-----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, UmVjNtCCQcOvkoKG/GE53/c3fQCrg0SeKg01ggvjhZaixAWLECZKLadBMa4ipCpF 39YBlszcIaTqyVTC8yGgxw== 0000899243-96-001468.txt : 19961118 0000899243-96-001468.hdr.sgml : 19961118 ACCESSION NUMBER: 0000899243-96-001468 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LYONDELL PETROCHEMICAL CO CENTRAL INDEX KEY: 0000842635 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 954160558 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10145 FILM NUMBER: 96662946 BUSINESS ADDRESS: STREET 1: 1221 MCKINNEY ST STREET 2: STE 1600 CITY: HOUSTON STATE: TX ZIP: 77010 BUSINESS PHONE: 7136527200 MAIL ADDRESS: STREET 1: 1221 MCKINNEY ST STREET 2: SUITE 1600 CITY: HOUSTON STATE: TX ZIP: 77010 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 September 30, 1996. 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 1-10145 ----------- LYONDELL PETROCHEMICAL COMPANY (Exact name of registrant as specified in its charter) ----------- Delaware 95-4160558 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1221 McKinney Street, 77010 Suite 1600, Houston, Texas (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (713) 652-7200 ----------- 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 September 30, 1996: 80,000,000 ------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION LYONDELL PETROCHEMICAL COMPANY CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 -------------------- -------------------- MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS 1996 1995 1996 1995 - -------------------------------------------- -------- -------- --------- -------- SALES AND OTHER OPERATING REVENUES: Unrelated parties $1,179 $1,168 $3,446 $3,523 Related parties 68 81 205 270 -------- --------- ---------- --------- 1,247 1,249 3,651 3,793 OPERATING COSTS AND EXPENSES: Cost of sales Unrelated parties 1,063 955 3,120 2,828 Related parties 56 56 180 175 Selling, general and administrative expenses 57 55 174 148 -------- --------- ---------- --------- 1,176 1,066 3,474 3,151 -------- --------- ---------- --------- Operating income 71 183 177 642 Interest expense (18) (20) (61) (59) Interest income 1 -- 3 5 Minority interest in LYONDELL-CITGO Refining Company Ltd. 1 (4) (3) (12) -------- --------- ---------- --------- Income before income taxes 55 159 116 576 Provision for income taxes 20 59 42 214 -------- --------- ---------- --------- NET INCOME $ 35 $ 100 $ 74 $ 362 -------- --------- ---------- --------- EARNINGS PER SHARE $ .43 $ 1.25 $ .92 $ 4.52 ======== ========= ========== =========
See notes to consolidated financial statements. 1 LYONDELL PETROCHEMICAL COMPANY CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31 MILLIONS OF DOLLARS 1996 1995 - ------------------- -------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 32 $ 3 Restricted cash and cash - - 7 equivalents Accounts receivable: Trade 366 340 Related parties 20 22 Inventories 269 265 Prepaid expenses and other current 29 41 assets -------------- ------------ Total current assets 716 678 -------------- ------------ Property, plant and equipment 4,255 3,804 Less accumulated depreciation and (2,050) (1,990) amortization -------------- ------------ 2,205 1,814 Deferred charges and other assets 150 114 -------------- ------------ Total assets $ 3,071 $ 2,606 ============== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable: Trade $ 333 $ 358 Related parties 3 1 Notes payable 133 103 Current maturities of long-term debt 112 150 Other accrued liabilities 103 138 -------------- ------------ Total current liabilities 684 750 Long-term debt 1,177 807 Other liabilities and deferred credits 105 95 Deferred income taxes 139 115 Commitments and contingencies Minority interest in LYONDELL-CITGO 569 459 Refining Company Ltd. Stockholders' equity: Preferred stock, $.01 par value, 80,000,000 shares authorized, none outstanding Common stock, $1 par value, 250,000,000 shares authorized, 80,000,000 issued 80 80 and outstanding Additional paid-in capital 158 158 Retained earnings 159 142 -------------- ------------ Total stockholders' equity 397 380 -------------- ------------ Total liabilities and stockholders' equity $ 3,071 $ 2,606 ============== ============
See notes to consolidated financial statements. 2 LYONDELL PETROCHEMICAL COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30 -------------------- MILLIONS OF DOLLARS 1996 1995 - ------------------- ---------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 74 $ 362 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 78 61 Deferred income taxes 20 2 Increase in accounts receivable (24) (5) Increase in inventories (3) (84) Increase in accounts payable 9 14 Net change in other working capital accounts (19) (7) Minority interest 3 12 Other (42) (10) ---------- -------- Net cash provided by operating activities 96 345 ---------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment (488) (781) Proceeds from sales of short-term investments 76 -- Purchases of short-term investments (76) -- ---------- -------- Net cash used in investing activities (488) (781) ---------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Minority owner contribution 106 147 Net change in short-term debt 30 155 Borrowings of long-term debt 482 175 Repayments of long-term debt (150) (10) Dividends paid (54) (54) ---------- -------- Net cash provided by financing activities 414 413 ---------- -------- INCREASE (DECREASE) IN CASH, RESTRICTED CASH AND CASH EQUIVALENTS 22 (23) Cash, restricted cash and cash equivalents at beginning of period 10 94 ---------- -------- Cash, restricted cash and cash equivalents at end of period $ 32 $ 71 ========== ========
See notes to consolidated financial statements. 3 LYONDELL PETROCHEMICAL COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PREPARATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes 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 consolidated financial statements and notes thereto for the year ended December 31, 1995 included in the Lyondell Petrochemical Company ("Company" or "Lyondell") 1995 Annual Report and the Annual Report on Form 10-K and prior quarterly reports on Form 10-Q pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. The year-end condensed balance sheet data was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. Certain amounts from prior periods have been reclassified to conform to the current period presentation. 2. COMPANY OPERATIONS The Company operates in two business segments: petrochemicals and refining. The petrochemicals segment manufactures a wide variety of petrochemicals including olefins, polymers, methanol, MTBE and aromatics produced at the Channelview petrochemical facility ("Channelview Facility"). The Company's petrochemical products are used primarily in the manufacture of other chemicals and products, which in turn are used in the production of a wide variety of consumer and industrial products. The refining segment operates primarily through the Company's interest in LYONDELL-CITGO Refining Company Ltd. ("LCR"), a Texas limited liability company that is owned by subsidiaries of Lyondell and CITGO Petroleum Corporation ("CITGO"), which manufactures refined petroleum products, including gasoline, heating oil, jet fuel, aromatics and lubricants. 3. INVENTORIES The categories of inventory and their recorded values at September 30, 1996 and December 31, 1995 were:
MILLIONS OF DOLLARS 1996 1995 ------------------- ------- ------ Crude oil $ 23 $ 55 Refined products 49 33 Petrochemicals 152 135 Materials and supplies 45 42 ------- ----- Total inventories $ 269 $ 265 ======= =====
4. RESTRICTED FUNDS As of September 30, 1996 and December 31, 1995, cash in the amount of less than $1 million and $7 million, respectively, was restricted for use in connection with LCR capital projects, including the upgrade project ("Upgrade Project") at the Houston, Texas refinery ("Refinery") and other expenditures as determined by the LCR 4 owners. Presented below is a reconciliation of changes in restricted funds for the nine-month period ended September 30, 1996.
MILLIONS OF DOLLARS ------------------- Restricted cash and cash equivalents at December 31, 1995 $ 7 Minority owner investments: Contributions 106 Distributable cash reinvested 11 Lyondell investments: Loan for Upgrade Project 91 Other loans 22 Contributions 8 Proceeds from bank loan 182 Additions to fixed assets: Upgrade Project (387) Refining segment - other (40) --------- Restricted cash and cash equivalents at September 30, 1996 $ -- =========
5. ACQUISITION OF ALATHON(R) HIGH-DENSITY POLYETHYLENE BUSINESS On May 1, 1995, the Company acquired the assets associated with Occidental Chemical Corporation's Alathon(R) high-density polyethylene ("HDPE") business ("ALATHON Business") for $356 million including certain direct costs, plus approximately $64 million for inventory. Assets involved in the purchase include resin production facilities at Victoria and Matagorda, Texas, associated research and development activities and the rights to the Alathon(R) trademark. These facilities have a combined annual production capacity of approximately 1.5 billion pounds of HDPE. The Company financed the acquisition from internal cash and $230 million of short-term borrowings from its existing financing arrangements. The following unaudited pro forma information combines the results of operations of the Company and the ALATHON Business for the nine months ended September 30, 1995 and assumes that the acquisition of the ALATHON Business occurred on January 1, 1995. This unaudited pro forma information may not be indicative of results that would have actually resulted if this transaction had occurred on January 1, 1995 or which may be obtained in the future.
FOR THE NINE MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS MONTHS ENDED -------------------------------------------- SEPTEMBER 30 1995 -------------- Sales and other operating revenues $3,987 Net income 382 Earnings per share 4.78
6. FINANCING ARRANGEMENTS As of September 30, 1996, LCR was not in compliance with the financial ratio covenant of adjusted average debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") contained in LCR's $450 million five- year term credit facility and its $70 million 364-day revolving working capital credit facility (together the "LCR 5 Credit Facilities"). Effective as of November 12, 1996, the LCR Credit Facilities were amended. The substance of these amendments was to replace the adjusted average debt to EBITDA covenant and one additional financial covenant with a covenant to maintain a minimum EBITDA. The amendments were retroactively effective as of the noncompliance date and will continue through June 30, 1997. As a result of these amendments, LCR is currently in compliance with the terms of the LCR Credit Facilities. 7. COMMITMENTS AND CONTINGENCIES The Company has various purchase commitments for materials, supplies and services incident to the ordinary conduct of business. In the aggregate, such commitments are not at prices in excess of current market. In connection with the transfer of assets and liabilities from Atlantic Richfield Company ("ARCO") to the Company, the Company agreed to assume certain liabilities arising out of the operation of the Company's integrated petrochemical and petroleum processing business prior to July 1, 1988. In connection with the transfer of such liabilities, the Company and ARCO entered into an agreement ("Cross-Indemnity Agreement") whereby the Company agreed to defend and indemnify ARCO against certain uninsured claims and liabilities which ARCO may incur relating to the operation of the business of the Company prior to July 1, 1988, including certain liabilities which may arise out of pending and future lawsuits. ARCO has indemnified the Company under the Cross-Indemnity Agreement with respect to other claims or liabilities and other matters of litigation not related to the assets or business included in the Company's consolidated financial statements. ARCO has also indemnified the Company for all federal taxes which might be assessed upon audit of the operations of the Company included in the ARCO consolidated income tax returns prior to January 12, 1989 and for all state and local taxes for the period prior to July 1, 1988. In addition to lawsuits for which the Company has indemnified ARCO, the Company is also subject to various lawsuits and proceedings. Subject to the uncertainty inherent in all litigation, management believes the resolution of these proceedings will not have a material adverse effect on the consolidated financial statements or liquidity of the Company. The Company's policy is to be in compliance with all applicable environmental laws. The Company is subject to extensive environmental laws and regulations concerning emissions to the air, discharges to surface and subsurface waters and the generation, handling, storage, transportation, treatment and disposal of waste materials. Some of these laws and regulations are subject to varying and conflicting interpretations. In addition, the Company cannot accurately predict future developments, such as increasingly strict requirements of environmental laws, inspection and enforcement policies and compliance costs therefrom which might affect the handling, manufacture, use, emission or disposal of products, other materials or hazardous and non-hazardous waste. Subject to the terms of the Cross-Indemnity Agreement, the Company is currently contributing funds to the cleanup of two waste sites (French Ltd. and Brio, both of which are located near Houston, Texas) under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") as amended by the Superfund Amendments and Reauthorization Act of 1986. The Company is also subject to certain assessment and remedial actions at the Refinery under the Resource Conservation and Recovery Act ("RCRA"). In addition, the Company has negotiated an order with the Texas Natural Resource Conservation Commission ("TNRCC") for assessment and remediation of groundwater and soil contamination at the Refinery. During July 1994, the Company reported results of an independent investigation conducted by the Audit Committee of the Board of Directors regarding the compliance status of two process waste-water streams under the applicable Benzene National Emissions Standard for Hazardous Air Pollutants ("NESHAPS") regulations and certain related issues raised by an employee. Noncompliance with the Benzene NESHAPS regulations and the related reporting requirements can result in civil penalties and, under certain circumstances, substantial civil and, 6 potentially, criminal penalties. The Company received a notice of violation regarding the two streams and paid a fine of $10,200 to the TNRCC. In addition, the Company incurred approximately $2 million in capital costs in connection with these waste water streams to achieve on-going compliance with the Benzene NESHAPS regulations. Although the Criminal Enforcement Division of the EPA is conducting a formal investigation, the Company does not believe that any aspects of the matters described above will subject the Company to criminal liability or have a material adverse effect on the consolidated financial statements or liquidity of the Company. As of September 30, 1996, the Company has accrued $17 million related to CERCLA, RCRA and TNRCC assessment and remediation costs, of which $5 million is included in current liabilities while the remaining amounts are expected to be incurred over the next two to seven years. In the opinion of management, there is currently no material range of loss in excess of the amount accrued. However, it is possible that new information about the sites for which the reserve has been established, new technology or future developments such as involvement in other CERCLA, RCRA, TNRCC or other comparable state law investigations, could require the Company to reassess its potential exposure related to environmental matters. In the opinion of management, any liability arising from the matters discussed in this note will not have a material adverse effect on the consolidated financial statements or liquidity of the Company. 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 the Company's results of operations for that period without giving effect to contribution or indemnification obligations of co-defendants or others, or to the effect of any insurance coverage that may be available to offset the effects of any such award. 8. DIVIDENDS The Company paid regular quarterly dividends of $.225 per share of common stock during the first, second and third quarters of 1996. Additionally, on October 18, 1996, the Board of Directors declared a regular quarterly dividend of $.225 per share of common stock, payable December 15, 1996 to stockholders of record on November 25, 1996. 9. EARNINGS PER SHARE Earnings per share for all periods presented are computed based on the weighted average number of shares outstanding for the periods, which was 80,000,000 shares. 10. CAPITALIZED INTEREST The Company's policy is to capitalize interest cost incurred on debt during the construction of major projects that exceed one year. Total interest cost incurred during the three months and the nine months ended September 30, 1996 were approximately $28 million and $84 million, respectively, of which approximately $10 million and $23 million, respectively, were capitalized. Total interest cost incurred during the three months and the nine months ended September 30, 1995 were approximately $21 million and $61 million, respectively. Approximately $1 million and $2 million were capitalized during the three months and the nine months ended September 30, 1995, respectively. 11. ARCO PIPE LINE FIRE On July 27, 1996, the Company experienced a fire at its Channelview Facility due to a rupture in a pipeline owned and operated by ARCO Pipe Line Company ("ARCO Pipe Line"). Although no operating units were directly 7 involved in the fire, the damage to the pipeline and electrical systems forced the Company to shut down the entire Channelview Facility for several days and the olefins units for two weeks. The impact of the fire to third quarter operating income primarily consisted of lost profits estimated in excess of $30 million due to business interruptions. This loss was below the Company's insurance deductible. However, the Company is pursuing recovery of the loss from ARCO Pipe Line. The Company is unable to predict the amount, if any, of such a recovery. The Channelview Facility is currently fully operational. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Lyondell Petrochemical Company ("Company" or "Lyondell") operates in two business segments: petrochemicals and refining. The petrochemical segment consists of olefins including ethylene, propylene, butadiene, butylenes and specialty products; polymers including polypropylene, high-density polyethylene ("HDPE") and low-density polyethylene; aromatics produced at the Channelview petrochemical facility ("Channelview Facility") including benzene and toluene; methanol; methyl tertiary butyl ether ("MTBE"); and refinery blending stocks. On May 1, 1995, the Company acquired from Occidental Chemical Corporation resin production facilities at Victoria and Matagorda, Texas, with a combined annual production capacity of approximately 1.5 billion pounds of HDPE, associated research and development activities and the rights to the Alathon(R) trademark ("ALATHON Business"). See Note 5 of" NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)". The refining segment consists of refined petroleum products, including gasoline, heating oil and jet fuel; aromatics produced at the Houston, Texas refinery ("Refinery") including benzene, toluene, paraxylene and orthoxylene; lubricants, including industrial and motor oils; olefins feedstocks; and crude oil resales. On July 1, 1993, Lyondell and CITGO Petroleum Corporation ("CITGO") announced the commencement of operations of LYONDELL-CITGO Refining Company Ltd. ("LCR"), a Texas limited liability company owned by subsidiaries of the Company and CITGO. LCR owns and operates the refining business formerly owned by the Company. LCR is undertaking a major upgrade project at the Refinery to enable the facility to process substantial additional volumes of very heavy crude oil ("Upgrade Project"). CITGO is providing a major portion of the funds for the Upgrade Project, which through September 30, 1996 totaled cash contributions of approximately $434 million including cash contributions for the carrying costs of the construction debt. In addition, through September 30, 1996, CITGO has contributed $100 million and reinvested approximately $39 million of cash distributions for funding other capital projects. Lyondell currently expects the cost of the Upgrade Project to be approximately $1.1 billion. Lyondell expects to fund one-half of costs in excess of $1 billion in the form of subordinated loans. The Upgrade Project is expected to be operational by the end of the first quarter of 1997. Concurrent with the commencement of operations, LCR entered into a long-term crude oil supply contract ("Crude Supply Contract") with Lagoven, S.A. ("LAGOVEN"), an affiliate of CITGO. In addition, under terms of a long-term product sales agreement ("Products Agreement"), CITGO is currently purchasing all of the light refined products produced at the Refinery. Both LAGOVEN and CITGO are subsidiaries of Petroleos de Venezuela, S.A., the national oil company of Venezuela. The Crude Supply Contract incorporates a formula price based on the market value of a slate of refined products deemed to be produced from each particular crude oil or feedstock, less certain deemed and actual costs and a deemed margin which varies according to the grade of crude oil or other feedstock delivered. The actual refining margin earned by LCR under the Crude Supply Contract will vary depending on, among other things, the efficiency with which LCR conducts its operations during such period. If the actual yields, costs or volumes differ substantially from those contemplated by the Crude Supply Contract, the benefits of this agreement to LCR could be substantially different than anticipated. Notwithstanding these limitations, however, the Crude Supply Contract is designed to reduce the inherent earnings and cash flow volatility of the refining operations of LCR irrespective of market fluctuations of either crude oil or refined products. 9 The following table sets forth sales volumes for the Company's major products for the periods indicated. Sales volumes include production, purchases of products for resale, propylene production from the product flexibility unit, products received on exchange and draws from inventory.
FOR THE THREE FOR THE NINE MONTHS MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 -------------------- ------------------ 1996 1995 1996 1995 --------- ---------- ------- -------- SELECTED PETROCHEMICAL PRODUCTS (MILLIONS) (EXCLUDING INTERSEGMENT SALES): Ethylene, propylene and polymers (lbs.) 1,678 1,749 5,236 5,113 Other olefins (lbs.) 241 251 738 823 Methanol (gallons) 52 49 156 145 Aromatics (gallons) 40 39 124 118 REFINED PRODUCTS (THOUSAND BARRELS PER DAY) (EXCLUDING INTERSEGMENT SALES): Gasoline 100 112 107 108 Heating oil (no. 2 distillate) 48 47 47 50 Jet fuel 23 29 25 30 Aromatics 8 7 7 8 Other refined products 54 57 54 56 --------- ---------- ------- -------- Total refined products volumes 233 252 240 252 ========= ========== ======= ========
Summarized below is the segment data for the Company. Intersegment sales between the petrochemical and refining segments include olefins feedstocks and benzene produced at the Refinery and gasoline blending stocks produced at the Channelview Facility and were made at prices that were based on current market values.
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ---------------------- ------------------- (MILLIONS OF DOLLARS) 1996 1995 1996 1995 - --------------------- ------------ --------- --------- ------- SALES AND OTHER OPERATING REVENUES: Petrochemical segment $ 681 $ 687 $1,873 $2,102 Refining segment 649 644 2,044 1,982 Intersegment sales (83) (82) (266) (291) ------------ --------- --------- ------- $1,247 $1,249 $3,651 $3,793 ============ ========= ========= ======= COST OF SALES: Petrochemical segment $ 558 $ 498 $1,593 $1,455 Refining segment 644 595 1,973 1,839 Intersegment purchases (83) (82) (266) (291) ------------ --------- --------- ------- $1,119 $1,011 $3,300 $3,003 ============ ========= ========= ======= SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Petrochemical segment $ 28 $ 26 $ 83 $ 58 Refining segment 15 14 48 43 Unallocated 14 15 43 47 ------------ --------- --------- ------- $ 57 $ 55 $ 174 $ 148 ============ ========= ========= ======= OPERATING INCOME: Petrochemical segment $ 95 $ 163 $ 197 $ 589 Refining segment (10) 35 23 100 Unallocated (14) (15) (43) (47) ------------ --------- --------- ------- $ 71 $ 183 $ 177 $ 642 ============ ========= ========= =======
10 Summarized below are intersegment sales for the two segments.
FOR THE THREE FOR THE NINE MONTHS MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 -------------------- ------------------- (MILLIONS OF DOLLARS) 1996 1995 1996 1995 - --------------------- ---------- -------- --------- -------- Petrochemical segment $ 53 $ 49 $ 154 $ 150 Refining segment 30 33 112 141 ---------- -------- --------- ------- $ 83 $ 82 $ 266 $ 291 ========== ======== ========= =======
RESULTS OF OPERATIONS OVERVIEW Net income for the third quarter of 1996 was $35 million or $.43 per share compared to a net income of $100 million or $1.25 per share for the third quarter of 1995. The $65 million decrease was primarily due to lower sales margins for olefins and aromatics. Net income was $20 million higher for the third quarter of 1996 compared to the second quarter of 1996. This increase was primarily caused by higher sales margins for polymers and olefins, partially offset by lower sales margins for aromatics. The third quarter of 1996 was negatively impacted by business interruption due to a fire at the Channelview Facility in a pipeline that is owned and operated by ARCO Pipe Line Company ("ARCO Pipe Line"). See Note 11 of "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)." Net income for the first nine months of 1996 was $74 million or $.92 per share compared to a net income of $362 million or $4.52 per share for the first nine months of 1995. The $288 million decrease was primarily due to lower sales margins for olefins, methanol and aromatics. PETROCHEMICAL SEGMENT REVENUES Sales and other operating revenues, including intersegment sales, were $681 million in the third quarter of 1996 compared to $687 million in the third quarter of 1995, a decline of $6 million. Sales and other operating revenues were $229 million lower in the first nine months of 1996 compared to the first nine months of 1995. This decrease was primarily due to lower olefins sales prices and volumes and lower methanol sales prices, partially offset by higher sales of HDPE resulting from the acquisition of the ALATHON Business on May 1, 1995. Compared to the first part of 1995, which was a period of strong market conditions for petrochemicals generally, sales prices for petrochemicals during the current periods were lower due to a decline in market conditions which began in the latter part of 1995. This decline was due to additional olefins capacity that came onstream in 1995, slower economic growth and inventory corrections in olefins derivatives. Additionally, methanol sales prices were lower during the first nine months of 1996 compared to the same period in 1995 due to the slower economic growth and higher industry supply. COST OF SALES Cost of sales was $558 million in the third quarter of 1996 compared to $498 million in the third quarter of 1995, an increase of $60 million. This increase was primarily due to higher olefins feedstock costs which reflects higher crude oil and refined products prices. 11 Cost of sales was $138 million higher during the first nine months of 1996 compared to the first nine months of 1995. This increase was primarily due to the addition of the ALATHON Business and the higher olefins feedstock prices. SELLING EXPENSES Selling expenses for the first nine months of 1996 were $83 million, an increase of $25 million compared to the first nine months of 1995. This increase was primarily caused by selling expenses associated with the ALATHON business acquired in May 1995. OPERATING INCOME On June 2, 1996, the Company's Mont Belvieu, Texas terminal experienced a fire. The before-tax impact of the fire to second quarter operating income was approximately $2 million for equipment write-off and repair costs plus additional lost profits due to business interruption, all of which were below the Company's insurance deductible. On July 27, 1996, the fire at the Channelview Facility in a pipeline that is owned and operated by ARCO Pipe Line forced a shut down of the olefins units for approximately two weeks and other units for several days. The impact of the fire to third quarter operating income primarily consisted of lost profits estimated in excess of $30 million due to business interruptions. This loss was below the Company's insurance deductible. However, the Company is pursuing recovery of the loss from ARCO Pipe Line. The Company is unable to predict the amount, if any, of such a recovery. Operating income for the third quarter of 1996 was $95 million compared to $163 million in the third quarter of 1995. The $68 million decrease was primarily due to lower olefins sales margins, partially offset by higher polymers sales margins. The lower olefins sales margins during the third quarter of 1996 compared to the third quarter of 1995 resulted primarily from higher petroleum based feedstock costs which were caused by the higher industry petroleum prices. Also contributing to the lower olefins sales margins were lower sales prices which were due to the decline in market conditions which began in the third quarter of 1995. Polymers sales margins were higher primarily due to increases in polymers sales prices, particularly HDPE, as a result of strong demand and low industry inventories. Operating income for the third quarter of 1996 compared to the second quarter of 1996 increased $42 million. This improvement was primarily due to higher polymers and olefins sales margins. The higher polymers sales margins were due to higher prices caused by increased demand, both domestic and international. Olefins sales margins increased due to higher sales prices resulting from improved markets which more than offset the impacts of the higher feedstock costs and the shut down of the Channelview Facility due to the ARCO Pipe Line fire. Operating income for the first nine months of 1996 was $197 million compared to $589 million for the first nine months of 1995. The $392 million decrease was primarily due to lower sales margins for olefins and methanol. The lower olefins sales margins during the first nine months of 1996 compared to the first nine months of 1995 primarily resulted from lower sales prices and higher feedstock costs. Olefins sales prices were lower due to the decline in market conditions which began in the third quarter of 1995. Higher olefins feedstock costs resulted from the higher industry petroleum prices. Methanol sales margins were lower due to a significant decline in prices which began late in the first quarter of 1995 due to slower growth in MTBE-related demand for reformulated gasoline and an increase in methanol supply. REFINING SEGMENT REVENUES Sales and other operating revenues for the third quarter of 1996 were $649 million, an increase of $5 million compared to the third quarter of 1995. Sales and other operating revenues for the first nine months of 1996 were $2.0 billion, an increase of $62 million compared to the first nine months of 1995. These increases were primarily due to higher sales prices for light refined products and crude oil resales which were caused by higher industry petroleum prices, partially offset by lower orthoxylene and paraxylene prices. Orthoxylene prices were at historical highs during the first half of 1995 before returning to a more normal level in the fourth quarter 12 of 1995 due to increased production and lower demand which was further impacted by customers' inventory reductions. The decline in paraxylene prices began in the second quarter of 1996 due to additional capacity and continued customers' inventory reductions in the polyethylene terephthalate (PET) and polyester fibers businesses. COST OF SALES Cost of sales was $644 million during the third quarter of 1996 compared to $595 million during the third quarter of 1995, an increase of $49 million. Cost of sales was $2.0 billion during the first nine months of 1996, an increase of $134 million compared to the first nine months of 1995. These increases were primarily caused by higher crude oil and other petroleum feedstock costs and higher cost for crude oil that was resold due to higher industry crude oil prices. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses were $1 million higher in the third quarter of 1996 compared to the third quarter of 1995 and were $5 million higher during the first nine months of 1996 compared to the first nine months of 1995. The increase for the nine month period was primarily due to higher employee compensation and various outside consulting services. OPERATING INCOME Operating loss for the third quarter of 1996 was $10 million compared to an operating income of $35 million for the third quarter of 1995. The $45 million decrease was primarily due to lower aromatics margins. Margins were lower in 1996 primarily due to the significantly lower sales prices and to the higher industry petroleum feedstock costs. Operating income for the third quarter of 1996 compared with the second quarter of 1996 decreased $15 million. This decrease in operating income was primarily due to lower paraxylene sales margins. The lower paraxylene sales margins were primarily due to the lower paraxylene sales prices. Operating income for the first nine months of 1996 was $23 million compared to $100 million for the first nine months of 1995. The $77 million decrease was primarily due to lower aromatics and refined products sales margins and to higher period costs. Overall, aromatics sales margins were lower in 1996 primarily due to generally lower sales prices, particularly orthoxylene. Refined products sales margins decreased due to higher crude oil and other feedstock prices which more than offset higher refined product sales prices. Refinery period costs were higher due to higher personnel compensation, property taxes and depreciation, partially offset by lower maintenance expenses. UNALLOCATED GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses were $1 million lower in the third quarter of 1996 compared to the third quarter of 1995 and were $4 million lower in the first nine months of 1996 compared to the first nine months of 1995. These decreases were primarily due to a reduced charge for management incentive compensation and lower materials, supplies and equipment expense. INTEREST EXPENSE Interest expense was $2 million lower during the third quarter of 1996 compared to the third quarter of 1995 due to higher capitalization of interest related to the Upgrade Project. Interest expense was $2 million higher during the first nine months of 1996 compared to the first nine months of 1995. The higher interest expense was primarily due to a net increase in debt outstanding resulting from the issuance of new debt in February 1996. INCOME TAX The effective income tax rate during the third quarter of 1996 and during the first nine months of 1996 was 35.8 percent and 36.1 percent, respectively. State income tax was the primary difference between the effective tax rates and the 35 percent federal statutory rate. 13 FINANCIAL CONDITION Lyondell's cash provided by operating activities was $96 million in the first nine months of 1996 compared to cash provided of $345 million during the first nine months of 1995. This $249 million decrease in cash flow from operating activities is attributable to the $288 million decrease in net income, partially offset primarily by changes in working capital. Cash used in investing activities during the first nine months of 1996 consisted of capital expenditures of $488 million, of which $387 million was for the Upgrade Project at the Refinery, $26 million was for environmentally related projects primarily at the Refinery and $75 million was for other projects at the various petrochemical facilities and at the Refinery. Upgrade Project expenditures during the first nine months of 1996 were funded by $182 million from external borrowings by LCR, $106 million of contributions by CITGO, the minority owner of LCR, and $91 million from Lyondell in the form of subordinated loans to LCR. The $8 million excess of cash expenditures over funding for the Upgrade Project was provided by funds held in a restricted cash account. In February 1996, the Company issued $300 million of debt securities ("Debt Securities") consisting of $150 million of 6.5 percent notes due 2006 and $150 million of 7.55 percent debentures due 2026. A portion of the proceeds received from the sale of the Debt Securities was used to repay short-term debt during the first quarter of 1996, and the remainder was used for retirement of maturing long-term debt and general corporate purposes. The Debt Securities are unsecured obligations and rank on a parity with all other unsecured and unsubordinated debt of the Company. As of September 30, 1996, LCR was not in compliance with the financial ratio covenant of adjusted average debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") contained in LCR's $450 million five- year term credit facility and its $70 million 364-day revolving working capital credit facility (together the "LCR Credit Facilities"). Effective as of November 12, 1996, the LCR Credit Facilities were amended. The substance of these amendments was to replace the adjusted average debt to EBITDA covenant and one additional financial covenant with a covenant to maintain a minimum EBITDA. The amendments were retroactively effective as of the noncompliance date and will continue through June 30, 1997. As a result of these amendments, LCR is currently in compliance with the terms of the LCR Credit Facilities. The Mont Belvieu terminal fire on June 2, 1996 will result in an approximate $13 million capital expenditure to replace damaged equipment. As a result, the Company has deferred certain capital expenditures with the overall impact of increasing the 1996 capital budget by $8 million, to $133 million, excluding expenditures for the upgrade project at the Refinery. The Company paid regular quarterly dividends of $.225 per share of common stock during the first, second and third quarters of 1996. Additionally, on October 18, 1996, the Board of Directors declared a regular quarterly dividend of $.225 per share of common stock, payable December 15, 1996 to stockholders of record on November 25, 1996. CURRENT BUSINESS OUTLOOK A strengthening economy provided an improved environment for polymers and olefins during the third quarter of 1996 compared to the earlier part of 1996. This improvement was partially offset by higher olefins feedstock costs and the shut down of the Channelview Facility for two weeks during the third quarter due to the ARCO Pipe Line fire which occurred during July 1996. During the remainder of 1996, management expects that olefins supply and demand fundamentals will continue to be more favorable than in the latter part of 1995 with demand growth exceeding capacity additions and less 14 significant downstream inventory corrections. However, olefins profitability continues to be negatively impacted by higher feedstock costs. Polymers demand is beginning to show signs of weakening in the fourth quarter. Methanol business conditions returned to more typical levels in the latter part of 1995 and first nine months of 1996 from the very favorable conditions that existed during the early part of 1995. Although methanol demand growth is still good, natural gas feedstock prices are rising because of winter seasonal demand, and substantial new capacity is expected in various parts of the world over the next few years. While the Company expects its methanol business to remain profitable, it is not likely that methanol profitability will return in the near-term to the high levels of late 1994 and early 1995. During the first nine months of 1996, profit performance from refined products benefited from high processing rates of heavy Venezuelan crude oil. However, this improvement was offset by lower margins due to rising feedstock costs for the crude oil runs not covered by the Crude Supply Contract. Operating rates for the crude oil purchased outside the Crude Supply Agreement were reduced significantly in the third quarter due to poor economics. Management does not expect industry margins to improve in the fourth quarter, and profit performance will be further negatively impacted by the planned maintenance turnaround on the fluid catalytic cracking unit during the fourth quarter of 1996. Aromatics are in a weaker environment entering the fourth quarter of 1996 due to lower margins resulting from higher feedstock costs and continuing sales price decreases for paraxylene. Management believes that the Company has improved its refining business with the formation of LCR and the resulting benefits of the Crude Supply Contract and Products Agreement. These arrangements are designed to diminish the impact of market volatility and stabilize cash flows at attractive levels relative to historic performance. However, management expects that startups, shutdowns, revamps and tie-ins to the existing facilities will continue to affect LCR's operating efficiency and profitability as various units of the Upgrade Project approach completion during the remainder of 1996 and early 1997. Until the Upgrade Project is operational, which is expected to occur by the end of the first quarter of 1997, LCR's crude oil volume which is not purchased under the Crude Supply Contract continues to be sensitive to market conditions. The poor market conditions that have characterized the Gulf Coast refining business for the past several years have continued in 1996. Profitability and cash flows for the petrochemical and refining businesses are affected by industry supply and demand, feedstock cost volatility, capital expenditures required to meet more stringent environmental standards, repair and maintenance costs and downtime of production units due to maintenance turnarounds. Turnarounds on major units can have significant financial impacts due to the associated loss of production, resulting in lower profitability. LCR plans to perform a turnaround of its fluid catalytic cracking unit in the fourth quarter of 1996, and a turnaround of the Company's Matagorda HDPE plant is planned to begin during the first quarter of 1997. The Company believes that business conditions will be such that cash balances, cash generated from operating activities and existing lines of credit will be adequate to meet future cash requirements for scheduled debt repayments, necessary capital expenditures and to sustain for the reasonably foreseeable future the regular quarterly dividend. However, the Company continually evaluates its cash requirements and allocates cash in order to maximize stockholder returns. Certain of the statements in this Current Business Outlook Section are forward- looking statements that involve risks and uncertainties, and the factors described herein could cause actual results to differ materially from the estimates contained herein. __________________________ Management cautions against projecting any future results based on present or prior earnings levels because of the cyclical nature of the refining and petrochemical industries and uncertainties associated with the United States and worldwide economies and current and potential United States governmental regulatory actions. 15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 1. There have been no material developments with respect to the Company's legal proceedings previously reported in the 1995 Annual Report on Form 10-K or subsequent Quarterly Reports on Form 10-Q. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 4.5(b) Amendment No. 2 to the LYONDELL-CITGO Refining Company Ltd. $70,000,000 Credit Agreement. 4.6(b) Amendment No. 2 to the LYONDELL-CITGO Refining Company Lt. $450,000,000 Credit Agreement. 27 Financial Data Schedule. (b) Reports on Form 8-K The following Current Reports on Form 8-K were filed during the quarter ended September 30, 1996 and through the date hereof. Date of Report Item No. Financial Statements -------------- -------- -------------------- July 29, 1996 5 None 16 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. Lyondell Petrochemical Company (Registrant) Dated: November 13, 1996 JOSEPH M. PUTZ -------------------------------- (Signature) Joseph M. Putz Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer) 17 EX-4.5(B) 2 EXHIBIT 4.5(B) Exhibit 4.5(b) SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT dated as of November 12, 1996 LYONDELL-CITGO REFINING COMPANY LTD., a Texas limited liability company (the "Borrower"), the LENDERS listed on the signature pages hereof and any Lender hereafter becoming a party to the below-mentioned Agreement in accordance with the provisions thereof, ABN AMRO BANK N.V., THE BANK OF NOVA SCOTIA, CREDIT LYONNAIS, THE FIRST NATIONAL BANK OF CHICAGO and THE INDUSTRIAL BANK OF JAPAN, LTD., as Co-Agents, and THE BANK OF NEW YORK, as Agent and as Issuer, agree to this Second Amendment (this "Amendment"), dated as of November 12, 1996 (the "Amendment Date"), to the Revolving Credit Agreement, dated as of May 5, 1995, among the Borrower, the Lenders parties thereto, such Co-Agents and such Agent and Issuer, as previously amended (the "Agreement"; capitalized terms used but not otherwise defined herein having the meanings assigned to them in the Agreement, and references herein to Sections being references to Sections of the Agreement unless indicated otherwise), as follows: Section 1. Amendments. Subject to the terms and provisions herein ---------- set forth, effective as of the Amendment Date, the Agreement hereby is amended in the following respects: (a) The following definitions are added to Section 1.01 immediately following the definition of "Accumulated Funding Deficiency": "Adjusted Average Debt to EBITDA Ratio" means (a) as of September ------------------------------------- 30, 1997, the ratio of (i) Average Consolidated Indebtedness over the Borrower's four most recently ended fiscal quarters to (ii) Consolidated EBITDA for the Borrower's fiscal quarter ending on such date and for the preceding fiscal quarter, multiplied by 2, and (b) as of December 31, 1997, the ratio of (i) Average Consolidated Indebtedness over the Borrower's four most recently ended fiscal quarters to (ii) Consolidated EBITDA for the Borrower's fiscal quarter ending on such date and for the preceding two fiscal quarters, multiplied by 4/3. "Adjusted Coverage Ratio" means (a) as of September 30, 1997, the ----------------------- ratio of (i) Consolidated EBIT for the Borrower's fiscal quarter ending on such date and for the preceding fiscal quarter, multiplied by 2, to (ii) Consolidated Interest Expense for the Borrower's four most recently ended fiscal quarters and (b) as of December 31, 1997, the ratio of (i) Consolidated EBIT for the Borrower's fiscal quarter ending on such date and for the preceding two fiscal quarters, multiplied by -1- 4/3, to (ii) Consolidated Interest Expense for the Borrower's four most recently ended fiscal quarters. (b) The definition of "Applicable Margin" set forth in Section 1.01 is amended to provide that (i) for the period commencing on the Amendment Date and ending on the last day of the Pre-Completion Period, the per annum percentage shall be 0.750%, in lieu of the per annum percentages set forth in column B of such definition for such period, and (ii) for the period commencing on the first day of the Post-Completion Period and ending on the Determination Date next succeeding the fiscal quarter of the Borrower ending September 30, 1997, the per annum percentage shall be 0.650%, in lieu of the per annum percentages set forth in column C of such definition for such period. (c) The obligation of the Borrower to comply with Section 7.16(b) is suspended for the fiscal quarters of the Borrower ending December 31, 1996, March 31, 1997, June 30, 1997, September 30, 1997 and December 31, 1997. (d) The obligation of the Borrower to comply with Section 7.16(d) is hereby suspended for the fiscal quarters of the Borrower ending September 30, 1996, December 31, 1996, March 31, 1997, June 30, 1997, September 30, 1997 and December 31, 1997. (e) In lieu of the covenants set forth in Sections 7.16(b) and 7.16(d), the Borrower shall not permit, at the end of the relevant fiscal quarter, (i) Consolidated EBITDA (A) for the fiscal year of the Borrower ending December 31, 1996 to be less than $40,000,000, (B) for the four fiscal quarters of the Borrower ending March 31, 1997 to be less than $18,000,000 and (C) for the four fiscal quarters of the Borrower ending June 30, 1997 to be less than $60,000,000, (ii) the Adjusted Coverage Ratio as of September 30, 1997 and December 31, 1997 to be less than 2.00 to 1.00 and (iii) the Adjusted Average Debt to EBITDA Ratio (A) as of September 30, 1997 to be greater than 4.5 to 1.0 and (B) as of December 31, 1997 to be greater than 4.0 to 1.0. (f) Section 2.01(d)(vii) is amended by adding at the end thereof, the following: Notwithstanding the foregoing, any Lender which has made a Competitive Loan may agree from time to time (but in no event more than three times with respect to any one Competitive Loan) with the Borrower in writing, signed only by such Lender and the Borrower, to extend the Interest Period applicable to such Loan or to increase the interest rate applicable to such Loan, or both. The Borrower shall promptly notify the Agent of each such agreement, and the Agent shall thereafter promptly notify the other Lenders thereof. Section 2. Waiver. (a) The Borrower's failure to comply with Section ------ 7.16(d) as of September 30, 1996 and the resulting Event of Default under Section 8.01(c)(i) are hereby waived and (b) the Event of Default under Section 8.01(d)(iii) resulting from the -2- Borrower's failure to comply with Section 7.16(d) of the Term Credit Agreement is hereby waived, subject to the Second Amendment to Credit Agreement of even date herewith, which amends the Term Credit Agreement, becoming effective in accordance with the terms thereof. Section 3. Amendment Fee; Other Fees and Expenses. On the Amendment -------------------------------------- Date, the Borrower shall pay to the Agent for the account of each Lender executing and delivering this Amendment an amendment fee equal to .05% of such Lender's Commitment. The Borrower agrees to pay to the Agent for the account of counsel to the Agent all reasonable fees and expenses of such counsel in connection with this Amendment. Section 4. Effect of Amendments and Waiver. Except for the ------------------------------- amendments and waivers evidenced hereby, the Agreement and other Loan Documents remain in full force and effect, and the Agreement, as amended hereby, and the other Loan Documents are hereby ratified and confirmed by the Borrower. The execution and delivery of this Amendment shall not, except as specifically set forth herein, operate as an amendment or waiver of compliance by the Borrower with respect to any other provision or condition of the Agreement, as amended hereby, or any other Loan Document, or of any right, power or remedy of the Agent, any Co-Agent, any Lender or the Issuer under the Agreement, as amended hereby, or any other Loan Document, or prejudice any right or remedy that the Agent, any Co-Agent, any Lender or the Issuer may now have or may have in the future with respect to any Default, or otherwise, under or in connection with the Agreement, as amended hereby, or any other Loan Document. Section 5. Conditions to Effectiveness. The effectiveness of the --------------------------- amendments and waivers made by this Amendment to the Agreement is subject to its execution by the Agent and the Issuer and the Agent's receipt on or before the Amendment Date of (a) counterparts of this Amendment signed by the Borrower and the Required Lenders, (b) receipt by the Agent of the amendment fee provided for in Section 3 of this Amendment and (c) each of the following, in sufficient number for each of the Lenders, the Co-Agents and the Issuer and in form and substance reasonably satisfactory to the Agent: (i) a copy, certified by the Secretary of the Borrower under date of the Amendment Date, of the resolutions adopted by Owners Committee Action taken by the Owners Committee in accordance with the applicable requirements of the Regulations to authorize the execution and delivery of this Amendment and the carrying out of the provisions hereof and of the Agreement, as amended hereby; (ii) a certificate of a Responsible Officer, dated the Amendment Date, to the effect that on and as of the Amendment Date, after giving effect to this Amendment, (A) the representations and warranties set forth in Article V of the Agreement are true and correct in all material respects (unless made as of a specific date as set forth in that Article) and (B) no Default exists; and (iii) an opinion of the general counsel of the Borrower, dated the Amendment Date, to the effect that this Amendment has been duly authorized by Owners Committee Action and validly executed and delivered by the Borrower. Section 6. Miscellaneous. This Amendment is governed by the terms ------------- and -3- other provisions of Sections 1.02, 1.03, 10.05, 10.07, 10.10 (the first sentence thereof) and 10.12 as if this Amendment were the Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers all as of the Amendment Date. LYONDELL-CITGO REFINING COMPANY LTD. By: ---------------------------------------------------- Name: D. Lyndon James Title: Vice President and Controller THE BANK OF NEW YORK, As Agent, as Issuer and as a Lender By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ OTHER LENDERS: ABN AMRO BANK N.V. HOUSTON AGENCY By: ABN AMRO North America, Inc., as agent By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ -4- THE BANK OF NOVA SCOTIA By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ CAISSE NATIONALE DE CREDIT AGRICOLE By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ CREDIT LYONNAIS CAYMAN ISLAND BRANCH By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ -5- THE FIRST NATIONAL BANK OF CHICAGO By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ THE INDUSTRIAL BANK OF JAPAN, LTD. By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ NATIONSBANK OF TEXAS, N.A. By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ THE NIPPON CREDIT BANK, LTD. NEW YORK BRANCH By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ -6- PNC BANK, NATIONAL ASSOCIATION By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ ROYAL BANK OF CANADA By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ THE SANWA BANK LIMITED DALLAS AGENCY By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ SOCIETE GENERALE, SOUTHWEST AGENCY By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ -7- THE TOYO TRUST & BANKING CO., LTD. NEW YORK BRANCH By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK AND CAYMAN ISLANDS BRANCHES By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ By:____________________________________________________ Name:_______________________________________________ Title:______________________________________________ EX-4.6(B) 3 EXHIBIT 4.6(B) Exhibit 4.6(b) SECOND AMENDMENT TO CREDIT AGREEMENT dated as of November 12, 1996 LYONDELL-CITGO REFINING COMPANY LTD., a Texas limited liability company (the "Borrower"), the LENDERS listed on the signature pages hereof and any Lender hereafter becoming a party to the below-mentioned Agreement in accordance with the provisions thereof, ABN AMRO BANK N.V., THE BANK OF NOVA SCOTIA, CREDIT LYONNAIS, THE FIRST NATIONAL BANK OF CHICAGO and THE INDUSTRIAL BANK OF JAPAN, LTD., as Co-Agents, and THE BANK OF NEW YORK, as Agent and as Issuer, agree to this Second Amendment (this "Amendment"), dated as of November 12, 1996 (the "Amendment Date"), to the Credit Agreement, dated as of May 5, 1995, among the Borrower, the Lenders parties thereto, such Co-Agents and such Agent and Issuer, as previously amended (the "Agreement"; capitalized terms used but not otherwise defined herein having the meanings assigned to them in the Agreement, and references herein to Sections being references to Sections of the Agreement unless indicated otherwise), as follows: Section 1. Amendments. Subject to the terms and provisions herein ---------- set forth, effective as of the Amendment Date, the Agreement hereby is amended in the following respects: (a) The following definitions are added to Section 1.01 immediately following the definition of "Accumulated Funding Deficiency": "Adjusted Average Debt to EBITDA Ratio" means (a) as of September ------------------------------------- 30, 1997, the ratio of (i) Average Consolidated Indebtedness over the Borrower's four most recently ended fiscal quarters to (ii) Consolidated EBITDA for the Borrower's fiscal quarter ending on such date and for the preceding fiscal quarter, multiplied by 2, and (b) as of December 31, 1997, the ratio of (i) Average Consolidated Indebtedness over the Borrower's four most recently ended fiscal quarters to (ii) Consolidated EBITDA for the Borrower's fiscal quarter ending on such date and for the preceding two fiscal quarters, multiplied by 4/3. "Adjusted Coverage Ratio" means (a) as of September 30, 1997, the ----------------------- ratio of (i) Consolidated EBIT for the Borrower's fiscal quarter ending on such date and for the preceding fiscal quarter, multiplied by 2, to (ii) Consolidated Interest Expense for the Borrower's four most recently ended fiscal quarters and (b) as of December 31, 1997, the ratio of (i) Consolidated EBIT for the Borrower's fiscal quarter ending on such date and for the preceding two fiscal quarters, multiplied by 4/3, to (ii) Consolidated Interest Expense for the Borrower,s four most recently ended -1- fiscal quarters. (b) The definition of "Applicable Margin" set forth in Section 1.01 is amended to provide that (i) for the period commencing on the Amendment Date and ending on the last day of the Pre-Completion Period, the per annum percentage shall be 0.750%, in lieu of the per annum percentages set forth in column B of such definition for such period, and (ii) for the period commencing on the first day of the Post-Completion Period and ending on the Determination Date next succeeding the fiscal quarter of the Borrower ending September 30, 1997, the per annum percentage shall be 0.650%, in lieu of the per annum percentages set forth in column C of such definition for such period. (c) The obligation of the Borrower to comply with Section 7.16(b) is suspended for the fiscal quarters of the Borrower ending December 31, 1996, March 31, 1997, June 30, 1997, September 30, 1997 and December 31, 1997. (d) The obligation of the Borrower to comply with Section 7.16(d) is hereby suspended for the fiscal quarters of the Borrower ending September 30, 1996, December 31, 1996, March 31, 1997, June 30, 1997, September 30, 1997 and December 31, 1997. (e) In lieu of the covenants set forth in Sections 7.16(b) and 7.16(d), the Borrower shall not permit, at the end of the relevant fiscal quarter, (i) Consolidated EBITDA (A) for the fiscal year of the Borrower ending December 31, 1996 to be less than $40,000,000, (B) for the four fiscal quarters of the Borrower ending March 31, 1997 to be less than $18,000,000 and (C) for the four fiscal quarters of the Borrower ending June 30, 1997 to be less than $60,000,000, (ii) the Adjusted Coverage Ratio as of September 30, 1997 and December 31, 1997 to be less than 2.00 to 1.00 and (iii) the Adjusted Average Debt to EBITDA Ratio (A) as of September 30, 1997 to be greater than 4.5 to 1.0 and (B) as of December 31, 1997 to be greater than 4.0 to 1.0. Section 2. Waiver. (a) The Borrower's failure to comply with Section ------ 7.16(d) as of September 30, 1996 and the resulting Event of Default under Section 8.01(c)(i) are hereby waived and (b) the Event of Default under Section 8.01(d)(iii) resulting from the Borrower's failure to comply with Section 7.16(d) of the Revolving Credit Agreement is hereby waived, subject to the Second Amendment to Revolving Credit Agreement of even date herewith, which amends the Revolving Credit Agreement, becoming effective in accordance with the terms thereof. Section 3. Amendment Fee; Other Fees and Expenses. On the Amendment -------------------------------------- Date, the Borrower shall pay to the Agent for the account of each Lender executing and delivering this Amendment an amendment fee equal to .05% of such Lender's Commitment. The Borrower agrees to pay to the Agent for the account of counsel to the Agent all reasonable fees and expenses of such counsel in connection with this Amendment. -2- Section 4. Effect of Amendments and Waiver. Except for the ------------------------------- amendments and waivers evidenced hereby, the Agreement and other Loan Documents remain in full force and effect, and the Agreement, as amended hereby, and the other Loan Documents are hereby ratified and confirmed by the Borrower. The execution and delivery of this Amendment shall not, except as specifically set forth herein, operate as an amendment or waiver of compliance by the Borrower with respect to any other provision or condition of the Agreement, as amended hereby, or any other Loan Document, or of any right, power or remedy of the Agent, any Co-Agent, any Lender or the Issuer under the Agreement, as amended hereby, or any other Loan Document, or prejudice any right or remedy that the Agent, any Co-Agent, any Lender or the Issuer may now have or may have in the future with respect to any Default, or otherwise, under or in connection with the Agreement, as amended hereby, or any other Loan Document. Section 5. Conditions to Effectiveness. The effectiveness of the --------------------------- amendments and waivers made by this Amendment to the Agreement is subject to its execution by the Agent and the Issuer and the Agent's receipt on or before the Amendment Date of (a) counterparts of this Amendment signed by the Borrower and the Required Lenders, (b) receipt by the Agent of the amendment fee provided for in Section 3 of this Amendment and (c) each of the following, in sufficient number for each of the Lenders, the Co-Agents and the Issuer and in form and substance reasonably satisfactory to the Agent: (i) a copy, certified by the Secretary of the Borrower under date of the Amendment Date, of the resolutions adopted by Owners Committee Action taken by the Owners Committee in accordance with the applicable requirements of the Regulations to authorize the execution and delivery of this Amendment and the carrying out of the provisions hereof and of the Agreement, as amended hereby; (ii) a certificate of a Responsible Officer, dated the Amendment Date, to the effect that on and as of the Amendment Date, after giving effect to this Amendment, (A) the representations and warranties set forth in Article V of the Agreement are true and correct in all material respects (unless made as of a specific date as set forth in that Article) and (B) no Default exists; and (iii) an opinion of the general counsel of the Borrower, dated the Amendment Date, to the effect that this Amendment has been duly authorized by Owners Committee Action and validly executed and delivered by the Borrower. Section 6. Miscellaneous. This Amendment is governed by the terms ------------- and other provisions of Sections 1.02, 1.03, 10.05, 10.07, 10.10 (the first sentence thereof) and 10.12 as if this Amendment were the Agreement. -3- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers all as of the Amendment Date. LYONDELL-CITGO REFINING COMPANY LTD. By:______________________________________________ Name: D. Lyndon James Title: Vice President and Controller THE BANK OF NEW YORK, As Agent, as Issuer and as a Lender By:______________________________________________ Name:_______________________________________ Title:______________________________________ OTHER LENDERS: ABN AMRO BANK N.V. HOUSTON AGENCY By: ABN AMRO North America, Inc., as agent By:______________________________________________ Name:_______________________________________ Title:______________________________________ By:______________________________________________ Name:_______________________________________ Title:______________________________________ -4- THE BANK OF NOVA SCOTIA By:______________________________________________ Name:_______________________________________ Title:______________________________________ BANK POLSKA KASA OPIEKI, S.A. By:_____________________________________________ Name:______________________________________ Title:_____________________________________ BANQUE NATIONALE DE PARIS, HOUSTON AGENCY By:_____________________________________________ Name:______________________________________ Title:_____________________________________ CAISSE NATIONALE DE CREDIT AGRICOLE By:_____________________________________________ Name:______________________________________ Title:_____________________________________ -5- COBANK, ACB By:_____________________________________________ Name:______________________________________ Title:_____________________________________ CREDIT LYONNAIS CAYMAN ISLAND BRANCH By:_____________________________________________ Name:______________________________________ Title:_____________________________________ DG BANK DEUTSCHE GENOSSENSCHAFTSBANK By:_____________________________________________ Name:______________________________________ Title:_____________________________________ THE FIRST NATIONAL BANK OF CHICAGO By:_____________________________________________ Name:______________________________________ Title:_____________________________________ THE INDUSTRIAL BANK OF JAPAN, LTD. By:_____________________________________________ Name:______________________________________ Title:_____________________________________ -6- NATIONSBANK OF TEXAS, N.A. By:_____________________________________________ Name:______________________________________ Title:_____________________________________ THE NIPPON CREDIT BANK, LTD. NEW YORK BRANCH By:_____________________________________________ Name:______________________________________ Title:_____________________________________ PNC BANK, NATIONAL ASSOCIATION By:_____________________________________________ Name:______________________________________ Title:_____________________________________ ROYAL BANK OF CANADA By:_____________________________________________ Name:______________________________________ Title:_____________________________________ -7- SOCIETE GENERALE, SOUTHWEST AGENCY By:_____________________________________________ Name:______________________________________ Title:_____________________________________ THE TOYO TRUST & BANKING CO., LTD. NEW YORK BRANCH By:_____________________________________________ Name:______________________________________ Title:_____________________________________ WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK AND CAYMAN ISLANDS BRANCHES By:_____________________________________________ Name:______________________________________ Title:_____________________________________ By:_____________________________________________ Name:______________________________________ Title:_____________________________________ -8- EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 32 0 369 3 269 716 4,255 2,050 3,071 684 1,177 80 0 0 397 3,071 3,651 3,651 3,300 3,300 174 0 61 116 42 74 0 0 0 74 .92 .92
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