<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): July 23, 1998.
LYONDELL CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-10145 95-4160558
(Commission File Number) (I.R.S. Employer Identification No.)
1221 McKinney Street, Suite 1600, Houston, Texas 77010
(Address of principal executive offices) (Zip Code)
(713) 652-7200
(Registrant's telephone number, including area code)
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Lyondell Chemical Company hereby amends its Current Report of Form 8-K filed on
August 7, 1998 by the addition of the following pro forma financial information
relating to ARCO Chemical Company and the acquisition thereof by Lyondell
Chemical Company.
INDEX
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(b) Unaudited pro forma financial information
Page No.
Unaudited Pro Forma Financial Data 2
Income Statement for the Six Months Ended June 30, 1998 3
Income Statement for the Year Ended December 31, 1997 4
Balance Sheet as of June 30, 1998 5
Notes to Unaudited Pro Forma Financial Data 6
1
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LYONDELL CHEMICAL COMPANY
(formerly Lyondell Petrochemical Company)
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma financial data set forth below give effect to the
acquisition by Lyondell Chemical Company, formerly known as Lyondell
Petrochemical Company ("Lyondell"), of ARCO Chemical Company ("ARCO Chemical")
in a transaction accounted for as a purchase. The unaudited pro forma financial
data are based on the individual financial data of Lyondell and ARCO Chemical as
if the acquisition had been completed as of June 30, 1998 for pro forma balance
sheet purposes and as of January 1, 1997 for pro forma income statement
purposes.
The purchase price was determined by the tender offer price of $57.75 per share
for the 97.4 million shares outstanding of ARCO Chemical and certain assumed
liabilities. Under the purchase method of accounting, the aggregate purchase
price was allocated to assets acquired and liabilities assumed based on the
estimated fair values. The final allocation of the purchase price will be
determined within a reasonable time after the acquisition date and will be based
on a complete evaluation of the assets acquired and liabilities assumed.
Accordingly, the information presented herein may differ from the final purchase
price allocation.
The unaudited pro forma financial data set forth below also gives effect to the
debt issued by Lyondell to finance, pursuant to the Bank Credit Facility, 1) the
purchase of ARCO Chemical, 2) the repayment of the $345 million note payable to
Equistar Chemicals, LP ("Equistar") and 3) the repayment of certain other
Lyondell and ARCO Chemical debt. Concurrent with the repayment of the $345
million note payable, Equistar distributed the proceeds to Lyondell, which
received 57 percent, and Millennium Chemicals, Inc. ("Millennium"), which
received 43 percent. The distribution is included in the pro forma financial
data. The pro forma financial data does not include the effect of contemplated
debt refinancings and equity offerings. The latter would have the effect of
reducing interest expense through the repayment of debt. In addition, the pro
forma financial data does not include any cash benefits that could be realized
from the step-up in the tax bases of the net assets. Concurrent with the merger
agreement, Lyondell and Atlantic Richfield Company ("ARCO"), as the majority
stockholder of ARCO Chemical, agreed to elect to step-up the tax bases in the
net assets.
The credit facilities arranged by the Company in connection with the acquisition
of ARCO Chemical and drawn on July 28, 1998 include four separate term loans in
the amounts of (a) $2 billion to be amortized over five years, (b) $1.25 billion
to be amortized over seven years, (c) $1.25 billion with principal maturing in
one year and (d) $2 billion with principal maturing in two years, as well as a
five-year revolving credit facility of up to $500 million.
The unaudited pro forma data do not necessarily reflect the results of
operations or financial position of Lyondell that would have resulted had such
transactions actually been consummated as of such dates. Also, these data are
not necessarily indicative of the future results of operations or future
financial position of Lyondell.
The unaudited pro forma financial data should be read in conjunction with both
the historical financial statements and notes thereto of Lyondell which are
included in its quarterly report on Form 10-Q for the six months ended June 30,
1998 and the annual reports of Lyondell and ARCO Chemical on Form 10-K for the
year ended December 31, 1997.
2
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LYONDELL CHEMICAL COMPANY
(formerly Lyondell Petrochemical Company)
UNAUDITED PRO FORMA INCOME STATEMENT
For the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
(Millions of dollars except per share amounts)
ARCO Pro Forma Pro Forma
Lyondell Chemical Adjustments Combined
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Sales and other operating revenues $ -- $1,816 $ 1,816
Income from equity investments 173 -- 173
Operating costs and expenses:
Cost of goods sold -- 1,269 1,269
Depreciation and amortization -- 105 $ 24 (a)
38 (b)
15 (c)
(1) (d) 181
Selling, general and administrative and
research and development expenses 11 152 -- 163
Unusual charges (including $3 million from
Equistar) 10 (20) -- (10)
------- ------ ------- -------
Operating income 152 310 (76) 386
Interest expense (13) (36) 49 (e)
(286) (f) (286)
Interest income 7 8 -- 15
Other income, net 5 11 -- 16
Minority interest -- (4) -- (4)
------- ------ ------- -------
Income before income taxes 151 289 (313) 127
Provision for income taxes 57 87 (96) (g) 48
------- ------- ------- -------
Net income $ 94 $ 202 $ (217) $ 79
======= ======= ======= =======
Basic earnings per common share $ 1.20 (h) $ 1.01
------- -------
Average shares outstanding (in thousands) 78,179 78,179
------- -------
Diluted earnings per common share $ 1.20 (h) $ 1.01
------- -------
Average shares outstanding (in thousands) 78,344 78,344
------- -------
</TABLE>
See notes to unaudited pro forma financial data.
3
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LYONDELL CHEMICAL COMPANY
(formerly Lyondell Petrochemical Company)
UNAUDITED PRO FORMA INCOME STATEMENT
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
(Millions of dollars except per share amounts) Lyondell
Historical ARCO Pro Forma Pro Forma
Adjusted (i) Chemical Adjustments Combined
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Sales and other operating revenues $ -- $ 3,995 $ 3,995
Income from equity investments 526 -- 526
Operating costs and expenses:
Cost of goods sold -- 3,010 3,010
Depreciation and amortization -- 229
$ 36 (a)
77 (b)
51 (c)
(2) (d) 391
Selling, general and administrative and
research and development expenses 19 325 -- 344
Unusual charges (including $24 million from
Equistar) 40 175 -- 215
------- ------- ------- -------
Operating income 467 256 (162) 561
Interest expense (13) (80) 93 (e)
(571) (f) (571)
Interest income 2 10 -- 12
Other expense, net -- (11) -- (11)
Minority interest -- (7) -- (7)
------- ------- ------- -------
Income (loss) before income taxes 456 168 (640) (16)
Provision (benefit) for income taxes 170 57 (233) (g) (6)
------- ------- ------- -------
Net income (loss) $ 286 $ 111 $ (407) $ (10)
======= ======= ======= =======
Basic earnings (loss) per common share $ 3.58 (h) $ (.13)
------- -------
Average shares outstanding (in thousands) 79,796 79,796
------- -------
Diluted earnings (loss) per common share $ 3.58 (h) $ (.13)
------- -------
Average shares outstanding (in thousands) 79,852 79,852
------- -------
</TABLE>
See notes to unaudited pro forma financial data.
4
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LYONDELL CHEMICAL COMPANY
(formerly Lyondell Petrochemical Company)
UNAUDITED PRO FORMA BALANCE SHEET
As of June 30, 1998
<TABLE>
<CAPTION>
(Millions of dollars) Purchase
ARCO Price Pro Forma Pro Forma
Lyondell Chemical Adjust. (j) Adjustments Combined
-------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 25 $ 14 $(5,625) $5,895 (k) $ 309
Accounts receivable, net 3 583 -- -- 586
Inventories -- 477 10 -- 487
Prepaid expenses and other current assets 17 30 -- -- 47
------ ------ ------- ------ ------
Total current assets 45 1,104 (5,615) 5,895 1,429
Property, plant and equipment, net -- 2,527 2,173 -- 4,700
Investments and long-term receivables -- 60 -- -- 60
Investment in affiliates 1,043 -- -- (197) (l) 846
Receivable from affiliate 213 -- -- -- 213
Deferred charges and other assets 46 355 525 123 (m) 1,049
Goodwill -- -- 1,230 -- 1,230
------ ------ ------- ------ ------
Total assets $1,347 $4,046 $(1,687) $5,821 $9,527
====== ====== ======= ====== ======
Accounts payable $ 8 $ 218 $ 226
Notes payable 65 94 $ (159) (n) --
Current maturities of long-term debt -- 23 (23) (o)
1,420 (o) 1,420
Other current liabilities 22 294 $ 330 -- 646
------ ------ ------- ------ ------
Total current liabilities 95 629 330 1,238 2,292
Long-term debt 345 776 -- 4,583 (o) 5,704
Other liabilities and deferred credits 60 225 4 -- 289
Deferred income taxes 219 359 (173) -- 405
Minority interest -- 209 -- -- 209
Total stockholders' equity 628 1,848 (1,848) -- 628
------ ------ ------- ------ ------
Total liabilities and stockholders'
equity $1,347 $4,046 $(1,687) $5,821 $9,527
====== ====== ======= ====== ======
</TABLE>
See notes to unaudited pro forma financial data.
5
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LYONDELL CHEMICAL COMPANY
(formerly Lyondell Petrochemical Company)
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA
(a) To reflect additional depreciation expense for the estimated increase in
the fair value in excess of the historical book basis of ARCO Chemical
property, plant and equipment over an average useful life of 20 years.
Such fair values are based on estimates made at the time of acquisition;
appraisals have not yet been completed.
(b) To reflect amortization of goodwill and additional amortization expense for
the estimated increase in other intangibles over periods ranging from four
to 40 years.
(c) To reflect amortization expense resulting from $123 million in debt
issuance costs from financings under the Bank Credit Facility over
periods ranging from one to seven years.
(d) To eliminate ARCO Chemical historical goodwill amortization.
(e) To reflect elimination of the historical Lyondell and ARCO Chemical
interest expense.
(f) To reflect interest expense related to the issuance of the $2 billion Term
Loan A, $1.25 billion Term Loan C and $2 billion Term Loan D, each at LIBOR
plus 2.0 percent, and $1.25 billion Term Loan B at LIBOR plus 2.5 percent
combined with the historical interest expense on the $624 million ARCO
Chemical notes. LIBOR was 5.75 percent for the 1997 and 1998 period. The
impact of an increase in the LIBOR rate of 1/8th of 1.0 percent would be to
increase interest expense by approximately $4 million for the six months
ended June 30, 1998 and $8 million for the twelve months ended December 31,
1997.
(g) To reflect the tax effect of the pro forma adjustments and to adjust the
tax provision to the Company's estimated effective income tax rate of 37.75
percent for the periods presented. State income tax is the primary
difference between the estimated effective tax rate and the 35 percent
federal statutory rate.
(h) Basic and diluted earnings per share before the effects of the unusual
charges, net of tax are as follows:
<TABLE>
<CAPTION>
Pro Forma
Lyondell Combined
------------ -----------
<S> <C> <C>
SIX MONTHS ENDED JUNE 30, 1998
Basic earnings per common share before unusual charges, net of tax $ 1.28 $ .93
Diluted earnings per common share before unusual charges, net of tax $ 1.28 $ .93
YEAR ENDED DECEMBER 31, 1997
Basic earnings per common share before unusual charges, net of tax $ 3.90 $ 1.54
Diluted earnings per common share before unusual charges, net of tax $ 3.90 $ 1.54
</TABLE>
6
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LYONDELL CHEMICAL COMPANY
(formerly Lyondell Petrochemical Company)
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (Continued)
(i) Amounts include reclassifications of the historical income statement for
the year ended December 31, 1997 of Lyondell to reflect the contribution of
the petrochemicals and polymers business ("Lyondell Contributed Business")
as if Equistar had been formed January 1, 1997. Commencing January 1, 1998,
Lyondell began accounting for its investment in Lyondell Methanol Company,
L.P. ("Lyondell Methanol") using the equity method of accounting rather
than consolidation. Actual 1997 results have been adjusted to present the
results of operations of Lyondell using the equity method of accounting for
Lyondell's investment in Lyondell Methanol and the Lyondell Contributed
Business as if the equity method of accounting had been effective January
1, 1997. Such reclassifications are detailed below:
<TABLE>
<CAPTION>
Lyondell Lyondell
Contributed Other Historical
Lyondell Business Reclasses Adjusted
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales and other operating revenues $2,878 $(2,715) $(163) $ --
Income from equity investments 132 346 48 526
Operating costs and expenses:
Cost of goods sold 2,166 (2,085) (81) --
Depreciation and amortization 84 (68) (16) --
Selling, general and administrative
expenses 186 (166) (1) 19
Unusual charges 40 -- -- 40
------ ------- ------ ----
Operating income 534 (50) (17) 467
Interest expense (75) 62 -- (13)
Interest income 14 (12) -- 2
Minority interest (17) -- 17 --
------ ------- ------ ----
Income before income taxes 456 -- -- 456
Provision for income taxes 170 -- -- 170
------ ------- ------ ----
Net income $ 286 $ -- $ -- $286
====== ======= ====== ====
</TABLE>
(j) The purchase price was determined by the tender offer price of $57.75 per
share for the approximately 97.4 million shares outstanding of ARCO
Chemical. The preliminary purchase price allocation was determined based on
the estimated fair value of fixed assets ($4.7 billion), deferred charges
and other assets ($880 million), which includes intangible assets, and
inventory. Intangible assets include approximately $57 million related
to purchased research and development which will be written off in 1998.
Such fair values are based on estimates made at the time of acquisition;
appraisals have not yet been completed. In addition, estimated
liabilities for severance ($45 million), relocation ($17 million),
certain change of control provisions related to ARCO Chemical incentive
plans ($101 million) and other closing costs were included in the purchase
price. Estimated liabilities associated with the decision to delay the
construction of a previously announced propylene oxide plant (known as
PO-11) were also included in the purchase price. Concurrent with the
merger agreement, Lyondell and Atlantic Richfield Company ("ARCO"), as
the majority stockholder of ARCO Chemical, agreed to elect to step-up the
tax bases in the net assets. Deferred tax assets and liabilities were
adjusted to reflect the new book and tax bases, which are substantially
the same. The fair value of other assets and liabilities, including cash
and cash equivalents, accounts receivable, prepaid expenses and other
assets, investments and long-term receivables, accounts payable, long-term
debt, other liabilities and deferred credits and minority interest, are
estimated to approximate their carrying value due to their short maturity
or nature.
7
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LYONDELL CHEMICAL COMPANY
(formerly Lyondell Petrochemical Company)
NOTES TO UNAUDITED PRO FORMA FINANCIAL DATA (Continued)
(k) To reflect the net cash impact of the debt financing of $6.5 billion in
borrowings plus $197 million distribution from Equistar less repayment of
the $345 million note payable to Equistar, repayment of $159 million in
short-term borrowings, $175 million in other debt repayments and payment
of $123 million in bank financing fees.
(l) To record the distribution of $197 million from Equistar resulting from the
repayment of the $345 million note payable.
(m) To reflect capitalization of debt issuance costs under the Bank Credit
Facility.
(n) To reflect repayment of short-term borrowings of Lyondell and ARCO
Chemical.
(o) To reflect borrowing of $6.5 billion from the bank credit facility less
payoff of certain ARCO Chemical bank loans and other debt, including the
current portion of $23 million, and $345 million of the note payable to
Equistar. The $1.25 billion Term Loan C and current portions of Term Loan
A ($165 million) and Term Loan B ($5 million) are shown in the current
portion of long-term debt.
8
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SIGNATURES
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 hereunto duly authorized.
LYONDELL CHEMICAL COMPANY
By: /s/ Van Billet
----------------------------------
Van Billet
Vice President and Controller
(Principal Accounting Officer)
Date: September 25, 1998
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