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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) (IRS 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 on Form 8-K filed on
August 7, 1998, as amended by its Form 8-K/A filed on September 25, 1998, by the
addition of the following 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.
(a) Financial Statements of Business Acquired
1. ARCO Chemical Company consolidated balance sheets as of June
30, 1998 and December 31, 1997, the consolidated statements of
income, and comprehensive income for the three and six months
ended June 30, 1998 and 1997, and the consolidated statements
of cash flows for the six months ended June 30, 1998 and 1997.
Page No.
--------
Consolidated Statements of Income 2
Consolidated Balance Sheet 3
Consolidated Statements of Cash Flows 4
Consolidated Statements of Comprehensive Income 5
Notes to Consolidated Financial Statements - Unaudited 6
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ARCO CHEMICAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Millions of Dollars, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales and other operating revenues $ 882 $ 956 $1,816 $1,985
Costs and other operating expenses 650 795 1,370 1,639
----- ----- ------ ------
Gross profit 232 161 446 346
Selling, general and administrative
expenses 70 67 122 135
Research and development 17 20 34 41
Restructuring and other charges (20) - (20) -
----- ----- ------ ------
Operating income 165 74 310 170
Interest expense (18) (20) (36) (42)
Other income (expense), net 7 (1) 15 (2)
----- ----- ------ ------
Income before income taxes 154 53 289 126
Provision for income taxes 44 18 87 43
----- ----- ------ ------
Net income $ 110 $ 35 $ 202 $ 83
===== ===== ====== ======
Earnings per share:
Basic $1.13 $ .36 $ 2.08 $ .86
===== ===== ====== ======
Diluted $1.13 $ .36 $ 2.07 $ .86
===== ===== ====== ======
Cash dividends paid per share $ .70 $ .70 $ 1.40 $ 1.40
===== ===== ====== ======
</TABLE>
See accompanying notes.
2
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ARCO CHEMICAL COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Millions of Dollars)
June 30, December 31,
1998 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 14 $ 29
Accounts receivable, net 583 612
Inventories 477 484
Prepaid expenses and other current assets 30 21
------ ------
Total current assets 1,104 1,146
Investments and long-term receivables 60 64
Property, plant and equipment, net 2,527 2,534
Deferred charges and other assets (net of
accumulated amortization of $119 in 1998
and $113 in 1997) 355 372
------ ------
Total assets $4,046 $4,116
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 94 $ 98
Long-term debt due within one year 23 23
Accounts payable 218 304
Taxes payable 35 56
Other accrued liabilities 259 278
------ ------
Total current liabilities 629 759
------ ------
Long-term debt 776 792
Other liabilities and deferred credits 225 215
Deferred income taxes 359 338
Minority interest 209 219
Stockholders' equity:
Common stock 100 100
Additional paid-in capital 882 880
Retained earnings 968 902
Foreign currency translation (34) (14)
Treasury stock, at cost (68) (75)
------ ------
Total stockholders' equity 1,848 1,793
------ ------
Total liabilities and stockholders' equity $4,046 $4,116
====== ======
See accompanying notes.
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ARCO CHEMICAL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
-------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 202 $ 83
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 105 116
Deferred income taxes 42 8
Changes in working capital accounts (88) (1)
Restructuring and other charges (20) -
Other 1 4
----- -----
Net cash provided by operating activities 242 210
----- -----
Cash flows from investment activities
Capital expenditures (117) (127)
Proceeds from asset sales - 20
Other 9 15
----- -----
Net cash used in investment activities (108) (92)
----- -----
Cash flows from financing activities
Dividends paid (136) (136)
Repayment of long-term debt (14) (172)
Proceeds from issuance of long-term debt - 158
Net (repayment of) proceeds from notes payable (7) 46
Other 9 8
----- -----
Net cash used in financing activities (148) (96)
----- -----
Effect of exchange rate changes on cash (1) (4)
----- -----
Net increase in cash and cash equivalents (15) 18
Cash and cash equivalents at beginning of year 29 70
----- -----
Cash and cash equivalents at end of period $ 14 $ 88
===== =====
</TABLE>
See accompanying notes.
4
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ARCO CHEMICAL COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1998 1997 1998 1997
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 110 $ 35 $ 202 $ 83
Foreign currency translation, net of tax (1) (16) (20) (56)
----- ----- ----- -----
Comprehensive income $ 109 $ 19 $ 182 $ 27
===== ===== ===== =====
</TABLE>
See accompanying notes.
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE A. BASIS OF PRESENTATION
The foregoing financial information is unaudited and has been prepared
from the records of ARCO Chemical Company (the Company). In the opinion of
management, the financial information reflects all adjustments (consisting only
of items of a normal recurring nature, except for the restructuring and other
charges) necessary for a fair statement of financial position and results of
operations in conformity with generally accepted accounting principles. Certain
amounts in 1997 have been reclassified for comparative purposes. These interim
financial statements should be read in conjunction with the consolidated
financial statements for the year ended December 31, 1997.
NOTE B. GEOGRAPHIC INFORMATION
The Company is an international manufacturer of intermediate chemicals
and specialty chemical products, which it principally markets to other
industrial concerns. The Company operates in one industry segment. The
geographic distribution of the Company's markets is indicated by the table
below. Total revenues are summarized geographically by destination (customer
location) and by origin (point of sale); intercompany sales between geographic
areas are excluded.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C> <C>
Total revenues (by destination)
United States $479 $480 $ 956 $1,011
Europe 224 255 475 519
Other foreign 179 221 385 455
---- ---- ------ ------
Total $882 $956 $1,816 $1,985
==== ==== ====== ======
Total revenues (by origin)
United States $547 $582 $1,114 $1,221
Europe 258 277 539 569
Other foreign 77 97 163 195
---- ---- ------ ------
Total $882 $956 $1,816 $1,985
==== ==== ====== ======
Pretax earnings
United States $169 $105 $ 305 $ 196
Europe 1 (32) 16 (30)
Other foreign 2 - 4 2
Interest expense (18) (20) (36) (42)
---- ---- ------ ------
Total $154 $ 53 $ 289 $ 126
==== ==== ====== ======
</TABLE>
Pretax earnings include royalty charges made to foreign operations for the
use of Company technology.
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NOTE C. INVENTORIES
Inventories at June 30, 1998 and December 31, 1997 comprised the
following categories:
1998 1997
---- ----
(Millions of Dollars)
Finished goods $304 $336
Work-in-process 49 45
Raw materials 81 58
Materials and supplies 43 45
---- ----
Total $477 $484
==== ====
NOTE D. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost, and related accumulated
depreciation at June 30, 1998 and December 31, 1997 were as follows:
1998 1997
---- ----
(Millions of Dollars)
Property, plant and equipment $4,193 $4,149
Less: accumulated depreciation 1,666 1,615
------ ------
Total $2,527 $2,534
====== ======
NOTE E. CONTINGENCIES
The Company and its subsidiaries are involved in a number of lawsuits,
all of which have arisen in the ordinary course of the Company's business. The
Company is unable to predict the outcome of these matters, but does not believe,
based upon currently available facts, that the ultimate resolution of such
matters will have a material adverse effect on the consolidated financial
statements of the Company.
The Company is subject to other loss contingencies pursuant to federal,
state, local, and foreign environmental laws and regulations. These
contingencies include possible obligations to remove or mitigate the effects on
the environment of the past disposal or release of certain chemical substances
at various sites (remediation costs). The Company continues to evaluate the
amount of these remediation costs and periodically adjusts its reserve for
remediation costs and its estimate of additional environmental loss
contingencies based on progress made in determining the magnitude, method and
timing of the remedial actions that may be required by government authorities
and an evaluation of the Company's potential liability in relation to the
liability and financial resources of any other potentially responsible parties.
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At June 30, 1998, the Company's environmental liability totaled $44
million, which reflected the Company's latest assessment of potential future
remediation costs associated with existing sites. A significant portion of the
liability is related to the Beaver Valley plant site, located in Monaca,
Pennsylvania. The Company sold the Beaver Valley plant assets to NOVA
Chemicals Inc. (NOVA) on September 30, 1996, but retained ownership of the land
at the Beaver Valley plant site, substantial portions of which were leased to
NOVA. On October 20, 1997, the Company, Beazer East, Inc. (Beazer) and the
Pennsylvania Department of Environmental Protection (PADEP) entered into a
consent agreement that acknowledged the completion of remedial investigations
and conditionally approved the proposed remediation methods at the Beaver Valley
plant site, all pursuant to a 1994 work plan previously agreed to by the Company
and PADEP. Following execution of the consent agreement, the Company
transferred to NOVA title to the previously leased portions of the land at the
Beaver Valley plant site. The Company continues to retain responsibility for
remediation of the land. Final approval of the remediation methods is subject
to PADEP's approval of risk assessment studies to be submitted by the Company in
the near future. The Company has an agreement with Beazer whereby Beazer has
agreed to pay for approximately 50 percent of the Beaver Valley plant site
remediation costs. The Company and Beazer have reached an agreement with the
U.S. government whereby the government will pay 28.5 percent of the costs
incurred by the Company and Beazer for remediation of substantial portions of
the Beaver Valley site.
The remainder of the liability is related to four other plant sites and
one federal Superfund site for amounts ranging from $2 million to $13 million
per site. The Company is involved in administrative proceedings or lawsuits
relating to a minimal number of other Superfund sites. However, the Company
estimates, based on currently available information, that potential loss
contingencies associated with these sites, individually and in the aggregate,
are not significant. Substantially all amounts accrued are expected to be paid
out over the next five to ten years.
The Company relies upon remedial investigation/feasibility studies
(RI/FS) at each site as a basis for estimating remediation costs at the site.
The Company has completed RI/FS or preliminary assessments at most of its sites.
However, selection of the remediation method and the cleanup standard to be
applied are, in most cases, subject to approval by the appropriate government
authority. Accordingly, the Company may have possible loss contingencies in
excess of the amounts reserved to the extent the scope of remediation required,
the final remediation method selected and the cleanup standard applied vary from
the assumptions used in estimating the liability. The Company estimates that
the upper range of these possible loss contingencies should not exceed the
amount accrued by more than $65 million.
The extent of loss related to environmental matters ultimately depends
upon a number of factors, including technological developments, changes in
environmental laws, the number and ability to pay of other parties involved at a
particular site and the Company's potential involvement in additional
environmental assessments and cleanups. Based upon currently known facts,
management believes that any remediation costs the Company may incur in excess
of the amounts accrued or disclosed above would not have a material adverse
impact on the Company's consolidated financial statements.
The Company and the Atlantic Richfield Company (ARCO) are parties to an
agreement whereby the Company has indemnified ARCO against certain claims or
liabilities that ARCO may incur relating to ARCO's former ownership and
operation of the oxygenates and polystyrenics businesses of the Company,
including liabilities under laws relating to the protection of the environment
and the workplace and liabilities arising out of certain litigation. ARCO has
indemnified the Company with respect to claims or liabilities and other matters
of litigation not related to the assets or businesses reflected in the
consolidated financial statements. ARCO has also indemnified the Company for
certain federal, foreign, state, and local taxes that
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might be assessed upon audit of the operations of the Company included in its
consolidated financial statements for periods prior to the July 1, 1987
formation of the Company.
NOTE F. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share." SFAS No. 128 required companies to adopt its provisions in financial
statements issued for periods ending after December 15, 1997 and required
restatement of all prior earnings per share ("EPS") data presented. Basic EPS
is based on the average number of common shares outstanding during each period.
Diluted EPS includes the effect of outstanding stock options.
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
---- ----
Shares EPS Shares EPS
------ --- ------ ---
(Millions, except per share amounts)
<S> <C> <C> <C> <C>
Earnings per Share:
Basic................................. 97.4 $1.13 96.9 $0.36
Dilutive effect of options............ 0.3 - 0.1 -
---- ----- --- -----
Diluted............................... 97.7 $1.13 97.0 $0.36
==== ===== ==== =====
Six Months Ended June 30,
1998 1997
---- ----
Shares EPS Shares EPS
------ --- ------ ---
(Millions, except per share amounts)
Earnings per Share:
Basic................................. 97.3 $2.08 96.9 $0.86
Dilutive effect of options............ 0.2 (0.1) 0.1 -
---- ----- ---- -----
Diluted 97.5 $2.07 97.0 $0.86
==== ===== ==== =====
</TABLE>
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NOTE G. SUPPLEMENTAL CASH FLOW INFORMATION
Following is supplemental cash flow information for the six months
ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Millions of Dollars)
Changes in working capital-increase (decrease) in cash:
<S> <C> <C>
Accounts receivable $ 25 $ (1)
Inventories (1) 14
Prepaid expense and other current assets (10) (9)
Accounts payable (82) (24)
Taxes payable (22) 10
Other accrued liabilities 2 9
---- ----
Changes in working capital accounts $(88) $ (1)
==== ====
The above changes exclude the effects of foreign exchange rate changes.
Cash paid during the period for:
Interest (net of amount capitalized) $ 37 $ 42
==== ====
Income taxes $ 68 $ 26
==== ====
</TABLE>
NOTE H. RESTRUCTURING PROGRAM
During the third quarter 1997, the Company recorded a pretax charge of
$175 million related to a previously announced restructuring program, which
included a review of all operations and assets. Activities related to the
restructuring program are expected to continue through the end of 1998. The
restructuring charge included $75 million of personnel-related costs and $23
million of exit costs. Other charges included $77 million related to the review
of assets.
Personnel costs included severance, pension enhancements, and other
ancillary costs for the reduction of approximately 630 employees worldwide in
manufacturing, commercial, research, and administrative activities. Severance
payments and other ancillary costs, which will be paid from Company funds,
accounted for $54 million of the accrued liability. Certain of these payments
can be deferred at the election of employees, and the Company estimates that
such payments will take place over the next two to three years. Exit costs
included costs of canceling long-term contracts and leases related to certain
production, sales and administrative facilities, including $7 million related to
the write down of production assets.
Through June 30, 1998, approximately 430 employees have been terminated
and approximately $23 million of severance and ancillary costs have been paid
out and charged against the accrued liability. Additionally, in the second
quarter 1998, the Company reversed a $20 million over accrual, consisting
primarily of personnel costs related to approximately 140 involuntary employee
terminations. Higher than anticipated voluntary resignations, attributed to the
robust labor market, resulted in the lower involuntary terminations. There were
no significant payments of exit costs.
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NOTE I. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," which requires prominent disclosure of comprehensive income, as
defined, including comparative disclosure in interim financial statements.
NOTE J: SUBSEQUENT EVENTS
On June 18, 1998, the Company and Lyondell Petrochemical Company
("Lyondell") entered into an agreement under which the Company would be acquired
by Lyondell pursuant to an all-cash tender offer of $57.75 per share for all
outstanding shares of the Company's stock followed by a merger of the Company
with Lyondell Acquisition Corporation. The tender offer expired at midnight on
July 22, 1998. On July 28, 1998, the Company merged with Lyondell Acquisition
Corporation and the Company, as survivor, became a wholly owned subsidiary of
Lyondell. The acquisition will be accounted for as a purchase by Lyondell. The
accompanying financial statements reflect the historical accounting basis of the
Company prior to the acquisition.
As of December 31, 1997, the Company reported total capital commitments
of approximately $500 million. A substantial portion of such commitments
related to the construction of a new propylene oxide plant (designated PO-11) in
Rotterdam, The Netherlands. In August 1998, following its acquisition of the
Company, Lyondell announced that it was delaying construction of the plant and
was reevaluating the siting. Lyondell will incur certain costs in connection
with the decision to delay, which are expected to be substantially less than the
commitment amounts. Concurrently, Lyondell is reevaluating a previously
announced butanediol (BDO) plant, which is in the definition stage, proposed for
the same site. Lyondell canceled certain foreign currency forward, zero-cost
range forward option, and purchased option contracts originally designed to
reduce the foreign exchange exposure on the PO-11 and BDO plant capital
commitments. These canceled derivative instruments accounted for a substantial
portion of the Company's derivative instrument position at June 30, 1998.
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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: October 2, 1998
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