UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
[ü] QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended March 31, 2008
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
MILLENNIUM
CHEMICALS INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
22-3436215
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
|
|
Two
Greenville Crossing, 4001 Kennett Pike
|
19807
|
Suite 238, Greenville,
Delaware
|
(Zip
Code)
|
(Address
of principal executive offices)
|
|
Registrant's
telephone number, including area code: (713) 652-7200
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes __ No ü
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer __ Accelerated filer
__ Non-accelerated
filer ü Smaller
reporting company __
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes __ No
ü
Number of
shares of common stock outstanding as of March 31,
2008: 661. There is no established public trading
market for the registrant’s common stock.
The
Registrant meets the conditions set forth in General Instructions H(1)(a) and
(b) of Form 10-Q and, therefore, is filing this form with a reduced disclosure
format.
PART
I. FINANCIAL INFORMATION
ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MILLENNIUM
CHEMICALS INC.
CONSOLIDATED
STATEMENTS OF INCOME
|
|
Successor
|
|
|
Predecessor
|
|
|
|
For
the three months ended
|
|
|
|
March
31,
|
|
Millions of
dollars
|
|
2008
|
|
|
2007
|
|
Sales
and other operating revenues
|
|
|
|
|
|
|
Trade
|
|
$ |
186 |
|
|
$ |
134 |
|
Related
parties
|
|
|
20 |
|
|
|
18 |
|
|
|
|
206 |
|
|
|
152 |
|
Operating
costs and expenses
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
159 |
|
|
|
122 |
|
Selling,
general and administrative expenses
|
|
|
8 |
|
|
|
12 |
|
Research
and development expenses
|
|
|
1 |
|
|
|
1 |
|
|
|
|
168 |
|
|
|
135 |
|
Operating
income
|
|
|
38 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
Related
parties
|
|
|
(1 |
) |
|
|
-
- |
|
Interest
expense on push-down debt
|
|
|
(7 |
) |
|
|
-
- |
|
Millennium
debt
|
|
|
(6 |
) |
|
|
(19 |
) |
Interest
income
|
|
|
-
- |
|
|
|
1 |
|
Other
income
|
|
|
3 |
|
|
|
-
- |
|
Income
(loss) from continuing operations before equity investment and income
taxes
|
|
|
27 |
|
|
|
(1 |
) |
Income
(loss) from equity investment in Equistar Chemicals, LP
|
|
|
(34 |
) |
|
|
3 |
|
Effect
of push-down debt on loss from equity investment in Equistar Chemicals,
LP
|
|
|
34 |
|
|
|
-
- |
|
Income
from continuing operations before income taxes
|
|
|
27 |
|
|
|
2 |
|
Provision
for income taxes
|
|
|
10 |
|
|
|
1 |
|
Income
from continuing operations
|
|
|
17
|
|
|
|
1
|
|
Income
from discontinued operations, net of tax
|
|
|
-
- |
|
|
|
14 |
|
Net
income
|
|
$ |
17 |
|
|
$ |
15 |
|
See Notes
to the Consolidated Financial Statements.
MILLENNIUM
CHEMICALS INC.
CONSOLIDATED
BALANCE SHEETS
|
|
March
31,
|
|
|
December 31,
|
|
Millions, except per
share and par value
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
18 |
|
|
$ |
51 |
|
Accounts
receivable:
|
|
|
|
|
|
|
|
|
Trade,
net
|
|
|
125 |
|
|
|
106 |
|
Related
parties
|
|
|
21 |
|
|
|
17 |
|
Inventories
|
|
|
107 |
|
|
|
104 |
|
Prepaid
expenses and other current assets
|
|
|
74 |
|
|
|
73 |
|
Deferred
tax assets
|
|
|
9 |
|
|
|
9 |
|
Notes
receivable from Equistar Chemicals, LP
|
|
|
-
- |
|
|
|
80 |
|
Total
current assets
|
|
|
354 |
|
|
|
440 |
|
Property,
plant and equipment, net
|
|
|
303 |
|
|
|
310 |
|
Investment
in Equistar Chemicals, LP
|
|
|
|
|
|
|
|
|
Prior
to debt push down
|
|
|
1,618 |
|
|
|
1,652 |
|
Effect
of push down debt
|
|
|
(1,618 |
) |
|
|
(1,652 |
) |
Net
investment in Equistar Chemicals, LP
|
|
|
-
- |
|
|
|
-
- |
|
Other
investments and long-term receivables
|
|
|
16 |
|
|
|
16 |
|
Other
assets, net
|
|
|
193 |
|
|
|
193 |
|
Total
assets
|
|
$ |
866 |
|
|
$ |
959 |
|
See Notes
to the Consolidated Financial Statements.
MILLENNIUM
CHEMICALS INC.
CONSOLIDATED
BALANCE SHEETS
|
|
March
31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Millions, except per
share and par value
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDER’S EQUITY
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$ |
- - |
|
|
$ |
158 |
|
Notes
payable to Lyondell Chemical Company
|
|
|
31 |
|
|
|
-
- |
|
Accounts
payable:
|
|
|
|
|
|
|
|
|
Trade
|
|
|
77 |
|
|
|
79 |
|
Related
parties
|
|
|
24 |
|
|
|
23 |
|
Accrued
liabilities
|
|
|
70 |
|
|
|
75 |
|
Deferred
income taxes
|
|
|
4 |
|
|
|
4 |
|
Total
current liabilities
|
|
|
206 |
|
|
|
339 |
|
Long-term
debt:
|
|
|
|
|
|
|
|
|
Push
down
|
|
|
328 |
|
|
|
350 |
|
Debt
of Millennium
|
|
|
170 |
|
|
|
170 |
|
Other
liabilities
|
|
|
235 |
|
|
|
238 |
|
Deferred
income taxes
|
|
|
235 |
|
|
|
221 |
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
7 |
|
|
|
7 |
|
Stockholder’s
equity:
|
|
|
|
|
|
|
|
|
Common
stock, $0.01 par value,
1,000
shares authorized, 661 shares issued
|
|
|
-
- |
|
|
|
-
- |
|
Additional
paid-in capital
|
|
|
1,750 |
|
|
|
1,745 |
|
Retained
earnings (deficit)
|
|
|
11 |
|
|
|
(6 |
) |
Push
down debt
|
|
|
(1,986 |
) |
|
|
(2,015 |
) |
Treasury
stock, at cost, 48 shares issued
|
|
|
(90 |
) |
|
|
(90 |
) |
Total
stockholder’s equity
|
|
|
(315 |
) |
|
|
(366 |
) |
Total
liabilities and stockholder’s equity
|
|
$ |
866 |
|
|
$ |
959 |
|
See Notes
to the Consolidated Financial Statements.
MILLENNIUM
CHEMICALS INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Successor
|
|
|
Predecessor
|
|
|
|
For
the three months ended
|
|
|
|
March
31,
|
|
Millions of
dollars
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
17 |
|
|
$ |
15 |
|
Income
from discontinued operations, net of tax
|
|
|
-
- |
|
|
|
(14 |
) |
Adjustments
to reconcile net income to
cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
14 |
|
|
|
6 |
|
Equity
investment in Equistar Chemicals, LP –
|
|
|
|
|
|
|
|
|
Amount
included in net income
|
|
|
34 |
|
|
|
(3 |
) |
Distribution
of earnings
|
|
|
-
- |
|
|
|
3 |
|
Debt
push-down
|
|
|
(34 |
) |
|
|
-
- |
|
Other
effects of push down debt
|
|
|
7 |
|
|
|
-
- |
|
Deferred
income taxes
|
|
|
10 |
|
|
|
(6 |
) |
Changes
in assets and liabilities that provided (used) cash:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(23 |
) |
|
|
13 |
|
Inventories
|
|
|
(3 |
) |
|
|
(7 |
) |
Accounts
payable
|
|
|
1 |
|
|
|
(16 |
) |
Other,
net
|
|
|
(22 |
) |
|
|
(27 |
) |
Net
cash provided by (used in) operating activities – continuing
operations
|
|
|
1 |
|
|
|
(36 |
) |
Net
cash used in operating activities – discontinued
operations
|
|
|
-
- |
|
|
|
(13 |
) |
Net
cash provided by (used in) operating activities
|
|
|
1 |
|
|
|
(49 |
) |
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Repayment
of notes receivable from Equistar Chemicals, LP
|
|
|
80 |
|
|
|
-
- |
|
Expenditures
for property, plant and equipment
|
|
|
(1 |
) |
|
|
(4 |
) |
Distributions
from affiliates in excess of earnings
|
|
|
-
- |
|
|
|
27 |
|
Proceeds
from sales of assets
|
|
|
16 |
|
|
|
-
- |
|
Net
cash provided by investing activities – continuing
operations
|
|
|
95 |
|
|
|
23 |
|
Net
cash used in investing activities – discontinued
operations
|
|
|
-
- |
|
|
|
(8 |
) |
Net
cash provided by investing activities
|
|
|
95 |
|
|
|
15 |
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment
of long-term debt
|
|
|
(158 |
) |
|
|
(4 |
) |
Proceeds
from notes payable to Lyondell Chemical Delaware Company
|
|
|
31 |
|
|
|
-
- |
|
Other
|
|
|
(2 |
) |
|
|
1 |
|
Net
cash used in financing activities – continuing operations
|
|
|
(129 |
) |
|
|
(3 |
) |
Net
cash provided by financing activities – discontinued
operations
|
|
|
-
- |
|
|
|
24 |
|
Net
cash provided by (used in) financing activities
|
|
|
(129 |
) |
|
|
21 |
|
Effect
of exchange rate changes on cash
|
|
|
-
- |
|
|
|
1 |
|
Decrease
in cash and cash equivalents
|
|
|
(33 |
) |
|
|
(12 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
51 |
|
|
|
121 |
|
Cash
and cash equivalents at end of period
|
|
|
18 |
|
|
|
109 |
|
Less:
Cash and cash equivalents at end of period – discontinued
operations
|
|
|
-
- |
|
|
|
48 |
|
Cash
and cash equivalents at end of period – continuing
operations
|
|
$ |
18 |
|
|
$ |
61 |
|
See Notes
to the Consolidated Financial Statements.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
|
|
6
|
2.
|
|
7
|
3.
|
|
9
|
4.
|
|
9
|
5.
|
|
10
|
6.
|
|
10
|
7.
|
|
12
|
8.
|
|
12
|
9.
|
|
12
|
10.
|
|
12
|
11.
|
|
13
|
12.
|
|
14
|
13.
|
|
14
|
14.
|
|
17
|
15.
|
|
18
|
16.
|
|
19
|
17.
|
|
20
|
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The
accompanying consolidated financial statements are unaudited and have been
prepared from the books and records of Millennium Chemicals Inc. and its
subsidiaries (collectively “Millennium”) in accordance with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X for interim financial
information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation have been included. For further information, refer to
the audited consolidated financial statements and notes thereto included in the
Millennium Annual Report on Form 10-K for the year ended December 31,
2007.
On
November 30, 2004, Lyondell Chemical Company (together with its consolidated
subsidiaries “Lyondell”) acquired Millennium in a stock-for-stock business
combination. As a result of the business combination, Millennium is a
wholly owned subsidiary of Lyondell.
On May
15, 2007, Millennium completed the sale of its worldwide inorganic chemicals
business in a transaction valued at approximately $1.3 billion, including
the acquisition of working capital and assumption of certain liabilities related
directly to the business (see Note 4).
On
December 20, 2007, LyondellBasell Industries AF S.C.A. (formerly known as
Basell AF S.C.A.) indirectly acquired all of the shares of Lyondell common
stock. As a result, Lyondell and Millennium both became indirect,
wholly owned subsidiaries of LyondellBasell Industries AF S.C.A. (together with
its consolidated subsidiaries “LyondellBasell Industries” and without Lyondell,
the “Basell Group”).
Prior to
the December 20, 2007 acquisition of Lyondell by LyondellBasell Industries,
Millennium owned 29.5% of Equistar Chemicals LP (“Equistar”), which is a joint
venture with Lyondell. As part of the acquisition, Lyondell made a
contribution to Equistar of $1,703 million (see Note 6), resulting in a decrease
in Millennium’s ownership interest to 21%. Equistar manufactures and
markets ethylene and its co-products, primarily propylene, butadiene, aromatics
and fuel products. Equistar also manufactures and markets ethylene
derivatives, primarily ethylene oxide, ethylene glycol and
polyethylene. Millennium accounts for its interest in Equistar using
the equity method.
As a
result of the acquisition of Lyondell by LyondellBasell Industries on December
20, 2007, Millennium’s assets and liabilities were revalued to reflect the
values assigned in LyondellBasell Industries’ accounting for the purchase of
Lyondell, resulting in a new basis of accounting. In addition,
Millennium has recognized in its financial statements $328 million of the
debt at March 31, 2008 for which it is not the primary obligor, but which it has
guaranteed and which was used by LyondellBasell Industries in the acquisition of
Lyondell, and the effects of its share of debt similarly guaranteed by Equistar
(collectively, “push down debt”) through a reduction to zero of the carrying
value of its investment in Equistar.
In Staff
Accounting Bulletin (“SAB”), Topic 5J, Push Down Basis of Accounting
Required in Certain Limited Circumstances, the Securities and Exchange
Commission requires, among other things, that, in situations where debt is used
to acquire substantially all of an acquiree’s common stock and the acquiree
guarantees the debt or pledges its assets as collateral for the debt, the debt
and related interest expense and debt issuance costs be reflected in, or “pushed
down” to, the acquiree’s financial statements.
Although
this presentation may not reflect the likely future demands on Millennium
resources for servicing the debt of LyondellBasell Industries, it provides an
indication of that financial position after considering the maximum possible
demand on Millennium resources relating to the debt incurred by LyondellBasell
Industries in its acquisition of Lyondell. To facilitate an
understanding of the impact on these consolidated financial statements, the
effects of push down debt are segregated.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
1. Basis
of Preparation – (Continued)
Millennium's
carrying value of push-down debt could be adjusted based on changes in its
tangible assets, which impact the amount of Millennium's guarantees or by
repayment of substantially all of the associated debt by affiliates
or by Millennium on an affiliate's behalf. Any adjustment to the
carrying value of push-down debt would result in a corresponding adjustment to
paid in capital.
Millennium's
investment in Equistar will continue to be carried at zero net value and no net
equity earnings or losses will be recognized until such time as Equistar incurs
positive partners capital, which may occur due to repayment of push-down debt by
Equistar or its affiliates.
The
consolidated statement of income for the three months ended March 31, 2008
reflects post-acquisition depreciation and amortization expense based on the new
value of the related assets and interest expense that resulted from the debt
used to finance the acquisition; therefore, the financial information for the
periods prior to and subsequent to the acquisition on December 20, 2007 is not
generally comparable. To indicate the application of a different
basis of accounting for the period subsequent to the acquisition, the 2007
financial statements and certain notes to the consolidated financial statements
present separately the period prior to the acquisition (“Predecessor”) and the
period after the acquisition (“Successor”).
2. Accounting
and Reporting Changes
On April 25, 2008, the Financial
Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)
FAS 142-3, Determination of
the Useful Life of Intangible Assets. This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other
Intangible Assets in order
to improve the consistency between the useful life of a recognized intangible
asset under Statement 142 and the period of expected cash flows used to measure
the fair value of the asset under FASB Statement No. 141 (Revised 2007),
Business
Combinations, and other
U.S. generally accepted accounting principles. This FSP is effective for
Millennium beginning in 2009. Early adoption is
prohibited. Millennium does not expect the application of FSP 142-3
to have a material effect on its consolidated financial
statements.
In March
2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
161, Disclosures about
Derivatives Instruments and Hedging Activities, which amends and expands
the disclosure requirements of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities by requiring qualitative disclosures
about objectives and strategies for using derivatives, quantitative disclosures
about fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements. SFAS 161 will be effective for Millennium beginning in
2009. Millennium is currently evaluating the effect of SFAS No. 161
on its consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment to ARB No. 51, which
establishes new accounting and disclosure requirements for noncontrolling, or
minority, interests, including their classification as a separate component of
equity and the adjustment of net income to include amounts attributable to
minority interests. SFAS No. 160 also establishes new accounting
standards requiring recognition of a gain or loss upon deconsolidation of a
subsidiary. SFAS No. 160 will be effective for Millennium beginning
in 2009, with earlier application prohibited.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2. Accounting and Reporting
Changes –
(Continued)
Also in
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, which
requires an acquiring entity to recognize all assets acquired and
liabilities assumed in a transaction at the acquisition-date at fair value with
limited exceptions. SFAS No. 141 (revised 2007) will change the
accounting treatment for certain specific items, including: expensing of most
acquisition and restructuring costs; recording acquired contingent liabilities,
in-process research and development and noncontrolling, or minority, interests
at fair value; and recognizing changes in income tax valuations and
uncertainties after the acquisition date as income tax expense. SFAS
No. 141 (revised 2007) also includes new disclosure requirements. For
Millennium, SFAS No. 141 (revised 2007) will apply to business combinations
with acquisition dates beginning in 2009. Earlier adoption is
prohibited.
Although
certain past transactions, including the acquisition of Lyondell by
LyondellBasell Industries, would have been accounted for differently under SFAS
No. 160 and SFAS No. 141 (revised 2007), application of these statements in 2009
will not affect historical amounts.
SFAS No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115, which permits election of fair value to measure many
financial instruments and certain other items, was applicable to
Millennium effective January 1, 2008. Millennium has
elected not to apply the fair value option to any assets or
liabilities.
In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. The new standard defines fair value, establishes
a framework for its measurement and expands disclosures about such
measurements. In February 2008, the FASB issued FASB Staff Position
FAS 157-2, delaying the effective date of SFAS No. 157 for certain
nonfinancial assets and liabilities until January 1, 2009. Millennium
is currently evaluating the effect to its consolidated financial statements of
prospectively applying the provisions of SFAS No. 157 to those assets and
liabilities.
Implementation
of the provisions of SFAS No. 157 to financial assets and liabilities
beginning January 1, 2008 did not have a material effect on Millennium’s
consolidated financial statements.
Millennium
adopted the provisions of FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income
Taxes, on
January 1, 2007. As a result of
the implementation of FIN No. 48, Millennium recognized a $47 million
increase in the liability related to uncertain income tax positions, a
$4 million increase in deferred tax assets and a $43 million increase
of the January 1, 2007 balance of retained deficit.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3. Acquisition
of Lyondell by LyondellBasell Industries
On
December 20, 2007, LyondellBasell Industries indirectly acquired the outstanding
common shares of Lyondell and, as a result, Lyondell and Millennium became
indirect wholly owned subsidiaries of LyondellBasell Industries.
From
December 20, 2007, Millennium’s consolidated financial statements reflect a
revaluation of Millennium’s assets and liabilities, to reflect the allocation of
$1,312 million of the purchase price to Millennium assigned in
LyondellBasell Industries’ accounting for the purchase of
Lyondell. In addition, at March 31, 2008, Millennium recognized
in its financial statements $328 million of the debt for which it is not
the primary obligor, but which it has guaranteed, and which was used by
LyondellBasell Industries in the acquisition of Lyondell, and the effects of its
share of debt similarly guaranteed by Equistar through a reduction to zero of
the carrying value of its investment in Equistar. Millennium’s pro
rata share of Equistar’s push down debt exceeded its investment in Equistar at
December 20, 2007; therefore, Millennium reduced to zero its investment in
Equistar and also, Millennium recorded push-down debt to the extent
allowed.
The
purchase price allocations used in the preparation of the December 31, 2007 and
March 31, 2008 financial statements are preliminary due to the continuing
analyses relating to the determination of the fair values of the assets acquired
and liabilities assumed. Any changes to the fair value of net assets
acquired, based on information as of the acquisition date, would result in a
corresponding adjustment to goodwill. Management does not expect the
finalization of these matters to have a material effect on the
allocation.
Additional
paid in capital was $1,750 million and $1,745 million as of
March 31, 2008 and December 31, 2007, respectively. The
$5 million increase was due to fair value adjustments affecting Millennium
related to the acquisition by LyondellBasell Industries AF S.C.A.
4. Discontinued
Operations
On May
15, 2007, Millennium completed the sale of the worldwide inorganic chemical
business in a transaction valued at approximately $1.3 billion, including
the acquisition of working capital and assumption of certain liabilities
directly related to the business.
The
operations of the inorganic chemicals business have been classified as
discontinued operations in the consolidated statements of income and cash flows.
Amounts included in income from discontinued operations are summarized as
follows:
|
|
Predecessor
|
|
|
|
Three
Months Ended
March 31,
2007
|
|
Millions of
dollars
|
|
|
|
Sales
and other operating revenues
|
|
$ |
333 |
|
Income
from discontinued operations
|
|
|
21 |
|
Provision
for income taxes
|
|
|
7 |
|
Income
from discontinued operations, net of tax
|
|
$ |
14 |
|
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. Related Party Transactions
Notes Receivable from
Equistar–In 2007, Millennium and Equistar entered into loan agreements
permitting Equistar to borrow up to $600 million from Millennium. In
connection with the acquisition of Lyondell by LyondellBasell Industries (see
Note 3), the maturity of the notes was extended to February 16, 2008 from
December 21, 2007, or earlier upon demand. The notes bore
interest, which was due quarterly, at the London Interbank Offered Rate
(“LIBOR”) plus 1.75%. The balance of the notes outstanding at
December 31, 2007 of $80 million was collected in January
2008.
Notes Payable to Lyondell Chemical
Company–In December 2007, Millennium entered into a loan agreement with a
subsidiary of Lyondell, permitting Millennium to borrow up to $2 billion
from the Lyondell subsidiary. The notes mature on December 20, 2012, or earlier
upon demand, and bear interest at LIBOR plus 4%. Interest is payable
quarterly. The balance of the notes outstanding at March 31, 2008 was
$31 million.
6. Investment in Equistar Chemicals, LP
Prior to
December 20, 2007, Equistar was owned 70.5% by Lyondell and 29.5% by
Millennium. As part of the December 20, 2007 acquisition of Lyondell
by LyondellBasell Industries, Lyondell made a contribution to Equistar of $1,703
million, which was used to repay certain Equistar debt, resulting in an increase
of Lyondell’s direct ownership interest to 79% and a corresponding decrease in
Millennium’s ownership interest to 21%. As a result of Lyondell’s
November 30, 2004 acquisition of Millennium, Millennium and Equistar are wholly
owned subsidiaries of Lyondell. Millennium accounts for its
investment in Equistar using the equity method. As a partnership,
Equistar is not subject to federal income taxes.
As a
result of the acquisition of Lyondell by LyondellBasell Industries on December
20, 2007, Equistar’s assets and liabilities were revalued to reflect the values
assigned in LyondellBasell Industries’ accounting for the purchase of Lyondell,
resulting in a new basis of accounting. In addition, Equistar
recorded $17,692 million of debt for which it is not the primary obligor
and $340 million of related debt issuance costs. Millennium’s
pro rata share of Equistar’s push down debt exceeded the carrying value of its
investment in Equistar at December 20, 2007; therefore, Millennium reduced
to zero the carrying value of its investment.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. Investment
in Equistar Chemicals, LP – (Continued)
Summarized
financial information for Equistar follows:
|
|
March 31,
|
|
|
December 31,
|
|
Millions of
dollars
|
|
2008
|
|
|
2007
|
|
BALANCE
SHEETS
|
|
|
|
|
|
|
Total
current assets
|
|
$ |
1,949 |
|
|
$ |
2,012 |
|
Property,
plant and equipment, net
|
|
|
5,066 |
|
|
|
5,116 |
|
Goodwill
|
|
|
722 |
|
|
|
750 |
|
Debt
issuance costs on push down debt
|
|
|
288 |
|
|
|
334 |
|
Investments
and other assets, net
|
|
|
1,740 |
|
|
|
1,860 |
|
Total
assets
|
|
$ |
9,765 |
|
|
$ |
10,072 |
|
Current
maturities of long-term debt:
|
|
|
|
|
|
|
|
|
Push
down debt
|
|
$ |
145 |
|
|
$ |
146 |
|
Other
|
|
|
-
- |
|
|
|
27 |
|
Related
party borrowings – push down
|
|
|
728 |
|
|
|
717 |
|
Other
current liabilities
|
|
|
1,469 |
|
|
|
1,541 |
|
Long-term
debt:
|
|
|
|
|
|
|
|
|
Push
down debt
|
|
|
16,796 |
|
|
|
16,829 |
|
Other
|
|
|
130 |
|
|
|
129 |
|
Other
liabilities and deferred revenues
|
|
|
295 |
|
|
|
295 |
|
Partners’
deficit
|
|
|
(9,798 |
) |
|
|
(9,612 |
) |
Total
liabilities and partners’ deficit
|
|
$ |
9,765 |
|
|
$ |
10,072 |
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
For
the three months ended
|
|
|
|
March
31,
|
|
Millions of
dollars
|
|
2008
|
|
|
2007
|
|
STATEMENTS
OF INCOME
|
|
|
|
|
|
|
Sales
and other operating revenues
|
|
$ |
3,821 |
|
|
$ |
2,869 |
|
Cost
of sales
|
|
|
3,907 |
|
|
|
2,738 |
|
Selling,
general and administrative expenses
|
|
|
70 |
|
|
|
59 |
|
Research
and development expenses
|
|
|
8 |
|
|
|
9 |
|
Operating
income (loss)
|
|
|
(164 |
) |
|
|
63 |
|
Interest
expense, net
|
|
|
(381 |
) |
|
|
(53 |
) |
Other
income (expense), net
|
|
|
(2 |
) |
|
|
1 |
|
Net
income (loss)
|
|
$ |
(547 |
) |
|
$ |
11 |
|
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Millennium
had a trade accounts receivable balance of $125 million and
$106 million as of March 31, 2008 and December 31, 2007,
respectively. These balances were net of an allowance for doubtful
accounts of $1 million at March 31, 2008 and December 31, 2007,
respectively.
Inventories
consisted of the following:
|
|
March
31,
|
|
|
December
31,
|
|
Millions of
dollars
|
|
2008
|
|
|
2007
|
|
Finished
goods
|
|
$ |
74 |
|
|
$ |
65 |
|
Work-in-process
|
|
|
18 |
|
|
|
21 |
|
Raw
materials
|
|
|
5 |
|
|
|
3 |
|
Materials
and supplies
|
|
|
10 |
|
|
|
15 |
|
Total
inventories
|
|
$ |
107 |
|
|
$ |
104 |
|
9. Property,
Plant and Equipment, Net
The
components of property, plant and equipment, at cost, and the related
accumulated depreciation were as follows:
|
|
March
31,
|
|
|
December
31,
|
|
Millions of
dollars
|
|
2008
|
|
|
2007
|
|
Land
|
|
$ |
11 |
|
|
$ |
11 |
|
Manufacturing
facilities and equipment
|
|
|
279 |
|
|
|
277 |
|
Construction
in progress
|
|
|
23 |
|
|
|
23 |
|
Total
property, plant and equipment
|
|
|
313 |
|
|
|
311 |
|
Less
accumulated depreciation
|
|
|
(10 |
) |
|
|
(1 |
) |
Property,
plant and equipment, net
|
|
$ |
303 |
|
|
$ |
310 |
|
Depreciation
and amortization expense is summarized as follows:
|
|
Successor
|
|
|
Predecessor
|
|
|
|
For
the three months ended
|
|
|
|
March
31,
|
|
Millions of
dollars
|
|
2008
|
|
|
2007
|
|
Property,
plant and equipment
|
|
$ |
12 |
|
|
$ |
4 |
|
Other
|
|
|
2 |
|
|
|
2 |
|
Total
depreciation and amortization
|
|
$ |
14 |
|
|
$ |
6 |
|
Accounts
payable at March 31, 2008 and December 31, 2007 included liabilities in the
amounts of $2 million and $3 million, respectively, for checks issued
in excess of associated bank balances but not yet presented for
collection.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As a
result of the December 20, 2007 acquisition of Lyondell by LyondellBasell
Industries, Millennium recorded $350 million of push down debt for which it
is not the primary obligor, but which it has guaranteed, and which was used by
LyondellBasell Industries in the acquisition of Lyondell (see Notes 1 and
3). The balance outstanding at March 31, 2008 related to push-down
debt was $328 million.
Long-term
debt under which Millennium is the primary obligor consisted of the
following:
Millions of
dollars
|
|
March
31,
2008
|
|
|
December
31,
2007
|
|
Senior
Debentures due 2026, 7.625% ($71 million of discount)
|
|
$ |
170 |
|
|
$ |
170 |
|
Convertible
Senior Debentures due 2023, 4%
|
|
|
-
- |
|
|
|
158 |
|
Total
|
|
|
170 |
|
|
|
328 |
|
Less
current maturities
|
|
|
-
- |
|
|
|
(158 |
) |
Total
long-term debt, net
|
|
$ |
170 |
|
|
$ |
170 |
|
During
the three months ended March 31, 2008, Millennium repaid the $158 million
of its 4% Convertible Senior Debentures due 2023.
Millennium
is a guarantor of certain debt borrowed by Lyondell under the LyondellBasell
Industries Senior Secured Credit Facility, including $1,482 million and
$7,531 million, respectively, under the term loan A and B facilities; and
certain LyondellBasell Industries debt, including an $8,000 million Interim
loan, 8.375% High Yield Notes due 2015, comprising borrowings of
$615 million and €500 million ($791 million), and amounts borrowed by
the Basell Group under the Senior Secured Credit Facility, consisting of
$494 million borrowed under term loan A and €1,297 million
($2,050 million) under term loan B as well as amounts borrowed by Lyondell
or the Basell group under a $1,000 million revolving credit facility under
which $858 million was outstanding at March 31,
2008. Millennium is also a guarantor for amounts borrowed under
the Senior Secured Inventory-Based Credit Facility by other Lyondell
subsidiaries and a U.S.-based subsidiary of the Basell Group. Millennium may not incur
additional indebtedness in excess of 15% of Millennium’s Consolidated Net
Tangible Assets (“CNTA”), as defined in the indenture governing Millennium’s
7.625% Senior Debentures due 2026.
In April
2008, LyondellBasell Industries amended and restated its Senior Secured Credit
facility, Senior Secured Interim Loan and its Senior Secured Inventory-Based
credit facility. For additional information, see
Note 16.
Amortization
of debt issuance costs of less than $1 million for each of the three-month
periods ended March 31, 2008 and 2007 is included in interest expense in
the Consolidated Statements of Income.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. Pension
and Other Postretirement Benefits
The
following table provides the components of net periodic pension costs allocated
to continuing operations:
|
|
Successor
|
|
|
Predecessor
|
|
|
|
For
the three months ended
March
31,
|
|
Millions of
dollars
|
|
2008
|
|
|
2007
|
|
Service
cost
|
|
$ |
1 |
|
|
$ |
1 |
|
Interest
cost
|
|
|
8 |
|
|
|
8 |
|
Recognized
return on plan assets
|
|
|
(10 |
) |
|
|
(9 |
) |
Amortization
|
|
|
-
- |
|
|
|
3 |
|
Net
periodic pension benefit cost
|
|
$ |
(1 |
) |
|
$ |
3 |
|
Net
periodic other postretirement benefits allocated to continuing operations was a
net credit of $1 million in the three month period ended March 31,
2007. There was none in the three month period ended March 31,
2008.
13. Commitments
and Contingencies
Environmental
Remediation—Millennium’s accrued liability for future environmental
remediation costs at current and former plant sites and other remediation sites
totaled $180 million and $181 million as of March 31,
2008 and December 31, 2007, respectively. The remediation
expenditures are expected to occur over a number of years, and not to be
concentrated in any single year. In the opinion of management, there
is no material estimable range of reasonably possible loss in excess of the
liabilities recorded for environmental remediation. However, it is
possible that new information about the sites for which the accrual has been
established, new technology or future developments such as involvement in
investigations by regulatory agencies, could require Millennium to reassess its
potential exposure related to environmental matters.
The
following table summarizes the activity in Millennium’s accrued environmental
liability for the three-month periods ended March 31:
|
|
Successor
|
|
|
Predecessor
|
|
Millions of
dollars
|
|
2008
|
|
|
2007
|
|
Balance
at January 1
|
|
$ |
181 |
|
|
$ |
148 |
|
Adjustments
to purchase price allocation
|
|
|
2 |
|
|
|
-
- |
|
Amounts
paid
|
|
|
(3 |
) |
|
|
(3 |
) |
Balance
at March 31
|
|
$ |
180 |
|
|
$ |
145 |
|
The
liabilities for individual sites range from less than $1 million to $144
million. The $144 million liability relates to the Kalamazoo River
Superfund Site.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Commitments
and Contingencies – (Continued)
A
Millennium subsidiary has been identified as a Potential Responsible Party
(“PRP”) with respect to the Kalamazoo River Superfund Site. The site
involves cleanup of river sediments and floodplain soils contaminated with
polychlorinated biphenyls, cleanup of former paper mill operations, and cleanup
and closure of landfills associated with the former paper mill
operations.
In 2000,
the Kalamazoo River Study Group (the “KRSG”), of which the Millennium subsidiary
and other PRPs are members, submitted to the State of Michigan a Draft Remedial
Investigation and Draft Feasibility Study, which evaluated a number of remedial
options for the river. The estimated costs for these remedial options
ranged from $0 to $2.5 billion. Although the KRSG study identified a
broad range of remedial options, not all of those options would represent
reasonably possible outcomes. Management does not believe that it can
identify a single remedy among those options that would represent the
highest-cost reasonably possible outcome.
In 2004,
Millennium recognized a liability representing Millennium’s interim allocation
of 55% of the $73 million total of estimated cost of riverbank
stabilization, recommended as the preferred remedy in 2000 by the KRSG study,
and of certain other costs.
At the
end of 2001, the U.S. Environmental Protection Agency (“EPA”) took lead
responsibility for the river portion of the site at the request of the State of
Michigan. In 2004, the EPA initiated a confidential process to
facilitate discussions among the agency, the Millennium subsidiary, other PRPs,
the Michigan Departments of Environmental Quality and Natural Resources, and
certain federal natural resource trustees about the need for additional
investigation activities and different possible approaches for addressing the
contamination in and along the Kalamazoo River. As these discussions
have continued, management has obtained new information about regulatory
oversight costs and other remediation costs, including a proposed remedy to be
applied to a specific portion of the river, and has been able to reasonably
estimate anticipated costs for certain other segments of the river, based in
part on experience to date with the remedy currently being applied to the one
portion of the river. As a result, management can reasonably estimate
the probable spending for remediation of three segments of the river, which has
been accrued as of March 31, 2008. Management’s best estimates for
costs relating to other segments of the river, which may remain uncertain for
the foreseeable future, also have been accrued, based on the KRSG
study.
As of
March 31, 2008, the probable additional future remediation spending associated
with the river cannot be determined with certainty but the amounts accrued are
believed to be the current best estimate of future costs, based on information
currently available. At March 31, 2008, the balance of the liability
related to the river was $97 million.
In
addition, Millennium has recognized a liability primarily related to
Millennium’s estimated share of remediation costs for two former paper mill
sites and associated landfills, which are also part of the Kalamazoo River
Superfund Site. At March 31, 2008, the balance of the liability was
$47 million. Although no final agreement has been reached as to
the ultimate remedy for these locations, Millennium has begun remediation
activity related to these sites.
Millennium’s
ultimate liability for the Kalamazoo River Superfund Site will depend on many
factors that have not yet been determined, including the ultimate remedies
selected, the determination of natural resource damages, the number and
financial viability of the other PRPs, and the determination of the final
allocation among the PRPs.
The
balance, at March 31, 2008, of remediation liabilities related to Millennium
sites other than the Kalamazoo River Superfund Site was
$36 million.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Commitments
and Contingencies – (Continued)
Litigation—Together with
alleged past manufacturers of lead-based paint and lead pigments for use in
paint, Millennium has been named as a defendant in various legal proceedings
alleging personal injury, property damage, and remediation costs allegedly
associated with the use of these products. The majority of these
legal proceedings assert unspecified monetary damages in excess of the statutory
minimum and, in certain cases, equitable relief such as abatement of lead-based
paint in buildings. Legal proceedings relating to lead pigment or
paint are in various trial stages and post-dismissal settings, some of which are
on appeal.
One legal
proceeding relating to lead pigment or paint was tried in 2002. On
October 29, 2002, the judge in that case declared a mistrial after the jury
declared itself deadlocked. The sole issue before the jury was
whether lead pigment in paint in and on Rhode Island buildings constituted a
“public nuisance.” The re-trial of this case began on November 1,
2005. On February 22, 2006, a jury returned a verdict in favor of the
State of Rhode Island finding that the cumulative presence of lead pigments in
paints and coatings on buildings in the state constitutes a public nuisance;
that a Millennium subsidiary, Millennium Holdings, LLC, and other defendants
either caused or substantially contributed to the creation of the public
nuisance; and that those defendants, including the Millennium subsidiary, should
be ordered to abate the public nuisance. On February 28, 2006, the
judge held that the state could not proceed with its claim for punitive
damages. On February 26, 2007, the court issued its decision denying
the post-verdict motions of the defendants, including the Millennium subsidiary,
for a mistrial or a new trial. The court concluded that it would
enter an order of abatement and appoint a special master to assist the court in
determining the scope of the abatement remedy. On March 16,
2007, the court entered a final judgment on the jury’s verdict. On
March 20, 2007, the Millennium subsidiary and the other defendants
filed a notice of appeal with the Rhode Island Supreme Court. On
December 18, 2007, the trial court appointed two special masters to serve as
“examiners” and to assist the trial court in the proposed abatement
proceedings.
Millennium’s
defense costs to date for lead-based paint and lead pigment litigation largely
have been covered by insurance. Millennium has insurance policies
that potentially provide approximately $1 billion in indemnity coverage for
lead-based paint and lead pigment litigation. Millennium’s ability to
collect under the indemnity coverage would depend upon, among other things, the
resolution of certain potential coverage defenses that the insurers are likely
to assert and the solvency of the various insurance carriers that are part of
the coverage block at the time of such a request.
While
Millennium believes that it has valid defenses to all the lead-based paint and
lead pigment proceedings and is vigorously defending them, litigation is
inherently subject to many uncertainties. Any liability that
Millennium may ultimately incur, net of any insurance or other recoveries,
cannot be estimated at this time.
Guarantees—In addition to
debt guarantees disclosed in Note 12, Millennium continues to guarantee certain
obligations related to the sold inorganic chemicals business until such time as
the buyer completes certain procedures to replace Millennium as
guarantor. The guarantees, principally with respect to the lease of
research facilities, have a total potential obligation of approximately
$35 million over their remaining term. Millennium does not
expect that any payments will be required under these guarantees.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Commitments
and Contingencies – (Continued)
Indemnification—Millennium
and its joint ventures are parties to various indemnification arrangements,
including arrangements entered into in connection with acquisitions,
divestitures and the formation of joint ventures. For example,
Millennium entered into indemnification arrangements in connection with its
demerger from Hanson plc, and Equistar and its owner companies (including
Millennium) entered into indemnification arrangements in connection with the
formation of Equistar. Pursuant to these arrangements, Millennium and
its joint ventures provide indemnification to and/or receive indemnification
from other parties in connection with liabilities that may arise in connection
with the transactions and in connection with activities prior to completion of
the transactions. These indemnification arrangements typically
include provisions pertaining to third party claims relating to environmental
and tax matters and various types of litigation. As of December 31,
2007, Millennium has not accrued any significant amounts for such
indemnification obligations, and is not aware of other circumstances that would
be likely to lead to significant future indemnification claims against
Millennium. Millennium cannot determine with certainty the potential
amount of future payments under the indemnification arrangements until events
arise that would trigger a liability under the arrangements.
Other—Millennium and its
joint ventures are, from time to time, defendants in lawsuits and other
commercial disputes, some of which are not covered by insurance. Many
of these suits make no specific claim for relief. Although final
determination of any liability and resulting financial impact with respect to
any such matters cannot be ascertained with any degree of certainty, management
does not believe that any ultimate uninsured liability resulting from these
matters in which it, its subsidiaries or its joint ventures currently are
involved will, individually or in the aggregate, have a material adverse effect
on the financial position, liquidity or results of operations of
Millennium.
General—In the opinion of
management, the matters discussed in this note, other than potential future
liabilities for environmental remediation which amounts cannot be estimated, are
not expected to have a material adverse effect on the financial position or
liquidity of Millennium. However, the adverse resolution in any
reporting period of one or more of the matters discussed in this note could have
a material impact on Millennium’s results of operations for that period, which
may be mitigated by contribution or indemnification obligations of others, or by
any insurance coverage that may be available.
The
components of comprehensive income were as follows:
|
|
Successor
|
|
|
Predecessor
|
|
|
|
For
the three months ended
|
|
|
|
March
31,
|
|
Millions of
dollars
|
|
2008
|
|
|
2007
|
|
Net
income
|
|
$ |
17 |
|
|
$ |
15 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
Discontinued
operations – foreign currency translation
|
|
|
-
- |
|
|
|
9 |
|
Total
other comprehensive income
|
|
|
-
- |
|
|
|
9 |
|
Comprehensive
income
|
|
$ |
17 |
|
|
$ |
24 |
|
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Segment
and Related Information
At the
time of the acquisition of Lyondell by LyondellBasell Industries, Millennium
established a new business segment through which its operations are managed as
part of LyondellBasell Industries.
Millennium,
a wholly owned subsidiary of Lyondell, operates in one reportable
segment. Millennium’s chemicals business segment produces and
markets: acetyls, which include VAM, acetic acid and methanol; and
fragrance and flavors chemicals.
On May
15, 2007, Millennium completed the sale of its worldwide inorganic chemicals
business (see Note 4) and substantially all of the inorganic chemicals segment
was reclassified as a discontinued operation.
The
accounting policies of the chemicals segment are the same as those described in
Note 2 to Millennium’s Consolidated Financial Statements included in
Millennium’s Annual Report on Form 10-K for the year ended December 31,
2007.
Summarized
financial information concerning reportable segments is shown in the following
table for the three months ended:
Millions of
dollars
|
|
Chemicals
|
|
|
Other
|
|
|
Total
|
|
Successor
|
|
|
|
|
|
|
|
|
|
March 31,
2008
|
|
|
|
|
|
|
|
|
|
Sales
and other operating revenues
|
|
$ |
206 |
|
|
$ |
- - |
|
|
$ |
206 |
|
Operating
income (loss)
|
|
|
42 |
|
|
|
(4 |
) |
|
|
38 |
|
Loss
from equity investment
|
|
|
(34 |
) |
|
|
-
- |
|
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and other operating revenues
|
|
$ |
150 |
|
|
$ |
2 |
|
|
$ |
152 |
|
Operating
income (loss)
|
|
|
24 |
|
|
|
(7 |
) |
|
|
17 |
|
Income
from equity investment
|
|
|
3 |
|
|
|
-
- |
|
|
|
3 |
|
First
quarter 2007 segment information presented above has been reclassified to
conform with the new business segment created during the acquisition of Lyondell
by LyondellBasell Industries.
Operating
income (loss) in the “Other” column above included a business that was not a
reportable segment and costs not allocated to Millennium’s chemicals segment,
including costs from predecessor businesses.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Under the
terms of the financing for the Lyondell acquisition, the joint lead arrangers
retained the right to flex certain provisions of the financing, including
pricing and the reallocation and retranching of the Term
Loans. Effective April 30, 2008, the joint lead arrangers exercised
the price flex provisions and retranched the Tranche B Term
Loans. Upon exercise of the flex rights, the Senior Secured Credit
Facility was amended to (i) convert each of the U.S. Tranche B Dollar Term Loan
and the German Tranche B Euro Term Loan into three separate tranches, some of
which tranches are subject to a prepayment penalty, and (ii) increase interest
rates and fee rates by 0.5%.
In
conjunction with the exercise by the joint lead arrangers of their flex rights,
additional amendments were made to each of the Senior Secured Credit Facility,
Senior Secured Interim Loan, Senior Secured Inventory-Based Credit Facility and
Accounts Receivable Securitization Facility. The amendments to the
Senior Secured Credit Facility, Senior Secured Interim Loan and Senior Secured
Inventory-Based Credit Facility were effective on April 30, 2008. The
amendments to the Accounts Receivable Securitization Facility were effective on
May 6, 2008.
The
Senior Secured Credit Facility was amended to (1) establish a LIBOR floor of
3.25% on the U.S. Tranche B Dollar Term Loan, (2) modify certain debt covenants,
including increasing a general debt basket from $750 million to $1 billion,
eliminating an interest rate hedging requirement, increasing the asset backed
facility basket by $500 million, and adding a covenant prohibiting
reduction of aggregate commitments under the Revolving Credit Facility with
Access Industries before its initial maturity, (3) set EBITDA at specific levels
for the last three quarters of 2007, and (4) make other changes, including
technical and typographical corrections.
Each of
the Senior Secured Interim Loan, the Senior Secured Inventory-Based Credit
Facility and the Accounts Receivable Securitization Facility were amended to (i)
conform to certain of the amendments to the Senior Secured Credit Facility and
(ii) make other changes, including technical and typographical
corrections. In addition, the Senior Secured Inventory-Based Credit
Facility was amended to allow Lyondell the future option to increase the
aggregate amount of commitments under the facility by a further $500
million.
Under the
terms of the Senior Secured Inventory-Based Credit Facility, as amended,
Lyondell could elect to increase commitments under the facility by up to an
aggregate $1.1 billion. Effective April 30, 2008, Lyondell exercised
the option to increase the facility by $600 million and, as a result, aggregate
commitments under the facility increased from $1 billion to $1.6
billion. Concurrent with the exercise of the increase in commitments,
Lyondell Chemical Company became a lien grantor and added the following as
collateral: (i) a first priority pledge of all equity interests owned by
Lyondell Chemical Company in, and all indebtedness owed to it by, LyondellBasell
Receivables I, LLC (the seller under the Accounts Receivable Securitization
Facility) and (ii) a first priority security interest in all accounts
receivable, inventory and related assets owned by Lyondell Chemical Company,
subject to customary exceptions.
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
17. Supplemental
Guarantor Information
Millennium
America Inc. (“Millennium America”), a 100% owned indirect subsidiary of
Millennium, is a holding company for all of Millennium’s continuing and, prior
to May 15, 2007, discontinued operating subsidiaries other than its discontinued
operations in the United Kingdom, France, Brazil and
Australia. Millennium America is the issuer of the 7.625% Senior
Debentures. Millennium was the issuer of the 4% Convertible Senior
Debentures, which were completely repaid during the first quarter
2008. Millennium America fully and unconditionally guaranteed all
obligations under the 4% Convertible Senior Debentures, while
outstanding. The 7.625% Senior Debentures are fully and
unconditionally guaranteed by Millennium. The following condensed
consolidating financial information presents supplemental information for
Millennium Chemicals Inc., the parent, and Millennium America as of
March 31, 2008 and December 31, 2007 and for the three-month periods
ended March 31, 2008 and 2007.
CONDENSED
CONSOLIDATING FINANCIAL INFORMATION
BALANCE
SHEET
|
|
As
of March 31, 2008
|
|
|
|
Millennium
Chemicals
Inc.
|
|
|
Millennium
America
Inc.
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Millennium
Chemicals
Inc.
and
Subsidiaries
|
|
Millions of
dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
107 |
|
|
$ |
- - |
|
|
$ |
107 |
|
Notes
receivables from Equistar Chemicals, LP
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
Other
current assets
|
|
|
-
- |
|
|
|
-
- |
|
|
|
247 |
|
|
|
-
- |
|
|
|
247 |
|
Property,
plant and equipment, net
|
|
|
-
- |
|
|
|
-
- |
|
|
|
303 |
|
|
|
-
- |
|
|
|
303 |
|
Investment
in Equistar Chemicals, LP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
to push-down debt
|
|
|
-
- |
|
|
|
-
- |
|
|
|
1,618 |
|
|
|
-
- |
|
|
|
1,618 |
|
Effect
of push-down debt
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(1,618 |
) |
|
|
-
- |
|
|
|
(1,618 |
) |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
Investment
in subsidiaries
|
|
|
97 |
|
|
|
283 |
|
|
|
16 |
|
|
|
(380 |
) |
|
|
16 |
|
Other
assets, net
|
|
|
2 |
|
|
|
-
- |
|
|
|
191 |
|
|
|
-
- |
|
|
|
193 |
|
Due
from parent and affiliates, net
|
|
|
-
- |
|
|
|
264 |
|
|
|
-
- |
|
|
|
(264 |
) |
|
|
-
- |
|
Total
assets
|
|
$ |
99 |
|
|
$ |
547 |
|
|
$ |
864 |
|
|
$ |
(644 |
) |
|
$ |
866 |
|
Current
maturities of long-term debt
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
- - |
|
Other
current liabilities
|
|
|
-
- |
|
|
|
7 |
|
|
|
199 |
|
|
|
-
- |
|
|
|
206 |
|
Long-term
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Push-down
debt
|
|
|
328 |
|
|
|
328 |
|
|
|
-
- |
|
|
|
(328 |
) |
|
|
328 |
|
Debt
of Millennium
|
|
|
-
- |
|
|
|
170 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
170 |
|
Other
liabilities
|
|
|
-
- |
|
|
|
-
- |
|
|
|
235 |
|
|
|
-
- |
|
|
|
235 |
|
Deferred
income taxes
|
|
|
-
- |
|
|
|
-
- |
|
|
|
235 |
|
|
|
-
- |
|
|
|
235 |
|
Due
to parent and affiliates, net
|
|
|
86 |
|
|
|
-
- |
|
|
|
178 |
|
|
|
(264 |
) |
|
|
-
- |
|
Total
liabilities
|
|
|
414 |
|
|
|
505 |
|
|
|
847 |
|
|
|
(592 |
) |
|
|
1,174 |
|
Minority
interest
|
|
|
-
- |
|
|
|
-
- |
|
|
|
7 |
|
|
|
-
- |
|
|
|
7 |
|
Stockholder’s
equity
|
|
|
(315 |
) |
|
|
42 |
|
|
|
10 |
|
|
|
(52 |
) |
|
|
(315 |
) |
Total
liabilities and
stockholder’s equity
|
|
$ |
99 |
|
|
$ |
547 |
|
|
$ |
864 |
|
|
$ |
(644 |
) |
|
$ |
866 |
|
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED
CONSOLIDATING FINANCIAL INFORMATION
BALANCE
SHEET
|
|
As
of December 31, 2007
|
|
Millions of
dollars
|
|
Millennium
Chemicals
Inc.
|
|
|
Millennium
America
Inc.
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Millennium
Chemicals
Inc.
and
Subsidiaries
|
|
BALANCE
SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
104 |
|
|
$ |
- - |
|
|
$ |
104 |
|
Notes
receivable from Equistar
Chemicals, LP
|
|
|
80 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
80 |
|
Other
current assets
|
|
|
3 |
|
|
|
24 |
|
|
|
229 |
|
|
|
-
- |
|
|
|
256 |
|
Property,
plant and equipment, net
|
|
|
-
- |
|
|
|
-
- |
|
|
|
310 |
|
|
|
-
- |
|
|
|
310 |
|
Investment
in Equistar Chemicals, LP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
to push-down debt
|
|
|
-
- |
|
|
|
-
- |
|
|
|
1,652 |
|
|
|
-
- |
|
|
|
1,652 |
|
Effect
of push-down debt
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(1,652 |
) |
|
|
-
- |
|
|
|
(1,652 |
) |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
Investment
in subsidiaries
|
|
|
68 |
|
|
|
355 |
|
|
|
16 |
|
|
|
(423 |
) |
|
|
16 |
|
Other
assets, net
|
|
|
2 |
|
|
|
1 |
|
|
|
190 |
|
|
|
-
- |
|
|
|
193 |
|
Due
from parent and affiliates, net
|
|
|
-
- |
|
|
|
163 |
|
|
|
-
- |
|
|
|
(163 |
) |
|
|
-
- |
|
Total
assets
|
|
$ |
153 |
|
|
$ |
543 |
|
|
$ |
849 |
|
|
$ |
(586 |
) |
|
$ |
959 |
|
Current
maturities
of
long-term debt
|
|
$ |
44 |
|
|
$ |
- - |
|
|
$ |
114 |
|
|
$ |
- - |
|
|
$ |
158 |
|
Other
current liabilities
|
|
|
115 |
|
|
|
2 |
|
|
|
64 |
|
|
|
-
- |
|
|
|
181 |
|
Long-term
debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Push-down
debt
|
|
|
350 |
|
|
|
350 |
|
|
|
-
- |
|
|
|
(350 |
) |
|
|
350 |
|
Debt
of Millennium
|
|
|
-
- |
|
|
|
170 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
170 |
|
Other
liabilities
|
|
|
-
- |
|
|
|
-
- |
|
|
|
238 |
|
|
|
-
- |
|
|
|
238 |
|
Deferred
income taxes
|
|
|
-
- |
|
|
|
-
- |
|
|
|
221 |
|
|
|
-
- |
|
|
|
221 |
|
Due
to parent and affiliates, net
|
|
|
10 |
|
|
|
-
- |
|
|
|
153 |
|
|
|
(163 |
) |
|
|
-
- |
|
Total
liabilities
|
|
|
519 |
|
|
|
522 |
|
|
|
790 |
|
|
|
(513 |
) |
|
|
1,318 |
|
Minority
interest
|
|
|
-
- |
|
|
|
-
- |
|
|
|
7 |
|
|
|
-
- |
|
|
|
7 |
|
Stockholder’s
equity
|
|
|
(366 |
) |
|
|
21 |
|
|
|
52 |
|
|
|
(73 |
) |
|
|
(366 |
) |
Total
liabilities and stockholder’s equity
|
|
$ |
153 |
|
|
$ |
543 |
|
|
$ |
849 |
|
|
$ |
(586 |
) |
|
$ |
959 |
|
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED
CONSOLIDATING FINANCIAL INFORMATION
STATEMENT
OF INCOME
|
|
Successor
|
|
For
the Three Months Ended March 31, 2008
|
|
Millions of
dollars
|
|
Millennium
Chemicals
Inc.
|
|
|
Millennium
America
Inc.
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Millennium
Chemicals
Inc.
and
Subsidiaries
|
|
Sales
and other operating revenues
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
206 |
|
|
$ |
- - |
|
|
$ |
206 |
|
Cost
of sales
|
|
|
-
- |
|
|
|
-
- |
|
|
|
159 |
|
|
|
-
- |
|
|
|
159 |
|
Selling,
general and administrative expenses
|
|
|
-
- |
|
|
|
-
- |
|
|
|
8 |
|
|
|
-
- |
|
|
|
8 |
|
Research
and development expenses
|
|
|
-
- |
|
|
|
-
- |
|
|
|
1 |
|
|
|
-
- |
|
|
|
1 |
|
Operating
income
|
|
|
-
- |
|
|
|
-
- |
|
|
|
38 |
|
|
|
-
- |
|
|
|
38 |
|
Interest
expense, net
|
|
|
-
- |
|
|
|
(6 |
) |
|
|
(1 |
) |
|
|
-
- |
|
|
|
(7 |
) |
Interest
expense on push-down debt
|
|
|
(7 |
) |
|
|
(7 |
) |
|
|
-
- |
|
|
|
7 |
|
|
|
(7 |
) |
Intercompany
interest income (expense), net
|
|
|
-
- |
|
|
|
27 |
|
|
|
(27 |
) |
|
|
-
- |
|
|
|
-
- |
|
Income
from equity investment in
Equistar
Chemicals, LP
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(34 |
) |
|
|
-
- |
|
|
|
(34 |
) |
Effect
of push-down debt on loss from
equity
investment in Equistar
|
|
|
-
- |
|
|
|
-
- |
|
|
|
34 |
|
|
|
-
- |
|
|
|
34 |
|
Equity
in income of subsidiaries
|
|
|
21 |
|
|
|
(28 |
) |
|
|
-
- |
|
|
|
7 |
|
|
|
-
- |
|
Other
income
|
|
|
-
- |
|
|
|
-
- |
|
|
|
3 |
|
|
|
-
- |
|
|
|
3 |
|
Benefit
from (provision for) income taxes
|
|
|
3 |
|
|
|
(5 |
) |
|
|
(8 |
) |
|
|
-
- |
|
|
|
(10 |
) |
Net
income
|
|
$ |
17 |
|
|
$ |
(19 |
) |
|
$ |
5 |
|
|
$ |
14 |
|
|
$ |
17 |
|
STATEMENT
OF INCOME
|
|
Predecessor
|
|
For
the Three Months Ended March 31, 2007
|
|
Millions of
dollars
|
|
Millennium
Chemicals
Inc.
|
|
|
Millennium
America
Inc.
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Millennium
Chemicals
Inc.
and
Subsidiaries
|
|
Sales
and other operating revenues
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
152 |
|
|
$ |
- - |
|
|
$ |
152 |
|
Cost
of sales
|
|
|
-
- |
|
|
|
-
- |
|
|
|
122 |
|
|
|
-
- |
|
|
|
122 |
|
Selling,
general
and
administrative expenses
|
|
|
-
- |
|
|
|
-
- |
|
|
|
12 |
|
|
|
-
- |
|
|
|
12 |
|
Research
and development expenses
|
|
|
-
- |
|
|
|
-
- |
|
|
|
1 |
|
|
|
-
- |
|
|
|
1 |
|
Operating
income
|
|
|
-
- |
|
|
|
-
- |
|
|
|
17 |
|
|
|
-
- |
|
|
|
17 |
|
Interest
expense, net
|
|
|
(4 |
) |
|
|
(13 |
) |
|
|
(1 |
) |
|
|
-
- |
|
|
|
(18 |
) |
Intercompany
interest income (expense), net
|
|
|
-
- |
|
|
|
28 |
|
|
|
(28 |
) |
|
|
-
- |
|
|
|
-
- |
|
Income
from equity investment in
Equistar
Chemicals, LP
|
|
|
-
- |
|
|
|
-
- |
|
|
|
3 |
|
|
|
-
- |
|
|
|
3 |
|
Equity
in income of subsidiaries
|
|
|
19 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(19 |
) |
|
|
-
- |
|
Benefit
from (provision
for) income taxes
|
|
|
-
- |
|
|
|
(6 |
) |
|
|
5 |
|
|
|
-
- |
|
|
|
(1 |
) |
Income
from discontinued operations, net of tax
|
|
|
-
- |
|
|
|
-
- |
|
|
|
14 |
|
|
|
-
- |
|
|
|
14 |
|
Net
income
|
|
$ |
15 |
|
|
$ |
9 |
|
|
$ |
10 |
|
|
$ |
(19 |
) |
|
$ |
15 |
|
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED
CONSOLIDATING FINANCIAL INFORMATION
STATEMENT
OF CASH FLOWS
|
|
Successor
|
|
For
the Three Months Ended March 31, 2008
|
|
|
|
Millennium
Chemicals
Inc.
|
|
|
Millennium
America
Inc.
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Millennium
Chemicals
Inc.
and
Subsidiaries
|
|
Millions of
dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used
in) operating activities –
continuing
operations
|
|
$ |
75 |
|
|
$ |
(55 |
) |
|
$ |
(19 |
) |
|
$ |
- - |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of notes receivable from
Equistar
Chemicals, LP
|
|
|
80 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
80 |
|
Expenditures
for property,
plant and equipment
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(1 |
) |
|
|
-
- |
|
|
|
(1 |
) |
Distributions
from affiliates in
excess of earnings
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
Proceeds
from sales of assets
|
|
|
-
- |
|
|
|
-
- |
|
|
|
16 |
|
|
|
-
- |
|
|
|
16 |
|
Net
cash provided by investing activities –
continuing
operations
|
|
|
80 |
|
|
|
-
- |
|
|
|
15 |
|
|
|
-
- |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of long-term debt
|
|
|
(158 |
) |
|
|
-
- |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(158 |
) |
Proceeds
from notes payable to
Lyondell
Chemical Company
|
|
|
-
- |
|
|
|
31 |
|
|
|
-
- |
|
|
|
-
- |
|
|
|
31 |
|
Other
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(2 |
) |
|
|
-
- |
|
|
|
(2 |
) |
Net
cash provided by
(used
in) financing activities – continuing operations
|
|
|
(158 |
) |
|
|
31 |
|
|
|
(2 |
) |
|
|
-
- |
|
|
|
(129 |
) |
Increase
(decrease) in
cash
and cash equivalents
|
|
|
(3 |
) |
|
|
(24 |
) |
|
|
(6 |
) |
|
|
-
- |
|
|
|
(33 |
) |
Cash
and cash
equivalents
at beginning of period
|
|
|
3 |
|
|
|
24 |
|
|
|
24 |
|
|
|
-
- |
|
|
|
51 |
|
Cash
and cash equivalents
at end of period
|
|
|
-
- |
|
|
|
-
- |
|
|
|
18 |
|
|
|
-
- |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of
period
– continuing operations
|
|
$ |
- - |
|
|
$ |
- - |
|
|
$ |
18 |
|
|
$ |
- - |
|
|
$ |
18 |
|
MILLENNIUM
CHEMICALS INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
CONDENSED
CONSOLIDATING FINANCIAL INFORMATION
STATEMENT
OF CASH FLOWS
|
|
Predecessor
|
|
For
the Three Months Ended March 31, 2007
|
|
|
|
Millennium
Chemicals
Inc.
|
|
|
Millennium
America
Inc.
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Millennium
Chemicals
Inc.
and
Subsidiaries
|
|
Millions of
dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used
in) operating activities –
continuing
operations
|
|
$ |
(12 |
) |
|
$ |
20 |
|
|
$ |
(44 |
) |
|
$ |
- - |
|
|
$ |
(36 |
) |
Net
cash used in operating activities
–
discontinued
operations
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(13 |
) |
|
|
-
- |
|
|
|
(13 |
) |
Net
cash provided by (used in) operating activities
|
|
|
(12 |
) |
|
|
20 |
|
|
|
(57 |
) |
|
|
-
- |
|
|
|
(49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
for property,
plant and equipment
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(4 |
) |
|
|
-
- |
|
|
|
(4 |
) |
Distributions
from affiliates in
excess of earnings
|
|
|
-
- |
|
|
|
-
- |
|
|
|
27 |
|
|
|
-
- |
|
|
|
27 |
|
Net
cash provided by investing activities –
continuing
operations
|
|
|
-
- |
|
|
|
-
- |
|
|
|
23 |
|
|
|
-
- |
|
|
|
23 |
|
Net
cash used in investing activities –
discontinued
operations
|
|
|
-
- |
|
|
|
-
- |
|
|
|
(8 |
) |
|
|
-
- |
|
|
|
(8 |
) |
Net
cash provided by investing
activities
|
|
|
-
- |
|
|
|
-
- |
|
|
|
15 |
|
|
|
-
- |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of long-term debt
|
|
|
-
- |
|
|
|
(4 |
) |
|
|
-
- |
|
|
|
-
- |
|
|
|
(4 |
) |
Intercompany
(payments) receipts
|
|
|
12 |
|
|
|
(38 |
) |
|
|
26 |
|
|
|
-
- |
|
|
|
-
- |
|
Other
|
|
|
-
- |
|
|
|
-
- |
|
|
|
1 |
|
|
|
-
- |
|
|
|
1 |
|
Net
cash provided by (used
in) financing activities –
continuing
operations
|
|
|
12 |
|
|
|
(42 |
) |
|
|
27 |
|
|
|
-
- |
|
|
|
(3 |
) |
Net
cash provided by financing activities –
discontinued
operations
|
|
|
-
- |
|
|
|
-
- |
|
|
|
24 |
|
|
|
-
- |
|
|
|
24 |
|
Net
cash provided by (used
in) financing activities
|
|
|
12 |
|
|
|
(42 |
) |
|
|
51 |
|
|
|
-
- |
|
|
|
21 |
|
Effect
of exchange rate changes
on cash
|
|
|
-
- |
|
|
|
-
- |
|
|
|
1 |
|
|
|
-
- |
|
|
|
1 |
|
Increase
(decrease) in cash
and cash equivalents
|
|
|
-
- |
|
|
|
(22 |
) |
|
|
10 |
|
|
|
-
- |
|
|
|
(12 |
) |
Cash
and cash equivalents
at beginning of period
|
|
|
-
- |
|
|
|
62 |
|
|
|
59 |
|
|
|
-
- |
|
|
|
121 |
|
Cash
and cash equivalents
at end of period
|
|
|
- - |
|
|
|
40 |
|
|
|
69 |
|
|
|
- - |
|
|
|
109 |
|
Less:
Cash and cash equivalents at end of period –
discontinued
operations
|
|
|
-
- |
|
|
|
-
- |
|
|
|
48 |
|
|
|
-
- |
|
|
|
48 |
|
Cash
and cash equivalents at end of period –
continuing
operations
|
|
$ |
- - |
|
|
$ |
40 |
|
|
$ |
21 |
|
|
$ |
- - |
|
|
$ |
61 |
|
Item
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
This
discussion should be read in conjunction with information contained in the
Consolidated Financial Statements of Millennium Chemicals Inc., together with
its consolidated subsidiaries (collectively, “Millennium”), and the notes
thereto.
In
addition to comparisons of current operating results with the same period in the
prior year, Millennium has included, as additional disclosure, certain “trailing
quarter” comparisons of first quarter 2008 operating results to fourth quarter
2007 operating results. Millennium’s acetyls business and its joint
ventures’ businesses are highly cyclical, in addition to experiencing some less
significant seasonal effects. Trailing quarter comparisons may offer
important insight into current business directions.
The
consolidated statement of income for the three months ended March 31, 2008
reflects post-acquisition depreciation and amortization expense based on the new
value of the related assets and interest expense that resulted from the debt
used to finance the acquisition; therefore, the financial information for the
periods prior to and subsequent to the acquisition on December 20, 2007 is not
generally comparable. To indicate the application of a different
basis of accounting for the period subsequent to the acquisition, the 2007
financial information presents separately the period prior to the acquisition
(“Predecessor”) and the period after the acquisition (“Successor”).
References
to industry benchmark prices or costs, including the weighted average cost of
ethylene production, are generally to industry prices and costs reported by
Chemical Marketing Associates, Incorporated (“CMAI”), except that crude oil and
natural gas benchmark price references are to industry prices reported by
Platts, a reporting service of The McGraw-Hill Companies.
ACQUISITION
On
December 20, 2007, Basell AF S.C.A. (“Basell”) indirectly acquired the
outstanding common shares of Lyondell Chemical Company (together with its
consolidated subsidiaries, “Lyondell”). As a result, Lyondell became
an indirect wholly owned subsidiary of Basell, and Basell was renamed
LyondellBasell Industries AF S.C.A. (together with its consolidated
subsidiaries, “LyondellBasell Industries” and without Lyondell, the “Basell
Group”).
OVERVIEW
General—Millennium, a
manufacturer and marketer of chemicals, primarily acetyls and fragrance and
flavors chemicals, is a wholly owned subsidiary of Lyondell. As a
result of the acquisition of Lyondell by LyondellBasell Industries, Millennium
reassessed segment reporting based on the current management structure,
including the impact of the integration of Millennium’s businesses into the
LyondellBasell Industries portfolio of businesses. Based on this
analysis, Millennium concluded that it operates in, and management is focused
on, one reportable segment, the chemicals segment.
Millennium
has an ownership interest in Equistar Chemicals, LP (together with its
consolidated subsidiaries, “Equistar”), which is accounted for by Millennium
using the equity method. Other subsidiaries of Lyondell hold the
remaining interest in Equistar. Equistar’s results of operations are
reviewed below on a 100% basis.
On May
15, 2007, Millennium completed the sale of its worldwide inorganic chemicals
business in a transaction valued at approximately $1.3 billion, including the
acquisition of working capital and the assumption of specified liabilities
directly related to the business (see Note 4 to the Consolidated Financial
Statements). Substantially all of the inorganic chemicals business
segment is being reported as a discontinued operation, including comparative
periods presented. Unless otherwise indicated, the following
discussion of Millennium’s operating results relates only to Millennium’s
continuing operations.
Acetyls
markets were stronger in the first quarter 2008 compared to the first quarter
2007. As a result, Millennium’s acetyls products benefited from
higher prices and margins and higher sales volumes, particularly for
methanol. Fragrance and flavor products continued to show steady
performance.
During
the first quarter 2008 compared to the first quarter 2007, U.S. ethylene markets
experienced lower profitability despite operating rates in the 90% to 95%
range. Ethylene sales prices did not increase as rapidly as raw
material costs during the first quarter 2008. As discussed below,
prices of both crude oil-based liquid raw materials and natural gas
liquids-based raw materials averaged higher in 2008, with crude oil prices
reaching record levels in the quarter. U.S. demand for ethylene
decreased an estimated 1% in the first three months of 2008, compared to the
same period in 2007, while U.S. demand for polyethylene decreased an estimated
4% in the first quarter 2008 compared to the first quarter
2007. Equistar’s operating results reflected lower product margins in
the first quarter 2008 compared to the first quarter 2007 due primarily to the
higher raw material costs.
RESULTS
OF OPERATIONS
Revenues—Millennium’s revenues
of $206 million in the first quarter 2008 were 35% higher compared to
revenues of $152 million in the first quarter 2007 primarily due to the
effect of higher average sales prices.
Cost of Sales—Cost of sales of
$159 million was 30% higher in the first quarter 2008 compared to
$122 million in the first quarter 2007, primarily due to higher raw
material and energy costs.
Operating
Income—Millennium had operating income of $38 million in the first
quarter 2008 compared to operating income of $17 million in the first
quarter 2007. The improvement was primarily due to higher product
margins and the effects of higher sales volumes, particularly for
methanol.
Interest Expense—Interest
expense, including related party interest expense, interest expense on push-down
debt and interest on Millennium’s debt was $14 million in the first quarter
2008 compared to $19 million in the first quarter 2007. The
decrease reflected the repayment of $44 million principal amount of debt,
which was partially offset by the interest expense on promissory notes due 2012
issued to Lyondell Chemical Delaware Company in January 2008.
Other Income—Millennium had
other income of $3 million in the first quarter 2008 related to foreign
exchange gains.
Income (loss) from Equity Investment
in Equistar—Millennium’s equity investment in Equistar, excluding the
effect of Millennium’s share of Equistar’s push-down debt, resulted in a loss of
$34 million in the first quarter 2008 and income of $3 million in the
first quarter 2007. As a result of push-down debt, Millennium’s
$34 million loss from its equity investment in Equistar was reduced to
zero. Equistar’s operating results are reviewed further in the
discussion of the Income (loss) from Equity Investment below.
Income
from Continuing Operations—Millennium’s income from continuing operations
was $17 million in the first quarter 2008 compared to $1 million in
the first quarter 2007. The increase of $16 million was
primarily due to higher operating results from acetyls products.
First
Quarter 2008 versus Fourth Quarter 2007
Millennium’s
first quarter 2008 net income of $17 million improved compared to a net
loss of $12 million in the fourth quarter 2007. The improvement
was primarily due to higher average sales prices and higher sales volumes for
Millennium’s acetyls products.
Segment
Analysis
At the
time of the acquisition of Lyondell by LyondellBasell Industries, Millennium
established a new chemicals business segment through which its operations are
managed as part of LyondellBasell Industries.
Millennium
operates in one reportable segment. Millennium’s chemicals business
segment produces and markets: acetyls, which include VAM, acetic acid
and methanol; and fragrance and flavors chemicals.
On May
15, 2007, Millennium completed the sale of its worldwide inorganic chemicals
business (see Note 4) and substantially all of the inorganic chemicals segment
was reclassified as a discontinued operation.
The
following table reflects summarized financial information for Millennium’s
chemicals segment. Other operating loss includes income and expense
not identified with the chemicals business, including certain of Millennium’s
environmental remediation costs and employee-related costs from predecessor
businesses.
|
|
Successor
|
|
|
Predecessor
|
|
|
|
For
the three months ended
|
|
|
|
March
31,
|
|
|
|
2008
|
|
|
2007
|
|
Millions of
dollars
|
|
|
|
|
|
|
Sales
and other operating revenues:
|
|
|
|
|
|
|
Chemicals
|
|
$ |
206 |
|
|
$ |
150 |
|
Other
|
|
|
-
- |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Operating
income (loss):
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
42 |
|
|
|
24 |
|
Other
|
|
|
(4 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales volumes, in
millions
|
|
|
|
|
|
|
|
|
Acetyls:
|
|
|
|
|
|
|
|
|
Vinyl
Acetate Monomer (VAM) (pounds)
|
|
|
147 |
|
|
|
146 |
|
Acetic
acid (pounds)
|
|
|
154 |
|
|
|
159 |
|
Methanol
(gallons)
|
|
|
17 |
|
|
|
10 |
|
Chemicals
Segment
Revenues—Chemicals segment
revenues of $206 million in the first quarter 2008 were 37% higher compared
to revenues of $150 million in the first quarter 2007. The increase was
primarily due to the effects of higher average sales prices for all
products.
Operating Income—The chemicals
segment had operating income of $42 million in the first quarter 2008
compared to operating income of $24 million in the first quarter
2007. The $18 million improvement was primarily due to higher
product margins and the effects of higher sales volumes, particularly for
methanol.
Equity Investment in
Equistar
OVERVIEW
Equistar
manufactures and markets ethylene and its co-products, ethylene derivatives,
primarily polyethylene, and gasoline blending components, as well as
polypropylene.
As a
result of the acquisition of Lyondell by LyondellBasell Industries, Equistar
reassessed segment reporting based on the current management structure,
including the impact of the integration of Equistar’s businesses into the
LyondellBasell Industries portfolio of businesses. Based on this
analysis, Equistar concluded that management is focused on the chemicals segment
and the polymers segment. See “Segment Analysis” below for a
description of the segments.
Record
high prices for crude oil and high prices for natural gas liquids contributed to
higher raw material costs for chemical producers, putting pressure on chemical
product margins, particularly ethylene. Chemicals and polymers
generally experienced favorable supply and demand conditions despite weakening
demand in the U.S.
During
the first quarter 2008 compared to the first quarter 2007, Equistar experienced
lower profitability as sales price increases for ethylene and its co-products
failed to keep up with higher average raw material costs. The impact
of the lower ethylene product margins overwhelmed the modest overall improvement
in the underlying operating results of ethylene derivatives, which primarily
reflected higher product margins.
Equistar’s
operating results in the first quarter 2008, compared to the first quarter 2007,
reflected losses in both the chemicals and the polymers segments. The
segment operating results are reviewed in the “Segment Analysis”
below.
Ethylene Raw Materials—Benchmark crude oil and
natural gas prices generally have been indicators of the level and direction of
movement of raw material and energy costs for ethylene and its co-products in
the chemicals segment. Ethylene and its co-products are produced from
two major raw material groups:
·
|
crude
oil-based liquids (“liquids” or “heavy liquids”), including naphthas,
condensates, and gas oils, the
prices of which are generally related to crude oil prices;
and
|
·
|
natural
gas liquids (“NGLs”), principally ethane and propane, the prices of which
are generally affected by natural gas
prices.
|
Although
the prices of these raw materials are generally related to crude oil and natural
gas prices, during specific periods the relationships among these materials and
benchmarks may vary significantly.
Equistar
has the ability to shift its ratio of raw materials used in the production of
ethylene and its co-products to take advantage of the relative costs of heavy
liquids and NGLs. However, this ability is limited and, in the first
quarter 2008, was not sufficient to offset the unprecedented differential
increase in the price of liquids versus NGLs and the failure of co-product price
increases to offset this differential increase.
The
following table shows the average U.S. benchmark prices for crude oil and
natural gas for the applicable three-month period, as well as benchmark U.S.
sales prices for ethylene, propylene, benzene and HDPE, which Equistar produces
and sells. The benchmark weighted average cost of ethylene
production, which is reduced by co-product revenues, is based on CMAI’s
estimated ratio of heavy liquid raw materials and NGLs used in U.S. ethylene
production and is subject to revision.
|
|
Average
Benchmark Price and Percent
|
|
|
|
Change
Versus Prior Year Period Average
|
|
|
|
For
the three months ended
|
|
|
|
|
|
|
March
31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
Crude
oil – dollars per barrel
|
|
|
98.00 |
|
|
|
58.00 |
|
|
|
69 |
% |
Natural
gas – dollars per million BTUs
|
|
|
8.03 |
|
|
|
6.57 |
|
|
|
22 |
% |
NWE
Naphtha – dollars per barrel
|
|
|
93.47 |
|
|
|
61.63 |
|
|
|
52 |
% |
Weighted
average cost
of
ethylene production – cents per pound
|
|
|
49.94 |
|
|
|
28.92 |
|
|
|
73 |
% |
Ethylene
– cents per pound
|
|
|
60.50 |
|
|
|
40.00 |
|
|
|
51 |
% |
Propylene
– cents per pound
|
|
|
59.67 |
|
|
|
43.13 |
|
|
|
38 |
% |
Benzene
– cents per gallon
|
|
|
365.33 |
|
|
|
353.00 |
|
|
|
3 |
% |
HDPE
– cents per pound
|
|
|
85.00 |
|
|
|
64.00 |
|
|
|
33 |
% |
While the
increase in natural gas prices was not as dramatic as that of crude oil, NGL
prices were significantly higher during the first quarter 2008 compared to the
first quarter 2007. These increases were indicative of the pressure
on the cost of Equistar’s raw materials, both crude oil-based and
NGL-based.
Revenues—Equistar’s
revenues of $3,821 million in the first quarter 2008 were 33% higher
compared to revenues of $2,869 million in the first quarter 2007,
reflecting higher average sales prices, partially offset by the effect of lower
sales volumes. As noted in the table above, benchmark sales prices in
the first quarter 2008 averaged higher compared to the first quarter
2007. Ethylene and derivative sales volumes in the first quarter 2008
were 1% lower, while ethylene co-product sales volumes were 9% lower and polymer
sales volumes were 8% lower compared to the first quarter 2007.
Operating
Income—Equistar had an operating loss of $164 million in the first
quarter 2008 compared to operating income of $63 million in the first
quarter 2007. The decrease of $227 million was primarily due to
lower product margins as sales prices did not increase as rapidly as raw
material costs.
Other
Other
operations include Millennium’s unallocated operating expenses that are not
identified with the reportable business segment, including certain of
Millennium’s environmental remediation costs and employee-related costs from
predecessor businesses.
Other
operating losses were $4 million and $7 million in the first quarter
2008 and 2007, respectively. The $3 million decrease was
primarily due to lower compensation costs in the first quarter 2008 compared to
the first quarter 2007.
FINANCIAL
CONDITION
Operating Activities—Operating
activities of continuing operations provided cash of $1 million in the
first quarter 2008 and used cash of $36 million in the first quarter
2007. The $37 million increase in the first quarter 2008
compared to the first quarter 2007 primarily reflected the higher operating
results in the first quarter 2008, partly offset by changes in the main
components of working capital, which used cash of $25 million in the first
quarter 2008 and $10 million in the first quarter 2007.
Operating
activities of discontinued operations used cash of $13 million in the first
quarter 2007 primarily due to increases in accounts receivable and inventory,
which reflected higher sales volumes and production levels following resolution
of fourth quarter 2006 production issues.
Investing Activities—Investing
activities of continuing operations provided cash of $95 million in the
first quarter 2008 and provided cash of $23 million in the first quarter
2007. The increase in cash provided in the first quarter 2008
primarily reflected an $80 million payment received from Equistar under
revolving loan agreements executed in June 2007. The first quarter
2007 included $27 million of distributions in excess of earnings from
Equistar; there were none in the first quarter 2008.
Investing
activities of discontinued operations used cash of $8 million in the first
quarter 2007 primarily for capital expenditures.
Financing Activities—Financing
activities of Millennium’s continuing operations used cash of $129 million
in the first quarter 2008 and $3 million in the first quarter 2007
primarily for debt repayment. During the first quarter 2008,
Millennium repaid the remaining $158 million of its 4% Convertible Senior
Debenture. During the first quarter of 2008, Millennium issued
promissory notes to a subsidiary of Lyondell under loan agreements with total
availability of $2,000 million, and borrowed $31 million under these
agreements. The notes mature on December 20, 2012, or earlier upon demand, and
bear interest, which is payable quarterly, at the London Interbank Offered Rate
(“LIBOR”) plus 4%.
Financing
activities of discontinued operations provided cash of $24 million in the first
quarter 2007. In the first quarter 2007, prior to the May 15, 2007
sale of the worldwide inorganic chemicals business and the termination of these
debt facilities, $38 million was drawn on the €60 million credit facility in the
U.K. and $10 million of debt was repaid, including $7 million of the
Australian term loan.
Liquidity and Capital
Resources—At March 31, 2008, Millennium had $18 million of cash on
hand. Millennium has outstanding letters of credit of $9 million
and related cash collateral of $2 million, which is included in “Other
assets, net,” at March 31, 2008. As of March 31, 2008, total
debt, including current maturities, under which Millennium is the primary
obligor, was $170 million.
In view
of the interrelated nature of the credit and liquidity position of
LyondellBasell Industries and its subsidiaries, and pursuant to Staff Accounting
Bulletin Topic 5(j) of the Securities and Exchange Commission, Millennium has
recognized debt for which it is not the primary obligor, but which it has
guaranteed (the push-down debt), that was used in the acquisition of Lyondell by
LyondellBasell Industries.
As a
result of the December 20, 2007 acquisition of Lyondell by LyondellBasell
Industries, Millennium recognized in its financial statements as of
March 31, 2008, $328 million of acquisition-related or push-down debt
for which it is a guarantor, as described below, but is not the primary obligor,
and reduced its investment in Equistar by $1,618 million to zero to reflect
the push down to Equistar of debt of LyondellBasell Industries guaranteed by
Equistar (see Notes 1, 6 and 11 to the Consolidated Financial
Statements). Millennium does not expect that it will be required to
fund the push-down debt in the foreseeable future.
Millennium
is a limited guarantor of certain debt of the Basell Group and
Lyondell. Millennium may not incur additional indebtedness in excess
of 15% of Millennium’s Consolidated Net Tangible Assets (“CNTA”), as defined in
the indenture for Millennium’s 7.625% Senior Debentures due 2026. At
March 31, 2008, Millennium’s CNTA was $2,185 million.
The
guaranteed Basell Group debt, at March 31, 2008, includes an
$8,000 million Interim Loan and 8.375% High Yield Notes due 2015,
comprising borrowings of $615 million and €500 million
($791 million). The Interim Loan, together with proceeds of
other borrowings discussed below, was used to finance the acquisition of
Lyondell. If not repaid, prior to the 12 months tenure, the Interim
Loan converts to a senior secured loan in December 2008 and is due December
2015. The Interim Loan bears interest at LIBOR plus a margin that
increases by 0.5% for each three-month period beginning in June
2008.
In
addition, Millennium is a limited guarantor under a Senior Secured Credit
Facility and a senior secured inventory-based credit facility entered into on
December 20, 2007, in connection with the acquisition of Lyondell by
LyondellBasell Industries. Lyondell and other subsidiaries of the
Basell Group are borrowers under the Senior Secured Credit Facility, which
includes a six-year $2,000 million term loan A facility due 2013; a
seven-year $7,550 million and €1,300 million term loan B facility due
2014; and a six-year $1,000 million multicurrency revolving credit facility
due 2013. Lyondell, Equistar and a subsidiary of the Basell Group are
borrowers under the five-year $1,000 million inventory-based credit
facility.
At March
31, 2008 amounts borrowed by the Basell Group under the Senior Secured Credit
Facility consisted of $494 million borrowed under term loan A, €1,297
million ($2,050 million) under term loan B and $858 million under the
revolving credit facility, and Lyondell borrowings included $1,482 million
borrowed under term loan A and $7,531 million under term loan
B. At March 31, 2008, borrowings of $360 million were
outstanding under the inventory-based credit facility, $230 million on the
part of Lyondell and $130 million on the part of the Basell
Group.
Historically,
Millennium has financed its operations primarily through cash generated from its
operations, cash distributions from Equistar, and debt
financing. Cash generated from operations is, to a large extent,
dependent on economic, financial, competitive and other factors affecting
Millennium’s businesses and the timing and amount of cash distributions from
Equistar. With the sale of the inorganic chemicals business,
Millennium could become more reliant on cash distributions from
Equistar. The amount of cash distributions received from Equistar is
affected by Equistar’s results of operations and current and expected future
cash flow requirements. Millennium received $30 million from
Equistar in the first quarter 2007 and none in the first quarter
2008.
Subsequent
to the acquisition of Lyondell, LyondellBasell Industries manages the cash and
liquidity of Millennium and its other subsidiaries as a single group and a
global cash pool. Substantially all of the group’s cash is managed
centrally, with operating subsidiaries participating through an intercompany
uncommitted revolving credit facility.
Millennium
has up to $1,969 million available under a loan agreement with a Lyondell
subsidiary.
Millennium
believes that conditions will be such that its cash balances, cash generated
from operating activities and cash distributions from Equistar, funds from lines
of credit and cash generated from funding under various liquidity facilities
available to Millennium through Lyondell and LyondellBasell Industries, will be
adequate to meet anticipated future cash requirements, including scheduled debt
repayments, necessary capital expenditures and ongoing operations.
The
majority of the operating subsidiaries of LyondellBasell Industries, including
Millennium and Equistar, have provided guarantees or collateral for the new debt
of various LyondellBasell Industries subsidiaries totaling approximately
$20 billion that was used primarily to acquire
Lyondell. Accordingly, the major bond rating agencies have assigned a
corporate rating to LyondellBasell Industries as a group relevant to such
borrowings. Management believes this corporate rating is reflective of the
inherent credit for Millennium, as well as for the group as a
whole.
In May
2008, Moody’s Investors Service affirmed LyondellBasell Industries’ corporate
rating at B1 and lowered its outlook for LyondellBasell Industries from stable
to negative citing LyondellBasell Industries’ lower than expected operating
results and the effect the current weakness in the U.S. olefins market may have
on LyondellBasell Industries’ plan to substantially reduce debt. In
April 2008, Standard & Poor’s Rating Services (“S&P”) affirmed
LyondellBasell Industries’ corporate rating at B+ and lowered its outlook for
LyondellBasell Industries from stable to negative. The outlook
revision cited increased risks to LyondellBasell Industries in 2008 including
weaker economic growth in the U.S. and Europe and a significant increase in oil
prices.
On March
27, 2008, LyondellBasell Industries entered into a new senior unsecured
$750 million, eighteen-month revolving credit facility, under which
Lyondell and a subsidiary of the Basell Group are borrowers. The
$750 million revolving credit facility is in addition to the existing
credit facilities available to LyondellBasell Industries and is provided to
LyondellBasell Industries by Access Industries Holdings, LLC, an affiliate of
Access Industries, which indirectly owns LyondellBasell
Industries. The revolving credit facility has substantially the same
terms as the Senior Secured Credit Facility except that it is unsecured and is
not guaranteed by the subsidiaries of LyondellBasell Industries.
As of
March 31, 2008, there were no borrowings outstanding under the
facility. At each borrower’s option, loans under the revolving credit
facility bear interest until the first full fiscal quarter commencing on or
after June 30, 2008, at rates equal to LIBOR plus 6% or the higher of the (i)
federal funds rate plus 0.5% and (ii) prime rate, plus, in each case,
5%. Thereafter, interest rates will be adjusted, from time to time,
based upon the First Lien Senior Secured Leverage Ratio as calculated at such
time and as further described in the revolving credit
facility. Neither Millennium nor Equistar can borrow under this
facility.
Millennium’s
indenture contains certain covenants; however Millennium is no longer prohibited
from making certain restricted payments, including dividends to Lyondell, nor is
it required to maintain financial ratios as a result of the repayment in June
2007 of its 9.25% Senior Notes due 2008. The remaining covenants are
described in Note 13 to Millennium’s Consolidated Financial Statements
included in Millennium’s Annual Report on Form 10-K for the year ended December
31, 2007. There have been no changes in the terms of the covenants or
the guarantees in the quarter ended March 31, 2008.
Debt Agreement
Amendments―Under the terms of
the financing for the Lyondell acquisition, the joint lead arrangers retained
the right to flex certain provisions of the financing, including pricing and the
reallocation and retranching of the Term Loans. Effective April 30,
2008, the joint lead arrangers exercised the price flex provisions and
retranched the Tranche B Term Loans. Upon exercise of the flex
rights, the Senior Secured Credit Facility was amended to (i) convert each of
the U.S. Tranche B Dollar Term Loan and the German Tranche B Euro Term Loan into
three separate tranches, some of which tranches are subject to a prepayment
penalty, and (ii) increase interest rates and fee rates by 0.5%.
In
conjunction with the exercise by the joint lead arrangers of their flex rights,
additional amendments were made to each of the Senior Secured Credit Facility,
Senior Secured Interim Loan, Senior Secured Inventory-Based Credit Facility and
Accounts Receivable Securitization Facility. The amendments to the
Senior Secured Credit Facility, Senior Secured Interim Loan and Senior Secured
Inventory-Based Credit Facility were effective on April 30, 2008. The
amendments to the Accounts Receivable Securitization Facility were effective on
May 6, 2008.
The
Senior Secured Credit Facility was amended to (1) establish a LIBOR floor of
3.25% on the U.S. Tranche B Dollar Term Loan, (2) modify certain debt covenants,
including increasing a general debt basket from $750 million to $1 billion,
eliminating an interest rate hedging requirement, increasing the asset backed
facility basket by $500 million, and adding a covenant prohibiting reduction of
aggregate commitments under the Revolving Credit Facility with Access Industries
before its initial maturity, (3) set EBITDA at specific levels for the last
three quarters of 2007, and (4) make other changes, including technical and
typographical corrections.
Each of
the Senior Secured Interim Loan, the Senior Secured Inventory-Based Credit
Facility and the Accounts Receivable Securitization Facility were amended to (i)
conform to certain of the amendments to the Senior Secured Credit Facility and
(ii) make other changes, including technical and typographical
corrections. In addition, the Senior Secured Inventory-Based Credit
Facility was amended to allow Lyondell the future option to increase the
aggregate amount of commitments under the facility by a further $500
million.
Under the
terms of the Senior Secured Inventory-Based Credit Facility, as amended,
Lyondell could elect to increase commitments under the facility by up to an
aggregate $1.1 billion. Effective April 30, 2008, Lyondell exercised
the option to increase the facility by $600 million and, as a result, aggregate
commitments under the facility increased from $1 billion to $1.6
billion. Concurrent with the exercise of the increase in commitments,
Lyondell Chemical Company became a lien grantor and added the following as
collateral: (i) a first priority pledge of all equity interests owned by
Lyondell Chemical Company in, and all indebtedness owed to it by, LyondellBasell
Receivables I, LLC (the seller under the Accounts Receivable Securitization
Facility) and (ii) a first priority security interest in all accounts
receivable, inventory and related assets owned by Lyondell Chemical Company,
subject to customary exceptions.
Effects of a breach—A breach
by Millennium or any other obligor of the covenants or the failure to pay
principal and interest when due under any of the Senior Secured Credit Facility,
Interim Loan, inventory-based credit facility, Accounts Receivable
Securitization Facility or other indebtedness of Millennium or its affiliates
could result in a default or cross-default under all or some of those
instruments. If any such default or cross-default occurs, the
applicable lenders may elect to declare all outstanding borrowings, together
with accrued interest and other amounts payable thereunder, to be immediately
due and payable. In such circumstances, the lenders under the Senior
Secured Credit Facility and the inventory-based credit facility also have the
right to terminate any commitments they have to provide further borrowings, and
the counterparties under the Accounts Receivable Securitization Facility may
terminate further purchases of interests in accounts receivable and receive all
collections from previously sold interests until they have collected on their
interests in those receivables, thus reducing the entity’s
liquidity. In addition, following such an event of default, the
lenders under the Senior Secured Credit Facility and the Interim Loan and the
counterparties under the inventory-based credit facility have the right to
proceed against the collateral granted to them to secure the obligations, which
in some cases includes Millennium’s available cash. If the
obligations under the Senior Secured Credit Facility, the Interim Loan, the
inventory-based facility, Accounts Receivable Securitization Facility or any
other material financing arrangement were to be accelerated, it is not likely
that the obligors would have, or be able to obtain, sufficient funds to make
these accelerated payments, and as a result Millennium or one or more of its
subsidiaries could be forced into bankruptcy or liquidation.
Off-Balance Sheet
Arrangements—Millennium is not a party to any contractual arrangements
that fall within the Securities and Exchange Commission’s definition of
off-balance sheet arrangements.
Equistar Liquidity and Capital
Resources—At March 31, 2008, Equistar’s long-term debt, under which
Equistar is the primary obligor, was $130 million, and there were no
current maturities. In addition, Equistar recognized in its financial
statements a total of $17,669 million of acquisition-related or push-down
debt for which it is a guarantor, as described below, but is not the primary
obligor (see Note 11 to the Consolidated Financial Statements). As a
result of recognizing the push-down debt in its financial statements, Equistar
has a $9.8 billion deficit in partners’ capital; however, Equistar does not
expect that it will be required to fund a substantial portion of the push-down
debt.
LyondellBasell
Industries manages the cash and liquidity of Equistar and its other subsidiaries
as a single group and a global cash pool. Substantially all of the
group’s cash is managed centrally, with operating subsidiaries participating
through an intercompany uncommitted revolving credit facility. The majority of
the operating subsidiaries of LyondellBasell Industries, including Equistar,
have provided guarantees or collateral for the new debt of various
LyondellBasell Industries subsidiaries totaling approximately $20 billion that
was used primarily to acquire Lyondell. Accordingly, the major bond
rating agencies have assigned a corporate rating to LyondellBasell Industries as
a group relevant to such borrowings. Management believes this corporate rating
is reflective of the inherent credit for Equistar, as well as for the group as a
whole.
At
March 31, 2008, Equistar had cash on hand of $20 million, and the
total amount available to borrowers under both the $1,000 million Senior
Secured Inventory-Based Revolving Credit Facility and the $1,150 million
Accounts Receivable Securitization Facility totaled approximately
$300 million, giving effect to a total minimum unused availability
requirement of $100 million under the Accounts Receivable Securitization
Facility and the senior secured inventory-based credit facility. In
addition, Equistar has up to $1.88 billion available under the loan
agreement with a Lyondell subsidiary.
Equistar
believes that its cash balances, cash generated from operating activities, funds
from lines of credit and cash generated from funding under various liquidity
facilities available to Equistar through LyondellBasell Industries will be
adequate to meet anticipated future cash requirements, including scheduled debt
repayments, necessary capital expenditures, and ongoing operations.
CURRENT
BUSINESS OUTLOOK
For the
second quarter 2008, Millennium expects the markets for acetyls, particularly
methanol, to come into a more balanced supply demand position with lower overall
product margins compared to the first quarter 2008. The fragrance and
flavors products should continue their steady performance.
CRITICAL
ACCOUNTING POLICIES
Millennium
applies those accounting policies that management believes best reflect the
underlying business and economic events, consistent with accounting principles
generally accepted in the U.S. Inherent in such policies are
certain key assumptions and estimates made by management. Management
periodically updates its estimates used in the preparation of the financial
statements based on its latest assessment of the current and projected business
and general economic environment. Information regarding Millennium’s
Critical Accounting Policies is included in Item 7 of Millennium’s Annual
Report on Form 10-K for the year ended December 31, 2007.
ACCOUNTING
AND REPORTING CHANGES
On April 25, 2008, the Financial
Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”)
FAS 142-3, Determination of
the Useful Life of Intangible Assets. This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other
Intangible Assets in order
to improve the consistency between the useful life of a recognized intangible
asset under Statement 142 and the period of expected cash flows used to measure
the fair value of the asset under FASB Statement No. 141 (Revised 2007),
Business
Combinations, and other
U.S. generally accepted accounting principles. This FSP is effective for
Millennium beginning in 2009. Early adoption is prohibited. The
Millennium does not expect the application of FSP 142-3 to have a material
effect on its consolidated financial statements.
In March
2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
161, Disclosures about
Derivatives Instruments and Hedging Activities, which amends and expands
the disclosure requirements of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities by requiring qualitative disclosures
about objectives and strategies for using derivatives, quantitative disclosures
about fair value amounts of and gains and losses on derivative instruments, and
disclosures about credit-risk-related contingent features in derivative
agreements. SFAS 161 will be effective for Millennium beginning in
2009. Millennium is currently evaluating the effect of SFAS No. 161
on its consolidated financial statements.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment to ARB No. 51, which
establishes new accounting and disclosure requirements for noncontrolling, or
minority, interests, including their classification as a separate component of
equity and the adjustment of net income to include amounts attributable to
minority interests. SFAS No. 160 also establishes new accounting
standards requiring recognition of a gain or loss upon deconsolidation of a
subsidiary. SFAS No. 160 will be effective for Millennium beginning
in 2009, with earlier application prohibited.
Also in
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, which
requires an acquiring entity to recognize all assets acquired and
liabilities assumed in a transaction at the acquisition-date at fair value with
limited exceptions. SFAS No. 141 (revised 2007) will change the
accounting treatment for certain specific items, including: expensing of most
acquisition and restructuring costs; recording acquired contingent liabilities,
in-process research and development and noncontrolling, or minority, interests
at fair value; and recognizing changes in income tax valuations and
uncertainties after the acquisition date as income tax expense. SFAS
No. 141 (revised 2007) also includes new disclosure requirements. For
Millennium, SFAS No. 141 (revised 2007) will apply to business combinations
with acquisition dates beginning in 2009. Earlier adoption is
prohibited.
Although
certain past transactions, including the acquisition of Lyondell by
LyondellBasell Industries, would have been accounted for differently under SFAS
No. 160 and SFAS No. 141 (revised 2007), application of these statements in 2009
will not affect historical amounts.
SFAS No.
159, The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115, which permits election of fair value to measure many
financial instruments and certain other items was applicable to Millennium
effective January 1, 2008. Millennium has elected not to apply
the fair value option to any assets or liabilities.
In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements. The new standard defines fair value, establishes
a framework for its measurement and expands disclosures about such
measurements. In February 2008, the FASB issued FASB Staff Position
FAS 157-2, delaying the effective date of SFAS No. 157 for nonfinancial
assets and liabilities until January 1, 2009. Millennium is currently
evaluating the effect to its consolidated financial statements of prospectively
applying the provisions of SFAS No. 157 to those assets and
liabilities.
Implementation
of the provisions of SFAS No. 157 to financial assets and liabilities
beginning January 1, 2008 did not have a material effect on Millennium’s
consolidated financial statements.
Millennium
adopted the provisions of FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income
Taxes, on
January 1, 2007. As a result of
the implementation of FIN No. 48, Millennium recognized a $47 million
increase in the liability related to uncertain income tax positions, a
$4 million increase in deferred tax assets and a $43 million increase
of the January 1, 2007 balance of retained deficit.
Item
3. Disclosure of Market Risk
Millennium’s
exposure to market risk is described in Item 7A of its Annual Report on Form
10-K for the year ended December 31, 2007. Millennium’s exposure
to market risk has not changed materially in the quarter ended March 31,
2008.
Item
4. Controls and
Procedures
Millennium
performed an evaluation, under the supervision and with the participation of its
management, including the President and Chief Executive Officer (principal
executive officer) and the Chief Financial Officer (principal financial
officer), of the effectiveness of Millennium’s disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as of March 31, 2008. Based upon that
evaluation, the President and Chief Executive Officer and the Chief Financial
Officer concluded that Millennium’s disclosure controls and procedures are
effective.
There
were no changes in Millennium’s internal control over financial reporting that
occurred during Millennium’s last fiscal quarter (the first quarter 2008) that
have materially affected, or are reasonably likely to materially affect,
Millennium’s internal control over financial reporting.
FORWARD-LOOKING
STATEMENTS
Certain
of the statements contained in this report are “forward-looking statements”
within the meaning of the federal securities laws. Forward-looking
statements can be identified by words such as “estimate,” “believe,” “expect,”
“anticipate,” “plan,” “budget” or other words that convey the uncertainty of
future events or outcomes. Many of these forward-looking statements
have been based on expectations and assumptions about future events that may
prove to be inaccurate. While management considers these expectations
and assumptions to be reasonable, they are inherently subject to significant
business, economic, competitive, regulatory and other risks, contingencies and
uncertainties, most of which are difficult to predict and many of which are
beyond Millennium’s control. Millennium’s or its joint ventures’
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including but not
limited to:
·
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the
availability, cost and price volatility of raw materials and
utilities,
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·
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the
supply/demand balances for Millennium’s and its joint ventures’ products,
and the related effects of industry production capacities and operating
rates,
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·
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operating
interruptions (including leaks, explosions, fires, weather-related
incidents, mechanical failure, unscheduled downtime, supplier disruptions,
labor shortages or other labor difficulties, transportation interruptions,
spills and releases and other environmental
risks),
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·
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legal,
tax and environmental proceedings,
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·
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uncertainties
associated with the U. S. and worldwide economies, including those due to
political tensions in the Middle East and
elsewhere,
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·
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the
cyclical nature of the chemical
industry,
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·
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current
and potential governmental regulatory actions in the U. S. and in other
countries,
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terrorist
acts and international political
unrest,
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·
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risks
of doing business outside the U.S., including foreign currency
fluctuations,
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·
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Millennium’s
ability to service its
indebtedness,
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·
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available
cash and access to capital markets,
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·
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competitive
products and pricing pressures,
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·
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technological
developments, and
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·
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Millennium’s
ability to implement its business strategies, including integration with
LyondellBasell Industries.
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Any of
these factors, or a combination of these factors, could materially affect
Millennium’s or its joint ventures’ future results of operations and the
ultimate accuracy of the forward-looking statements. These
forward-looking statements are not guarantees of Millennium’s or its joint
ventures’ future performance, and Millennium’s or its joint ventures’ actual
results and future developments may differ materially from those projected in
the forward-looking statements. Management cautions against putting
undue reliance on forward-looking statements or projecting any future results
based on such statements or present or prior earnings levels.
All
forward-looking statements in this Form 10-Q are qualified in their entirety by
the cautionary statements contained in this section, elsewhere in this report
and in Millennium’s Annual Report on Form 10-K for the year ended December 31,
2007. See “Item 1. Legal Proceedings,” “Item
1A. Risk Factors” and “Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” These
factors are not necessarily all of the important factors that could affect
Millennium and its joint ventures. Use caution and common sense when
considering these forward-looking statements. Millennium does not
intend to update these statements unless securities laws require it to do
so.
In
addition, this Form 10-Q contains summaries of contracts and other
documents. These summaries may not contain all of the information
that is important to an investor, and reference is made to the actual contract
or document for a more complete understanding of the contract or document
involved.
PART
II. OTHER INFORMATION
Item
1. Legal Proceedings
There
have been no material developments with respect to Millennium’s legal
proceedings previously disclosed in the Annual Report on Form 10-K for the year
ended December 31, 2007, except as disclosed below:
Litigation Matters—Together
with alleged past manufacturers of lead-based paint and lead pigments for use in
paint, Millennium has been named as a defendant in various legal proceedings
alleging personal injury, property damage, and remediation costs allegedly
associated with the use of these products. After owning the Glidden
Paints business for six months, in 1986, a predecessor of a current subsidiary
of Millennium sold, through a stock sale, its Glidden Paints
business. As part of that sale, the seller and purchaser agreed to
provide indemnification to each other against certain claims made during the
first eight years after the sale, and the purchaser agreed to fully indemnify
the seller against such claims made after the eight-year period. With
the exception of two cases, all pending lead-based paint and lead pigment
litigation involving Millennium, including the Rhode Island case, were filed
after the eight-year period. Accordingly, Millennium believes that it
is entitled to full indemnification from the purchaser against lead-based paint
and lead pigment cases filed after the eight-year period. The
purchaser disputes that it has such an indemnification obligation, and claims
that the seller must indemnify it. Millennium has not paid either a settlement
or any judgment, and its indemnification claims have not been finally
resolved. On March 28, 2008, Millennium filed an action in New York
Supreme Court against ICI America seeking to confirm ICI America’s
indemnification obligation to Millennium.
Since the
beginning of 2007, 33 cases have been dismissed either voluntarily, upon
defendants’ motion, or tried to a jury verdict favorable to defendants,
including Millennium. Millennium currently remains named a defendant
in 22 cases arising from Glidden’s manufacture of lead
pigments. These cases are in various stages of the litigation
process. Of the 22 cases, most seek damages for personal injury and
are brought by individuals, and four of the cases seek damages and abatement
remedies based on public nuisance and are brought by states, cities and/or
counties in three states (California, Ohio and Rhode Island).
Environmental Matters—A
Millennium subsidiary has been identified as a potentially responsible party
(“PRP”) with respect to the Kalamazoo River Superfund Site. The site
involves cleanup of river sediments and floodplain soils contaminated with
polychlorinated biphenyls, cleanup of former paper mill operations, and cleanup
and closure of landfills associated with the former paper mill
operations. Litigation concerning the matter commenced by the State
of Michigan in December 1987 was recently dismissed, although the State reserved
its right to bring certain claims in the future if the issues are not resolved
in the CERCLA process. Millennium’s ultimate liability for the
Kalamazoo River Superfund Site will depend on many factors that have not yet
been determined, including the ultimate remedy selected, the determination of
natural resource damages, the number and financial viability of the other PRPs,
and the determination of the final allocation among the PRPs.
Item
1A. Risk Factors
There
have been no material developments with respect to Millennium’s risk factors
previously disclosed in the Annual Report on Form 10-K for the year ended
December 31, 2007, except as disclosed below:
Millennium’s
and its joint ventures’ operations and assets are subject to extensive
environmental, health and safety and other laws and regulations, which could
result in material costs or liabilities.
Millennium
and its joint ventures cannot predict with certainty the extent of future
liabilities and costs under environmental, health and safety and other laws and
regulations and whether liabilities and costs will be
material. Millennium and its joint ventures also may face liability
for alleged personal injury or property damage due to exposure to chemicals or
other hazardous substances at their current or former facilities or chemicals
that they manufacture, handle or own. In addition, because the
products of Millennium and its joint ventures are components of a variety of
other end-use products, Millennium and its joint ventures, along with other
members of the chemical industry, are inherently subject to potential claims
related to those end-use products. Although claims of the types
described above have not historically had a material impact on Millennium’s or
its joint ventures’ operations, a substantial increase in the success of these
types of claims could result in the expenditure of a significant amount of cash
by Millennium or its joint ventures to pay claims, and could reduce their
operating results.
Millennium
and its joint ventures (together with the industries in which they operate) are
subject to extensive national, state and local environmental laws and
regulations concerning, and are required to have permits and licenses
regulating, emissions to the air, discharges onto land or waters and the
generation, handling, storage, transportation, treatment and disposal of waste
materials. Many of these laws and regulations provide for substantial
fines and potential criminal sanctions for violations. Some of these
laws and regulations are subject to varying and conflicting
interpretations. In addition, some of these laws and regulations
require Millennium and its joint ventures to meet specific financial
responsibility requirements. Millennium generally expects that
regulatory controls worldwide will become increasingly more demanding, but
cannot accurately predict future developments, such as increasingly strict
environmental laws, and inspection and enforcement policies, as well as higher
compliance costs, which might affect the handling, manufacture, use, emission or
disposal of products, other materials or hazardous and non-hazardous
waste. Some risk of environmental costs and liabilities is inherent
in Millennium’s and its joint ventures’ operations and products, as it is with
other companies engaged in similar businesses, and there is no assurance that
material costs and liabilities will not be incurred. In general,
however, with respect to the costs and risks described above, Millennium does
not expect that it or its joint ventures will be affected differently than the
rest of the chemical industry where their facilities are located.
Environmental
laws may have a significant effect on the nature and scope of cleanup of
contamination at current and former operating facilities, the costs of
transportation and storage of raw materials and finished products and the costs
of the storage and disposal of wastewater. Also, U.S. “Superfund”
statutes may impose joint and several liability for the costs of remedial
investigations and actions on the entities that generated waste, arranged for
disposal of the wastes, transported to or selected the disposal sites and the
past and present owners and operators of such sites. All such
responsible parties (or any one of them, including Millennium and its joint
ventures) may be required to bear all of such costs regardless of fault, the
legality of the original disposal or ownership of the disposal site. In
addition, similar environmental laws and regulations that have been or may be
enacted in countries outside of the U.S. may impose similar liabilities and
costs upon Millennium.
Millennium
and its joint ventures have on-site solid-waste management units at several
facilities. It is anticipated that corrective measures will be
necessary to comply with federal and state requirements with respect to these
facilities. Millennium and its joint ventures also have liabilities
under the Resource Conservation and Recovery Act and various state and non-U.S.
government regulations related to several current and former plant
sites. Millennium and its joint ventures also are responsible for a
portion of the remediation of certain off-site waste disposal
facilities. Millennium and its joint ventures are contributing funds
to the cleanup of several waste sites throughout the U.S. under the
Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)
and the Superfund Amendments and Reauthorization Act of 1986, including the
Kalamazoo River Superfund Site discussed below. Millennium and its
joint ventures also have been named as potentially responsible parties at
several other sites. Millennium’s policy is to accrue remediation
expenses when it is probable that such efforts will be required and the related
expenses can be reasonably estimated. Estimated costs for future
environmental compliance and remediation are necessarily imprecise due to such
factors as the continuing evolution of environmental laws and regulatory
requirements, the availability and application of technology, the identification
of presently unknown remediation sites and the allocation of costs among the
potentially responsible parties under applicable statutes. For
further discussion regarding Millennium’s and its joint ventures’ environmental
matters and related accruals (including those discussed in this risk factor),
and environmentally-related capital expenditures, see also “Item 1. Legal
Proceedings” and Note 15 to the Consolidated Financial Statements in
Millennium’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008,
and Note 18 to the Consolidated Financial Statements, “Item 1.
Business—Environmental Capital Expenditures,” “Item 3. Legal
Proceedings—Environmental Matters” and
“Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Environmental Matters” in Millennium’s Annual Report on Form 10-K for
the year ended December 31, 2007. If actual expenditures exceed the
amounts accrued, that could have an adverse effect on Millennium’s and its joint
ventures’ results of operations and financial position.
Kalamazoo River Superfund
Site—A Millennium subsidiary has been identified as a PRP with respect to
the Kalamazoo River Superfund Site. The site involves cleanup of
river sediments and floodplain soils contaminated with polychlorinated
biphenyls, cleanup of former paper mill operations, and cleanup and closure of
landfills associated with the former paper mill
operations. Litigation concerning the matter commenced by the State
of Michigan in December 1987 was recently dismissed, although the State reserved
its right to bring certain claims in the future if the issues are not resolved
in the CERCLA process.
In 2000,
the Kalamazoo River Study Group (the “KRSG”), of which the Millennium subsidiary
and other PRPs are members, submitted to the State of Michigan a Draft Remedial
Investigation and Draft Feasibility Study, which evaluated a number of remedial
options for the river. The estimated costs for these remedial options
ranged from $0 to $2.5 billion. Although the KRSG study
identified a broad range of remedial options, not all of those options would
represent reasonably possible outcomes. Management does not believe
that any single remedy among those options represented the highest-cost
reasonably possible outcome.
In 2004,
Millennium recognized a liability representing Millennium’s interim allocation
of 55% of the $73 million total of estimated cost of riverbank
stabilization, recommended as the preferred remedy in 2000 by the KRSG study,
and of certain other costs.
At the
end of 2001, the U.S. Environmental Protection Agency (“EPA”) took lead
responsibility for the river portion of the site at the request of the State of
Michigan. In 2004, the EPA initiated a confidential process to
facilitate discussions among the agency, the Millennium subsidiary, other PRPs,
the Michigan Departments of Environmental Quality and Natural Resources, and
certain federal natural resource trustees about the need for additional
investigation activities and different possible approaches for addressing the
contamination in and along the Kalamazoo River. As these discussions
have continued, management has obtained new information about regulatory
oversight costs and other remediation costs, including a proposed remedy to be
applied to a specific portion of the river, and has been able to reasonably
estimate anticipated costs for certain other segments of the river, based in
part on experience to date with the remedy currently being applied to the one
portion of the river. As a result, management can reasonably estimate
the probable spending for remediation of three segments of the river, which has
been accrued as of March 31, 2008. Management’s best estimates for
costs relating to other segments of the river, which may remain uncertain for
the foreseeable future, also have been accrued, based on the KRSG
study. As of March 31, 2008, the probable additional future
remediation spending associated with the river cannot be determined with
certainty but the amounts accrued are believed to be the current best estimate
of future costs, based on information currently available. At March
31, 2008, the balance of the liability related to the river was
$97 million.
In
addition, Millennium has recognized a liability primarily related to
Millennium’s estimated share of remediation costs for two former paper mill
sites and associated landfills, which are also part of the Kalamazoo River
Superfund Site. At March 31, 2008, the balance of the liability was
$47 million. Although no final agreement has been reached as to
the ultimate remedy for these locations, Millennium has begun remediation
activity related to these sites.
Millennium’s
ultimate liability for the Kalamazoo River Superfund Site will depend on many
factors that have not yet been determined, including the ultimate remedies
selected, the determination of natural resource damages, the number and
financial viability of the other PRPs, and the determination of the final
allocation among the PRPs.
Other Regulatory
Requirements—In addition to the matters described above, Millennium and
its joint ventures are subject to other material regulatory requirements that
could result in higher operating costs, such as regulatory requirements relating
to the security of its facilities, and the transportation, exportation or
registration of its products. Although Millennium and its joint
ventures have compliance programs and other processes intended to ensure
compliance with all such regulations, Millennium and its joint ventures are
subject to the risk that their compliance with such regulations could be
challenged. Non-compliance with certain of these regulations could
result in the incurrence of additional costs, penalties or assessments that
could be significant.
Item
6. Exhibits
4.2
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Amended
and Restated Senior Secured Credit Agreement Dated as of April
30, 2008 (filed as an exhibit to Lyondell Chemical Company’s Current
Report on Form 8-K filed on May 6, 2008 and incorporated herein
by reference)
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4.3
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Amended
and Restated Bridge (Interim) Loan Credit Agreement Dated as of
April 30, 2008 (filed as an exhibit to Lyondell Chemical Company’s
Current Report on Form 8-K filed on May 6, 2008 and incorporated herein by
reference)
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4.5(a)
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Amended
No. 1 to Senior Secured Inventory-Based Credit Agreement Dated as of
April 30, 2008 (filed as an exhibit to Lyondell Chemical Company’s
Current Report on Form 8-K filed on May 6, 2008 and incorporated
herein by reference)
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10.7(a)
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First
Supplement to Amended and Restated Limited Partnership Agreement (filed as
an exhibit to the Registrant’s Current Report on Form 8-K filed on April
14, 2008 and incorporated herein by reference)
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10.8
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Indemnity
Agreement with Equistar (filed as an exhibit to the Registrant’s Current
Report on Form 8-K filed on April 14, 2008 and incorporated herein by
reference)
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31.1
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Rule
13a – 14(a)/15d – 14(a) Certification of Principal Executive
Officer
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31.2
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Rule
13a – 14(a)/15d – 14(a) Certification of Principal Financial
Officer
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32.1
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Section
1350 Certification of Principal Executive Officer
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32.2
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Section
1350 Certification of Principal Financial
Officer
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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Millennium
Chemicals Inc.
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Dated: May 15,
2008
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/s/
Eberhard Faller
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Eberhard
Faller
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Vice
President, Controller
and
Chief Accounting Officer
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(Duly
Authorized and
Principal
Accounting
Officer)
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