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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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: 1-12091
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MILLENNIUM CHEMICALS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 22-3436215
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
230 HALF MILE ROAD 07701-7015
P.O. BOX 7015 (ZIP CODE)
RED BANK, NJ
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 732-933-5000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value New York Stock Exchange
$0.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 is required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates as of
March 23, 2001 (based upon the closing price of $16.22 per common share as
quoted on the New York Stock Exchange), is approximately $1,000 million. For
purposes of this computation, the shares of voting stock held by directors,
officers and employee benefit plans of the registrant and its wholly owned
subsidiaries were deemed to be stock held by affiliates. The number of shares of
common stock outstanding at March 23, 2001, was 63,450,643 shares, excluding
14,445,943 shares held by the registrant, its subsidiaries and certain Company
trusts, which are not entitled to be voted.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 2000, are incorporated by reference into Parts I and II of
this Annual Report on Form 10-K as indicated herein. Portions of the
Registrant's definitive Proxy Statement relating to the 2001 Annual Meeting of
Shareholders, to be filed with the Securities and Exchange Commission, are
incorporated by reference in Part III of this Annual Report on Form 10-K as
indicated herein.
________________________________________________________________________________
TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. Business.................................................... 4
Development of Business..................................... 4
Business Segments........................................... 6
Principal Products.......................................... 6
Millennium Inorganic Chemicals.............................. 7
Millennium Petrochemicals................................... 10
Millennium Specialty Chemicals.............................. 11
Research & Development...................................... 12
International Exposure...................................... 13
Equity Interest in Equistar................................. 13
La Porte Methanol Company................................... 17
Employees................................................... 18
Environmental Matters....................................... 18
Patents, Trademarks & Licenses.............................. 20
Executive Officers.......................................... 21
2. Properties.................................................. 22
3. Legal Proceedings........................................... 23
4. Submission of Matters to a Vote of Security Holders......... 24
PART II
5. Market for the Registrant's Common Equity and Related
Shareholder Matters....................................... 25
6. Selected Financial Data..................................... 25
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 25
8. Financial Statements and Supplementary Data................. 25
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 25
PART III
10. Directors and Executive Officers of the Registrant.......... 25
11. Executive Compensation...................................... 26
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 26
13. Certain Relationships and Related Transactions.............. 26
PART IV
14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K.................................................. 26
DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in the
2000 Annual Report to Shareholders (the 'Annual Report to Shareholders') of
Millennium Chemicals Inc. (the 'Company') and in this Annual Report on
Form 10-K, including, without limitation, the statements under 'Management's
Discussion and Analysis of Financial Condition and Results of Operations'
included in the Annual Report to Shareholders and incorporated by reference in
this Annual Report on Form 10-K, are, or may be deemed to be, forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 (the 'Exchange Act'). Important factors that could cause actual results to
differ materially from those discussed in such forward-looking statements
('Cautionary Statements') include: the balance between industry production
capacity and operating rates, on the one hand, and demand for the products of
the Company and Equistar Chemicals, LP ('Equistar'), including titanium dioxide,
ethylene and polyethylene, on the other hand; the economic trends in the United
States and other countries which serve as the Company's and Equistar's
marketplaces; customer inventory levels; competitive pricing pressures; the cost
and availability of the
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Company's and Equistar's feedstocks and other raw materials, including natural
gas and ethylene; operating interruptions (including leaks, explosions, fires,
mechanical failures, unscheduled downtime, transportation interruptions, spills,
releases and other environmental risks); competitive technology positions;
failure to achieve the Company's or Equistar's productivity improvement and
cost-reduction targets or to complete construction projects on schedule; and,
other unforeseen circumstances.
Some of these Cautionary Statements are discussed in more detail under
'Business' in this Annual Report on Form 10-K and in 'Management's Discussion
and Analysis of Financial Condition and Results of Operations' in the Annual
Report to Shareholders. Readers are cautioned not to place undue reliance on
Cautionary Statements, which reflect management's opinions only as of the date
hereof. The Company undertakes no obligation to revise or publicly release the
results of any revision to any Cautionary Statements. All subsequent written and
oral forward-looking statements attributable to the Company or persons acting on
behalf of the Company are expressly qualified in their entirety by such
Cautionary Statements.
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ITEM 1. BUSINESS
Millennium Chemicals Inc. (the 'Company') is a major international chemical
company, with leading market positions in a broad range of commodity,
industrial, performance and specialty chemicals.
The Company has three principal wholly owned operating subsidiaries:
Millennium Inorganic Chemicals Inc. (collectively, with its non-United States
affiliates, 'Millennium Inorganic Chemicals'), Millennium Petrochemicals Inc.
('Millennium Petrochemicals'), and Millennium Specialty Chemicals Inc.
('Millennium Specialty Chemicals'). The Company also owns a 29.5% interest in
Equistar, a joint venture owned by the Company, Lyondell Chemical Company
('Lyondell') and Occidental Petroleum Corporation ('Occidental'). The Company
accounts for its interest in Equistar as an equity investment.
The Company has leading market positions in the United States and the world:
Millennium Inorganic Chemicals is the second-largest producer of titanium
dioxide ('TiO[u]2') in the world, with manufacturing facilities in the
United States, the United Kingdom, France, Brazil and Australia. Millennium
Inorganic Chemicals is also the largest merchant seller of titanium
tetrachloride ('TiCl[u]4') in North America and Europe and a major producer
of silica gel;
Millennium Petrochemicals is the second-largest producer of vinyl acetate
monomer ('VAM') and acetic acid in North America;
Millennium Specialty Chemicals is the world's largest producer of
terpene-based fragrance and flavor chemicals; and
Through its 29.5% interest in Equistar, the Company is a partner in one of
the largest chemical producers in the world. Equistar is the world's
third-largest, and North America's second-largest, producer of ethylene.
Equistar is also the third largest producer of polyolefins in North
America, and a leading producer of propylene, performance polymers,
oxygenated chemicals, aromatics and specialty products.
The Company owns an 85% interest in La Porte Methanol Company, L.P. ('La
Porte Methanol Company'), a Delaware limited partnership that owns a methanol
plant located in La Porte, Texas, and certain related facilities that were
contributed to the partnership by Millennium Petrochemicals. These operations
were wholly owned by Millennium Petrochemicals until they were contributed to
the partnership on January 18, 1999.
The Company was incorporated in Delaware on April 18, 1996. The Company's
office in the United Kingdom is located at Laporte Road, Stallingborough,
Grimsby, North East Lincolnshire, DN40 2PR, England. Its telephone number in the
United Kingdom is 0345-662663. The Company's principal executive offices in the
United States are located at 230 Half Mile Road, P.O. Box 7015, Red Bank, NJ
07701-7015. Its telephone number in the United States is (732) 933-5000 and its
fax number is 732-933-5240. Its website is: http://www.millenniumchem.com.
Recent Developments. On March 23, 2001, the Company announced that it would
restructure its operating businesses into two business units, the 'Growth and
Development' unit and the 'Operational Excellence' unit. Growth and Development
will be focused on identifying, developing and managing businesses believed by
the Company's management to have growth potential and operating margins
exceeding chemical industry averages. The Growth and Development unit will
include the Company's Fragrance and Flavor Chemicals segment and the Millennium
Performance Chemicals business unit. The Operational Excellence unit will be
managed to focus on steady cash flow and disciplined growth, and will include
the Company's Acetyls segment and its high-volume TiO[u]2 business, as well as
the Company's interest in Equistar. In connection with this restructuring, the
Company announced that it would realign its Operations Committee and management
structure, close its office in Cincinnati, Ohio and take a one-time charge of
approximately $10 million in the first half of 2001. Annual cost savings
associated with these steps are expected to exceed that amount.
DEVELOPMENT OF BUSINESS
The Company has been an independent, publicly owned company since its
demerger (i.e., spin-off) on October 1, 1996 (the 'Demerger') from Hanson PLC
('Hanson'). In connection with the Demerger,
4
Hanson transferred its chemical operations to the Company and the Company issued
to Hanson's shareholders all of the Company's then-outstanding common stock, par
value $0.01 per share (the 'Common Stock').
On December 1, 1997, the Company contributed to Equistar substantially all
of the net assets comprising its former polyethylene, alcohol and related
products business segment, which had been owned by Millennium Petrochemicals. In
exchange, the Company received a 43% interest in Equistar, Equistar repaid $750
million of debt due to the Company from its contributed businesses, the Company
retained $250 million of certain accounts receivable and Equistar assumed
certain liabilities from the Company. A subsidiary of the Company guarantees
$750 million of Equistar's bank debt. The Company used the $750 million received
from Equistar, together with collected proceeds of the retained accounts
receivable, to repay debt under its revolving credit facility. Lyondell
contributed to Equistar substantially all of the assets comprising its
petrochemical and polymer business segments, as well as a $345 million note. In
exchange, Lyondell received a 57% interest in Equistar, and Equistar assumed
$745 million of Lyondell's debt and certain liabilities from Lyondell. On
May 15, 1998, the Company and Lyondell expanded Equistar with the addition of
the ethylene, propylene, ethylene oxide, ethylene glycol and other ethylene
oxide derivatives businesses of Occidental's chemical subsidiary. Occidental
contributed substantially all of the net assets of these businesses (including
approximately $205 million of related debt) to Equistar. In exchange, Equistar
borrowed an additional $500 million, $420 million of which was distributed to
Occidental and $75 million of which was distributed to the Company. Equistar is
now owned 41% by Lyondell, 29.5% by Occidental and 29.5% by the Company.
Equistar is governed by a Partnership Governance Committee consisting of
representatives of each partner. Approval of Equistar's strategic plans and
other major decisions requires the consent of the representatives of the three
partners. All decisions of Equistar's Governance Committee that do not require
the consent of the representatives of the three partners may be made by
Lyondell's representatives alone.
On December 31, 1997, the Company completed the purchase of the shares of
Rhone-Poulenc Chimie S.A.'s Thann et Mulhouse TiO[u]2 and related intermediate
and specialty chemical operations in France for $185 million, including assumed
debt. The operations in France provide capacity to produce approximately 125,000
metric tons per year of TiO[u]2.
On July 1, 1998, the Company completed the acquisition of 99% of the voting
shares and 72% of the outstanding shares of Titanio do Brazil S.A. 'Tibras'),
Brazil's only integrated TiO[u]2 producer, for $129 million, including assumed
debt. The two operations comprising Tibras included a plant which has the
capacity to produce approximately 60,000 metric tons per year of TiO[u]2 and a
mineral sands mine with over two million metric tons of recoverable reserves.
On January 18, 1999, the Company completed certain transactions with Linde
AG ('Linde') relating to the Company's synthesis gas ('syngas') unit in La
Porte, Texas and a 15% interest in its methanol business, whereby the Company
received $123 million in cash. Linde operates the syngas unit under a lease with
a purchase option. The Company has the right to require Linde to purchase the
syngas unit under certain circumstances. In addition, Linde holds a 15% interest
in the La Porte Methanol Company and operates the La Porte Methanol Company's
methanol plant. Linde has the obligation to purchase an additional 5% interest
in the La Porte Methanol Company upon the occurrence of certain events.
On May 26, 1999, the Company sold its 26.4% combined subordinated and
general partnership interests in Suburban Propane Partners, L.P. and Suburban
Propane, L.P. (collectively, 'Suburban Propane') to Suburban Propane and its
management for $75 million in cash.
In 1999, the Company repurchased approximately 8.9 million shares of Common
Stock under a $200 million share repurchase program. In 2000, the Company
repurchased an additional 3.5 million shares for $65 million, reducing the total
outstanding shares by approximately 16% as a result of the two programs.
On February 1, 2000, Millennium Inorganic Chemicals completed the
acquisition of Hanwha Advanced Ceramics of South Korea, a company located near
Perth, Western Australia that produces a broad range of zirconia products that
complement Millennium Inorganic Chemicals' current manufacturing operations in
Thann, Alsace, France.
5
On May 26, 2000, Millennium Petrochemicals executed a long-term agreement
with E.I. du Pont de Nemours and Company ('DuPont') to toll acetic acid produced
at Millennium Petrochemicals' La Porte, Texas plant through DuPont's nearby VAM
plant, thereby acquiring all the current VAM production at DuPont's plant not
utilized internally by DuPont. The tolling commenced January 1, 2001. As a
result, Millennium Petrochemicals' total annual VAM sales are expected to exceed
one billion pounds per year, increasing its share of the global VAM market from
approximately 8% to approximately 11%.
In this Annual Report on Form 10-K: (i) references to the Company are to the
Company and its consolidated subsidiaries, except as the context otherwise
requires; (ii) references to the activities of, and financial information with
respect to, the Company prior to October 1, 1996 are to the historical
activities and combined historical financial information of the businesses that
were transferred to the Company by Hanson in connection with the Demerger;
(iii) references to 'tpa' are to metric tons per annum (a metric ton is equal to
1,000 kilograms or 2,204.6 pounds); and, (iv) references to the Company's and
Equistar's annual rated, processing or production capacity are based upon
engineering assessments made by the Company and Equistar, respectively. Actual
production may vary depending on a number of factors including feedstocks,
product mix, unscheduled maintenance and demand.
BUSINESS SEGMENTS
The Company's principal operations are grouped into three business segments:
'Titanium Dioxide and Related Products,' which are produced by Millennium
Inorganic Chemicals; 'Acetyls,' which are produced by Millennium Petrochemicals;
and, Fragrance and Flavor Chemicals, which are produced by Millennium Specialty
Chemicals. See Note 12 of the Company's Consolidated Financial Statements
included in the Annual Report to Shareholders for financial information about
the Company's business segments; such information is incorporated herein by
reference.
On December 1, 1997, the Company contributed the businesses comprising its
former polyethylene, alcohol and related products segment to Equistar. Since
December 1, 1997, the Company's interest in Equistar has been accounted for as
an equity investment. See Note 3 to the Company's Consolidated Financial
Statements included in the Annual Report to Shareholders for additional
information about Equistar's business, and the Financial Statements of Equistar
included in this Annual Report on Form 10-K for additional financial information
about Equistar.
PRINCIPAL PRODUCTS
The following is a description of the principal products of the Company's
consolidated subsidiaries:
PRODUCT USES
------- ----
Titanium dioxide and related products:
Titanium dioxide ('TiO[u]2')............. A white pigment used to provide whiteness, brightness
and opacity in coatings and paints, plastics, paper
and rubber.
Titanium tetrachloride ('TiCl[u]4')...... An intermediate product used in making TiO[u]2,
catalysts, specialty pigments and surface treatments
for glass. TiCl4 is also the raw material used to
make titanium metal, which in turn is used to make a
wide variety of products, including eyeglass frames,
aerospace parts and golf clubs.
Zirconium-based compounds................ Chemicals used in coloring for ceramics, in pigment
surface treatment and to enhance optics.
Specialty TiO[u]2........................ Micro-pure and ultra-fine products used in
environmental, optical, electronic and ultra-violet
absorption applications.
Silica gel............................... Inorganic product used to reduce gloss and control
flow in coatings. Also used to stabilize and extend
the shelf life of beer, plastic films, powdered food
products and pharmaceuticals.
(table continued on next page)
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(table continued from previous page)
PRODUCT USES
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Acetyls:
Vinyl acetate monomer ('VAM')............ A petrochemical product used to produce adhesives,
water-based paints, textile coatings, paper coatings
and a variety of polymer products.
Acetic acid.............................. An intermediate used to produce VAM, terephthalic
acid (used to produce polyester for textiles and
plastic bottles) and industrial solvents.
Methanol................................. A feedstock used to produce acetic acid; methyl
tertiary butyl ether ('MTBE'), a gasoline additive;
and, formaldehyde. The Company is a producer of
methanol through its 85% interest in La Porte
Methanol Company.
Fragrance and flavor chemicals:
Terpene fragrance chemicals.............. Individual components that are blended to make
fragrances used in detergents, soaps, perfumes,
personal care items and household goods.
Terpene flavor chemicals................. Individual components that are blended to impart or
enhance flavors used in toothpaste, chewing gum and
other consumer products.
For a description of Equistar's principal products, see 'Equity Interest in
Equistar,' below.
MILLENNIUM INORGANIC CHEMICALS
TITANIUM DIOXIDE
Millennium Inorganic Chemicals is the second-largest producer of TiO[u]2 in
the world, based on reported production capacities. TiO[u]2 is a white pigment
used for imparting whiteness, brightness and opacity in a wide range of
products, including paints and coatings, plastics, paper and elastomers.
The following table sets forth Millennium Inorganic Chemicals' annual
production capacity, as of the date of this report, using the chloride process
and the sulfate process discussed below, and the approximate percentage of its
total production capacity represented by each such process.
MILLENNIUM INORGANIC CHEMICALS' RATED TIO2 CAPACITY
(METRIC TONS PER ANNUM)
PROCESS CAPACITY
- ------- --------
Chloride............................................. 483,000 68%
Sulfate.............................................. 229,000 32%
------- ---
Total........................................ 712,000 100%
TiO[u]2 is produced in two crystalline forms: rutile and anatase. Rutile
TiO[u]2 is a more tightly packed crystal that has a higher refractive index than
anatase TiO[u]2 and, therefore, better opacification and tinting strength in
many applications. Some rutile TiO[u]2 products also provide better resistance
to the harmful effects of weather. Rutile TiO[u]2 is the preferred form for use
in coatings, ink and plastics. Anatase TiO[u]2 has a bluer undertone and is less
abrasive than rutile TiO[u]2. It is often preferred for use in paper, ceramics,
rubber and man-made fibers.
TiO[u]2 producers process titaniferous ores to extract a white pigment using
one of two different technologies. The sulfate process is a wet chemical process
that uses concentrated sulfuric acid to extract TiO[u]2, in either anatase or
rutile form. The sulfate process generates higher volumes of waste materials,
including iron sulfate and spent sulfuric acid. The chloride process is a high
temperature process in which chlorine is used to extract TiO[u]2 in rutile form,
with greater purity and higher control
7
over the size distribution of the pigment particles than the sulfate process
permits. In general, the chloride process is also less intensive than the
sulfate process in terms of capital investment, labor and energy. Because much
of the chlorine can be recycled, the chloride process produces less waste
subject to environmental regulation. Once an intermediate TiO[u]2 pigment has
been produced by either the chloride or sulfate process, it is 'finished' into
a product with specific performance characteristics for particular end-use
applications through proprietary processes involving surface treatment with
various chemicals and combinations of milling and micronizing.
Due to customer preferences, as well as economic and environmental factors,
the industry's worldwide chloride-process capacity has increased significantly
relative to sulfate-process capacity during the last 25 years and currently
represents just over half of total industry capacity. Millennium Inorganic
Chemicals is the world's second-largest producer of TiO[u]2 by the chloride
production process.
Millennium Inorganic Chemicals' TiO[u]2 plants are located in the four major
world markets for TiO[u]2: North America, South America, Western Europe and the
Asia/Pacific region. The North American plants, consisting of two in Baltimore,
Maryland and two in Ashtabula, Ohio, have aggregate production capacities of
248,000 tpa using the chloride process and 44,000 tpa using the sulfate process.
The plant in Salvador, Bahia, Brazil has a capacity to produce approximately
60,000 tpa using the sulfate process. Millennium Inorganic Chemicals also owns a
mineral sands mine located at Mataraca, Paraiba, Brazil, which supplies the
Brazilian plant with titanium ores. The mine has over two million metric tons of
recoverable reserves and a capacity to produce over 100,000 tpa of titanium
ores, which are generally consumed in the Salvador TiO[u]2 plant, and 16,000 tpa
of zircon, which is sold to third parties. Millennium Inorganic Chemicals'
Stallingborough, United Kingdom, plant has chloride-process production capacity
of 150,000 tpa. The plants in France at Le Havre, Normandy and Thann, Alsace
have sulfate-process capacities of 95,000 tpa and 30,000 tpa, respectively. The
Kemerton plant in Western Australia has chloride-process production capacity of
85,000 tpa.
Millennium Inorganic Chemicals' TiO[u]2 plants operated at an average of 93%
of installed capacity during 2000, 88% of installed capacity during 1999 and 93%
during 1998. The decline in the operating rate in 1999 compared to 1998 was due
to planned and unplanned production shutdowns at certain facilities. Planned
cutbacks in production were made early during 1999 in response to seasonal
slowness in demand and price competition in Europe. In addition, the Company
shut down the Stallingborough, United Kingdom plant during the fall of 1998 to
complete a significant expansion of capacity and a new technology introduction
at the facility, and the Company experienced operational difficulties during
1999 in connection therewith. The increased operating rate in 2000 compared to
1999 was due to the resolution of most of the startup issues at the
Stallingborough plant and to improved operating performance during the year at
most other plants.
Titanium-bearing ores used in the TiO[u]2 extraction process (ilmenite,
natural rutile and leucoxene) occur as mineral sands and hard rock in many parts
of the world. Mining companies increasingly treat these natural ores to extract
iron and other minerals and produce slags or synthetic rutiles with higher
TiO[u]2 concentrations, resulting in lower rates of waste by-products during the
TiO[u]2 production process. Ores are shipped by bulk carriers from terminals in
the country of origin to TiO[u]2 production plants, usually located near port
facilities. Millennium Inorganic Chemicals obtains ores from a number of
suppliers in South Africa, Australia, Canada and Norway, generally pursuant to
one- to three-year supply contracts. At the present time, the market for
chloride-process feedstock is beginning to loosen due to additional new
synthetic titanium ore capacity. Rio Tinto Iron & Titanium Inc. (through its
affiliates Richards Bay Iron & Titanium (Proprietary) Limited and QIT-Fer et
Titane Inc.) and Iluka Resources Limited are the world's largest producers of
titanium ores and upgraded titaniferous raw materials and accounted for
approximately 81% of the titanium ores and upgraded titaniferous raw materials
purchased by Millennium Inorganic Chemicals in 2000.
Other major raw materials used in the production of TiO[u]2 are chlorine,
caustic soda, petroleum and metallurgical coke, aluminum, sodium silicate,
sulfuric acid, oxygen and nitrogen. In addition, natural gas and electricity are
used as energy sources. The number of sources for and availability of these
materials is specific to the particular geographic region in which the facility
is located. For Millennium Inorganic Chemicals' Australian plant, chlorine and
caustic soda are obtained exclusively from one supplier under a long-term supply
agreement.
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Millennium Inorganic Chemicals has experienced tightness in various raw
material and energy markets, including sulfate-process feedstock, caustic soda
and natural gas, but not to an extent requiring curtailed production. There are
certain risks related to the acquisition of raw materials from less-developed or
developing countries. A number of Millennium Inorganic Chemicals' raw materials,
in addition to ore, are provided by only a few vendors and, accordingly, if one
significant supplier or a number of significant suppliers were unable to meet
their obligations under present supply arrangements, Millennium Inorganic
Chemicals could suffer reduced supplies and/or be forced to incur increased
prices for its raw materials. Such an event could have a material adverse effect
on the consolidated financial condition, results of operations or cash flows of
the Company.
Of the total 659,000 metric tons of TiO[u]2 sold by Millennium Inorganic
Chemicals in 2000, approximately 61% was sold to customers in the paint and
coatings industry, approximately 20% to customers in the plastics industry,
approximately 16% to customers in the paper industry and approximately 3% to
other customers. Millennium Inorganic Chemicals' ten largest customers accounted
for approximately 25% of its TiO[u]2 sales in 2000. Millennium Inorganic
Chemicals experiences some seasonality in its sales because its customers'
sales of paints and coatings are greatest in the spring and summer months.
TiO[u]2 is sold either directly by Millennium Inorganic Chemicals to its
customers or, to a lesser extent, through agents or distributors. TiO[u]2 is
distributed by rail, truck and ocean carrier in either dry or slurry form.
The global markets in which the Company's TiO[u]2 business operates are all
highly competitive. Millennium Inorganic Chemicals competes primarily on the
basis of price, product quality and service. Certain of Millennium Inorganic
Chemicals' competitors are partially vertically integrated, producing
titanium-bearing ores as well as TiO[u]2. Millennium Inorganic Chemicals is
vertically integrated at its Brazilian facility, which owns a titanium ore mine
that supplies the facility. Millennium Inorganic Chemicals' major competitors
are DuPont; Kerr-McGee Chemical Corporation (both directly and through various
joint ventures) ('Kerr-McGee Chemicals'), a unit of Kerr-McGee Corporation;
Huntsman Tioxide ('Huntsman'), a unit of Huntsman Corporation; and, Kronos,
Inc.('Kronos'), a unit of NL Industries Inc. DuPont, Millennium Inorganic
Chemicals, Kerr-McGee Chemicals, Huntsman and Kronos, collectively, account for
approximately three-quarters of the world's production capacity.
TiO[u]2 competes with other whitening agents, which are generally less
effective but less expensive. Paper manufacturers have, in recent years,
developed alternative technologies, which reduce the amount of TiO[u]2 used in
paper.
New plant capacity additions in the TiO[u]2 industry are slow to develop
because of the substantial capital expenditure and the significant lead time
(three to five years typically for a new plant) needed for planning, obtaining
environmental approvals and permits, construction of manufacturing facilities
and arranging for raw material supplies. Debottlenecking and other capacity
expansions at existing plants require substantially less time and capital and
can increase overall industry capacity.
MILLENNIUM PERFORMANCE CHEMICALS
Millennium Inorganic Chemicals produces a number of specialty and
performance products that are marketed through its Performance Chemicals
business unit. During 2000, the silica gel and cadmium-based pigment products,
formerly part of Millennium Specialty Chemicals, were added to the Millennium
Performance Chemicals business unit.
Titanium Tetrachloride: Millennium Performance Chemicals is the largest
merchant seller of TiCl[u]4 in North America and Europe. It produces TiCl[u]4 at
its Ashtabula, Ohio and Thann, Alsace, France plants. TiCl[u]4 is distributed by
rail and truck as anhydrous TiCl[u]4 and as an aqueous solution, titanium
oxychloride. These products are sold into a wide variety of markets, including
the titanium metal, pharmaceutical, catalyst, pearlescent pigment and surface
treatment markets. The principal competitors in the TiCl[u]4 market are Toho
Titanium Co. and Kronos.
Zirconium-based Compounds and Chemicals: A wide range of zirconium products
is produced at the Rockingham, Western Australia and Thann, Alsace, France
plants. These products are sold globally into the electronics, ceramics,
catalyst, glass and colored pigments markets. In addition, Millennium
Performance Chemicals sells zirconium dioxide internally to Millennium Inorganic
Chemicals and to
9
other TiO[u]2 producers to enhance the durability and treat the surfaces of
various TiO[u]2 products. The principal competitors in this market are Daiichi
Kigenso Kagakukgyo Co., Ltd. and MEL Chemicals, a subsidiary of Luxfer
Holdings, PLC.
Specialty TiO[u]2 Products: Specialty TiO[u]2 products are produced at the
Thann facility in Alsace, France. These non-pigmentary products of less than
150 nanometres in size are produced and sold for their physicochemical
characteristics in various applications. Millennium Performance Chemicals is a
major supplier of ultrafine TiO[u]2 used to remove nitrogen oxides from power
plant emissions and to remove sulfur in diesel engine exhaust. The principal
competitors in the specialty TiO[u]2 products market are Ishihara Sangyo Kaisha,
Ltd., Kerr-McGee Chemicals and Tayca Corporation.
Silica Gel: Millennium Performance Chemicals produces several grades of
fine-particle silica gel at the St. Helena plant in Baltimore, Maryland and
markets them internationally. Fine-particle silica gel is a chemically and
biologically inert form of silica with a particle size ranging from three to ten
microns. The Company's fine-particle silica is used in coatings as a flatting or
matting (gloss reduction) agent and in food and pharmaceutical applications.
Other grades of fine-particle silica gel are chill-proofing agents used to
stabilize chilled beer and prevent clouding. Fine-particle silica is distributed
in dry form in palletized bags by truck and ocean carrier. The principal
competitors in the silica gel business are W.R. Grace & Co., PQ Corporation and
Ineos Silicas Americas LLC.
Cadmium-based Pigments: Millennium Performance Chemicals manufactures a line
of cadmium-selenium based colored pigments at the St. Helena, Maryland plant and
markets them internationally. In addition to their brilliance, cadmium colors
are light and heat stable. These properties promote their use in such
applications as artists' colors, plastics and glass colors. Due to concern for
the toxicity of heavy metals, including cadmium, Millennium Performance
Chemicals has introduced low-leaching cadmium-based pigments that meet all
United States government requirements for landfill disposal of non-hazardous
waste. Colored pigments are distributed in dry form in drums, by truck and by
ocean carrier. The principal competitors in the cadmium pigments business
include Johnson Mathey plc and James M. Brown Limited.
MILLENNIUM PETROCHEMICALS
The following table sets forth information concerning the annual production
capacity, as of the date of this report, of Millennium Petrochemicals' principal
products:
MILLENNIUM PETROCHEMICALS' RATED CAPACITY
(MILLIONS OF POUNDS PER ANNUM)
PRODUCT CAPACITY
------- --------
Acetic Acid........................................ 1,000
Vinyl Acetate Monomer.............................. 850
In addition, Millennium Petrochemicals owns an 85% interest in La Porte
Methanol Company, which owns a methanol plant with an annual production capacity
of 207 million gallons per annum. For a description of the plant and La Porte
Methanol Company, see 'La Porte Methanol Company,' below.
ACETIC ACID
Millennium Petrochemicals is the second-largest producer of acetic acid in
North America and the third-largest producer worldwide, based on reported
production capacities. Its acetic acid plant is located at La Porte, Texas and
has an annual production capacity as of December 31, 2000 of one billion pounds.
In 2000, Millennium Petrochemicals used approximately 60% of its acetic acid
production internally to produce VAM at La Porte. The process used by Millennium
Petrochemicals to produce acetic acid is proprietary to the Company.
The principal starting feedstocks for the production of acetic acid are
carbon monoxide and methanol. Millennium Petrochemicals purchases all of its
carbon monoxide from Linde pursuant to a long-term contract based primarily on
cost of production. Linde produces this carbon monoxide at the
10
syngas plant leased by Linde from Millennium Petrochemicals pursuant to a lease
that commenced on January 18, 1999. La Porte Methanol Company, 85% owned by the
Company, supplies all of Millennium Petrochemical's requirements for methanol.
(See 'La Porte Methanol Company,' below.)
Acetic acid not consumed internally by Millennium Petrochemicals is sold
predominantly under contract. These contracts range in term from one to six
years. Export sales constituted approximately 25% of total acetic acid sales in
2000. Acetic acid is shipped by ocean-going vessel, barge, tank car and tank
truck.
Millennium Petrochemicals' principal competitors in the acetic acid business
are Celanese AG ('Celanese'); BP Amoco p.l.c. ('BP'); Kyodo Sakusan, Acetex
Chemie S.A., a subsidiary of Acetex Corporation ('Acetex'), and Eastman Chemical
Corp.
VINYL ACETATE MONOMER
Millennium Petrochemicals is the second-largest producer of VAM in North
America and the third-largest producer worldwide, based on reported production
capacities. Its VAM plant is located at La Porte, Texas and has an annual
production capacity of 850 million pounds as of December 31, 2000. The process
used by Millennium Petrochemicals to produce VAM is proprietary to the Company.
The principal feedstocks for the production of VAM are acetic acid and
ethylene. Millennium Petrochemicals supplies its entire requirements for acetic
acid from its internal production and buys all of its ethylene requirements from
Equistar under a long-term supply contract based on market prices.
On May 26, 2000, Millennium Petrochemicals executed a long-term agreement
with DuPont to toll acetic acid produced at Millennium Petrochemicals' La Porte,
Texas plant through DuPont's nearby VAM plant, thereby acquiring all the current
VAM production at DuPont's plant not utilized internally by DuPont. The tolling
fee is based on the market price of ethylene, plus a processing charge. The term
of the agreement is from January 1, 2001 to December 31, 2006, and thereafter
from year to year. As a result, Millennium Petrochemicals' total annual VAM
sales are expected to exceed one billion pounds per year, increasing its share
of the global VAM market from approximately 8% to approximately 11%.
Millennium Petrochemicals sells VAM under contracts that range from one to
eight years, as well as on a spot basis. Millennium Petrochemicals also sells
VAM to Equistar pursuant to a long-term contract at a formula-based price. The
majority of sales are completed under contract. Millennium Petrochemicals ships
this product by barge, ocean-going vessel, pipeline, tank car and tank truck.
Export sales represented approximately 40% of Millennium Petrochemical's total
VAM sales in 2000. Millennium Petrochemicals has bulk storage arrangements for
VAM in the Netherlands, the United Kingdom, Italy, Turkey, South Africa,
Indonesia, Malaysia and Korea, to better serve its customers' requirements in
those regions.
Millennium Petrochemicals' principal competitors in the VAM business are
Celanese, BP, Union Carbide Corporation, Acetex and Dairen Chemical Corporation.
MILLENNIUM SPECIALTY CHEMICALS
FRAGRANCE AND FLAVOR CHEMICALS
Millennium Specialty Chemicals is one of the world's leading producers of
chemicals derived from crude sulfate turpentine ('CST'), and is the largest
purchaser and distiller of CST in the world. Millennium Specialty Chemicals'
primary turpentine-based products are intermediate fragrance chemicals, such as
linalool and geraniol, which are used in fragrance compounds and also provide
the starting point for the production of a number of other fragrance
ingredients. In addition, Millennium Specialty Chemicals supplies chemicals for
use as flavors, as vitamin intermediates and in a number of other industrial
applications.
Millennium Specialty Chemicals operates manufacturing facilities for its
fragrance chemicals in Jacksonville, Florida and Brunswick, Georgia. The
Jacksonville site has facilities for the fractionation of turpentine into alpha-
and beta-pinene, sophisticated equipment to further upgrade fragrance chemical
products, as well as manufacturing facilities for synthetic pine oil, anethole,
WS-3 and a number of other
11
fragrance and flavor chemicals. The Brunswick site produces linalool and
geraniol from the alpha-pinene component of CST utilizing a proprietary and, the
Company believes, unique technology. The Company believes that this technology
provides Millennium Specialty Chemicals with a significant advantage in raw
material availability. The Company's technology also has significant
environmental advantages. Linalool and geraniol produced at the Brunswick site
are generally further processed at the Jacksonville site to produce fragrance
chemicals, including citral, citronellol and pseudoionone. In addition,
Millennium Specialty Chemicals operates the world's largest dihydromyrcenol
facility at Brunswick, with a rated annual capacity of over five million pounds.
CST, which is Millennium Specialty Chemicals' key raw material for producing
fragrance chemicals, is a by-product of the kraft process of papermaking.
Millennium Specialty Chemicals purchases CST from approximately 50 pulp mills in
North America. Additionally, Millennium Specialty Chemicals purchases quantities
of both CST and gum turpentine or its derivatives from Asia, Europe and South
America, as business conditions dictate.
Millennium Specialty Chemicals has experienced tightness in CST supply from
time to time, together with corresponding price increases. Generally, Millennium
Specialty Chemicals seeks to enter into long-term supply contracts with pulp
mills in order to ensure a stable supply of CST. The sale of CST generates
relatively insignificant revenues and profits for the pulp mills that serve as
Millennium Specialty Chemicals' principal suppliers. Accordingly, Millennium
Specialty Chemicals attempts to work closely and cooperatively with its
suppliers and provides them with incentives to produce more CST. For example,
Millennium Specialty Chemicals employs two full-time employees whose sole
responsibility is to work with pulp mills to recover CST more efficiently and
economically.
Fragrance chemicals are used primarily in the production of perfumes. The
major consumers of perfumes worldwide are soap and detergent manufacturers.
Millennium Specialty Chemicals sells directly worldwide to major soap, detergent
and fabric conditioner manufacturers and fragrance compounders and, to a lesser
extent, producers of cosmetics and toiletries. Approximately 80% of Millennium
Specialty Chemicals' 2000 terpene fragrance chemical sales were to the fragrance
chemicals market, with additional sales to the pine oil cleaner and disinfectant
markets. Approximately 60% of Millennium Specialty Chemicals' 2000 terpene
fragrance chemical sales were made outside the United States to approximately
50 different countries. Sales are made primarily through Millennium Specialty
Chemicals' direct sales force, while agents and distributors are used in
outlying areas where volume does not justify full-time sales coverage.
The markets in which Millennium Specialty Chemicals' terpene fragrance
business competes are highly competitive. Millennium Specialty Chemicals
competes primarily on the basis of quality, service and the ability to conform
its products to the technical and qualitative requirements of its customers.
Millennium Specialty Chemicals works closely with many of its customers in
developing products to satisfy their specific requirements. Millennium Specialty
Chemicals' supply agreements with customers are typically short-term in duration
(up to one year). Therefore, its business is substantially dependent on
long-term customer relationships based upon quality, innovation and customer
service. Customers from time to time change the formulations of an end product
in which one of Millennium Specialty Chemicals' fragrance chemicals is used,
which may affect demand for such fragrance chemicals. Millennium Specialty
Chemicals' ten largest terpene chemical customers accounted for approximately
55% of its total sales in 2000. Millennium Specialty Chemicals' major
competitors are BASF AG, Givaudan S.A., Kuraray Co. LTD and International
Flavors & Fragrances Inc.
RESEARCH AND DEVELOPMENT
The Company's expenditures for research and development totaled $26 million,
$26 million and $21 million in 2000, 1999 and 1998, respectively. Research and
development expenditures at Millennium Inorganic Chemicals increased by
approximately $5 million from 1998 to 1999 due to its strategic initiative to
increase its focus on new product development and process technology.
Millennium Inorganic Chemicals has research facilities in Baltimore,
Maryland; Stallingborough, United Kingdom; and, Bunbury, Western Australia.
Millennium Specialty Chemicals has research facilities in Jacksonville, Florida.
Millennium Petrochemicals leases laboratory space from Equistar in
12
Cincinnati, Ohio. The Company's research efforts are principally focused on
improvements in process technology, product development, technical service to
customers, applications research and product quality enhancements.
INTERNATIONAL EXPOSURE
The Company generates revenue from export sales (i.e., sales outside the
United States by domestic operations), as well as revenue from the Company's
operations conducted outside the United States. Export sales, which are made to
approximately 90 countries, amounted to approximately 11%, 9% and 10% of total
revenues in 2000, 1999 and 1998, respectively. Revenue from non-United States
operations amounted to approximately 40%, 42% and 38% of total revenues in 2000,
1999 and 1998, respectively, principally reflecting the operations of Millennium
Inorganic Chemicals in Europe, Western Australia and Brazil. Identifiable assets
of the non-United States operations represented 29% of total identifiable assets
at both December 31, 2000 and 1999, principally reflecting the assets of these
operations. In addition, the Company obtains a portion of its principal raw
materials from sources outside the United States. Millennium Inorganic Chemicals
obtains ores used in the production of TiO[u]2 from South Africa, Australia,
Canada and Norway under contracts with a number of suppliers. Millennium
Specialty Chemicals obtains a portion of its requirements of CST and gum
turpentine and its derivatives from suppliers in Indonesia and other Asian
countries, Europe and South America.
The Company's export sales and its non-United States manufacturing and
sourcing are subject to the usual risks of doing business abroad, such as
fluctuations in currency exchange rates, transportation delays and
interruptions, political and economic instability and disruptions, restrictions
on the transfer of funds, the imposition of duties and tariffs, import and
export controls, and changes in governmental policies. The Company's exposure to
the risks associated with doing business abroad will increase as the Company
expands its worldwide operations. From time to time, the Company utilizes
derivative instruments to hedge the impact of currency fluctuations on its
purchases and sales.
The functional currency of each of the Company's non-United States
operations (principally, the operations of Millennium Inorganic Chemicals in the
United Kingdom, France, Brazil and Australia) is the local currency. As a result
of translating the functional currency financial statements of all its foreign
subsidiaries into United States dollars, consolidated shareholders' equity
decreased approximately $46 million in both 2000 and 1999. Future events, which
may significantly increase or decrease the risk of future movement in foreign
currencies in which the Company conducts business, cannot be predicted.
In addition, the Company generates revenue from export sales and revenue
from operations conducted outside the United States that may be denominated in
currencies other than the relevant functional currency. The Company hedges
certain revenues and costs to minimize the impact of changes in the exchange
rates of those currencies compared to the respective functional currencies. The
Company does not use derivative financial instruments for trading or speculative
purposes. Foreign currency losses on unhedged transactions aggregated $4 million
in 2000, $13 million in 1999 and $4 million in 1998.
EQUITY INTEREST IN EQUISTAR
Through its 29.5% interest in Equistar, the Company is a partner in one of
the largest chemical producers in the world with total 2000 revenues of $7.5
billion and assets of $6.6 billion at the end of 2000. Equistar is currently the
world's third-largest, and North America's second-largest, producer of ethylene.
Ethylene is the world's most widely used petrochemical. Equistar currently is
also the third-largest producer of polyolefins in North America, and a leading
producer of propylene, polypropylene, performance polymers, oxygenated products,
aromatics and specialty products.
Equistar commenced operations on December 1, 1997, when the Company
contributed substantially all of the assets comprising its former polyethylene,
alcohol and related products segment to Equistar and Lyondell contributed
substantially all the assets comprising its petrochemical and polymer business
segments to Equistar. On May 15, 1998, the Company and Lyondell expanded
Equistar with the addition of the ethylene, propylene, ethylene oxide, ethylene
glycol and other ethylene oxide derivatives businesses of Occidental's chemicals
subsidiary. In December 1999, to further the Company's
13
business strategy to de-emphasize commodity chemicals, the Company's Board of
Directors approved actions to advance efforts to dispose of the Company's
interest in Equistar. On September 14, 2000, the Company announced that it had
not received an acceptable offer for its Equistar interest and that it had
terminated active marketing of its stake.
Equistar's petrochemicals business unit manufactures and markets olefins,
oxygenated products, aromatics and specialty products. Equistar's olefins
products are primarily ethylene, propylene and butadiene. Olefins and their
co-products are basic building blocks used to create a wide variety of products.
Ethylene is used to produce polyethylene, ethylene oxide, ethylene dichloride
and ethylbenzene. Propylene is used to produce polypropylene and propylene
oxide. Equistar's oxygenated products include ethylene oxide, ethylene glycol,
ethanol and MTBE. Oxygenated products have uses ranging from paint to cleaners
to polyester fibers to gasoline additives. Equistar's aromatics are benzene and
toluene.
Equistar's polymers business unit manufactures and markets polyolefins,
including high density polyethylene, low density polyethylene, linear low
density polyethylene, polypropylene and performance polymers. Polyethylene is
used to produce packaging film, grocery and trash bags, housewares, toys and
lightweight high-strength plastic bottles and containers for milk, juices,
shampoos and detergents. Polypropylene is used in a variety of products
including carpets, upholstery, housewares, automotive components, rigid
packaging and plastic caps and other closures. Equistar's performance polymers
include enhanced grades of polyethylene, such as wire and cable insulating
resins; polymeric powders; polymers for adhesives, sealants and coatings;
reactive polyolefins; and, liquid polyolefins.
EQUISTAR'S PETROCHEMICAL BUSINESS UNIT
Equistar produces petrochemicals at twelve facilities located in six states.
Equistar's Chocolate Bayou, Corpus Christi and two Channelview, Texas olefin
plants use petroleum liquids, including naphtha, condensates and gas oils
(collectively, 'Petroleum Liquids'), to produce ethylene. Assuming the
co-products are recovered and sold, the cost of ethylene production from
Petroleum Liquids historically has been less than the cost of producing ethylene
from natural gas liquid feedstocks, including ethane, propane and butane
(collectively, 'NGLs'). The use of Petroleum Liquids results in the production
of a significant amount of co-products, such as propylene, butadiene, benzene
and toluene, and specialty products such as dicyclopentadiene, isoprene, resin
oil, piperylenes and hydrogen. Olefin plants with the flexibility to consume a
wide range of raw materials generally are able to maintain higher profitability
during periods of changing energy and petrochemical prices than olefin plants
that are restricted in their raw material processing capability, assuming the
co-products are recovered and sold. Equistar's Channelview and Corpus Christi,
Texas facilities can process 100% and 70% Petroleum Liquids, respectively, or up
to 80% and 70% NGLs, respectively, subject to the availability of NGLs. The
Chocolate Bayou facility processes 100% Petroleum Liquids.
Equistar's Morris, Illinois; Clinton, Iowa; Lake Charles, Louisiana; and, La
Porte, Texas plants are designed to use primarily NGLs, which primarily produce
ethylene with some co-products, such as propylene. Equistar's La Porte, Texas
facility can process heavier NGLs such as butane and natural gasoline. A
comprehensive pipeline system connects Equistar's Gulf Coast plants with major
olefin customers. Raw materials are sourced both internationally and
domestically from a wide variety of sources. The majority of Equistar's
Petroleum Liquids requirements are purchased via contractual arrangements.
Equistar obtains a portion of its olefin raw material requirements from
LYONDELL-CITGO Refining LP, a joint venture owned by Lyondell and CITGO
Petroleum Corporation ('LCR'), at market-related prices. Raw materials are
shipped via vessel and pipeline.
Equistar produces ethylene oxide and derivatives thereof, including ethylene
glycol, at facilities located at Pasadena, Texas and through a joint venture
located in Beaumont, Texas that is 50% owned by Equistar and 50% owned by
DuPont. Equistar produces synthetic ethanol at Tuscola, Illinois and denatures
ethanol at facilities in Newark, New Jersey, and Anaheim, California.
14
The following table outlines Equistar's primary petrochemical products and
the annual processing capacity for each product.
PRODUCT ANNUAL CAPACITY
------- ---------------
Olefins:
Ethylene............................................... 11.6 billion pounds
Propylene.............................................. 5.0 billion pounds(a)
Butadiene.............................................. 1.2 billion pounds
Oxygenated Products:
Ethylene oxide......................................... 1.1 billion pounds
Ethylene glycol........................................ 1 billion pounds
Ethylene oxide derivatives............................. 225 million pounds
MTBE................................................... 284 million gallons(b)
Ethanol................................................ 50 million gallons
Aromatics:
Benzene................................................ 310 million gallons
Toluene................................................ 66 million gallons
Specialty Products:
Dicyclopentadiene...................................... 130 million pounds
Isoprene............................................... 145 million pounds
Resin oil.............................................. 150 million pounds
Piperylenes............................................ 100 million pounds
Hydrogen............................................... 44 billion cubic feet
Alkylate............................................... 337 million gallons(c)
Diethyl ether.......................................... 5 million gallons
- ---------
(a) Does not include refinery-grade material or production from the product
flexibility unit at Equistar's Channelview, Texas facility, which can
convert ethylene and other light petrochemicals into propylene. This
facility has a current annual processing capacity of one billion pounds per
year of propylene.
(b) Includes up to 44 million gallons per year of capacity, which is operated
for the benefit of LCR.
(c) Includes up to 172 million gallons per year of capacity, which is operated
for the benefit of LCR.
Ethylene produced by the La Porte, Morris and Clinton facilities is
generally consumed as raw material by the polymer operations at those sites,
except for the ethylene produced at La Porte and sold to Millennium
Petrochemicals for its VAM production. Ethylene and propylene produced at the
Channelview, Corpus Christi, Chocolate Bayou and Lake Charles olefin plants are
generally distributed by pipeline or via exchange agreements to Equistar's Gulf
Coast polymer and ethylene oxide and glycol facilities as well as Equistar's
affiliates and third parties. As of January 1, 2000, approximately 80% of the
ethylene produced by Equistar was consumed internally or sold to Equistar's
affiliates at market related prices.
With respect to sales to third parties, Equistar sells a majority of its
olefin products to customers with whom its partners have had long-standing
relationships, generally pursuant to written agreements that typically provide
for monthly negotiation of price, customer purchase of a specified minimum
quantity, and three to six year terms with automatic one- or two-year extension
provisions. Some contracts may be terminated early if deliveries have been
suspended for several months.
Most of the ethylene and propylene production of the Channelview, Chocolate
Bayou, Corpus Christi and Lake Charles facilities is shipped via a pipeline
system that has connections to numerous Gulf Coast ethylene and propylene
consumers. Exchange agreements with other olefin producers allow
15
access to customers who are not directly connected to this pipeline system. Some
propylene is shipped by railcar from Clinton, Iowa to Morris, Illinois and some
is shipped by ocean-going vessel.
The basis for competition in Equistar's petrochemical products is price,
product quality, product deliverability and customer service. Equistar competes
with other large domestic producers of petrochemicals, including BP, Chevron
Phillips Chemical Company LP ('Chevron Phillips'), The Dow Chemical Company
('Dow'), Exxon Mobil Chemical Company ('Exxon Mobil'), Huntsman Chemical Company
and Shell Chemical Company. Industry consolidation has concentrated the industry
in fewer, although larger and stronger, competitors.
EQUISTAR'S POLYMER BUSINESS UNIT
Through facilities located at nine plant sites in four states, Equistar's
polymer business unit manufactures a wide variety of polyolefins, including
polyethylene, polypropylene and various performance polymers.
Equistar currently manufactures polyethylene using a variety of technologies
at five facilities in Texas and at its Morris, Illinois and Clinton, Iowa
facilities. The Morris and Clinton facilities are the only polyethylene
facilities located in the United States Midwest. These facilities enjoy a
freight cost advantage over Gulf Coast producers in delivering products to
customers in the United States Midwest and on the East Coast of the United
States.
Equistar's Morris, Illinois and Pasadena, Texas facilities manufacture
polypropylene using propylene produced as a co-product of Equistar's ethylene
production as well as propylene purchased from third parties. Equistar produces
performance polymer products, which include enhanced grades of polyethylene and
polypropylene, at several of its polymer facilities. Equistar produces wire and
cable insulating resins and compounds at Morris, Illinois and La Porte, Texas
and wire and cable insulating compounds at Tuscola, Illinois and Fairport
Harbor, Ohio. Wire and cable insulating resins and compounds are used to
insulate copper and fiber optic wiring in power, telecommunication, computer and
automobile applications.
Equistar's polymers facilities have the capacity to produce annually 3.1
billion pounds of high density polyethylene, 1.5 billion pounds of low density
polyethylene, 1.1 billion pounds linear low density polyethylene and
680 million pounds of polypropylene. These annual capacities exclude the
capacity of the Port Arthur, Texas facility, which was permanently shut down
February 28, 2001. Equistar's polymer facilities also produce wire and cable
insulating resins and compounds, polymeric powders, polymers for adhesives,
sealants and coatings, reactive polyolefins and liquid polyolefins. These
products are enhanced grades of polyethylene; Equistar's capacity to produce
these products is included in the capacity figures for polyethylene, discussed
above.
With the exception of the Chocolate Bayou polyethylene plant, Equistar's
polyethylene and polypropylene production facilities can receive their ethylene
and propylene directly from Equistar's petrochemical facilities via Equistar's
olefin pipeline system or Equistar's own on-site production. The polyethylene
plants at Chocolate Bayou, La Porte and Pasadena, Texas are connected to third
parties and can receive ethylene via exchanges or purchases. The polypropylene
facility at Morris, Illinois receives propylene from third parties.
Equistar's polymer products are primarily sold to an extensive base of
established customers. Fifty percent of these customers have term contracts,
typically having a duration of one to three years. The remainder is generally
sold without contractual term commitments. In either case, in most of the
continuous supply relationships, prices may be changed upon mutual agreement
between Equistar and its customer. Equistar sells its polymer products in the
United States and Canada primarily through its own sales organization. It
generally engages sales agents to market its polymer products in the rest of the
world. Polymers are distributed primarily by railcar.
The basis for competition in Equistar's polymers products is price, product
performance, product quality, product deliverability and customer service.
Equistar competes with other large producers of polymers, including Atofina, BP,
Chevron Phillips, Dow, Eastman Chemical Company, Exxon Mobil, Formosa Plastics,
Huntsman Chemical Company, Solvay Polymers, Nova Chemicals and Westlake
16
Polymers. Industry consolidation has concentrated the industry in fewer,
although larger and stronger, competitors.
MANAGEMENT OF EQUISTAR; AGREEMENTS BETWEEN EQUISTAR, LYONDELL, OCCIDENTAL AND
THE COMPANY
Equistar is a Delaware limited partnership. The Company owns its 29.5%
interest in Equistar through two wholly owned subsidiaries of Millennium
Petrochemicals, one of which serves as a general partner of Equistar and one of
which serves as a limited partner. The Amended and Restated Partnership
Agreement of Equistar (the 'Equistar Partnership Agreement') governs, among
other things, ownership, cash distributions, capital contributions and
management of Equistar.
The Equistar Partnership Agreement provides that Equistar is governed by a
Partnership Governance Committee consisting of nine representatives, three
appointed by each general partner. Matters requiring agreement by the
representatives of Lyondell, Occidental and the Company include changes in the
scope of Equistar's business, approval of the five-year Strategic Plan (and
annual updates thereof), the sale or purchase of assets or capital expenditures
of more than $30 million not contemplated by an approved Strategic Plan,
additional investments by Equistar's partners not contemplated by an approved
Strategic Plan if the partners are required to contribute more than a total of
$100 million in a specific year or $300 million in a five-year period (except in
specific circumstances set forth under the Equistar Partnership Agreement),
borrowing money under certain circumstances, issuing or repurchasing equity
securities of Equistar, hiring and firing executive officers of Equistar (other
than Equistar's Chief Executive Officer), approving material compensation and
benefit plans for employees, commencing and settling material lawsuits,
selecting or changing accountants or accounting methods and merging or combining
with another business. All decisions of the Partnership Governance Committee
that do not require consent of the representatives of Lyondell, Occidental and
The Company (including approval of Equistar's annual budget, which must be
consistent with the most recently approved Strategic Plan, and selection of
Equistar's Chief Executive Officer, who must be reasonably acceptable to the
Company and Occidental) may be made by Lyondell's representatives alone. The
day-to-day operations of Equistar are managed by the executive officers of
Equistar. Dan F. Smith, the Chief Executive Officer of Lyondell, also serves as
the Chief Executive Officer of Equistar.
Millennium Petrochemicals and Equistar entered into an agreement on December
1, 1997, providing for the transfer of assets to Equistar. Among other things,
such agreement sets forth representations and warranties by Millennium
Petrochemicals with respect to the transferred assets and requires
indemnification by Millennium Petrochemicals with respect to such assets. Such
agreement also provides for the assumption of certain liabilities by Equistar,
subject to specified limitations. Lyondell and affiliates of Occidental entered
into a similar agreement with Equistar with respect to the transfer of their
respective assets and Equistar's assumption of liabilities.
Equistar is party to a number of agreements with Millennium Petrochemicals
for the provision of services, utilities and materials from one party to the
other at common locations, principally La Porte, Texas, and Cincinnati, Ohio. In
general, the goods and services under these agreements, other than the purchase
of ethylene by Millennium Petrochemicals from Equistar and the purchase of VAM
by Equistar from Millennium Petrochemicals, are provided at cost. Millennium
Petrochemicals purchases its ethylene requirements at market-based prices from
Equistar pursuant to a long-term contract. Equistar purchases its VAM
requirements from Millennium Petrochemicals at a formula-based price pursuant to
a long-term contract. Lyondell and affiliates of Occidental also entered into
agreements with Equistar for the provision of services. The Company, Lyondell
and an affiliate of Occidental have agreed to guarantee the obligations of their
respective subsidiaries under each of the agreements discussed above, including
the Equistar Partnership Agreement and the asset-transfer agreements.
LA PORTE METHANOL COMPANY
The La Porte Methanol Company is a Delaware limited partnership that owns a
methanol plant and certain related facilities in La Porte, Texas. The
partnership is owned 85% by Millennium Petrochemicals and 15% by Linde. Linde is
also required to purchase, under certain circumstances, an additional 5%
interest in the partnership. A wholly owned subsidiary of Millennium
Petrochemicals is
17
the managing general partner of the partnership. A wholly owned subsidiary of
Linde is responsible for operating the methanol plant. The partnership commenced
operations on January 18, 1999, when the methanol plant and certain related
facilities owned by Millennium Petrochemicals were contributed to the
partnership and Linde purchased its partnership interests from Millennium
Petrochemicals.
La Porte Methanol Company's methanol plant had an annual production capacity
of 207 million gallons as of December 31, 2000. The plant employs a process
supplied by a major engineering and construction firm to produce methanol.
Methanol is used primarily as a feedstock to produce acetic acid, MTBE and
formaldehyde. Millennium Petrochemicals uses approximately 80 million gallons of
La Porte Methanol Company's annual methanol production for the manufacture of
acetic acid at Millennium Petrochemicals' La Porte, Texas acetic acid plant. The
methanol produced by La Porte Methanol Company which is not either consumed by
Millennium Petrochemicals or sold by Linde to one customer is marketed by
Millennium Petrochemicals on behalf of Millennium Petrochemicals and Linde.
Methanol is sold under contract as well as on a spot basis to large domestic
customers. These contracts range from one to four years. The product is shipped
by barge and pipeline.
The principal feedstocks for the production of methanol are carbon monoxide
and hydrogen, collectively termed synthesis gas or syngas. These raw materials
are largely supplied to La Porte Methanol Company from the syngas plant at La
Porte, Texas owned by Millennium Petrochemicals and leased to Linde pursuant to
a lease that commenced January 18, 1999. La Porte Methanol Company also
purchases relatively small volumes of hydrogen from time to time from other
parties.
La Porte Methanol Company's principal competitors in the methanol business
are Methanex Company, Saudi Basic Industries Corporation, Lyondell Methanol
Company, L.P. and Caribbean Petrochemical Marketing Company Limited. The
methanol produced by Lyondell Methanol Company, L.P. is marketed by Equistar.
EMPLOYEES
At December 31, 2000, excluding employees of Equistar and La Porte Methanol
Company, the Company had approximately 4,370 full and part-time employees.
Approximately 3,520 of the Company's employees were engaged in manufacturing;
465 were engaged in sales, distribution and technology; 305 were engaged in
administrative, executive and support functions at the Company's operating
subsidiaries; and, 80 were engaged at the corporate level. Approximately 24% of
the Company's United States employees are represented by various labor unions, a
significant percentage of the Company's European and Brazilian employees are
represented by various worker associations, and fewer than 1% of the Company's
Australian employees are represented by labor unions. Of the Company's nine
collective bargaining agreements or other required labor negotiations, four must
be renegotiated on an annual basis, one was successfully renegotiated in the
first quarter of 2001 and must be renegotiated again in 2004, three others must
be renegotiated in 2003, and another must be renegotiated in 2004. The annual
renegotiations are all outside the United States. The Company believes that the
relations of its operating subsidiaries with employees and unions are generally
good.
ENVIRONMENTAL MATTERS
The Company's businesses are subject to extensive federal, state, local and
foreign laws, regulations, rules and ordinances concerning, among other things,
emissions to the air, discharges and releases to land and water, the generation,
handling, storage, transportation, treatment and disposal of wastes and other
materials and the remediation of environmental pollution caused by releases of
wastes and other materials ('Environmental Laws'). The operation of any chemical
manufacturing plant and the distribution of chemical products entail risks under
Environmental Laws, many of which provide for substantial fines and criminal
sanctions for violations. There can be no assurance that material costs or
liabilities will not be incurred with respect to such operations and activities.
In particular, the production of TiO[u]2, TiCl[u]4, VAM, acetic acid, methanol
and certain other chemicals involves the handling, manufacture or use of
substances or compounds that may be considered to be toxic or hazardous within
the meaning of certain Environmental Laws, and certain operations have the
potential to cause
18
environmental or other damage. Potentially significant expenditures could be
required in connection with the repair or upgrade of facilities in order to meet
existing or new requirements under Environmental Laws as well as in connection
with the investigation and remediation of threatened or actual pollution.
The Company's costs and operating expenses relating to environmental matters
were approximately $47 million, $45 million and $29 million in 2000, 1999 and
1998, respectively. These amounts cover, among other things, the Company's cost
of complying with environmental regulations and permit conditions, as well as
managing and minimizing its waste. Capital expenditures for environmental
compliance and remediation were approximately $7 million, $12 million and $15
million in 2000, 1999 and 1998, respectively. In addition, capital expenditures
for projects in the normal course of operations and major expansions include
costs associated with the environmental impact of those projects that are
inseparable from the overall project cost. Capital expenditures and costs and
operating expenses relating to environmental matters for years after 2000 will
be subject to evolving regulatory requirements and will depend, to some extent,
on the amount of time required to obtain necessary permits and approvals.
From time to time, various agencies may serve cease and desist orders or
notices of violation on an operating unit or deny its applications for certain
licenses or permits, in each case alleging that the practices of the operating
unit are not consistent with the regulations or ordinances. In some cases, the
relevant operating unit may seek to meet with the agency to determine mutually
acceptable methods of modifying or eliminating the practice in question. The
Company believes that its operating units generally operate in compliance with
the applicable regulations and ordinances in a manner that should not have a
material adverse effect on the consolidated financial position, results of
operations or cash flows of the Company.
Certain Company subsidiaries have been named as defendants, potentially
responsible parties ('PRPs'), or both, in a number of environmental proceedings
associated with waste disposal sites and facilities currently or previously
owned, operated or used by the Company's subsidiaries or their predecessors,
some of which disposal sites or facilities are on the Superfund National
Priorities List of the United States Environmental Protection Agency ('EPA') or
similar state lists. These proceedings seek cleanup costs, damages for personal
injury or property damage, or both. Certain of these proceedings involve claims
for substantial amounts, individually ranging in estimates from less than
$300,000 to $29 million. The Company believes that the range of potential
liability for environmental and other legal contingencies, collectively, but
which primarily relates to environmental remediation activities and other
environmental proceedings, is between $100 million and $105 million and has
accrued $105 million as of December 31, 2000.
One potentially significant matter in which a Company subsidiary is a PRP
concerns alleged PCB contamination of a section of the Kalamazoo River from
Kalamazoo, Michigan to Lake Michigan. This matter was commenced on December 2,
1987 in the United States District Court for the Western District of Michigan,
as Kelly v. Allied Paper, Inc. et al. In October 2000, a Draft Remedial
Investigation and Draft Feasibility Study was completed and submitted to the
State of Michigan. This matter has been stayed and now is being addressed
through the Comprehensive Environmental Response, Compensation and Liability Act
('CERCLA') by the Kalamazoo River Study Group, of which the Company's subsidiary
is a member.
On May 18, 1999, the State of Maryland, Department of the Environment
('MDE'), launched an investigation of the Company's Colors and Silica Plant
located in Baltimore, Maryland arising out of allegations made by a former
employee that a management employee caused a monitoring device in 1994 to
produce inaccurate measurements that were subsequently reported to MDE. The
matter was settled in 2000 resulting in a Consent Decree requiring certain
corrective actions that have been completed and a payment of $100,000 in fines,
plus a reimbursement of certain costs to the City of Baltimore. In addition, the
South Carolina Department of Health and Environmental Control commenced an
action on August 17, 2000 in the United States District Court for the District
of South Carolina, Greenville Division, against Millennium Petrochemicals,
Henkel Corporation, Piedmont Chemicals Inc., Ethox Chemicals, L.L.C. and certain
other parties seeking to establish liability under CERCLA and certain South
Carolina environmental statutes for certain alleged waste disposal activities
19
at a site in Simpsonville, South Carolina. Included in the suit are claims under
South Carolina's statutes for civil penalties and punitive damages that could
exceed $100,000; however, the Company believes that it has substantial defenses
to all such claims. In April 1997, the Illinois Attorney General's Office filed
a complaint in Grundy County, Illinois Circuit Court seeking monetary sanctions
for releases into the environment at Millennium Petrochemicals' Morris, Illinois
plant (which was contributed to Equistar on December 1, 1997) in alleged
violation of state regulations, and a civil penalty in excess of $100,000 could
result.
Potential costs and expenses related to the matters discussed above, to the
extent they are probable and reasonably estimable, have been included in the
collective range of potential liabilities referred to above, as well as in the
accrual for environmental matters on the Company's balance sheet. The accrual
also reflects the fact that certain Company subsidiaries have contractual
obligations to indemnify the purchasers of certain discontinued operations
against certain environmental and other liabilities. For example, the Company
agreed as part of the Demerger transactions to indemnify Hanson and certain of
its subsidiaries against certain of such contractual indemnification
obligations. In addition, as part of the December 1, 1997 formation of Equistar,
Equistar agreed to indemnify Millennium Petrochemicals for certain of the
liabilities related to the assets contributed by Millennium Petrochemicals to
Equistar, subject to an aggregate limitation of $7 million, as specified in the
Asset Contribution Agreement between Equistar and Millennium Petrochemicals, and
Millennium Petrochemicals has agreed to indemnify Equistar for such liabilities
in excess of the $7 million limitation.
No assurance can be given that actual costs for environmental matters will
not exceed accrued amounts or that estimates made with respect to
indemnification obligations will be accurate. In addition, it is possible that
costs will be incurred with respect to sites or indemnification obligations that
currently are unknown, or as to which it is currently not possible to make an
estimate.
The Company cannot predict whether developments in laws and regulations
concerning environmental protection will affect its earnings or cash flow in a
materially adverse manner or whether its operating units, Equistar or La Porte
Methanol Company will be successful in meeting future demands of regulatory
agencies in a manner which will not materially adversely affect the consolidated
financial position, results of operations or cash flows of the Company. For
example, the Texas Natural Resources Conservation Commission ('TNRCC') has
issued final regulations requiring the eight-county Houston/Galveston area to
come into compliance with the National Ambient Air Quality Standard for ozone by
2007. The final regulations, if implemented, would require Equistar to make
significant reductions in its emissions levels of nitrogen oxides during the
next several years. This could result in capital investment by Equistar of
between $150 million and $300 million before the 2007 deadline, as well as
higher annual operating costs, and could thus potentially affect cash
distributions from Equistar to the Company. On January 19, 2001, Equistar,
individually and as part of an industry coalition, filed a lawsuit against the
TNRCC in State District Court in Travis County, Texas. Through this lawsuit,
Equistar and the industry coalition seek to encourage adoption of an alternative
plan to achieve the same level of air quality improvement with less adverse
effects on the region.
PATENTS, TRADEMARKS AND LICENSES
The Company's subsidiaries have numerous United States and foreign patents,
registered trademarks and trade names, together with applications. Millennium
Petrochemicals has licensed to others certain of its process technology for the
manufacture of VAM. Millennium Petrochemicals is also licensed by others in the
application of certain processes and equipment designs. Millennium Inorganic
Chemicals generally does not license its proprietary processes to third parties
or hold licenses from others. While the patents and licenses of the Company's
subsidiaries provide certain competitive advantages and are considered
important, particularly with regard to processing technologies such as
Millennium Inorganic Chemicals' proprietary chloride-production process,
Millennium Petrochemicals' proprietary acetic acid process and Millennium
Specialty Chemicals' proprietary terpene chemistry process, the Company does not
consider its business, as a whole, to be materially dependent upon any one
particular patent or license.
20
EXECUTIVE OFFICERS
The following individuals serve as executive officers of the Company:
NAME POSITION
---- --------
William M. Landuyt................... Chairman of the Board, President and Chief
Executive Officer
Robert E. Lee........................ Executive Vice President -- Growth and
Development
Timothy E. Dowdle.................... Senior Vice President -- Manufacturing,
Operational Excellence Businesses
Peter P. Hanik....................... Senior Vice President -- Technology
George H. Hempstead, III............. Senior Vice President -- General Counsel and
Secretary
Richard A. Lamond.................... Senior Vice President -- Human Resources and
Administration
John E. Lushefski.................... Senior Vice President and Chief Financial
Officer
David L. Vercollone.................. Senior Vice President -- Commercial,
Operational Excellence Businesses
As noted under 'Item 1 -- Business, Recent Developments' above, the Company
announced on March 23, 2001 that it had restructured Company's business and
management. As a result of this restructuring, the Executive Committee of the
Board of Directors determined that, as of March 21, 2001, the 'executive
officers' of the Company are the eight officers who serve as members of the
Company's Operations Committee. The following is a brief description of each
such executive officer.
Mr. Landuyt, 45, has served as Chairman of the Board and Chief Executive
Officer of the Company since the Demerger. He has served as the President of the
Company since June 1997. Mr. Landuyt was Director, President and Chief Executive
Officer of Hanson Industries (which managed the United States operations of
Hanson until the Demerger) from June 1995 until the Demerger, a Director of
Hanson from 1992 until September 29, 1996, Finance Director of Hanson from 1992
to May 1995, and Vice President and Chief Financial Officer of Hanson Industries
from 1988 to 1992. He joined Hanson Industries in 1983. He is a member and a
Co-Chairman of the Partnership Governance Committee of Equistar. He is also a
director of Bethlehem Steel Corporation.
Mr. Lee, 44, has served as Executive Vice President -- Growth and
Development of the Company since March 21, 2001. He was President and Chief
Executive Officer of Millennium Inorganic Chemicals from June 1997 to March 21,
2001. From the Demerger to June 1997, he served as the President and Chief
Operating Officer of the Company. He has been a Director of the Company since
the Demerger. Mr. Lee was a Director and the Senior Vice President and Chief
Operating Officer of Hanson Industries from June 1995 until the Demerger, an
Associate Director of Hanson from 1992 until the Demerger, Vice President and
Chief Financial Officer of Hanson Industries from 1992 to June 1995, Vice
President and Treasurer of Hanson Industries from 1990 to 1992, and Treasurer of
Hanson Industries from 1987 to 1990. He joined Hanson Industries in 1982.
Mr. Dowdle, 49, has served as Senior Vice President -- Manufacturing,
Operational Excellence Businesses, of the Company since March 21, 2001. He
served as Senior Vice President -- Global Manufacturing of Millennium Inorganic
Chemicals from January 1999 to March 21, 2001 and as Vice
President -- Manufacturing of Millennium Inorganic Chemicals from September 1997
to January 1999. Mr. Dowdle served as General Manager of Millennium
Petrochemicals' Morris Complex from June 1993 to September 1997. He joined
Millennium Petrochemicals in December 1980.
Mr. Hanik, 54, has served as Senior Vice President -- Technology of the
Company since March 21, 2001. He was President and Chief Executive Officer of
Millennium Petrochemicals from March 1998 to March 21, 2001. Prior to that time,
he served as Vice President, Chemicals and Supply Chain of Millennium
Petrochemicals, where he was responsible for the Company's acetyls business. Mr.
Hanik joined Millennium Petrochemicals in 1974 and has been associated with the
plastic and chemical industries for over 30 years.
21
Mr. Hempstead, 57, has served as Senior Vice President -- General Counsel
and Secretary of the Company since March 21, 2001. He served as Senior Vice
President -- Law and Administration and Secretary of the Company from the
Demerger to March 21, 2001. He was Senior Vice President -- Law and
Administration of Hanson Industries from June 1995 until the Demerger, an
Associate Director of Hanson from 1990 until the Demerger, and a Director of
Hanson Industries from 1986 until the Demerger. Mr. Hempstead was Senior Vice
President and General Counsel of Hanson Industries from 1993 to June 1995 and
Vice President and General Counsel of Hanson Industries from 1982 to 1993. He
initially joined Hanson Industries in 1976.
Mr. Lamond, 54, has served as Senior Vice President -- Human Resources and
Administration of the Company since March 21, 2001 and as Vice
President -- Human Resources of the Company from November 1997 to March 21,
2001. He served as Vice President -- Human Resources for Millennium Inorganic
Chemicals from March 1997 to November 1997 and as Vice President -- Human
Resources for Grove Worldwide, a subsidiary of Hanson, from September 1994 to
March 1997.
Mr. Lushefski, 45, has served as Senior Vice President and Chief Financial
Officer of the Company since the Demerger. He was a Director and the Senior Vice
President and Chief Financial Officer of Hanson Industries from June 1995 until
the Demerger. He was Vice President and Chief Financial Officer of Peabody
Holding Company, a Hanson subsidiary which held Hanson's coal mining operations,
from 1991 to May 1995 and Vice President and Controller of Hanson Industries
from 1990 to 1991. Mr. Lushefski initially joined Hanson Industries in 1985. Mr.
Lushefski is a member of the Equistar Partnership Governance Committee.
Mr. Vercollone, 53, has served as Senior Vice President -- Commercial,
Operational Excellence Businesses, of the Company since March 21, 2001. He
served as Senior Vice President, Commercial Operations of Millennium Inorganic
Chemicals from 1998 to March 21, 2001, and as Senior Vice President -- Global
Sales and Marketing and General Manager -- Americas of Millennium Inorganic
Chemicals from 1997 to 1998. From 1990 to 1997, he was Vice President and
General Manager -- Americas of Millennium Inorganic Chemicals. Mr. Vercollone
joined Millennium Inorganic Chemicals as Vice President Sales and Marketing in
1986 and served in that position until 1997. Prior to joining Millennium
Inorganic Chemicals, Mr. Vercollone spent 17 years with Union Carbide
Corporation in their Unipol Polymers Division, where he held a number of
positions in sales and marketing.
ITEM 2. PROPERTIES
Set forth below is a list of the Company's principal manufacturing
facilities (other than those of Equistar and La Porte Methanol Company), all of
which are owned. In addition, the Company owns a mineral sands mine in Mataraca,
Paraiba, Brazil that supplies Millennium Inorganic Chemicals' TiO[u]2 plant in
Brazil with titanium ore, and Millennium Petrochemicals owns a syngas plant in
La Porte, Texas, which it leases to Linde. The Company's operating subsidiaries
also lease warehouses and offices, none of which are material to the Company's
business or operations. The Company believes that its properties are well
maintained and are in good operating condition.
22
LOCATION PRODUCTS
-------- --------
Millennium Inorganic Chemicals
Ashtabula, Ohio*......................... TiO[u]2 and TiCl[u]4
Baltimore, Maryland (Hawkins Point)*..... TiO[u]2
Baltimore, Maryland (St. Helena)......... Silica gel and cadmium-based pigments
Kemerton, Western Australia.............. TiO[u]2
Le Havre, Normandy, France............... TiO[u]2
Rockingham, Western Australia............ Zirconium-based compounds and chemicals
Salvador, Bahia, Brazil.................. TiO[u]2
Stallingborough, United Kingdom.......... TiO[u]2
Thann, Alsace, France.................... TiO[u]2, TiCl[u]4, specialty TiO[u]2 and
zirconium-based compounds
Millennium Petrochemicals
La Porte, Texas.......................... VAM and acetic acid
Millennium Specialty Chemicals
Brunswick, Georgia....................... Fragrance and flavor chemicals
Jacksonville, Florida.................... Fragrance and flavor chemicals
- ---------
* Millennium Inorganic Chemicals has two TiO[u]2 manufacturing plants at
Ashtabula, Ohio, both of which use the chloride process, and two TiO[u]2
manufacturing plants located in Baltimore, Maryland (Hawkins Point), one of
which uses the chloride process for manufacturing TiO[u]2 and the other of
which uses the sulfate process.
ITEM 3. LEGAL PROCEEDINGS
The Company and various Company subsidiaries are defendants in a number of
pending legal proceedings incidental to present and former operations. These
include several proceedings alleging injurious exposure of the plaintiffs to
various chemicals and other materials manufactured by the Company's current and
former subsidiaries. Typically, such proceedings involve large claims made by
many plaintiffs against many defendants in the chemical industry. The Company
does not expect that the outcome of these proceedings, either individually or in
the aggregate, will have a material adverse effect upon the consolidated
financial position, results of operations or cash flows of the Company.
In addition, together with other alleged past manufacturers of lead pigments
for use in paint and lead-based paint, an alleged former subsidiary of a
discontinued operation has been named as a defendant or third-party defendant in
various legal proceedings alleging that it and other manufacturers are
responsible for personal injury and property damage allegedly associated with
the use of lead pigments in paint and lead-based paint. These proceedings
consist of three cases in the State of New York, one of which has been brought
by the New York City Housing Authority; a case brought by the State of Rhode
Island; a case brought by The City of St. Louis; a purported class action
personal injury case filed on behalf of all purportedly lead-poisoned children
in Ohio; seven cases filed in Baltimore, Maryland, one on behalf of several
plaintiffs alleging personal injury, one purported class action for property
damage on behalf of homeowners who allegedly have lead-based paint in their
homes and five cases that have been filed but not served on behalf of five
plaintiffs who recently achieved majority status; one personal injury case filed
in Milwaukee, Wisconsin; a case brought by the County of Santa Clara,
California, individually and as a purported class action; a personal
injury/medical monitoring case brought in Illinois; two cases filed by school
districts in Harris County, Texas; and, a personal injury case filed on behalf
of two minors in San Francisco, California.
The pending legal proceedings referred to above are as follows: Brenner, et
al. v. American Cyanamid Company, et al., commenced in the Supreme Court of the
State of New York on November 9, 1993; The City of New York, et al. v. Lead
Industries Association, Inc. (hereinafter referred to as 'LIA'), et al.,
commenced in the Supreme Court of New York on June 8, 1989; Kayla Sabater, et
al. v. LIA, et al., commenced in the Supreme Court of New York, Bronx County on
November 25, 1998; Jackson, et al. v. The Glidden Co., et al., commenced in the
Court of Common Pleas, Cuyahoga County, Ohio on
23
August 12, 1992; State of Rhode Island v. LIA, et al., commenced in the Superior
Court of Providence, Rhode Island on October 12, 1999; City of St. Louis v. LIA,
et al., commenced in St. Louis, Missouri Circuit Court on January 25, 2000;
Steven Thomas, et al. v. LIA, et al., commenced in the Milwaukee County,
Wisconsin Circuit Court on September 10, 1999; Reginald Smith, et al. v. LIA, et
al. and Joan Young, et al. v. LIA et al. (formerly Cofield et al. v. LIA et
al.), both commenced in the Baltimore City, Maryland Circuit Court on
September 29, 1999; The County of Santa Clara, a political subdivision of the
State of California, individually and on behalf of 11 of those similarly
situated v. Atlantic Richfield et al., commenced in the Santa Clara County,
California Superior Court on March 23, 2000; Lewis et al. v. LIA et al.,
commenced in state court in Cook County, Illinois on June 20, 2000; Spring
Branch Independent School District v. LIA et al., commenced in state court in
Harris County, Texas on June 20, 2000; Houston Independent School District v.
LIA et al., commenced in state court in Harris County, Texas on June 30, 2000;
Justice, et al. v. Sherwin-Williams Company, et al. commenced in state court in
San Francisco County, California on August 28, 2000; and, five cases all
commenced in state court in Baltimore, Maryland: Hall, et al. v. LIA, et al.
commenced on June 19, 2000; Hart v. LIA, et al. commenced on June 26, 2000;
Williams v. LIA, et al. commenced on July 11, 2000; Randle v. LIA, et al.
commenced on August 10, 2000; and, Johnson, et al. v. Clinton, et al. commenced
on October 10, 2000.
There can be no assurance that additional litigation will not be filed. The
legal proceedings seek recovery under a variety of theories, including
negligence, failure to warn, breach of warranty, conspiracy, market share
liability, fraud, misrepresentation and nuisance. The plaintiffs in these
actions generally seek to impose on the defendants responsibility for alleged
damages and health concerns associated with the use of lead pigments in paint
and lead-based paint. These cases are in various pre-trial stages. The trial
court in the Brenner case cited below had ruled that a market share theory of
recovery was applicable to this type of lead case, which is the first time any
court made such a determination. The New York Appellate Division unanimously
reversed the trial court's decision, ruling that the market share theory is not
applicable to this type of lead case. The Company is vigorously defending all
litigation related to the use of lead. Although liability, if any, that may
result is not reasonably capable of estimation, the Company currently believes
that, based on information currently available, the disposition of such claims
in the aggregate should not have a material adverse effect on the consolidated
financial position, results of operations or cash flows of the Company.
In addition, various laws and administrative regulations have, from time to
time, been enacted or proposed at the federal, state and local levels and may be
proposed in the future that seek to (i) impose various obligations on present
and former manufacturers of lead pigment and lead paint with respect to asserted
health concerns associated with the use of such products, and (ii) effectively
overturn court decisions in which an alleged former subsidiary of the Company
and other defendants have been successful. No legislation or regulations have
been adopted to date that are expected to have a material adverse effect on the
consolidated financial position, results of operations or cash flows of the
Company.
Celanese filed suit against Millennium Petrochemicals on September 30, 1999
in the United States District Court for the Southern District of Texas alleging
infringement of a Celanese patent relating to acetic acid production technology.
In the suit, Celanese seeks monetary damages and injunctive relief. The Company
has substantial defenses to this lawsuit and is vigorously defending it.
For information concerning the Company's environmental proceedings, see
'Environmental Matters' in Item 1 of this Annual Report on Form 10-K, which is
incorporated by reference herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The data regarding the Company's Common Stock, Dividends and Shareholders
contained under the caption 'Common Stock and Dividend Data' on page 48 of the
Annual Report to Shareholders are incorporated into this Annual Report on Form
10-K by reference.
As of March 23, 2001, there were 19,347 record holders of Common Stock. The
closing price per share of Common Stock as reported by the New York Stock
Exchange on such date was $16.22.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data and quarterly financial data of the Company
contained on pages 46 and 47 of the Annual Report to Shareholders are
incorporated into this Annual Report on Form 10-K by reference. Such selected
financial data were derived from the Consolidated Financial Statements of the
Company, and should be read in conjunction with such financial statements,
including the Notes thereto, and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations,' which are incorporated by
reference into this Annual Report on Form 10-K from the Annual Report to
Shareholders.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' contained on pages 18 through 26 of the Annual Report
to Shareholders is incorporated into this Annual Report on Form 10-K by
reference. Such information should be read in conjunction with the Company's
Consolidated Financial Statements, including the Notes thereto. In connection
with the forward-looking statements which appear in 'Management's Discussion and
Analysis of Financial Condition and Results of Operations,' the 'Cautionary
Statements' that appear immediately after the Table of Contents in this Annual
Report on Form 10-K should be reviewed carefully.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussions under the captions 'Foreign Currency Matters,' 'Financial
Instruments and other Market Related Risks' and 'Euro Conversion' in the
Company's 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and the discussion under the caption 'Off Balance Sheet
Risk' in Note 7 to the Company's Consolidated Financial Statements, each of
which is included in the Annual Report to Shareholders, are incorporated into
this Annual Report on Form 10-K by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company, including the Notes
thereto, and the report of PricewaterhouseCoopers LLP thereon, contained on
pages 27 through 45 of the Annual Report to Shareholders are incorporated into
this Annual Report on Form 10-K by reference.
In addition, the Supplemental Financial Information and Financial Statement
Schedule listed in Item 14(a)(1)(ii) and (2) of this Annual Report on Form 10-K,
including the report of PricewaterhouseCoopers LLP thereon, are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the caption 'Executive Officers' in Item 1 of
this Annual Report on Form 10-K is incorporated herein by reference.
25
The information to be included under the captions 'Election of Directors'
and 'Other Matters -- Section 16(a) Beneficial Ownership Reporting Compliance'
in the Company's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A of the Exchange Act in connection with the Annual
Meeting of the Company's Shareholders to be held on May 18, 2001 (the 'Proxy
Statement') is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information to be included under the captions 'Corporate
Governance -- Directors' Remuneration and Attendance at Meetings' and 'Executive
Compensation' in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be included under the caption 'Ownership of Common Stock'
in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information about loans between the Company and certain of its executive
officers to be included under the caption 'Executive Agreements and Other
Relationships' in the Proxy Statement is incorporated herein by reference. The
amount of the loans disclosed therein is the largest aggregate amount of
indebtedness outstanding between the Company and each such executive officer
during the period January 1, 2000 and the date of this Annual Report on Form
10-K, as well as the amount outstanding on the date hereof, except as otherwise
disclosed therein with respect to Mr. Landuyt.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. (i) The Consolidated Financial Statements of the Company, including
the Notes thereto, and the report of PricewaterhouseCoopers LLP
thereon, contained on pages 27 through 45 of the Annual Report to
Shareholders, consist of the following:
PAGE OF
THE COMPANY'S
ANNUAL REPORT
-------------
-- Report of PricewaterhouseCoopers LLP.................... 27
-- Consolidated Balance Sheets -- December 31, 2000 and
1999.................................................... 28
-- Consolidated Statements of Operations -- Years Ended
December 31, 2000, 1999 and 1998........................ 29
-- Consolidated Statements of Cash Flows -- Years Ended
December 31, 2000, 1999 and 1998........................ 30
-- Consolidated Statements of Changes in Shareholders'
Equity -- Years Ended December 31, 2000, 1999 and 1998.. 31
-- Notes to Consolidated Financial Statements.............. 32 - 45
With the exception of the information listed directly above and the
information specifically incorporated by reference into Items 1, 5, 6,
7, 7A and 8 of this Annual Report on Form 10-K, the Annual Report to
Shareholders is not to be deemed filed as a part of this Annual Report
on Form 10-K.
(ii) Supplemental Financial Information.
26
The Supplemental Financial Information relating to the Company,
Millennium America Inc. ('Millennium America') and Equistar consist of
the following:
PAGE OF
THIS REPORT
-----------
Report of PricewaterhouseCoopers LLP........................ F-1
Supplemental Financial Information of the Company:
Supplemental Financial Information...................... F-2
Condensed Consolidating Balance Sheets -- December 31,
2000 and 1999......................................... F-3
Condensed Consolidating Statements of
Operations -- Years Ended December 31, 2000, 1999 and
1998.................................................. F-4
Condensed Consolidating Statements of Cash
Flows -- Years Ended December 31, 2000, 1999 and
1998.................................................. F-5 and F-6
Financial Statements of Equistar:
Report of PricewaterhouseCoopers LLP.................... F-7
Consolidated Statements of Income -- Years ended
December 31, 2000 and 1999 and 1998................... F-8
Consolidated Balance Sheets -- December 31, 2000 and
1999.................................................. F-9
Consolidated Statements of Cash Flows -- Years ended
December 31, 2000, 1999 and 1998...................... F-10
Consolidated Statements of Partners' Capital -- Years
ended December 31, 2000, 1999 and 1998................ F-11
Notes to Consolidated Financial Statements.............. F-12 to F-28
2. Financial Statement Schedule.
Financial Statement Schedule II -- Valuation and Qualifying Accounts,
located on page S-1 of this Annual Report on Form 10-K, should be read
in conjunction with the Financial Statements included in Item 8 of
this Annual Report on Form 10-K. Schedules, other than Schedule II,
are omitted because of the absence of the conditions under which they
are required or because the information called for is included in the
Consolidated Financial Statements of the Company or the Notes thereto.
3. Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
3.1 -- Amended and Restated Certificate of Incorporation of the Company (Filed as
Exhibit 3.1 to the Company's Registration Statement on Form 10 (File No.
1-12091) (the 'Form 10'))*
3.2 -- By-laws of the Company (Filed as Exhibit 3.2 to the Form 10)*
4.1(a) -- Form of Indenture, dated as of November 27, 1996, among Millennium America
Inc. (formerly Hanson America Inc.) ('Millennium America'), the Company and
The Bank of New York, as Trustee, in respect of the 7% Senior Notes due
November 15, 2006 and the 7.625% Senior Debentures due November 15, 2026
(Filed as Exhibit 4.1 to the Registration Statement of the Company and
Millennium America on Form S-1 (Registration No. 333-15975)(the 'Form
S-1'))*
4.1(b) -- First Supplemental Indenture dated as of November 21, 1997 among
Millennium America, the Company and The Bank of New York, as Trustee (Filed
as Exhibit 4.1(b) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (the '1997 Form 10-K'))*
10.1 -- Form of Post-Demerger Stock Purchase Agreement, dated as of September 30,
1996, between Hanson and MHC Inc. (including related form of
Indemnification Agreement and Tax Sharing and Indemnification Agreement)
(Filed as Exhibit 10.6 to the Form 10)*
27
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
10.2 -- Demerger Agreement, dated as of September 30, 1996,
between Hanson, Millennium Overseas Holdings Ltd.
(formerly Hanson Overseas Holdings Ltd.) and the Company
(Filed as Exhibit 10.7 to the Form 10)*
10.3 -- Form of Indemnification Agreement, dated as of
September 30, 1996, between Hanson and the Company (Filed
as Exhibit 10.8 to the Form 10)*
10.4(a) -- Form of Tax Sharing and Indemnification Agreement, dated
as of September 30, 1996, between Hanson, Millennium
Overseas Holdings Ltd., Millennium America Holdings Inc.
(formerly HM Anglo American Ltd.), Hanson North America
Inc. and the Company (Filed as Exhibit 10.9(a) to the
Form 10)*
10.4(b) -- Deed of Tax Covenant, dated as of September 30, 1996,
between Hanson, Millennium Overseas Holdings Ltd.,
Millennium Inorganic Chemicals Limited (formerly SCM
Chemicals Limited), SCMC Holdings B.V. (formerly Hanson
SCMC B.V.), Millennium Inorganic Chemicals Ltd. (formerly
SCM Chemicals Ltd.), and the Company (the 'Deed of Tax
Covenant') (Filed as Exhibit 10.9(b) to the Form 10)*
10.4(c) -- Amendment to the Deed of Tax Covenant dated January 28,
1997, (Filed as Exhibit 10.9(c) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(the '1996 Form 10-K'))*
10.5(a) -- Credit Agreement ('Credit Agreement'), dated as of
July 26, 1996, among Millennium America, the Company, as
Guarantor, the borrowing subsidiaries party thereto, the
lenders party thereto, The Chase Manhattan Bank, as
Documentation Agent, and Bank of America National Trust
and Savings Association, as Administration Agent (Filed as
Exhibit 10.14 to the Form 10)*
10.5(b) -- Amendment to the Credit Agreement dated as of
December 18, 1996, (Filed as Exhibit 10.14(b) to the 1996
Form 10-K)*
10.5(c) -- Second Amendment to the Credit Agreement dated as of
October 20, 1997, (Filed as Exhibit 10.14(b) to the 1996
Form 10-K)*
10.5(d) -- Third Amendment to the Credit Agreement dated as of
December 31, 1999 (Filed as Exhibit 10.5(d) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (the '1999 Form 10-K'))*
10.6 -- Form of Agreement, dated as of July 24, 1998, between
Millennium America Holdings Inc. and William M. Landuyt;
Robert E. Lee; George H. Hempstead, III; Richard A.
Lamond; and, John E. Lushefski (Filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998 (the 'September 30, 1998,
Form 10-Q'))*'D'<