided by
financing activities 331 347
----- -----
DECREASE IN CASH, RESTRICTED CASH AND
CASH EQUIVALENTS (3) (59)
Cash, restricted cash and cash
equivalents at beginning of period 10 94
----- -----
Cash, restricted cash and cash
equivalents at end of period $ 7 $ 35
===== =====
</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 owned by subsidiaries of 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 June 30, 1996 and
December 31, 1995 were:
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS 1996 1995
- ------------------- ---- ----
<S> <C> <C>
Crude oil $ 53 $ 55
Refined products 53 33
Petrochemicals 178 135
Materials and supplies 45 42
---- ----
Total inventories $329 $265
==== ====
</TABLE>
4. RESTRICTED FUNDS
As of June 30, 1996 and December 31, 1995, cash in the amount of $7 million 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 six-month period ended
June 30, 1996.
4
<PAGE>
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS
- -------------------
<S> <C>
Restricted cash and cash equivalents at
December 31, 1995 $ 7
Minority owner investments:
Contributions 79
Distributable cash reinvested 6
Lyondell investments:
Loan for Upgrade Project 70
Other loans 14
Contributions 6
Proceeds from bank loan 139
Additions to fixed assets:
Upgrade Project (284)
Refining segment - other (30)
-----
Restricted cash and cash equivalents at
June 30, 1996 $ 7
=====
</TABLE>
5. ACQUISITION OF ALATHON/R/ 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 six months ended June 30, 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>
MILLIONS OF DOLLARS EXCEPT FOR THE SIX MONTHS ENDED
PER SHARE AMOUNTS JUNE 30, 1995
- -------------------------- ------------------------
<S> <C>
Sales and other operating revenues $2,738
Net income 282
Earnings per share 3.52
</TABLE>
6. 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
5
<PAGE>
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 on the consolidated
financial statements or liquidity of the Company.
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. Although the Criminal Enforcement Division of
the EPA is conducting a formal investigation, the Company does not believe that
any aspects of the matters described above will subject the Company to criminal
liability or have a material adverse effect on the consolidated financial
statements or liquidity of the Company.
As of June 30, 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 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.
6
<PAGE>
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.
7. DIVIDENDS
The Company paid regular quarterly dividends of $.225 per share of common stock
during the first and second quarters of 1996. Additionally, on July 19, 1996
the Board of Directors declared a regular quarterly dividend of $.225 per share
of common stock, payable September 15, 1996 to stockholders of record on August
23, 1996.
8. 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.
9. 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 June 30, 1996 and the six months ended
June 30, 1996 were approximately $29 million and $54 million, respectively, of
which approximately $6 million and $11 million, respectively, were capitalized.
Total interest cost incurred during the three months ended June 30, 1995 and the
six months ended June 30, 1995 were approximately $22 million and $40 million,
respectively. Approximately $1 million was capitalized during the three months
ended June 30, 1995. No interest was capitalized during the three months ended
March 31, 1995.
10. SUBSEQUENT EVENT
On July 27, 1996, the Company experienced a fire at its Channelview Facility due
to a rupture in a pipeline owned and operated by ARCO Pipe Line Company ("ARCO
Pipe Line"). Although no operating units were directly involved in the fire, the
damage to the pipeline and electrical systems forced the Company to shut down
the entire Channelview Facility. Although the Company and ARCO Pipe Line are
still evaluating the cost of the damage to their respective facilities, the
Company believes that the physical damage to the two companies' facilities on
Lyondell's plant site could be in the $10 million to $15 million range and that
the potential negative impact on Lyondell's after-tax earnings could be in the
$20 million to $25 million range. Certain of the units at the Channelview
Facility have been brought back into operation and the olefins units are in
startup mode. The Channelview Facility is currently expected to be fully
operational within the next several days. A number of factors, including the
full extent of the damage to all the facilities, the availability of repair
materials and the Company's ability to find alternatives to meet customer needs,
will impact the Company's ability to mitigate the financial impact on the
Company's business. In addition, the estimates contained herein are based on
preliminary information and do not take into account the potential effects of
any insurance coverage or contributions to costs by other parties that may be
available to offset such costs.
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 June 30, 1996 totaled approximately $407 million.
In addition, through June 30, 1996, CITGO has contributed $100 million and
reinvested approximately $35 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 FOR THE SIX
MONTHS MONTHS
ENDED JUNE 30 ENDED JUNE 30
--------------------------------------
1996 1995 1996 1995
--------------------------------------
<S> <C> <C> <C> <C>
SELECTED PETROCHEMICAL PRODUCTS
(MILLIONS) (EXCLUDING INTERSEGMENT SALES):
Ethylene, propylene and polyolefins
(lbs.) 1,767 1,851 3,558 3,364
Other olefins (lbs.) 247 279 497 572
Methanol (gallons) 55 45 104 96
Aromatics (gallons) 42 40 84 79
REFINED PRODUCTS (THOUSAND BARRELS PER
DAY) (EXCLUDING INTERSEGMENT SALES):
Gasoline 110 107 110 106
Heating oil (no. 2 distillate) 42 51 46 53
Jet fuel 24 29 26 30
Aromatics 7 8 7 9
Other refined products 58 57 55 55
----- ----- ----- -----
Total refined products volumes 241 252 244 253
===== ===== ===== =====
</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 FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
-----------------------------------------
(MILLIONS OF DOLLARS) 1996 1995 1996 1995
- --------------------- ------------------------------------------
<S> <C> <C> <C> <C>
SALES AND OTHER OPERATING REVENUES:
Petrochemical segment $ 614 $ 769 $1,192 $1,415
Refining segment 709 709 1,395 1,338
Intersegment sales (84) (108) (183) (209)
-------------------------------------
$1,239 $1,370 $2,404 $2,544
=====================================
COST OF SALES:
Petrochemical segment $ 532 $ 520 $1,030 $ 957
Refining segment 688 673 1,329 1,244
Intersegment purchases (84) (108) (183) (209)
-------------------------------------
$1,136 $1,085 $2,176 $1,992
=====================================
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES:
Petrochemical segment $ 29 $ 19 $ 60 $ 32
Refining segment 16 14 33 29
Unallocated 13 15 29 32
-------------------------------------
$ 58 $ 48 $ 122 $ 93
=====================================
OPERATING INCOME:
Petrochemical segment $ 53 $ 230 $ 102 $ 426
Refining segment 5 22 33 65
Unallocated (13) (15) (29) (32)
-------------------------------------
$ 45 $ 237 $ 106 $ 459
=====================================
</TABLE>
9
<PAGE>
Summarized below are intersegment sales for the two segments.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS MONTHS
ENDED JUNE 30 ENDED JUNE 30
----------------------------------------
(MILLIONS OF DOLLARS) 1996 1995 1996 1995
- -------------------- ----------------------------------------
<S> <C> <C> <C> <C>
Petrochemical segment $ 43 $ 55 $ 101 $ 101
Refining segment 41 53 82 108
-------------------------------------
$ 84 $ 108 $ 183 $ 209
=====================================
</TABLE>
RESULTS OF OPERATIONS
OVERVIEW
Net income for the second quarter of 1996 was $15 million or $.19 per share
compared to a net income of $135 million or $1.68 per share for the second
quarter of 1995. The $120 million decrease was primarily due to lower sales
margins for olefins.
Net income was $9 million lower for the second quarter of 1996 compared to the
first quarter of 1996. This decrease was primarily caused by lower sales
margins for refined products and aromatics.
Net income for the first six months of 1996 was $39 million or $.49 per share
compared to a net income of $262 million or $3.27 per share for the first six
months of 1995. The $223 million decrease was primarily due to lower sales
margins for olefins and methanol.
PETROCHEMICAL SEGMENT
REVENUES Sales and other operating revenues, including intersegment sales, were
$614 million in the second quarter of 1996 compared to $769 million in the
second quarter of 1995, a decline of $155 million. Sales and other operating
revenues were $223 million lower in the first six months of 1996 compared to the
first six months of 1995. These decreases were primarily due to lower olefins
sales prices and volumes, partially offset by higher sales of HDPE resulting
from the acquisition of the ALATHON Business effective May 1, 1995. Compared to
the first part of 1995, which was a period of strong market conditions for
petrochemicals generally, sales prices for petrochemicals during the current
periods 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. Additionally, methanol sales prices were
lower in 1996 due to the slower economic growth and higher industry supply.
COST OF SALES Cost of sales was $532 million in the second quarter of 1996
compared to $520 million in the second quarter of 1995, an increase of $12
million. This increase was due to the addition of the ALATHON Business,
partially offset by lower production costs due to the seven week planned
turnaround of one of the olefins units during the second quarter of 1996.
Cost of sales was $73 million higher during the first six months of 1996
compared to the first six months of 1995. This increase was primarily due to
the addition of the ALATHON Business and higher feedstock costs in the olefins
and methanol businesses.
SELLING EXPENSES Selling expenses for the second quarter of 1996 were $29
million, an increase of $10 million compared to the second quarter of 1995.
Selling expenses for the first six months of 1996 were $60 million, an
10
<PAGE>
increase of $28 million compared to the first six months of 1995. These
increases were primarily caused by selling expenses associated with the newly
acquired ALATHON Business.
OPERATING INCOME On June 2, 1996, the Company's Mont Belvieu, Texas terminal
experienced a fire. Replacement of the facilities is expected to be completed
late in the third quarter. The before-tax impact of the fire to second quarter
operating income was approximately $2 million for equipment write-off and repair
costs plus additional costs due to business interruption, all of which were
below the Company's insurance deductible. Operating income for the second
quarter of 1996 was $53 million compared to $230 million in the second quarter
of 1995. The $177 million decrease was primarily due to lower sales margins
for olefins and to a lesser extent to lower sales margins for polymers and to
the higher selling expenses. The lower olefins and polymers sales margins
during the second quarter of 1996 compared to the second quarter of 1995
resulted primarily from lower sales prices. Olefins and polymers sales prices
were lower due to the decline in market conditions which began in the third
quarter of 1995. Contributing to the lower olefins sales margins were higher
feedstock costs which were caused by higher industry crude oil prices and lower
production resulting from the olefins unit turnaround.
Operating income for the second quarter of 1996 compared to the first quarter of
1996 increased $4 million. This improvement was primarily due to higher
olefins sales margins. Olefins sales margins increased due to higher sales
prices resulting from improved markets which more than offset the impacts of
higher feedstock costs, the olefins unit turnaround and the Mont Belvieu fire.
Operating income for the first six months of 1996 was $102 million compared to
$426 million for the first six months of 1995. The $324 million decrease was
primarily due to lower olefins and methanol sales margins. The lower olefins
and methanol sales margins during the first six months of 1996 compared to the
first six months of 1995 primarily resulted from lower sales prices and higher
feedstock costs. Olefins sales prices were lower due to the decline in market
conditions which began in the third quarter of 1995. Methanol sales margins
were lower due to a significant decline in prices which began late in the first
quarter of 1995 due to a decline in MTBE-related demand for reformulated
gasoline and an increase in methanol supply.
REFINING SEGMENT
REVENUES Sales and other operating revenues for the second quarter of 1996 were
$709 million, unchanged compared to the second quarter of 1995. Sales and other
operating revenues for the first six months of 1996 were $1.4 billion, an
increase of $57 million compared to the first six months of 1995. This increase
was primarily due to higher sales volumes and prices for crude oil resales and
higher sales prices for light refined products which were caused by higher
industry petroleum prices.
COST OF SALES Cost of sales was $688 million during the second quarter of 1996
compared to $673 million during the second quarter of 1995, an increase of $15
million. Cost of sales was $1.3 billion during the first six months of 1996
compared to $1.2 billion during the first six months of 1995, an increase of $85
million. These increases were primarily caused by higher crude oil and other
petroleum feedstock prices due to higher industry crude oil prices and higher
purchases of crude oil that were resold.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and
administrative expenses were $2 million higher in the second quarter of 1996
compared to the second quarter of 1995 and were $4 million higher during the
first six months of 1996 compared to the first six months of 1995. These
increases were primarily due to higher employee compensation and various outside
consulting services.
OPERATING INCOME Operating income for the second quarter of 1996 was $5 million
compared to $22 million for the second quarter of 1995. The $17 million
decrease was primarily due to lower aromatics margins. Aromatics margins were
lower in 1996 primarily due to lower sales prices, particularly for orthoxylene.
Orthoxylene prices were
11
<PAGE>
at historical highs during the first half of 1995 before
returning to a more normal level in the second half of 1995 due to increased
production and lower demand which was further impacted by customers' inventory
reductions.
Operating income for the second quarter of 1996 compared with the first quarter
of 1996 decreased $23 million. This decrease in operating income was primarily
due to lower sales margins for refined products and aromatics. The lower
refined products sales margins were caused by operating problems with the sulfur
plant which reduced Venezuelan crude oil processing rates and limited the
optimal performance of other units resulting in significantly lower conversion
to high value products. Contributing to the lower refined products sales
margins were the higher crude oil and other petroleum feedstock prices. The
lower margins for aromatics were primarily due to lower paraxylene sales prices
and higher feedstock costs. Paraxylene prices declined due to additional
capacity and continued customers' inventory reductions in the polyethylene
terephthalate (PET) and polyester fibers businesses during the second quarter of
1996.
Operating income for the first six months of 1996 was $33 million compared to
$65 million for the first six months of 1995. The $32 million decrease was
primarily due to lower aromatics and refined products sales margins and to
higher period costs. Overall, aromatics sales margins were lower in 1996
primarily due to generally lower sales prices, particularly orthoxylene.
Refined products sales margins decreased due to higher crude oil and other
feedstock prices which more than offset higher refined product sales prices.
Refinery period costs were higher due to higher personnel compensation, property
taxes and depreciation, partially offset by lower maintenance expenses.
UNALLOCATED
GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses were $2
million lower in the second quarter of 1996 compared to the second quarter of
1995 and were $3 million lower in the first six months of 1996 compared to the
first six months of 1995. These decreases were primarily due to a reduced
charge for management incentive compensation related expense and lower
materials, supplies and equipment expense.
INTEREST EXPENSE Interest expense was $2 million higher during the second
quarter of 1996 compared to the second quarter of 1995 and $4 million higher
during the first six months of 1996 compared to the first six months of 1995.
These increases 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, partially offset by the repayment of $150
million of long-term notes in June 1996.
INTEREST INCOME Interest income decreased $1 million during the second quarter
of 1996 compared to the second quarter of 1995 and decreased $3 million during
the first six months of 1996 compared to the first six months of 1995. This
decrease resulted from lower levels of 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
less than one million dollars in the second quarter of 1996 and $4 million in
the first six months of 1996 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 second quarter of 1996 and
during the first six months of 1996 was 35.1 percent and 36.4 percent,
respectively. The income portion of the state franchise tax was the primary
difference between the effective tax rates and the 35 percent federal statutory
rate.
12
<PAGE>
FINANCIAL CONDITION
Lyondell's cash provided by operating activities was $22 million in the first
six months of 1996 compared to cash provided of $187 million during the first
six months of 1995. This $165 million decrease is attributable to the $223
million decrease in net income, partially offset primarily by changes in working
capital.
Cash used in investing activities during the first six months of 1996 consisted
of capital expenditures of $356 million, of which $284 million was for the
Upgrade Project at the Refinery, $19 million was for environmentally related
projects primarily at the Refinery and $53 million was for other projects at the
various petrochemical plants and at the Refinery. Upgrade Project expenditures
during the first six months of 1996 were funded by $139 million from external
borrowings by LCR, $79 million of contributions by CITGO, the minority owner of
LCR, and $70 million from Lyondell in the form of subordinated loans to LCR.
The $4 million excess of funding for the Upgrade Project over cash expenditures
is held in a restricted cash account.
As of June 30, 1996, $7 million of cash and cash equivalents were 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 the remainder was used for retirement of maturing
long-term 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.
The Mont Belvieu terminal fire on June 2, 1996 will result in an approximate $15
capital expenditure to replace damaged equipment. As a result, the Board of
Directors has deferred certain capital expenditures with the overall impact of
increasing the 1996 capital budget by $8 million, to $133 million.
The Company paid regular quarterly dividends of $.225 per share of common stock
during the first and second quarters of 1996. Additionally, on July 19, 1996
the Board of Directors declared a regular quarterly dividend of $.225 per share
of common stock, payable September 15, 1996 to stockholders of record on August
23, 1996.
CURRENT BUSINESS OUTLOOK
Strong export demand and a strengthening economy provided an improved
environment for olefins and polymers during the first six months of 1996
compared to the latter part of 1995. This improvement was partially offset by
higher feedstock costs and the olefins unit turnaround.
During the remainder of 1996, management expects olefins supply and demand
fundamentals to be more favorable than in the latter part of 1995 and early 1996
with demand growth exceeding capacity additions and less significant downstream
inventory corrections. Management believes that if demand growth in 1996 is
sustained at average historic levels, olefins market conditions will continue to
improve. However, olefins profitability 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 six months 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.
13
<PAGE>
On July 27, 1996, the Company experienced a fire at its Channelview Facility due
to a rupture in a pipeline owned and operated by ARCO Pipe Line Company ("ARCO
Pipe Line"). Although no operating units were directly involved in the fire, the
damage to the pipeline and electrical systems forced the Company to shut down
the entire Channelview Facility. Although the Company and ARCO Pipe Line are
still evaluating the cost of the damage to their respective facilities, the
Company believes that the physical damage to the two companies' facilities on
Lyondell's plant site could be in the $10 million to $15 million range and that
the potential negative impact on Lyondell's after-tax earnings could be in the
$20 million to $25 million range. Certain of the units at the Channelview
Facility have been brought back into operation and the olefins units are in
startup mode. The Channelview Facility is currently expected to be fully
operational within the next several days. A number of factors, including the
full extent of the damage to all the facilities, the availability of repair
materials and the Company's ability to find alternatives to meet customer needs,
will impact the Company's ability to mitigate the financial impact on the
Company's business. In addition, the estimates contained herein are based on
preliminary information and do not take into account the potential effects of
any insurance coverage or contributions to costs by other parties that may be
available to offset such costs.
During the first six months 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 Contract. Aromatics are in a weaker environment entering the third
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. However, management expects that startups, shutdowns,
revamps and tie-ins to the existing facilities will continue to affect LCR's
operating efficiency and profitability as various units of the Upgrade Project
approach completion during the remainder of 1996 and early 1997. LCR's near-
term results are expected to reflect a continuing decline in aromatics margins.
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. LCR
plans to perform a turnaround of its fluid catalytic cracking unit in the fourth
quarter 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.
__________________________
Certain of the statements in this Form 10-Q are forward-looking statements that
involve risks and uncertainties and the factors described herein could cause
actual results to differ materially from the estimates contained herein.
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 .
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. 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 and March 31, 1996 Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.7(a) Amendment No. 1 to the Lyondell Petrochemical Company
$400,000,000 Amended and Restated Credit Agreement.
10.15 Restricted Stock Plan for Non-Employee Directors.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed during the
quarter ended June 30, 1996 and through the date hereof.
Date of Report Item No. Financial Statements
-------------- -------- --------------------
July 29, 1996 5 None
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: August 13, 1996 JOSEPH M. PUTZ
-------------------------
(Signature)
Joseph M. Putz
Vice President and
Controller
(Duly Authorized
Officer and
Principal Accounting
Officer)
16
<PAGE>
EXHIBIT 4.7(a)
AMENDMENT NO. 1
TO LYONDELL PETROCHEMICAL COMPANY
$400,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment (the "Amendment"), is entered into as of May 31, 1996, among
Lyondell Petrochemical Company (the "Borrower"), the Banks listed on the
signature pages hereof and Texas Commerce Bank National Association, a national
banking association, as Administrative Agent, Bank of America Illinois, as Co-
Agent and Chemical Bank, as Auction Agent.
The Borrower, the Banks, the Administrative Agent, the Co-Agent and the
Auction Agent have entered into the Amended and Restated Credit Agreement dated
as of June 27, 1995 (the "Agreement").
WHEREAS, Section 9.05 of the Agreement provides that the Borrower and the
Banks may, by written action, amend or waive any provision of the Agreement; and
WHEREAS, the Borrower has requested that the Banks eliminate Section
5.08(e) of the Agreement in its entirety;
THEREFORE, in consideration of the mutual promises contained herein and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto do hereby agree that the Agreement shall
be amended as follows:
1. Unless otherwise specified herein, all terms defined in the
Agreement have the same meaning when used herein.
2. (a) Section 5.08(e) of the Agreement is deleted in its entirety;
and
(b) Section 5.08 (f) is re-numbered as Section 5.08(e).
3. Ratifications. Except as herein specifically amended and
modified, (a) the Agreement is unchanged and continues in full force and effect,
and (b) the Borrower hereby confirms and ratifies the Agreement's existence and
each and every term, condition, and covenant therein contained, to the same
extent and as though the same were set out herein in full.
<PAGE>
AMENDMENT NO. 1
TO LYONDELL PETROCHEMICAL COMPANY
$400,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
PAGE 2
4. Representations and Warranties. The Borrower hereby represents
and warrants to the Banks, the Administrative Agent, and the Co-Agent that (a)
this Amendment and the Loan Documents to be delivered hereunder have been duly
executed and delivered by the Borrower, (b) no action of, or filing with, any
agency is required to authorize, or is otherwise required in connection with,
the execution, delivery, and performance by the Borrower of this Amendment and
the Loan Documents to be delivered hereunder, (c) this Amendment and the Loan
Documents to be delivered hereunder are valid and binding upon the Borrower and
are enforceable against the Borrower in accordance with their respective terms,
except as limited by the Bankruptcy Code of the United States of America and all
other similar Laws affecting the rights of creditors generally, (d) the
execution, delivery and performance by the Borrower of this Amendment and the
Loan Documents to be delivered hereunder do not require the consent of any other
Person and do not and will not constitute a violation of any laws, agreement, or
understanding to which the Borrower is a party or by which the Borrower is
bound, (e) the representations and warranties contained in the Agreement, as
amended hereby, and any other Loan Documents are true and correct in all
material respects on and as of the date of execution hereof as though made as of
the date of execution hereof, and (f) as of the date of this amendment, no
Default or Event of Default has occurred and is continuing.
5. References. All references in the Loan Documents to the
Agreement shall refer to the Agreement as amended by this amendment, and,
because this amendment is a "Loan Document" referred to in the Agreement, then
the provisions relating to Loan Documents set forth in the Agreement are
incorporated herein by reference, the same as if set forth herein verbatim.
6. Counterparts. This Amendment may be executed in a number of
identical counterparts, each of which shall be deemed an original. In making
proof of this instrument, it shall not be necessary for any party to account for
all counterparts, and it shall be sufficient for any party to produce but one
such counterpart.
7. Parties Bound. This Amendment shall be binding upon and shall
inure to the benefit of the Borrower, the Administrative Agent, the Co-Agent,
the Auction Agent and each Bank, and, subject to Section 9.07 of the Agreement,
their respective successors and assigns.
8. ENTIRETY. THIS AMENDMENT, THE AGREEMENT AS AMENDED HEREBY, AND
THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL CREDIT AGREEMENT BETWEEN THE
PARTIES FOR THE TRANSACTIONS THEREIN, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR
<PAGE>
AMENDMENT NO. 1
TO LYONDELL PETROCHEMICAL COMPANY
$400,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
PAGE 3
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be executed by its duly authorized officer as of the day and year first above
written.
LYONDELL PETROCHEMICAL COMPANY
/s/ Russell S. Young
-------------------------------------------------
By: Russell S. Young
Title: Senior Vice President,
Chief Financial Officer
and Treasurer
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
Individually and as Administrative Agent
/s/ David G. Mills
-------------------------------------------------
By: David G. Mills
Title: Vice President
BANK OF AMERICA ILLINOIS,
Individually and as Co-Agent
/s/ Ronald E. McKaig
-------------------------------------------------
By: Ronald E. McKaig
Title: Vice President
CHEMICAL BANK, as Auction Agent
/s/ Janet Belden
----------------------------------------
By: Janet Belden
Title: Vice President
<PAGE>
AMENDMENT NO. 1
TO LYONDELL PETROCHEMICAL COMPANY
$400,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
PAGE 4
ABN AMRO BANK N.V. HOUSTON AGENCY, BY
ABN AMRO BANK, North America, INC., as agent
/s/ Robert J. Cunningham
-------------------------------------------------------
By: Robert J. Cunningham
Title: Vice President & Director
/s/ Collis G. Sanders
-------------------------------------------------------
By: Collis G. Sanders
Title: Group Vice President & Director
THE BANK OF NEW YORK
/s/ Raymond J. Palmer
-------------------------------------------------------
By: Raymond J. Palmer
Title: Vice President
THE BANK OF NOVA SCOTIA
/s/ F. C. H. Ashby
-------------------------------------------------------
By: F. C. H. Ashby
Title: Senior Manager
Loan Operations
BANK OF SCOTLAND
/s/ Catherine Oniffrey
-------------------------------------------------------
By: Catherine Oniffrey
Title: Vice President
<PAGE>
AMENDMENT NO. 1
TO LYONDELL PETROCHEMICAL COMPANY
$400,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
PAGE 5
THE BANK OF TOKYO - MITSUBISHI, LTD.
/s/Michael G. Meiss
-------------------------------------------------------
By: Michael G. Meiss
Title: Vice President
CANADIAN IMPERIAL BANK OF COMMERCE
/s/ Gary C. Gaskill
-------------------------------------------------------
By: Gary C. Gaskill
Title: Authorized Signatory
/s/ Michael A. G. Corkum
-------------------------------------------------------
By: Michael A. G. Corkum
Title: Authorized Signatory
COMERICA BANK
/s/ Kim A. Uhlemann
-------------------------------------------------------
By: Kim A. Uhlemann
Title: Vice President
CREDIT LYONNAIS
/s/ Pascal Poupelle
-------------------------------------------------------
By: Pascal Poupelle
Title: Senior Vice President
<PAGE>
AMENDMENT NO. 1
TO LYONDELL PETROCHEMICAL COMPANY
$400,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
PAGE 6
FIRST INTERSTATE BANK OF TEXAS, N.A.
/s/ Collie Michaels
-------------------------------------------------------
By: Collie Michaels
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
/s/ Michael Kane
-------------------------------------------------------
By: Michael Kane
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO
/s/ Dixon Schultz
-------------------------------------------------------
By: Dixon Schultz
Title: Vice President
THE FUJI BANK, LIMITED
/s/ David Kelley
-------------------------------------------------------
By: David Kelley
Title: Vice President, and Senior Manager
THE INDUSTRIAL BANK OF JAPAN TRUST CO.
/s/ Akijiro Yoshino
-------------------------------------------------------
By: Akijiro Yoshino
Title: Executive Vice President
<PAGE>
AMENDMENT NO. 1
TO LYONDELL PETROCHEMICAL COMPANY
$400,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
PAGE 7
The Industrial Bank of Japan,
Houston Office
(Authorized Representative)
THE LONG TERM CREDIT BANK OF JAPAN, LTD.
/s/ Satoru Otsubo
-------------------------------------------------------
By: Satoru Otsubo
Title: Joint General Manager
THE MITSUBISHI TRUST AND BANKING CORP.
/s/ Patricia Loret de Mola
-------------------------------------------------------
By: Patricia Loret de Mola
Title: Senior Vice President
NATIONSBANK OF TEXAS, N.A.
/s/ Patrick M. Delaney
-------------------------------------------------------
By: Patrick M. Delaney
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
/s/ Tamara O'Connor
-------------------------------------------------------
By: Tamara O'Connor
Title: Vice President
<PAGE>
AMENDMENT NO. 1
TO LYONDELL PETROCHEMICAL COMPANY
$400,000,000 AMENDED AND RESTATED CREDIT AGREEMENT
PAGE 8
SOCIETE GENERALE, SOUTHWEST AGENCY
/s/ Elizabeth W. Hunter
-------------------------------------------------------
By: Elizabeth W. Hunter
Title: Vice President
UNION BANK OF SWITZERLAND
/s/ George Kubove
-------------------------------------------------------
By: George Kubove
Title: Assistant Vice President
/s/ Kelly Boots
-------------------------------------------------------
By: Kelly Boots
Title: Assistant Treasurer
THE YASUDA TRUST & BANKING CO., LTD.
NEW YORK BRANCH
/s/ Gerald T. Gill
-------------------------------------------------------
By: Gerald T. Gill
Title: Vice President
<PAGE>
EXHIBIT 10.15
LYONDELL PETROCHEMICAL COMPANY
RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose.
--------
The Restricted Stock Plan for Non-Employee Directors of Lyondell
Petrochemical Company (the "Plan") is intended to provide non-employee
directors of Lyondell Petrochemical Company (the "Company") with an
increased propriety interest in the Company's success and progress by
granting them shares of the Company's Common Stock ("Common Stock") that
are restricted in accordance with the terms and conditions set forth below
("Restricted Shares"). The Plan is intended to increase the alignment of
non-employee directors with the Company's shareholders in terms of both
risk and reward.
2. Administration.
---------------
The Plan is to be administered by the Directors Benefit Committee (the
"Committee") of the Company or any successor committee with responsibility
for the administration of compensation and benefit plans for directors.
The Committee shall have all necessary authority and discretion to
interpret any provision of this Plan or to determine any question regarding
grants of Restricted Shares under this Plan. Any determination or
interpretations of the Committee shall be final, conclusive and binding on
all persons.
3. Eligibility.
------------
All current or subsequently elected members for the Company's Board of
Directors and at the time such service began were not, and for the
preceding ten years had not been, Executive Officers or employees of the
Company or any of its subsidiaries ("Eligible Directors") shall be
eligible to participate in the Plan.
4. Grants.
-------
Each year 25 percent of the annual retainer paid to non-employee directors
shall be made in the form of grants of Restricted Shares to Eligible
Directors. The number of Restricted Shares granted shall be determined by
dividing an amount equal to 25 percent of an Eligible Director's annual
retainer fees by the closing price of a share of Common Stock on the
effective date of the grant. Grants of Restricted Shares to Participants
shall be on the terms and conditions and with the restrictions determined
from time to time by the Committee under Section 5 of this Plan.
5. Terms and Conditions of Restricted Shares.
------------------------------------------
(a) General. Each grant of Restricted Shares shall be subject to the
restrictions under subsection (c) for the Restricted Period of the grant.
<PAGE>
(b) Restricted Period. The Restricted Period shall begin on the date of
the grant. The Restricted Period for a grant shall be at least one
year, and shall be set by the Committee and described in the
individual granting agreement to be executed by the Company and each
non-employee director.
(c) Restrictions. One or more of these restrictions shall be a
restriction which constitutes a substantial risk of forfeiture. An
Eligible Director shall have all ownership rights and privileges of a
shareholder as to such Restricted Shares, including the right to
receive dividends and the right to vote such Restricted Shares,
except that the following restrictions shall apply: (i) an Eligible
Director shall not be entitled to delivery of the certificate until
the expiration of the Restricted Period, (ii) none of the Restricted
Shares may be sold, transferred, assigned, pledged, or otherwise
encumbered or disposed of during the Restricted Period, and (iii)
except as provided in subsection 4(d), all grants of the Restricted
Shares shall be forfeited and all rights of an Eligible Director to
such Restricted Shares shall terminate without further obligation on
the part of the Company if the Eligible Director fails to satisfy the
terms of the grant of Restricted Shares.
During the Restricted Period, the Restricted Shares may be held on an
uncertificated basis or a stock certificate representing the number of
Restricted Shares granted may be registered in each Eligible Director name
but held in custody by the Plan for the Eligible Director account and not
released to the Eligible Director until the Restricted Period lapses.
(d) Termination of Directorship.
----------------------------
If an Eligible Director ceased to be a director of the Company by
reason to Disability, Death, Retirement or Change of Control, the
Restricted Shares granted to such Eligible Director shall immediately vest.
If an Eligible Director ceases to be a director of the Company for any
other reason, the Eligible Director shall immediately forfeit all
Restricted Shares, except to the extent that a majority of the Board other
than the Eligible Director approves the vesting of such Restricted Shares.
Upon vesting, except as provided in Section 6, all restrictions applicable
to such Restricted Shares shall lapse and a certificate for such shares
shall be delivered to the Eligible Director, or the Eligible Director's
beneficiary or estate, in accordance with Section 5(e).
For purposes of this section, the following definitions apply:
(i) "Disability" shall mean a permanent and total disability as
defined in Section 22(e)(3) of the Internal Revenue Code.
(ii) "Retirement" shall mean ceasing to be a director of the Company
(i) on or after age 72 or (ii) at any time prior to age 72 with the
consent of a majority of the members of the Board other than the
Eligible Director.
2
<PAGE>
(iii) "Change of Control" shall mean a change of control as defined
in the Company's Supplemental Executive Benefit Plans Trust Agreement.
(e) Delivery of Restricted Shares. At the end of the Restricted Period a
stock of certificate for the number of Restricted Shares which have vested
shall be delivered free of all such restrictions to the Eligible Director
or the Eligible Director's beneficiary or estate, as the case may be.
6. Regulatory Compliance.
----------------------
An Eligible Director or an Eligible Director's beneficiary or estate shall
not receive or sell any Common Stock granted pursuant to this Plan until
all appropriate listing, registration and qualification requirements and
consents and approvals have been satisfied or obtained, free of any
condition unacceptable to the Board of Directors.
The Committee shall have the authority to remove any or all of the
restrictions on the Restricted Shares, including restrictions under the
Restricted Period, whenever it determines that such action is appropriate
as a result of changes in applicable laws or other circumstances after the
date of the grant.
7. Shares Reserved Under the Plan
-------------------------------
The shares of Common Stock covered by grants under this Plan as Restricted
Shares will not exceed 100,000 shares in the aggregate, subject to
adjustment as provided below, and in accordance with and subject to Rule
16b-3 of the Securities and Exchange Act of 1934, ("Exchange Act") as
amended. Restricted Shares may be originally issued or treasury shares or
a combination of both.
Any shares of Common Stock granted as Restricted Shares that are
terminated, forfeited or surrendered or which expire for any reason will
not be available again for issuance under this Plan, if any Eligible
Director received any of the benefits of ownership of those shares prior to
termination, forfeiture or surrender.
In the event of a recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation, rights offering,
separation, reorganization or liquidation, or any other change in the
Company's corporate structure or shares, the Committee may make such
equitable adjustments in the number and class of shares authorized to be
granted as Restricted Shares, as it deems appropriate to prevent dilution
or enlargement of rights. Shares issued as a consequence of any such change
shall be issued subject to the same restrictions and provisions applicable
to the original grant of Restricted Shares.
8. Termination or Amendment of the Plan.
-------------------------------------
The Committee may at any time terminate the Plan and may from time to time
alter or amend the Plan or any part hereof (including any amendment deemed
necessary to ensure that the
3
<PAGE>
Company may comply with any regulatory requirement referred to in Section
6) without shareholder approval, unless otherwise required by law or by the
rules of the Securities and Exchange Commission or New York Stock Exchange.
No termination or amendment of the Plan may, without the consent of an
Eligible Director, impair the rights of such director with respect to
shares of Common Stock granted under the Plan.
9. Miscellaneous.
--------------
(a) Nothing in the Plan shall be deemed to create any obligation on the
part of the Board to nominate any director for reelection by the
Company's shareholders.
(b) The Company shall have the right to require, prior to the issuance or
delivery of any Restricted Shares, payment by an Eligible Director of
any taxes required by law with respect to the issuance or delivery of
such shares, or the lapse of restrictions thereon.
10. Governing Law.
--------------
The Plan shall be construed according to the law of the State of Texas to
the extent federal law does not supersede and preempt state law.
11. Effective Date.
---------------
The Plan shall become effective as of June 1, 1996, or such later date as
may be fixed by the Committee.
4
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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