SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
o 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
MILLENNIUM CHEMICALS INC.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
22-3436215 (I.R.S. Employer Identification No.) |
Prior to September 1, 2003:
230 Half Mile Road
Red Bank, NJ 07701
732-933-5000
On and After September 1, 2003:
20 Wight Avenue, Suite 100
Hunt Valley, MD 21030
410-229-4400
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
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 o.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes x No o.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 63,600,910 shares of Common Stock, par value $.01 per share, as of July 31, 2003, excluding 14,295,676 shares held by the registrant, its subsidiaries and certain Company trusts, which are not entitled to vote.
1
MILLENNIUM CHEMICALS INC.
TABLE OF CONTENTS
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| Part I |
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FINANCIAL INFORMATION |
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Item 1 |
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Financial Statements |
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Item 2 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
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Item 3 |
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Quantitative and Qualitative Disclosures about Market Risk |
40 |
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Item 4 |
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Controls and Procedures |
40 |
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| Part II |
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OTHER INFORMATION |
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Item 1 |
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Legal Proceedings |
41 |
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Item 4 |
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Submission of Matters to a Vote of Security Holders |
41 |
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Item 6 |
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Exhibits and Reports on Form 8-K |
41 |
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Signature |
42 | ||
2
In this Quarterly Report, the terms “our”, “we” and “the Company” are to Millennium Chemicals Inc. and its consolidated subsidiaries, except as the context otherwise requires.
Non-GAAP Financial Measures
Financial measures based on accounting principles generally accepted in the United States of America (“GAAP”) are commonly referred to as GAAP financial measures. For this purpose, a non-GAAP financial measure is generally defined by the Securities and Exchange Commission as one that purports to measure historical or future financial performance, financial position, or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. From time to time the Company discloses so-called non-GAAP financial measures, primarily EBITDA, Pro Forma EBITDA, Pro Forma Operating Income, Pro Forma Net Sales and Pro Forma Depreciation and Amortization. EBITDA represents income from operations before interest, taxes, depreciation and amortization, other income items, equity earnings and the cumulative effect of accounting changes. EBITDA is a key measure used by the banking and investing communities in their evaluation of economic performance. Accordingly, management believes that disclosure of EBITDA provides useful information to investors because it is frequently cited by financial analysts in evaluating companies’ performance. Pro Forma EBITDA and Pro Forma Operating Income include the Company’s underlying interest (29.5%) in Equistar’s results. Pro Forma Net Sales and Pro Forma Depreciation and Amortization include net sales and depreciation and amortization, respectively, in accordance with GAAP together with the Company’s underlying interest in Equistar’s corresponding amounts. The Company believes this pro forma information provides useful information to investors regarding its underlying interest in Equistar. EBITDA and the pro forma measures identified above are not a measure of operating performance computed in accordance with GAAP and should not be considered as a substitute for GAAP measures. Additionally, these measures may not be comparable to similarly named measures of other companies.
3
The Company also periodically reports adjusted net or operating income (loss) or adjusted EBITDA, excluding certain items that are unusual in nature or not comparable from period to period and that are included in GAAP measures of earnings. Management believes that excluding these items generally helps investors to compare operating performance between two periods. Such adjusted data is not reported without an explanation of the items that are excluded.
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MILLENNIUM CHEMICALS INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Millions, except share data)
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June 30, |
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December 31, |
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(Restated - |
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| ASSETS |
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| Current assets |
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| Cash and cash equivalents |
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$ |
155 |
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$ |
125 |
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| Trade receivables, net |
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221 |
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210 |
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| Inventories |
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439 |
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406 |
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| Other current assets |
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78 |
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78 |
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| Total current assets |
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893 |
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819 |
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| Property, plant and equipment, net |
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866 |
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862 |
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| Investment in Equistar |
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506 |
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563 |
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| Other assets |
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53 |
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46 |
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| Goodwill |
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106 |
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106 |
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| Total assets |
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$ |
2,424 |
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$ |
2,396 |
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| LIABILITIES AND SHAREHOLDERS’ EQUITY |
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| Current liabilities |
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| Notes payable |
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$ |
— |
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$ |
4 |
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| Other short-term borrowings |
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14 |
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14 |
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| Current maturities of long-term debt |
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9 |
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12 |
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| Trade accounts payable |
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233 |
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274 |
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| Income taxes payable |
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43 |
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44 |
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| Accrued expenses and other liabilities |
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112 |
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127 |
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| Total current liabilities |
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411 |
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475 |
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| Long-term debt |
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1,328 |
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1,212 |
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| Deferred income taxes |
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303 |
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337 |
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| Other liabilities |
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386 |
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388 |
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| Total liabilities |
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2,428 |
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2,412 |
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| Commitments and contingencies (Note 11) |
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| Minority interest |
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27 |
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19 |
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| Shareholders’ equity |
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| Preferred stock (par value $.01 per share, authorized 25,000,000 shares, none issued and outstanding) |
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— |
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— |
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| Common stock (par value $.01 per share, authorized 225,000,000 shares; issued 77,896,586 shares at June 30, 2003 and |
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1 |
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1 |
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| Paid in capital |
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1,295 |
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1,297 |
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| Retained deficit |
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(829 |
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(776 |
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| Cumulative other comprehensive loss |
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(243 |
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(299 |
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| Treasury stock, at cost (14,323,487 and 14,766,279 shares at June 30, 2003 and December 31, 2002, respectively) |
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(267 |
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(275 |
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| Deferred compensation |
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12 |
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17 |
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| Total shareholders’ equity |
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(31 |
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(35 |
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| Total liabilities and shareholders’ equity |
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$ |
2,424 |
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$ |
2,396 |
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See Notes to Consolidated Financial Statements.
5
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Millions, except per share data)
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Three Months Ended |
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Six Months Ended |
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2003 |
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2002 |
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2003 |
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2002 |
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(Restated - |
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(Restated - |
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| Net sales |
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$ |
416 |
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$ |
405 |
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$ |
831 |
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$ |
756 |
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| Operating costs and expenses |
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| Cost of products sold |
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326 |
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335 |
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657 |
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628 |
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| Depreciation and amortization |
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28 |
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25 |
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55 |
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50 |
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| Selling, development and administrative expense |
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37 |
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25 |
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67 |
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51 |
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| Reorganization costs |
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1 |
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— |
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1 |
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— |
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| Operating income |
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24 |
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20 |
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51 |
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27 |
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| Interest expense |
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(24 |
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(22 |
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(47 |
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(44 |
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| Interest income |
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1 |
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1 |
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2 |
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2 |
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| Loss on Equistar investment |
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(14 |
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(8 |
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(57 |
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(45 |
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| Other expense, net |
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(1 |
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— |
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(1 |
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(1 |
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| Loss before income taxes, minority interest and cumulative effect of accounting change |
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(14 |
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(9 |
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(52 |
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(61 |
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| Benefit from income taxes |
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6 |
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11 |
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21 |
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31 |
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| (Loss) income before minority interest and cumulative effect of accounting change |
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(8 |
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2 |
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(31 |
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(30 |
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| Minority interest |
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(1 |
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— |
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(4 |
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(1 |
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| (Loss) income before cumulative effect of accounting change |
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(9 |
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2 |
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(35 |
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(31 |
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| Cumulative effect of accounting change |
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— |
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— |
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(1 |
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(305 |
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| Net (loss) income |
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$ |
(9 |
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$ |
2 |
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$ |
(36 |
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$ |
(336 |
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| Basic and diluted (loss) earnings per share: |
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| Before cumulative effect of accounting change |
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$ |
(0.14 |
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$ |
0.02 |
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$ |
(0.54 |
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$ |
(0.49 |
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| From cumulative effect of accounting change |
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— |
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— |
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(0.02 |
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(4.80 |
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| After cumulative effect of accounting change |
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$ |
(0.14 |
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$ |
0.02 |
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$ |
(0.56 |
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$ |
(5.29 |
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See Notes to Consolidated Financial Statements.
6
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Millions)
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Six Months Ended |
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2003 |
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2002 |
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(Restated - |
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| Cash flows from operating activities: |
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| Net loss |
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$ |
(36 |
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$ |
(336 |
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| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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