-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MoqyFu8XwjfqEdQp+1SzmFe0Bp9IcEfPZbIz42r57r5c/S0JVaOIZKdEySAmD0TP azTUnUqBxBiYI6I7JuBa0w== 0000950109-96-002542.txt : 19960502 0000950109-96-002542.hdr.sgml : 19960502 ACCESSION NUMBER: 0000950109-96-002542 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960501 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARCO CHEMICAL CO CENTRAL INDEX KEY: 0000819544 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 510104393 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09678 FILM NUMBER: 96554560 BUSINESS ADDRESS: STREET 1: 3801 WEST CHESTER PIKE CITY: NEWTOWN SQUARE STATE: PA ZIP: 19073 BUSINESS PHONE: 2153592000 10-Q/A 1 FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A --------------- [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 --------------- Commission file number 1-9678 --------------- ARCO Chemical Company (Exact name of registrant as specified in its charter) --------------- Delaware 51-0104393 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3801 West Chester Pike Newtown Square, Pennsylvania 19073-2387 (Address of principal executive offices) (Zip Code) --------------- (610) 359-2000 (Registrant's telephone number, including area code) --------------- Not Applicable (Former name, former address and former fiscal year, if changed since last report) --------------- 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 [x] No ----- ----- Number of shares of Common Stock, $1.00 par value, outstanding as of March 31, 1996: 96,589,314. PART I. FINANCIAL INFORMATION Item 1. ARCO CHEMICAL COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENTS OF INCOME (Millions of Dollars, Except Per Share Data)
Three Months Ended March 31, ------------------ 1996 1995 ----- ------ Sales and other operating revenues $ 982 $1,141 Costs and other operating expenses 730 844 ----- ------ Gross profit 252 297 Selling, general and administrative expenses 63 64 Research and development 18 18 ----- ------ Operating income 171 215 Interest expense (22) (22) Other income, net 9 5 ----- ------ Income before income taxes 158 198 Provision for income taxes 52 72 ----- ------ Net income $ 106 $ 126 ===== ====== Earnings per common share $1.10 $ 1.31 ===== ====== Cash dividends paid per common share $.700 $ .625 ===== ======
See accompanying notes. ARCO CHEMICAL COMPANY CONSOLIDATED BALANCE SHEETS (Millions of Dollars)
March 31, December 31, 1996 1995 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 268 $ 235 Short-term investments 114 25 Accounts receivable 586 631 Inventories 480 472 Prepaid expenses and other current assets 34 19 -------- -------- Total current assets 1,482 1,382 Investments and long-term receivables 80 90 Property, plant and equipment, net 2,261 2,293 Deferred charges and other assets (net of accumulated amortization of $286 in 1996 and $285 in 1995) 359 370 -------- -------- Total assets $ 4,182 $ 4,135 ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Long-term debt due within one year $ 24 $ 25 Accounts payable 267 253 Taxes payable 125 94 Other accrued liabilities 195 217 -------- -------- Total current liabilities 611 589 -------- -------- Long-term debt 880 887 Other liabilities and deferred credits 165 158 Deferred income taxes 409 409 Minority interest 126 123 Stockholders' equity: Common stock 100 100 Additional paid-in capital 871 869 Retained earnings 1,023 985 Foreign currency translation 88 110 Treasury stock, at cost (91) (95) -------- -------- Total stockholders' equity 1,991 1,969 -------- -------- Total liabilities and stockholders' equity $ 4,182 $ 4,135 ======== ========
See accompanying notes. - 2 - ARCO CHEMICAL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars)
Three Months Ended March 31, ------------------ 1996 1995 ----- ----- Cash flows from operating activities Net income $ 106 $ 126 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 54 59 Net change in accounts receivable, inventories, accounts and other payables 63 (19) Other (17) (32) ----- ----- Net cash provided by operating activities 206 134 ----- ----- Cash flows from investment activities Purchases of short-term investments (89) - Capital expenditures (40) (28) Proceeds from asset sales 21 - Increase in deferred charges (1) (74) ----- ----- Net cash used in investment activities (109) (102) ----- ----- Cash flows from financing activities Dividends paid (68) (60) Repayment of long-term debt - (14) Other 6 3 ----- ----- Net cash used in financing activities (62) (71) ----- ----- Effect of exchange rate changes on cash (2) - ----- ----- Net increase (decrease) in cash and cash equivalents 33 (39) Cash and cash equivalents at beginning of year 235 144 ----- ----- Cash and cash equivalents at end of period $ 268 $ 105 ===== =====
See accompanying notes. - 3 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE A. Basis of Presentation The foregoing financial information is unaudited and has been prepared from the records of ARCO Chemical Company (the Company). In the opinion of management, the financial information reflects all adjustments (consisting only of items of a normal recurring nature) necessary for a fair statement of financial position and results of operations in conformity with generally accepted accounting principles. Certain amounts in 1995 have been reclassified for comparative purposes. These interim financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 1995. NOTE B. Geographic Information The Company is an international manufacturer of intermediate chemicals and specialty chemical products which it principally markets to other industrial concerns. The Company operates in one industry segment. The geographic distribution of the Company's markets is indicated by the table below. Total revenues are summarized geographically by destination (customer location) and by origin (point of sale); intercompany sales between geographic areas are excluded.
Three Months Ended March 31, -------------------- 1996 1995 --------- --------- (Millions of Dollars) Total revenues (by destination) United States $ 516 $ 634 Europe 281 254 Other foreign 185 253 ----- ------ Total $ 982 $1,141 ===== ====== Total revenues (by origin) United States $ 561 $ 720 Europe 337 341 Other foreign 84 80 ----- ------ Total $ 982 $1,141 ===== ====== Pretax earnings United States $ 139 $ 218 Europe 40 (8) Other foreign (2) 6 Interest expense (22) (22) Eliminations 3 4 ----- ------ Total $ 158 $ 198 ===== ======
Included in pretax earnings are royalty charges made to foreign operations for the use of Company technology. Eliminations principally include intercompany profit. - 4 - NOTE C. Inventories Inventories at March 31, 1996 and December 31, 1995 comprised the following categories:
1996 1995 ---- ---- (Millions of Dollars) Finished goods $348 $338 Work-in-process 29 38 Raw materials 58 51 Materials and supplies 45 45 ----- ----- Total $480 $472 ===== =====
NOTE D. Property, Plant and Equipment, Net Property, plant and equipment, at cost, and related accumulated depreciation at March 31, 1996 and December 31, 1995 were as follows:
1996 1995 ---- ---- (Millions of Dollars) Property, plant and equipment $3,806 $3,812 Less: accumulated depreciation 1,545 1,519 ------ ------ Total $2,261 $2,293 ====== ======
NOTE E. Contingencies The Company and its subsidiaries are involved in a number of lawsuits, all of which have arisen in the ordinary course of the Company's business. The Company is unable to predict the outcome of these matters, but does not believe, based upon currently available facts, that the ultimate resolution of such matters will have a material adverse effect on the consolidated financial statements of the Company. The Company is subject to other loss contingencies pursuant to federal, state, local, and foreign environmental laws and regulations. These contingencies include possible obligations to remove or mitigate the effects on the environment of the past disposal or release of certain chemical substances at various sites (remediation costs). The Company continues to evaluate the amount of these remediation costs and periodically adjusts its reserve for remediation costs and its estimate of additional environmental loss contingencies based on progress made in determining the magnitude, method and timing of the remedial actions that may be required by government authorities and an evaluation of the Company's potential liability in relation to the liability and financial resources of any other potentially responsible parties. At March 31, 1996, the Company's environmental reserve totaled $57 million, which reflected the Company's latest assessment of potential future remediation costs associated with existing sites. A significant portion of the reserve is related to the Company's Beaver Valley (Pennsylvania) facility. The reserve gives recognition to a work plan, between the Company and the Pennsylvania - 5 - Department of Environmental Protection, for testing, risk assessment, remedial process design and remediation of conditions at the Beaver Valley plant. The reserve also reflects an agreement between the Company and another responsible party whereby that party has agreed to pay for approximately 50 percent of the costs associated with the Beaver Valley plant work plan. The remainder of the reserve is related to four other plant sites and two federal Superfund sites for amounts ranging from $1 million to $15 million per site. The Company is involved in administrative proceedings or lawsuits relating to seven other Superfund sites. However, it estimates, based on currently available information, that potential loss contingencies associated with these sites, individually and in the aggregate, are not significant. Substantially all amounts reserved are expected to be paid out over the next five to ten years. The Company relies upon remedial investigation/feasibility studies (RI/FS) at each site as a basis for estimating remediation costs at the site. The Company has substantially completed RI/FS at most of its sites; however, two plant facilities are currently undergoing either RI/FS or preliminary assessments. In addition, selection of the remediation method and the cleanup standard to be applied are, in most cases, subject to approval by the appropriate government authority. Accordingly, the Company may have possible loss contingencies in excess of the amounts reserved to the extent the scope of remediation required, the final remediation method selected and the cleanup standard applied vary from the assumptions used in estimating the reserve. The Company estimates that the upper range of these possible loss contingencies should not exceed the amount accrued by more than $65 million. The extent of loss related to environmental matters ultimately depends upon a number of factors, including technological developments, changes in environmental laws, the number and ability to pay of other parties involved at a particular site and the Company's potential involvement in additional environmental assessments and cleanups. Based upon currently known facts, management believes that any remediation costs the Company may incur in excess of the amounts reserved or disclosed above would not have a material adverse impact on the Company's consolidated financial statements. The Company and the Atlantic Richfield Company (ARCO) are parties to an agreement whereby the Company has indemnified ARCO against certain claims or liabilities that ARCO may incur relating to ARCO's former ownership and operation of the oxygenates and polystyrenics businesses of the Company, including liabilities under laws relating to the protection of the environment and the workplace and liabilities arising out of certain litigation. ARCO has indemnified the Company with respect to claims or liabilities and other matters of litigation not related to the assets or businesses reflected in the consolidated financial statements. ARCO has also indemnified the Company for certain federal, foreign, state, and local taxes that might be assessed upon audit of the operations of the Company included in its consolidated financial statements for periods prior to the July 1, 1987 formation of the Company. NOTE F. Earnings Per Common Share Earnings per common share for the three months ended March 31, 1996 and 1995 are computed based on 96,537,737 and 96,141,312 weighted average number of shares outstanding, respectively. The effect of stock options issued under the 1987 Executive Long-Term Incentive Plan and the 1990 Long-Term Incentive Plan on the computation of primary and fully diluted earnings per common share was not material and had no effect on the reported earnings per common share. - 6 - NOTE G. Supplemental Cash Flow Information Following is supplemental cash flow information for the three months ended March 31, 1996 and 1995:
1996 1995 ------ ------ (Millions of Dollars) Short-term investments: Gross proceeds from sales $ 25 $ - Gross purchases (114) - ----- ----- Net purchases $ (89) $ - ===== ===== Notes payable: Gross proceeds from issuances $ - $ 449 Gross repayments - (450) ----- ----- Net repayments $ - $ (1) ===== ===== Cash paid during the period for: Interest (net of amount capitalized) $ 16 $ 18 ===== ===== Income taxes $ 11 $ 15 ===== =====
- 7 - Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company manufactures and markets intermediate chemicals and specialty chemical products, operating in a single industry segment. It conducts business primarily in the Western Hemisphere, Europe, and the Asia Pacific region. The Company's principal manufacturing processes each yield its key product, propylene oxide (PO), and one of two co-products, styrene monomer (SM) or tertiary butyl alcohol (TBA). The Company also manufactures numerous derivatives of these products, including methyl tertiary butyl ether (MTBE), the principal derivative of TBA used as an oxygenate and an octane enhancer in gasoline, and polyols, a key derivative of PO. The Company also sells toluene di-isocyanate (TDI) obtained under long-term supply agreements with a third party. TDI and polyols are combined to manufacture polyurethanes. Net income for the first quarter 1996 was $106 million compared with $126 million in the first quarter 1995. The $20 million decrease in 1996 net income reflected weaker first quarter 1996 demand, which contributed to significantly lower margins for SM as well as lower volumes for most products. These factors, combined with lower MTBE margins, more than offset benefits from higher PO and derivatives margins. RESULTS OF OPERATIONS Product Volumes Sales and other operating revenues include the sales and processing volumes of PO, TBA, SM and their derivatives for the first quarter 1996 and 1995 as set forth below.
1996 1995 ---- ---- (Millions) PO and derivatives (pounds) 853 937 Co-products: SM and derivatives (pounds) 659 699 TBA and derivatives (gallons) 275 289
Revenues Revenues of $982 million in the first quarter 1996 decreased 14 percent from $1,141 million in the first quarter 1995, reflecting lower sales prices for SM and MTBE and lower volumes for most products. SM prices declined significantly as evidenced by SM spot market prices, which fell over 50 percent from last year's levels. Domestic MTBE prices decreased from first quarter 1995 levels when MTBE prices were affected by the high market price of methanol, an MTBE feedstock. Methanol prices peaked in late 1994/early 1995. The effect of the lower SM and MTBE sales prices was greater than the benefit from higher prices for PO derivatives. PO derivative prices were higher primarily due to price increases implemented during mid-1995. - 8 - Weaker worldwide demand during the first quarter 1996 contributed to lower volumes for PO and derivatives, which decreased nine percent, and SM and derivatives, which decreased six percent. TBA and derivatives volumes decreased five percent as weaker PO demand resulted in lower production levels of co-product TBA and, consequently, lower MTBE sales volumes. Short-term operating problems at the Company's Fos-sur-Mer, France plant further limited TBA production. Gross Profit Gross profit was $252 million, or 25.7 percent of sales, in the first quarter 1996, a decrease of $45 million from $297 million, or 26.0 percent of sales, in the 1995 first quarter. The gross profit decrease was equally attributable to the net effect of the above-noted decrease in volumes and to lower overall margins as lower SM and MTBE margins more than offset higher PO and derivatives margins. Lower worldwide SM demand resulted in significantly lower SM margins as SM prices decreased more than raw materials costs. MTBE margins declined on lower domestic prices and the effect of the short-term operating problems at the Fos-sur-Mer plant. PO and derivatives margins improved primarily as a result of higher sales prices for PO derivatives and lower raw materials costs. Other The Company currently estimates its 1996 effective tax rate to be 33.0 percent, compared to 36.5 percent used in the first quarter 1995. The final 1995 effective tax rate was 32.8 percent. The higher estimated tax rate used in the first quarter 1995 was primarily due to lower estimated foreign source earnings. FINANCIAL CONDITION Liquidity and Capital Resources As of March 31, 1996, the Company had $382 million in cash and cash equivalents and short-term investments compared with $260 million at December 31, 1995. The Consolidated Statement of Cash Flows for the quarter ended March 31, 1996 shows that net cash flows provided by operating activities were $206 million, whereas net cash flows used by investment and financing activities were $109 million and $62 million, respectively. On April 12, 1996, the Board of Directors gave final approval for the expansion of the PO/SM complex in Channelview, Texas, and the construction of a new world-scale PO/SM plant in Rotterdam, the Netherlands. The Channelview PO/SM expansion will add annual PO and SM capacity of 110 million and 248 million pounds, respectively, in early 1998. The new PO/SM plant will add annual PO and SM capacity of 625 million and 1,400 million pounds, respectively, in the fourth quarter 1999. - 9 - Investment activities for the first quarter 1996 included capital expenditures of $40 million. The Company has approved a 1996 capital budget of $285 million, which includes initial spending for the above projects as well as low-cost capacity increases and environmental, health and safety projects. The Company paid dividends of $.70 per share, totalling $68 million, in the first quarter 1996. On April 18, 1996, the Board of Directors declared a dividend of $.70 per share on the Company's common stock, payable June 7, 1996. It is expected that future cash requirements for capital expenditures, dividends and debt repayments will be met by cash generated from operating activities and additional borrowing. - 10 - PART II. OTHER INFORMATION Item 1. Legal Proceedings No material developments. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27 Financial Data Schedule for the three months ended March 31, 1996. (b) Reports on Form 8-K: None - 11 - 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. ARCO CHEMICAL COMPANY (Registrant) /s/ John A. Shaw ----------------------------- (Signature) John A. Shaw Vice President and Controller (Duly Authorized Officer and Chief Accounting Officer) Dated: May 1, 1996 - 12 - EXHIBIT INDEX Exhibit Number Description ------- ----------- 27 Financial Data Schedule for the three months ended March 31, 1996 EX-27 2 FINANCIAL DATA SCHEDULES
5 1,000,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 268 114 586 0 480 1,482 3,806 1,545 4,182 611 880 0 0 100 1,891 4,182 982 982 730 730 0 0 22 158 52 106 0 0 0 106 1.10 1.10
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