-----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, OWx6GLMvTILUc0iEpTyqpD+XvWVcvKVUg0v7anfRv2oOxVzC5Kt1sEbXCpxs22E+ 0xn0zbfNwRcBwKW2B3BXhg== 0000950109-97-003448.txt : 19970501 0000950109-97-003448.hdr.sgml : 19970501 ACCESSION NUMBER: 0000950109-97-003448 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970430 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 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09678 FILM NUMBER: 97592411 BUSINESS ADDRESS: STREET 1: 3801 WEST CHESTER PIKE CITY: NEWTOWN SQUARE STATE: PA ZIP: 19073 BUSINESS PHONE: 2153592000 10-Q 1 FORM 10-Q ============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 ------------- 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 X 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, 1997: 96,869,370. =============================================================================== 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, ------------------ 1997 1996 ------ ----- Sales and other operating revenues $1,029 $ 982 Costs and other operating expenses 844 730 ------ ----- Gross profit 185 252 Selling, general and administrative expenses 68 63 Research and development 21 18 ------ ----- Operating income 96 171 Interest expense (22) (22) Other (expense) income, net (1) 9 ------ ----- Income before income taxes 73 158 Provision for income taxes 25 52 ------ ----- Net income $ 48 $ 106 ====== ===== Earnings per common share $.50 $1.10 ====== ===== Cash dividends paid per common share $.70 $ .70 ====== =====
See accompanying notes. ARCO CHEMICAL COMPANY CONSOLIDATED BALANCE SHEETS (Millions of Dollars)
March 31, December 31, 1997 1996 --------- ------------ ASSETS Current assets: Cash and cash equivalents $ 54 $ 70 Accounts receivable 649 629 Inventories 534 536 Prepaid expenses and other current assets 47 37 ------ ------ Total current assets 1,284 1,272 Investments and long-term receivables 69 71 Property, plant and equipment, net 2,570 2,622 Deferred charges and other assets (net of accumulated amortization of $321 in 1997 and $312 in 1996) 440 429 ------ ------ Total assets $4,363 $4,394 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 172 $ 150 Long-term debt due within one year 24 25 Accounts payable 332 349 Taxes payable 34 19 Other accrued liabilities 235 229 ------ ------ Total current liabilities 797 772 ------ ------ Long-term debt 828 844 Other liabilities and deferred credits 179 171 Deferred income taxes 387 408 Minority interest 213 185 Stockholders' equity: Common stock 100 100 Additional paid-in capital 876 875 Retained earnings 1,043 1,062 Foreign currency translation 24 64 Treasury stock, at cost (84) (87) ------ ------ Total stockholders' equity 1,959 2,014 ------ ------ Total liabilities and stockholders' equity $4,363 $4,394 ====== ======
See accompanying notes. - 2 - ARCO CHEMICAL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions of Dollars)
Three Months Ended March 31, -------------- 1997 1996 ----- ----- Cash flows from operating activities Net income $ 48 $ 106 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 57 54 Changes in working capital accounts (37) 41 Other (2) 5 ----- ----- Net cash provided by operating activities 66 206 ----- ----- Cash flows from investment activities Purchases of short-term investments - (89) Capital expenditures (60) (40) Proceeds from asset sales 20 21 Other 5 (1) ----- ----- Net cash used in investment activities (35) (109) ----- ----- Cash flows from financing activities Dividends paid (68) (68) Repayment of long-term debt (158) - Proceeds from issuance of long-term debt 158 - Net proceeds from notes payable 21 - Other 4 6 ----- ----- Net cash used in financing activities (43) (62) ----- ----- Effect of exchange rate changes on cash (4) (2) ----- ----- Net (decrease) increase in cash and cash equivalents (16) 33 Cash and cash equivalents at beginning of year 70 235 ----- ----- Cash and cash equivalents at end of period $ 54 $ 268 ===== =====
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 1996 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, 1996. 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, ------------------ 1997 1996 ------ ---- (Millions of Dollars) Total revenues (by destination) United States $ 531 $516 Europe 264 281 Other foreign 234 185 ------ ---- Total $1,029 $982 ====== ==== Total revenues (by origin) United States $ 639 $561 Europe 292 337 Other foreign 98 84 ------ ---- Total $1,029 $982 ====== ==== Pretax earnings United States $ 91 $142 Europe 2 40 Other foreign 2 (2) Interest expense (22) (22) ------ ---- Total $ 73 $158 ====== ====
Included in pretax earnings are royalty charges made to foreign operations for the use of Company technology. - 4 - NOTE C. INVENTORIES Inventories at March 31, 1997 and December 31, 1996 comprised the following categories:
1997 1996 ----- ----- (Millions of Dollars) Finished goods $ 404 $ 392 Work-in-process 33 38 Raw materials 52 62 Materials and supplies 45 44 ----- ----- Total $ 534 $ 536 ===== =====
NOTE D. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, at cost, and related accumulated depreciation at March 31, 1997 and December 31, 1996 were as follows:
1997 1996 ------ ------ (Millions of Dollars) Property, plant and equipment $4,102 $4,152 Less: accumulated depreciation 1,532 1,530 ------ ------ Total $2,570 $2,622 ====== ======
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. - 5 - At March 31, 1997, the Company's environmental reserve totaled $51 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 Beaver Valley plant site, located in Monaca, Pennsylvania. The reserve gives recognition to a work plan, between the Company and the Pennsylvania Department of Environmental Protection (PADEP), 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 Company sold the Beaver Valley plant assets to NOVA Chemicals Inc. (NOVA) as of September 30, 1996, but currently retains ownership of the land at the Beaver Valley plant site, substantial portions of which are being leased to NOVA. The Company has retained responsibility for certain remediation of the land at the Beaver Valley plant site under the work plan and for certain additional remediation that may be required by PADEP pursuant to the Pennsylvania Land Recycling and Environmental Remediation Standards Act. The remainder of the reserve is related to four other plant sites and one federal Superfund site for amounts ranging from $2 million to $16 million per site. The Company is involved in administrative proceedings or lawsuits relating to eight other Superfund sites. However, the Company 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 completed RI/FS or preliminary assessments at most of its sites. However, 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. - 6 - The Company and the other principal responsible party (PRP) at the Beaver Valley site have reached an agreement with the U.S. government whereby the government will pay 28.5 percent of the costs incurred by the Company and the other PRP for remediation of substantial portions of the Beaver Valley site. 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, 1997 and 1996 are computed based on 96.8 million and 96.5 million weighted average shares outstanding, respectively. The dilutive effect of stock options was not material. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," establishing standards for computing and presenting earnings per share (EPS). SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997 and requires restatement of all prior-period EPS data presented. Earlier application is not permitted. The implementation of SFAS No. 128 is not expected to have a material effect on the reported EPS of the Company. - 7 - NOTE G. SUPPLEMENTAL CASH FLOW INFORMATION Following is supplemental cash flow information for the three months ended March 31, 1997 and 1996:
1997 1996 ------ ------ (Millions of Dollars) Changes in working capital-increase (decrease) to cash: Accounts receivable $ (48) $ 33 Inventories (6) (11) Prepaid expense and other current assets (11) (15) Accounts payable 1 22 Taxes payable 16 32 Other accrued liabilities 11 (20) ----- ----- Changes in working capital accounts $ (37) $ 41 ===== ===== Short-term investments: Gross proceeds from maturities $ - $ 25 Gross purchases - (114) ----- ----- Net purchases $ - $ (89) ===== ===== Notes payable: Gross proceeds from issuances $ 455 $ - Gross repayments (434) - ----- ----- Net repayments $ 21 $ - ===== ===== Cash paid during the period for: Interest (net of amount capitalized) $ 17 $ 16 ===== ===== Income taxes $ - $ 11 ===== =====
- 8 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company manufactures and markets intermediate chemicals and specialty products, operating in a single industry segment. It conducts business primarily in the Americas, Europe, and the Asia Pacific region. Each of the Company's two principal manufacturing processes yields 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 PO and TBA. Among these are polyols, a key derivative of PO, and methyl tertiary butyl ether (MTBE), a principal derivative of TBA. MTBE is used in oxygenated fuels and as an octane additive. The Company also manufactures and markets toluene diisocyanate (TDI) and aliphatic diisocyanate (ADI). TDI and polyols are combined in the manufacture of polyurethanes. Net income for the first quarter 1997 was $48 million compared with $106 million in the first quarter 1996. The $58 million decline was primarily due to lower margins for most products. First quarter 1997 margins were lower due to the combined effect of higher worldwide feedstock costs and generally lower sales prices. RESULTS OF OPERATIONS Product Volumes Sales and other operating revenues include the sales and processing volumes of the Company's core products and co-products for the first quarter 1997 and 1996 as set forth below. Core products include PO, PO derivatives, TDI and ADI.
1997 1996 ----- ---- (Millions) Core products (pounds) 1,002 895 Co-products: SM and derivatives (pounds) 708 659 TBA and derivatives (gallons) 260 275
The reported SM volumes include quantities processed for PO/SM II equity partners (SM equity volumes) under long-term processing arrangements. The SM equity volumes were 200 million and 198 million pounds in the 1997 and 1996 quarters, respectively. The 1996 data includes sales volumes for SM derivatives, which the Company stopped manufacturing and selling when it sold its plastics business on September 30, 1996. - 9 - REVENUES Revenues of $1,029 million in the first quarter 1997 increased five percent compared to revenues of $982 million in the first quarter 1996, reflecting higher net volumes partly offset by lower average sales prices. Volumes for core products increased 12 percent in the first quarter 1997 versus the prior year period. The increase reflected higher TDI/ADI volumes due to the Olin acquisition and the increased availability of TDI from a plant in France. The French plant was under repair and operated at restricted rates in the 1996 period. Core product sales also reflected higher volumes for PO derivatives. SM volumes increased seven percent primarily due to increased SM sales to export markets. The loss of SM derivatives volumes through the sale of the plastics business was substantially offset by increased sales of SM to the buyer of the plastics business. TBA and derivative volumes decreased five percent, mainly due to a weaker MTBE market in the first quarter 1997. Average sales prices were generally lower in 1997. Contributing to the weakness in 1997 prices were expiration of the Company's long-term MTBE contracts, concerns over SM capacity additions in Asia, a weak economy in Europe, and the effect of a stronger U.S. dollar. GROSS PROFIT Gross profit of $185 million in the first quarter 1997 decreased $67 million from $252 million in the 1996 first quarter, reflecting lower margins for most products. Gross profit was 18.0 percent of sales in the first quarter 1997 compared to 25.7 percent in the 1996 period. The decline in gross profit margins was due to the combined effect of higher feedstock costs and generally lower sales prices in the first quarter 1997 versus the 1996 period. OTHER Other expense of $1 million in 1997 compared to income of $9 million in 1996. The $10 million decrease is primarily due to higher foreign exchange losses related to the stronger U.S. dollar and lower interest income as a result of lower levels of cash and cash equivalents in the 1997 period. The Company expects its 1997 effective tax rate to be 34.0 percent compared to a 33.0 percent effective tax rate used in the first quarter 1996 and a final 1996 effective tax rate of 28.5 percent. The final 1996 rate reflected utilization of capital loss carryforwards and the utilization of foreign tax credits pursuant to the tax sharing agreement with ARCO. - 10 - FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1997, the company had $54 million in cash and cash equivalents compared with $70 million at December 31, 1996. The Consolidated Statement of Cash Flows for the quarter ended March 31, 1997 shows that net cash flows provided by operating activities were $66 million, whereas net cash flows used by investment and financing activities were $35 million and $43 million, respectively. Investment activities for the first quarter 1997 included capital expenditures of $60 million. The Company's 1997 budget for plant and equipment is $453 million and is part of a five-year, $2.6 billion program primarily devoted to capacity expansion and growth. Minority interest includes equity contributions designated for specific capital projects. At March 31, 1997, the unexpended amounts were classified as long-term other assets in the balance sheet. Financing activities for the first quarter 1997 included the refinancing of two Dutch bank loans with a combined principal of 300 million Dutch guilders ($158 million) and due in 1997 with one loan due in 2002. The Company paid dividends of $.70 per share, totaling $68 million. On April 17, 1997, the Board of Directors declared a dividend of $.70 per share on the Company's common stock, payable June 6, 1997. During the first quarter 1997, the Company revised its hedging strategy with respect to capital commitments related to construction of the new PO/SM plant in Rotterdam, the Netherlands. To take advantage of the strong U.S. dollar, the Company effectively terminated forward contracts in the notional amount of $127 million and entered into purchased option contracts for approximately the same notional amount. Gains on the purchased options will be deferred and offset against the plant's construction costs. There were no deferred hedging gains as of March 31, 1997. The Company maintains a credit agreement under which it can borrow amounts up to $300 million. At March 31, 1997, the Company had no outstanding borrowing against the credit agreement, which is used to back up the Company's commercial paper borrowing. 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. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," establishing standards for computing and presenting earnings per share (EPS). SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997 and requires restatement of all prior-period EPS data presented. Earlier application is not permitted. The implementation of SFAS No. 128 is not expected to have a material effect on the reported EPS of the Company. - 11 - PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Reference is made to the disclosure on page 10 of the Company's 1996 Annual Report on Form 10-K regarding other litigation. On October 15, 1996, the Company commenced an arbitration proceeding in the International Chamber of Commerce Court of Arbitration in Paris, France against Repsol, S.A. (Repsol), Repsol Quimica, S.A. (Quimica) and Repsol Petroleo, S.A. (Petroleo). The dispute concerns technology for the production of PO and SM licensed to Quimica by the Company under agreements entered into in conjunction with the dissolution in 1986 of a Spanish joint venture called Montoro. The Company seeks in the arbitration to enforce the Company's rights under the 1986 agreements and to protect the licensed technology by requiring Quimica to reach agreement with the Company upon commercial terms before using the licensed technology in connection with an expansion of its existing plant or the construction of a second plant. Subsequently, pursuant to an agreement among the parties, Repsol was permitted to withdraw as a party to the arbitration. On October 15, 1996, the Company also formally notified the European Commission (Commission) of the 1986 agreements, because Quimica and its affiliates take the position that those agreements are not enforceable under European law. Quimica and Petroleo concurrently filed a complaint with the Commission in which they seek to have the 1986 agreements declared to be contrary to Articles 85 and 86 of the Treaty of Rome and therefore unenforceable. They also filed a complaint with the Spanish Bureau for the Defense of Competition (Bureau) seeking relief under Spanish competition law. On March 21, 1997, the Bureau issued a "Statement of Facts," which is a preliminary document in which the Bureau indicates that it has tentatively found a violation of Spanish competition law and intends to refer the matter to the Spanish Competition Court. Spanish procedure allows a party an opportunity to persuade the Bureau to the contrary prior to such referral. The Bureau's Statement of Facts indicates that the Bureau believes that provisions of the agreements signed in 1986, which the Company is attempting to enforce in the arbitration, are contrary to Spanish competition law and therefore unenforceable. The Company filed a response with the Bureau on April 18, 1997 arguing that the provisions are both valid and enforceable. On April 17, 1997, the Company received a Statement of Objections of the Commission, which is a preliminary document indicating the views of the Commission and allowing a party an opportunity to respond. The Commission's Statement of Objections takes the position that key provisions of the 1986 agreements, which the Company is seeking to enforce in its arbitration proceedings with Quimica, are contrary to European competition law, and indicates the Commission's intention to seek an order against both the Company and Quimica finding those clauses invalid and imposing unspecified fines. The Company has the right to respond in writing to the Commission's Statement of Objections by June 12, 1997 and to request an oral hearing to present its arguments. The Company believes that the provisions in question are consistent with European law and are valid and enforceable and intends to so respond to the Commission. - 12 - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.1 Amendment No. 2 to the ARCO Chemical Company Key Management Deferral Plan, effective as of January 1, 1997. 10.2 Amendment No. 2 to the ARCO Chemical Company Deferral Plan for Outside Directors, effective as of January 1, 1997. 27 Financial Data Schedule for the three months ended March 31, 1997. (b) Reports on Form 8-K: None - 13 - 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/ Van Billet ----------------------------- (Signature) Van Billet Vice President and Controller (Duly Authorized Officer and Chief Accounting Officer) Dated: April 30, 1997 - 14 - EXHIBIT INDEX Exhibit Number Description ------- ----------- 10.1 Amendment No. 2 to the ARCO Chemical Company Key Management Deferral Plan, effective as of January 1, 1997. 10.2 Amendment No. 2 to the ARCO Chemical Company Deferral Plan for Outside Directors, effective as of January 1, 1997. 27 Financial Data Schedule for the three months ended March 31, 1997. EX-10.1 2 AMD#2 TO ACC KEY MANAGEMENT DEFERRAL PLAN AMENDMENT NO. 2 TO ARCO CHEMICAL COMPANY KEY MANAGEMENT DEFERRAL PLAN ------------------ Pursuant to resolutions adopted by the Board of Directors on October 17, 1996, the following amendment is hereby made to the ARCO Chemical Company Key Management Deferral Plan (the "Plan") effective as of January 1, 1997. 1. Article I, Section 3.1 of the Plan is amended to read as follows: "3.1 Account means a separate bookkeeping account maintained by the Company for each Employee and which measures and determines the amounts to be paid to the Employee under the Plan for each component of Deferred Compensation. Separate subaccounts will be established for separate components of Deferred Compensation, as applicable, deferred by an Employee." 2. Article I, Section 3.10 of the Plan is amended to read as follows: "3.10 Deferral Commitment means a promise made by an Employee to defer compensation pursuant to Article III for which a Participation Agreement has been submitted by the Employee to the Administrative Committee." 3. Article I, Section 3.12 of the Plan is deleted and Sections 3.13 through 3.31 are redesignated as Sections 3.12 through 3.30. 4. Article II, Section 2 of the Plan is amended to read as follows: 1 EXHIBIT 10.1 "Section 2. Basic Forms of Deferral 2.1 A Participant may elect to defer the following forms of compensation in a Participation Agreement: (a) Base Pay Deferral. Commencing with Base Pay earned during pay periods ending on and after October 1, 1990, a Participant may elect to defer Base Pay earned during a Deferral Period, subject to any limitations, conditions or restrictions, such as minimum or maximum amounts that may be deferred, as are prescribed by the Administrative Committee in advance of the Deferral Period. (b) Award Deferral. A Participant may elect to defer Awards to be paid by the Company during a Deferral Period, subject to any limitations, conditions or restrictions, such as minimum or maximum amounts that may be deferred, as are prescribed by the Administrative Committee in advance of the Deferral Period. (c) ESSP Benefit Deferral. A Participant may elect to defer the ESSP Benefit earned during the Deferral Period, subject to any limitations, conditions or restrictions, such as minimum or maximum amounts that may be deferred, as are prescribed by the Administrative Committee in advance of the Deferral Period. (d) CAP Plan Make-Up Deferral. Any amount of Base Pay that the Participant elected to defer into the CAP Plan during each Deferral Period and which was not permitted due to legal restrictions, other than the limitation on the amount of deferrals under Section 402(g) of the Code, precluding such deferrals to the CAP Plan shall be deferred under this Plan to the extent that such deferrals would have received the Matching Company Contribution under the CAP Plan. To the extent that such amounts are deferred into this Plan during the 2 Deferral Period, the Company will contribute an additional amount to this Plan based upon the Matching Company Contribution formula then in effect under the CAP Plan." 5. Article II, Section 4 of the Plan is amended to read as follows: "Section 4. Limitation on Deferral 4.1 Except as otherwise permitted for accelerated Deferred Compensation, as defined in Section 7.1(b) of this Article, Deferral Commitments shall be subject to the following limitations: (a) A Participant may not defer more than fifty percent (50%) of the Participant's Base Pay, except that the limit shall be seventy-five percent (75%) of the Participant's Base Pay payable during the first Plan Year, which commences on the Effective Date and ends on December 31, 1990 and during the Plan Year commencing on January 1, 1991. (b) The minimum amount that may be deferred for the Deferral Period relating to a Deferral Commitment, shall be established by the Administrative Committee in advance of the Deferral Period and shall be allocable among the forms of Deferred Compensation described in Article II, Section 2.1(a) through (c)." 6. Article III, Section 1 of the Plan is amended to read as follows: "Section 1. Accounts 1.1 For record-keeping purposes only, an Account shall be maintained for each Participant. Separate subaccounts shall be maintained for each form of Deferred Compensation of a Participant." 3 7. Article III, Section 3 of the Plan is amended to read as follows: "Section 3. Interest Rate 3.1 (a) A Participant's Account shall be credited as of each Valuation Date during each Plan Year at the interest rate previously announced by the Company to be applicable for the Plan Year, compounded annually. Interest shall be credited as of each Valuation Date from the dates when deferred amounts are credited to Accounts based on the balance of each Account. (b) Guaranteed Interest Rate. In no event will the Interest Rate applicable to a Participant's Account during the Participant's lifetime and Transferred Accounts from the ARCO Chemical Company Annual Incentive Plan be less than the Citibank Base Rate and in no event will the Interest Rate applicable to Transferred Accounts from the ARCO Chemical Company Executive Supplementary Savings Plan be less than the Money Market Rate of interest under the CAP Plan for the period of time commencing on the date of transfer and ending on the date the Accounts are paid." 8. Article IV, Section 1 of the Plan is amended to read as follows: "Section 1. Plan Benefit 1.1 If a Participant has a Termination of Employment for any reason the Company shall pay a Plan benefit equal to the Participant's Account balance, as determined below: (a) A Participant's Account shall be credited with the rate of interest previously determined under Article III, Section 3.1(a) or (b), and communicated in advance of each Deferral Period, to be applicable for each Plan Year that the Account has been maintained. 4 (b) The Interest Rates provided under Section 1.1(a) of this Article, shall be payable until the Participant's Account is distributed in full." 9. Article IV, Section 2, Paragraph 2.1 of the Plan is amended to read as follows: "2.1 Retirement Distributions shall be paid at the time and in the form of benefit elected by the Participant for the total Deferred Compensation (Base Pay, Awards and ESSP), at the time of the Deferral Commitment establishing such deferral, on the Participation Agreement. A Participant's election shall be irrevocable, except as follows: (a) Once each Plan Year prior to the Plan Year previously designated by the Administrative Committee and communicated to Participants, at a time and on a form prescribed by the Administrative Committee, each Participant may change the time and/or form of the Retirement Distribution of the total Deferred Compensation in the Participant's Account. Effective as of the Plan Year previously designated by the Administrative Committee under the preceding sentence, the election by the Participant on file on such date shall govern the time and form of the Retirement Distribution for all amounts in the Participant's Account, whether attributable to deferrals before or after such date. (b) A Participant may request, by application to the Administrative Committee, approval of a change of the prior election at any time prior to retirement or commencement of benefits, or in the case of installment payments, following commencement of payments, (i) without any reduction in, or imposition of any penalty on, the Participant's Account, provided that the Administrative Committee determines, upon application of the Participant, that the Participant has experienced a Financial Hardship justifying the request for a change of election; or (ii) the Administrative Committee, in its sole discretion, determines that it is appropriate to grant the Participant's request. 5 (c) Absent an election by the Participant of the form and/or commencement date of the Retirement Distribution, payment will be made in a lump sum immediately following the Participant's date of retirement." 10. Article IV, Section 4 of the Plan is amended to read as follows: "Section 4. Survivor Benefits 4.1 (a) Death After Age 65. If the Participant dies on or after ------------------- attaining age 65 the Survivor Benefits shall be equal to the Participant's Account balance, payable in the form previously elected by the Participant. (b) Death Prior to Termination of Employment and Prior to Age 65. ------------------------------------------------------------- If the Participant dies prior to attaining age 65 and prior to Termination of Employment, the Survivor Benefit shall be paid in monthly installments and shall be the greater of (i) forty percent (40%) of the Participant's total Deferral Commitment, or (ii) the actual Account balance of the Participant, assuming a payout for the number of years between the Participant's death and the year the Participant would have attained age 65, increased by the applicable Interest Rate credited on unpaid Account balances of deceased Participants during each year of the payment period to the survivor. (c) Death After Termination of Employment and Prior to Age 65. If ---------------------------------------------------------- the Participant dies after Termination of Employment and prior to age 65, the Participant's Account balance, if any, shall be paid by continuation of the form of benefit which was payable to the Participant for the remaining payments which would have been made to the Participant if the Participant has lived, increased by the applicable Interest Rate credited on unpaid Account balances of deceased Participants during each year of the payment period to the survivor. 6 (d) Special Rule. If the Participant dies before age 65, the ------------ Survivor Benefit will be paid in monthly installments until the Participant would have attained age 65; provided, however, that if payment is made pursuant to Section 4.1 (b)(ii) of this Article, and the number of years between the Participant's death and the year the Participant would have attained age 65 is less than the period of installments elected by the Participant to be payable upon retirement, then the Survivor Benefit will be paid in accordance with the Participant's retirement election of installments to be payable upon retirement." 11. Article IV, Section 5 of the Plan is amended to read as follows: "Section 5. In-Service Distributions 5.1 A Participant may elect to receive an In-Service Distribution from the Participant's Account subject to the following restrictions: (a) Timing of Election. The election to take an In-Service Distribution from an Account must be made at the same time the Participant makes the annual Deferral Commitment. (b) Amount of Withdrawal. The amount which a Participant can elect to receive as an In-Service Distribution with respect to an Account shall be such portions of the Participant's Account balance, as prescribed by the Administrative Committee in advance of the Deferral Period. If a previously elected amount exceeds the Account balance when in In-Service Distribution is to be made, only the Account balance will be paid. (c) Timing and Form of In-Service Distribution. The In-Service Distribution shall commence at the time and in the form elected by the Participant on the Participation Agreement at the time of the Deferral Commitment; provided, however, that if the Participant terminates employment 7 without a right to commence a retirement allowance under the Retirement Plan, the In-Service Distribution election will be canceled and distribution will be made pursuant to Section 3 of this Article, and provided, further, that if the Participant terminates employment with a right to commence a retirement allowance, the In-Service Distribution election will be canceled and distribution will be made pursuant to Section 2 of this Article." 12. Sections 7 through 10 of Article IV of the Plan are amended to read as follows: "Section 7. Disability 7.1 If a Participant suffers a Disability under the provisions of the ARCO Chemical Company Key Management Long-Term Disability Plan, the Participant's Deferral Commitments will cease except for any Awards or ESSP Benefits which may be payable thereafter. Distribution of the Deferred Compensation will not be made due to the Disability. The Participant's Account will be distributed in accordance with the method which the Participant had elected for payment of retirement benefits with respect to such Deferred Compensation if and when the Participant retires following his Disability. Absent a retirement election by the Participant, payment will be made in a lump sum upon Termination of Employment. Section 8. Termination of Employment Due to Special Circumstances 8.1 If a Participant terminates employment involuntarily in conjunction with a sale of assets or a reorganization (including termination due to a special job elimination) the Participant's Account will be distributed in accordance with the method which the Participant had elected for payment of retirement benefits with payment commencing on the earliest date the Participant would have become eligible to commence receiving the retirement benefit. During the period between the Participant's termination and the commencement of payments, interest will be credited to the Participant's Account each year at the applicable 8 Interest Rate. Absent a retirement election by the Participant, payment will be made in a lump sum upon Termination of Employment. Section 9. Valuation and Settlement 9.1 The date on which a lump sum is paid or the date on which installment payments commence shall be the "Settlement Date." The Settlement Date shall be no more than thirty (30) days after the last day of the month in which the Participant or his Beneficiary becomes entitled to payments on account of retirement, other Termination of Employment or death, unless the Participant elects to defer commencement of payments following retirement to a later date in the Participation Agreement. The Settlement Date for an In-Service Distribution or delayed payments following retirement shall be the month which the Participant elects for commencement of such payments in the election form for designation of form of payment. The amount of a lump sum and the initial amount of installment payments shall be based on the value of the Participant's Account as of the Valuation Date at the end of the immediately preceding month before the Settlement Date. For example, the Valuation Date at the end of December shall be used to determine lump sum or the initial amount of installment payments which will be made in the following January. Section 10. Small Benefit 10.1 Notwithstanding any election made by the Participant, the Administrative Committee, in its sole discretion, may pay any benefit in the form of a lump sum payment to the Participant or any Beneficiary, if the lump sum amount of the Account balance which remains in the Account following a distribution for any reason, or which is payable to the Participant or Beneficiary when payments to such Participant or Beneficiary would otherwise commence is less than $2,000." 9 13. Article V of the Plan is amendment to read as follows: "ARTICLE V DESIGNATION OF BENEFICIARY Section 1. Designation of Beneficiary 1.1 Each Participant shall have the right to designate a Beneficiary or Beneficiaries to receive Participant's interest in Participant's Account upon the Participant's death. Such designation shall be made on a form prescribed by and delivered to the Company. The Participant shall have the right to change or revoke any such designation from time to time by filing a new designation or notice of revocation with the Company, and no notice to any Beneficiary nor consent by any Beneficiary shall be required to effect any such change or revocation. Section 2. Failure to Designate Beneficiary 2.1 If a Participant shall fail to designate a Beneficiary before the Participant's death, or if no designated Beneficiary survives the Participant, the Administrative Committee shall direct the Company to pay the balance in Participant's Account in a lump sum to the executor or administrator for Participant's estate." Executed This 22nd day of November, 1996. ATTEST: ARCO CHEMICAL COMPANY BY: /s/ John G. Chou BY: /s/ Frank W. Welsh ---------------------------- ---------------------------- FRANK W. WELSH Vice President Human Resources 10 EX-10.2 3 AMD#2 TO ACC DEFERRAL PLAN FOR OUTSIDE DIRECTORS AMENDMENT NO. 2 TO ARCO CHEMICAL COMPANY DEFERRAL PLAN FOR OUTSIDE DIRECTORS -------------------------- Pursuant to resolutions adopted by the Board of Directors on October 17, 1996, the following amendment is hereby made to the ARCO Chemical Deferral Plan for Outside Directors (the "Plan") effective as of January 1, 1997. 1. Article I, Section 3.1 of the Plan is amended to read as follows: "3.1 Account means a separate bookkeeping account maintained by the Company for each Director and which measures and determines the amounts to be paid to the Director under the Plan for each component of Deferred Compensation. Separate subaccounts will be established for separate components of Deferred Compensation, as applicable, deferred by a Director." 2. Article I, Section 3.9 of the Plan is amended to read as follows: "3.9 Deferral Commitment means a promise made by a Director to defer compensation pursuant to Article III for which a Participation Agreement has been submitted by the Director to the Company." 3. Article I, Section 3.11 of the Plan is deleted and Sections 3.12 through 3.29 are redesignated as Sections 3.11 through 3.28. 4. Article II, Section 2 of the Plan is amended to read as follows: 1 EXHIBIT 10.2 "Section 2. Basic Forms of Deferral 2.1 A Participant may elect to defer the following forms of compensation in a Participation Agreement: (a) Board Retainer and Meeting Fees. Commencing with Board Retainer and Meeting Fees earned on and after October 1, 1990, a Participant may elect to defer such amounts earned during a Deferral Period, subject to any limitations, conditions or restrictions, such as minimum or maximum amounts that may be deferred, as are prescribed by the Administrative Committee in advance of the Deferral Period. (b) Committee Chairmanship and Meeting Fees. "Commencing with Committee Chairmanship and Meeting Fees earned on and after October 1, 1990, a Participant may elect to defer such amounts earned during a Deferral Period, subject to any limitations, conditions or restrictions, such as minimum or maximum amounts that may be deferred, as are prescribed by the Administrative Committee in advance of the Deferral Period." 5. Article II, Section 4 of the Plan is amended to read as follows: "Section 4. Limitation on Deferral 4.1 Deferral Commitments shall be subject to any limitations, including minimum amounts that may be deferred for the Deferral Period relating to a Deferral Commitment, as are established by the Administrative Committee in advance of the Deferral Period. Any minimum amounts shall be allocable among the forms of Deferred Compensation described in Article II, Section 2.1(a) and (b)." 2 6. Article III, Section 1 of the Plan is amended to read as follows: "Section 1. Accounts 1.1 For record-keeping purposes only, an Account shall be maintained for each Participant. Separate subaccounts shall be maintained for each form of Deferred Compensation of a Participant." 7. Article III, Section 3 of the Plan is amended to read as follows: "Section 3. Interest Rate 3.1 A Participant's Account shall be credited as of each Valuation Date during each Plan Year at the interest rate previously announced by the Company to be applicable for the Plan Year, compounded annually. Interest shall be credited as of each Valuation Date from the dates when deferred amounts are credited to Accounts based on the balance of each Account." 8. Article IV, Section 1 of the Plan is amended to read as follows: "Section 1. Plan Benefit 1.1 If a Participant has a Termination of Service for any reason the Company shall pay a Plan benefit equal to the Participant's Account balance, as determined below: (a) A Participant's Account shall be credited with the rate of interest previously determined under Article III, Section 3.1, and communicated in advance of each Deferral Period, to be applicable for each Plan Year that the Account has been maintained. (b) The Interest Rates provided under Section 1.1(a) of this Article, shall be payable until the Participant's Account is distributed in full." 3 9. Article IV, Section 2, Paragraph 2.1 of the Plan is amended to read as follows: "2.1 Retirement Distributions shall be paid at the time and in the form of benefit elected by the Participant for the total Deferred Compensation, at the time of the Deferral Commitment establishing such deferral, on the Participation Agreement. A Participant's election shall be irrevocable, except as follows: (a) Once each Plan Year prior to a Plan Year previously designated by the Administrative Committee and communicated to Participants, at a time and on a form prescribed by the Administrative Committee, each Participant may change the time and/or form of the Retirement Distribution of the Total Deferred Compensation in the Participant's Account. Effective as of the Plan Year previously designated by the Administrative Committee under the preceding sentence, the election by the Participant on file on such date shall govern the time and form of the Retirement Distribution for all amounts in the Participant's Account, whether attributable to deferrals before or after such date. (b) A Participant may request, by application to the Administrative Committee, approval of a change of the prior election at any time prior to retirement or commencement of benefits, or in the case of installment payments, following commencement of payments, (i) without any reduction in, or imposition of any penalty on, the Participant's Account, provided that the Administrative Committee determines, upon application of the Participant, that the Participant has experienced a Financial Hardship justifying the request for a change of election; or (ii) the Administrative Committee, in its sole discretion, determines that it is appropriate to grant the Participant's request. Absent an election by the Participant of the form and/or commencement date of the Retirement Distribution, payment will be made in a lump sum immediately following the Participant's date of retirement." 4 10. Article IV, Section 4 of the Plan is amended to read as follows: "Section 4. Survivor Benefits 4.1 (a) Death Prior to Termination of Service. If the Participant dies -------------------------------------- prior to Termination of Service, the Survivor Benefit shall be paid to the Participant's Beneficiaries in a lump sum or in monthly installments, as elected by the Participant, and shall be the sum of the Participant's Account Balance plus one hundred percent (100%) of the Participant's unfulfilled Deferral Commitment, if any. (b) Death After Termination of Service. If the Participant dies after ----------------------------------- Termination of Service, the Participant's Account balance, if any, shall be paid to the Participant's Beneficiary by continuation of the form of benefit which was payable to the Participant for the remaining payments which would have been made to the Participant if the Participant had lived, increased by the applicable Interest Rate credited on unpaid Account balances of deceased Participants during each year of the payment period to the Beneficiary." 11. Article IV, Section 5 of the Plan is amended to read as follows: "Section 5. In-Service Distributions 5.1 A Participant may elect to receive an In-Service Distribution from the Participant's Account subject to the following restrictions: (a) Timing of Election. The election to take an In-Service Distribution from an Account must be made at the same time the Participant makes the annual Deferral Commitment. (b) Amount of Withdrawal. The amount which a Participant can elect to receive as an In-Service Distribution with respect to an Account shall be such 5 portions of the Participant's Account balance, as prescribed by the Administrative Committee in advance of the Deferral Period. If a previously elected amount exceeds the Account balance when an In-Service Distribution is to be made, only the Account balance will be paid. (c) Timing and Form of In-Service Distribution. The In-Service Distribution shall commence at the time and in the form elected by the Participant on the Participation Agreement at the time of the Deferral Commitment; provided, however, that if the Participant terminates service, the In-Service Distribution election will be canceled and distribution will be made pursuant to Section 3 of this Article, and provided, further, that if the Participant commences retirement, the In-Service Distribution election will be canceled and distribution will be made pursuant to Section 2 of this Article." 12. Sections 7 and 8 of Article IV of the Plan are amended to read as follows: "Section 7. Valuation and Settlement 7.1 The date on which a lump sum is paid or the date on which installment payments commence shall be the "Settlement Date." The Settlement Date shall be no more than thirty (30) days after the last day of the month in which the Participant or his Beneficiary becomes entitled to payments on account of retirement, other Termination of Service or death, unless the Participant elects to defer commencement of payments following retirement to a later date in the Participation Agreement. The Settlement Date for an In-Service Distribution or delayed payments following retirement shall be the month which the Participant elects for commencement of such payments in the election form for designation of form of payment. The amount of a lump sum and the initial amount of installment payments shall be based on the value of the Participant's Account as of the Valuation Date at the end of the immediately preceding month 6 before the Settlement Date. For example, the Valuation Date at the end of December shall be used to determine lump sum or the initial amount of installment payments which will be made in the following January. Section 8. Small Benefit 8.1 Notwithstanding any election made by the Participant, the Administrative Committee, in its sole discretion, may pay any benefit in the form of a lump sum payment to the Participant or any Beneficiary, if the lump sum amount of the Account balance which remains in the Account following a distribution for any reason, or which is payable to the Participant or Beneficiary when payments to such Participant or Beneficiary would otherwise commence is less than $2,000." 13. Article V of the Plan is amendment to read as follows: "ARTICLE V DESIGNATION OF BENEFICIARY Section 1. Designation of Beneficiary 1.1 Each Participant shall have the right to designate a Beneficiary or Beneficiaries to receive Participant's interest in Participant's Account upon the Participant's death. Such designation shall be made on a form prescribed by and delivered to the Administrative Committee. The Participant shall have the right to change or revoke any such designation from time to time by filing a new designation or notice of revocation with the Company, and no notice to any Beneficiary nor consent by any Beneficiary shall be required to effect any such change or revocation. 7 Section 2. Failure to Designate Beneficiary 2.1 If a Participant shall fail to designate a Beneficiary before the Participant's death, or if no designated Beneficiary survives the Participant, the Administrative Committee shall direct the Company to pay the balance in Participant's Account in a lump sum to the executor or administrator for Participant's estate." Executed This 22nd day of November, 1996. ATTEST: ARCO CHEMICAL COMPANY BY: /s/ John G. Chou BY: /s/ Frank W. Welsh ------------------------ --------------------------- FRANK W. WELSH Vice President Human Resources 8 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 54 0 649 0 534 1,284 4,102 1,532 4,363 797 828 0 0 100 1,859 4,363 1,029 1,029 844 844 0 0 22 73 25 48 0 0 0 48 0.50 0.50
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