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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
þ                                     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE                        
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2002
 
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 CHEMICAL 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 700, Houston, Texas
  
(Zip Code)
(Address of principal executive offices)
    
 
Registrant’s telephone number, including area code: (713) 652-7200
 
 
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 þ    No ¨
 
Number of shares of common stock outstanding as of September 30, 2002: 159,844,920 (includes common stock, $1.00 par value, and Series B common stock, $1.00 par value)
 

 
PART I.    FINANCIAL INFORMATION
 
LYONDELL CHEMICAL COMPANY
 
ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
CONSOLIDATED STATEMENTS OF INCOME
 
    
For the three months ended September 30,
     
For the nine
months ended
September 30,
  
Millions of dollars, except per share data
   
2002
     
2001
     
2002
     
2001
  
Sales and other operating revenues
   
$
855
 
   
$
742
 
   
$
2,372
 
   
$
2,484
 
Operating costs and expenses:
                                    
Cost of sales
   
 
749
 
   
 
640
 
   
 
2,062
 
   
 
2,171
 
Selling, general and administrative expenses
   
 
40
 
   
 
34
 
   
 
126
 
   
 
117
 
Research and development expense
   
 
7
 
   
 
8
 
   
 
22
 
   
 
24
 
Amortization of goodwill
   
 
—  
 
   
 
8
 
   
 
—  
 
   
 
23
 
Restructuring charges
   
 
—  
 
   
 
78
 
   
 
—  
 
   
 
78
 
    
  
  
  
    
 
796
 
   
 
768
 
   
 
2,210
 
   
 
2,413
 
    
  
  
  
Operating income (loss)
   
 
59
 
   
 
(26
)
   
 
162
 
   
 
71
 
Interest expense
   
 
(98
)
   
 
(95
)
   
 
(285
)
   
 
(292
)
Interest income
   
 
3
 
   
 
4
 
   
 
8
 
   
 
15
 
Other expense, net
   
 
(5
)
   
 
(4
)
   
 
(8
)
   
 
(2
)
    
  
  
  
Loss before equity investments, income taxes and extraordinary item
   
 
(41
)
   
 
(121
)
   
 
(123
)
   
 
(208
)
    
  
  
  
Income (loss) from equity investments:
                                    
Equistar Chemicals, LP
   
 
11
 
   
 
(24
)
   
 
(39
)
   
 
(48
)
LYONDELL-CITGO Refining LP
   
 
32
 
   
 
48
 
   
 
98
 
   
 
116
 
Other
   
 
1
 
   
 
(7
)
   
 
(4
)
   
 
(7
)
    
  
  
  
    
 
44
 
   
 
17
 
   
 
55
 
   
 
61
 
    
  
  
  
Income (loss) before income taxes and extraordinary item
   
 
3
 
   
 
(104
)
   
 
(68
)
   
 
(147
)
Benefit from income taxes
   
 
(2
)
   
 
(37
)
   
 
(20
)
   
 
(50
)
    
  
  
  
Income (loss) before extraordinary item
   
 
5
 
   
 
(67
)
   
 
(48
)
   
 
(97
)
Extraordinary loss on extinguishment of debt, net of income taxes
   
 
(7
)
   
 
-—  
 
   
 
(7
)
   
 
-—  
 
    
  
  
  
Net loss
   
$
(2
)
   
$
(67
)
   
$
(55
)
   
$
(97
)
    
  
  
  
Basic and diluted loss per share:
                                    
Income (loss) before extraordinary item
   
$
.04
 
   
$
(.57
)
   
$
(.38
)
   
$
(.82
)
Extraordinary loss
   
 
(.06
)
   
 
-—  
 
   
 
(.06
)
   
 
-—  
 
    
  
  
  
Net loss
   
$
(.02
)
   
$
(.57
)
   
$
(.44
)
   
$
(.82
)
    
  
  
  
 
See Notes to the Consolidated Financial Statements.

1

 
LYONDELL CHEMICAL COMPANY
 
CONSOLIDATED BALANCE SHEETS
 
Millions of dollars, except par value data
     
September 30, 2002
     
December 31, 2001
  
ASSETS
                    
Current assets:
                    
Cash and cash equivalents
     
$
463
 
   
$
146
 
Accounts receivable, net
     
 
367
 
   
 
352
 
Inventories
     
 
344
 
   
 
316
 
Prepaid expenses and other current assets
     
 
53
 
   
 
116
 
Deferred tax assets
     
 
35
 
   
 
277
 
      
  
Total current assets
     
 
1,262
 
   
 
1,207
 
      
  
Property, plant and equipment, net
     
 
2,347
 
   
 
2,293
 
Investments and long-term receivables:
                    
Investment in Equistar Chemicals, LP
     
 
1,275
 
   
 
522
 
Investment in PO joint ventures
     
 
746
 
   
 
717
 
Receivable from LYONDELL-CITGO Refining LP
     
 
229
 
   
 
229
 
Investment in LYONDELL-CITGO Refining LP
     
 
54
 
   
 
29
 
Other investments and long-term receivables
     
 
95
 
   
 
122
 
Goodwill, net
     
 
1,119
 
   
 
1,102
 
Other assets, net
     
 
430
 
   
 
482
 
      
  
Total assets
     
$
7,557
 
   
$
6,703
 
      
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                    
Current liabilities:
                    
Accounts payable
     
$
332
 
   
$
319
 
Current maturities of long-term debt
     
 
4
 
   
 
7
 
Other accrued liabilities
     
 
358
 
   
 
233
 
      
  
Total current liabilities
     
 
694
 
   
 
559
 
      
  
Long-term debt
     
 
3,908
 
   
 
3,846
 
Other liabilities
     
 
583
 
   
 
583
 
Deferred income taxes
     
 
914
 
   
 
790
 
Commitments and contingencies
                    
Minority interest
     
 
162
 
   
 
176
 
Stockholders’ equity:
                    
Common stock, $1.00 par value, 340,000,000 shares authorized, 128,530,000 and 120,250,000 shares issued, respectively
     
 
128
 
   
 
120
 
Series B common stock, $1.00 par value, 80,000,000 shares authorized, 34,000,000 shares issued
     
 
34
 
   
 
-—  
 
Additional paid-in capital
     
 
1,372
 
   
 
854
 
Retained earnings
     
 
111
 
   
 
247
 
Accumulated other comprehensive loss
     
 
(274
)
   
 
(397
)
Treasury stock, at cost, 2,685,080 and 2,687,080 shares, respectively
     
 
(75
)
   
 
(75
)
      
  
Total stockholders’ equity
     
 
1,296
 
   
 
749
 
      
  
Total liabilities and stockholders’ equity
     
$
7,557
 
   
$
6,703
 
      
  
 
See Notes to the Consolidated Financial Statements.

2

LYONDELL CHEMICAL COMPANY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
    
For the nine months ended September 30,
  
Millions of dollars
   
2002
     
2001
  
Cash flows from operating activities:
                  
Net loss
   
$
(55
)
   
$
(97
)
Adjustments to reconcile net loss to net cash provided by operating activities:
                  
Depreciation and amortization
   
 
189
 
   
 
199
 
Losses from equity investments
   
 
43
 
   
 
55
 
Restructuring charges
   
 
—  
 
   
 
78
 
Deferred income taxes
   
 
1
 
   
 
(15
)
Extraordinary item
   
 
7
 
   
 
—  
 
Changes in assets and liabilities that provided (used) cash:
                  
Accounts receivable
   
 
36
 
   
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