HUNT VALLEY, Md., Nov. 12, 2003 (PRIMEZONE) -- Millennium Chemicals (NYSE:MCH) ("Millennium") today reported a net loss for the third quarter of 2003 of $(28) million or $(0.44) per common share. For the corresponding period of 2002, Millennium reported net income of $5 million or $0.08 per common share. The loss for the 2003 third quarter included the impact of a $15 million pre-tax ($10 million after-tax) special charge associated with the Company's cost reduction program announced in July 2003, which was partly offset by a $2 million after-tax gain on the collection of a note receivable, previously written off. Excluding these items, the third quarter 2003 per share loss was $(0.31) compared to income of $0.08 in the third quarter of 2002.(see Note 1)
Operating income from majority-owned businesses, excluding the special charge, was $10 million in the third quarter of 2003 compared to $30 million in the third quarter of 2002 and $25 million in the second quarter of 2003. The decline in operating income was due primarily to lower profits in the Titanium Dioxide segment, as discussed under "Titanium Dioxide," below. Sales from all majority-owned businesses were $431 million in the third quarter of 2003 compared to $411 million in the third quarter of 2002 and $416 million in the second quarter of 2003.
Robert E. Lee, President and CEO, said, "Although we are very disappointed with the current financial performance, during the third quarter we progressed the implementation of the initiatives I outlined in August. We continue to focus on our balance sheet by actively managing our production rates to insure the proper balance between inventory and customer demand. In addition, our focus on tight cost management and prudent cash utilization continues. In our Titanium Dioxide business, we have begun to recover market share, in large part due to the success of new products that we have introduced for the paint, plastics and paper markets. Those new products, which accounted for approximately 40% of our total titanium dioxide sales volume during the third quarter, offer improved hiding power, dispersion and durability performance."
Millennium also announced that it had today filed with the Securities and Exchange Commission ("SEC") an amendment of its Annual Report on Form 10-K for the year 2002 to reflect restatements of its financial results for the five years then ended. The restatements were required as a result of errors discovered earlier this year, including those announced on August 6, 2003. Millennium also expects to file with the SEC on November 14, 2003 an amendment of its Quarterly Report on Form 10-Q for the three months ended March 31, 2003 to restate its results for that period as a result of those errors. The Company's Quarterly Report on Form 10-Q for the period ended June 30, 2003, as filed with the Securities and Exchange Commission on August 19, 2003, included restated financial statements that reflected adjustments for these errors.
(Note 1) See Table V below for a quantification of the special items and a reconciliation between per share results as adjusted for these special items and per share results determined in accordance with accounting principles generally accepted in the United States (“GAAP”).
Titanium Dioxide
The Titanium Dioxide (TiO2) segment reported third quarter 2003 operating income of $7 million compared to $21 million in the third quarter of 2002 and $23 million in the second quarter of 2003. The sequential decline from the second quarter of 2003 to the third quarter of 2003 was due to higher manufacturing costs per metric ton due to planned slowdowns and unscheduled operating disruptions and lower global average TiO2 pricing.
In local currencies, average third quarter prices decreased 2 percent from the second quarter of 2003 and increased 4 percent from the third quarter of 2002. In US dollar terms, the third quarter worldwide average selling prices decreased 2 percent from the second quarter of 2003 and increased 8 percent from the third quarter of 2002.
Third quarter 2003 TiO2 sales volume was 149,000 metric tons. Sales volume was up 2 percent compared to the second quarter of 2003 and was down 8 percent from the third quarter of 2002.
Third quarter 2003 manufacturing costs per metric ton were up 13 percent from third quarter 2002 and up 7 percent from second quarter 2003 primarily due to unfavorable exchange rates, higher energy costs, and scheduled and unscheduled outages. Unscheduled operating disruptions resulted from the European heat wave, the power blackout in the Northeast region of the US and Hurricane Isabel.
The third quarter 2003 TiO2 operating rate was 84 percent of annual nameplate capacity of 690,000 metric tons compared to 90 percent in the third quarter of 2002 and 96 percent in the second quarter of 2003.
Outlook
Operating income in the TiO2 business segment is expected to be slightly down in the fourth quarter of 2003 compared to the third quarter of 2003. Production rates will continue to be low as required for normal seasonally slow demand conditions and to manage inventory levels. Pricing as measured in average US dollars per metric ton is expected to remain relatively flat.
Acetyls
The Acetyls segment reported third quarter operating income of $6 million compared to $8 million in the third quarter of 2002 and $5 million in the second quarter of 2003. The high cost inventory which flowed from the second quarter into the third quarter was offset by lower feedstock costs, higher sales volume and the return to normal operating rates in the acetic acid plant.
In the aggregate, the weighted-average US dollar price for vinyl acetate monomer ("VAM") and acetic acid in the third quarter of 2003 increased 16 percent compared to the third quarter of 2002 and decreased 7 percent from the second quarter of 2003. Aggregate volume for VAM and acetic acid in the third quarter of 2003 increased 10 percent from the third quarter of 2002 and increased 23 percent from the second quarter of 2003.
Outlook
Operating profit in the Acetyls business segment for the fourth quarter of 2003 is expected to be higher than the third quarter of 2003, reflecting lower average opening inventory cost and stable market conditions.
Specialty Chemicals
The Specialty Chemicals segment reported a third quarter 2003 operating loss of $(1) million compared to an operating profit of $2 million in both the third quarter of 2002 and the second quarter of 2003. Sales volume increased 3 percent from the third quarter of 2002 and dropped 10 percent from the second quarter of 2003. Average selling prices decreased 7 percent compared to the third quarter of 2002 and increased 6 percent from the second quarter of 2003. The price of crude sulfate turpentine ("CST"), the key raw material, increased 60 percent from last year's third quarter and 23 percent from the second quarter of 2003.
Outlook
Results for the Specialty Chemicals business segment in the fourth quarter of 2003 are expected to be similar to the third quarter of 2003. Fragrance and Flavor chemical markets remain competitive, with continued price pressure in most markets. CST supply and demand balance remains tight and higher-cost alternative feedstock will be used as required. Supply chain improvements are reducing inventory levels, which is expected to result in lower fourth quarter operating rates.
Equistar
Millennium's 29.5 percent stake in Equistar generated a post-interest equity loss on investment of $(12) million in the third quarter of 2003 compared to earnings of $6 million in the third quarter of 2002 and a post-interest equity loss of $(14) million in the second quarter of 2003.
On a 100% basis Equistar had a net loss of $(40) million in the third quarter of 2003. This is slightly more than the second quarter 2003 loss. The third quarter 2003 results include an $11 million write-off relating to a research and development facility and the second quarter 2003 included a $19 million financing charge.
Although the financial results in the third quarter of 2003 were approximately equal to the second quarter of 2003 results, the underlying business drivers were quite different. The second quarter of 2003 was characterized by weak sales volume coupled with strong product margins from Equistar's olefins plants that produce ethylene from liquid based raw materials. In contrast, the third quarter of 2003 was characterized by higher sales volume and lower product margins.
Compared to the second quarter of 2003, Equistar benefited from increased sales volume of ethylene and derivative products in the third quarter of 2003, which were approximately 435 million pounds (21 percent) higher than in the second quarter of 2003. This volume improvement was generally offset by lower third quarter 2003 product margins. Product prices tended to erode early in the third quarter; however, this was reversed partially as some product price increases began to take hold in September. Chemical Marketing Associates, Inc. (CMAI) reported that the cost of producing ethylene from liquid raw materials increased during the third quarter 2003 by approximately 4 cents per pound versus the second quarter of 2003.
Millennium's share of Equistar's underlying third quarter 2003 sales was $484 million and operating income was $3 million. Equistar did not distribute any cash to Millennium in the third quarter of 2003.
Outlook
To date in the fourth quarter 2003 sales volume for the key ethylene products are keeping equivalent pace with late third quarter 2003 rates. Pricing initiatives in polyethylene and several of the key derivatives have been successful and ethylene production from liquid raw materials continues to have an advantage versus natural gas based production economics.
At the beginning of October, Equistar began a seven week maintenance turnaround at one of its large liquid raw material based ethylene plants. To compensate for this activity Equistar will produce a greater than normal percentage of its ethylene from natural gas based raw materials. Based on current costs and co-product prices, this activity is estimated to negatively impact quarterly earnings by $5 to $10 million. The cash expenditures for the turnaround activities will be approximately $50 million.
There are signs of improvement in the global economy; however, they are not yet sufficient to provide a clear trend line. In the near term, any improvements are being overshadowed by volatility in raw material and energy prices.
Cost Reduction Program
During the third quarter of 2003, Millennium incurred a pre-tax charge of $15 million related to its cost reduction and office closure program, which was announced on July 21, 2003. Millennium currently expects to incur $3 to $5 million of additional costs with respect to this program during the next several quarters.
Debt and Capital Spending
Net debt (total debt less cash) at September 30, 2003, totaled $1.205 billion compared to $1.196 billion at June 30, 2003. Net interest expense was $23 million in the third quarter of 2003 compared to $23 million in the second quarter of 2003.
The Company was not in compliance with certain financial covenants under its bank Credit Agreement as of September 30, 2003. As a result, the Company obtained waivers to the provisions of these financial covenants, which will expire on December 31, 2003. The Company currently is seeking an amendment to the Credit Agreement to revise these financial covenants.
Based on its discussions with the agent banks and the lending banks under the Credit Agreement, the Company expects that it will be able to obtain this amendment before December 31, 2003. The effectiveness of this amendment will be contingent upon the Company obtaining at least $110 million of long-term financing prior to the expiration of the current waiver. The funds so obtained are expected to be used to repay secured term loans of approximately $47 million issued under the Credit Agreement and to enable the Company to terminate its European accounts receivable securitization program of approximately $60 million. The Company expects that it will be able to obtain the requisite financing on or before December 31, 2003, at which time the amendment to the Credit Agreement would become effective.
For the first nine months of 2003, capital spending was $29 million, compared to $43 million during the corresponding period in 2002. Depreciation and amortization was $83 million for Millennium's majority-owned businesses in the first nine months of 2003. Full year capital spending is expected to be approximately $50 million in 2003, while depreciation and amortization should total approximately $110 million.
Millennium Chemicals (website: www.millenniumchem.com) is a major international chemicals company, with leading market positions in a broad range of commodity, industrial, performance and specialty chemicals.
Millennium Chemicals is:
-- The second-largest producer of TiO2 in the world, the largest
merchant seller of titanium tetrachloride and a major producer of
zirconia, silica gel and cadmium/based pigments;
-- The second-largest producer of acetic acid and vinyl acetate
monomer in North America;
-- A leading producer of terpene-based fragrance and flavor
chemicals; and,
-- Through its 29.5% interest in Equistar Chemicals, LP, a partner
in the second-largest producer of ethylene and third-largest
producer of polyethylene in North America, and a leading
producer of performance polymers, oxygenated chemicals,
aromatics and specialty petrochemicals.
The statements in this press release that are not historical facts are, or may be deemed to be, "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Some of these statements can be identified by the use of forward-looking terminology such as "prospects," "outlook," "believes," "estimates," "intends," "may," "will," "should," "anticipates," "expects" or "plans," or the negative or other variation of these or similar words, or by discussion of trends and conditions, strategy or risks and uncertainties. In addition, from time to time, Millennium or its representatives have made or may make forward-looking statements in filings that Millennium makes with the Securities and Exchange Commission, in press releases or in written or oral statements made by or with the approval of one of its authorized executive officers. These forward-looking statements are only present expectations reflecting current assumptions about future events. Actual events or results may differ materially. Factors that could cause such a difference include: the cyclicality and volatility of the chemical industries in which Millennium and Equistar Chemicals, LP ("Equistar") operate, particularly fluctuations in the demand for ethylene, its derivatives and acetyls and the sensitivity of these industries to capacity additions; general economic conditions in the geographic regions where Millennium and Equistar generate sales, and the impact of government regulation and other external factors, in particular the events in the Middle East; the ability of Equistar to distribute cash to its partners and uncertainties arising from Millennium's minority interest in Equistar, and Millennium's contractual commitments regarding possible future capital contributions to Equistar; changes in the cost of energy and raw materials, particularly natural gas and ethylene, and Millennium's and Equistar's ability to pass on cost increases to their respective customers; Millennium's substantial indebtedness and its impact on Millennium's cash flow, business operations and ability to obtain additional financing -- failure to comply with the covenants and other restrictions in Millennium's debt instruments would lead to additional restrictions and costs, or an acceleration of Millennium's indebtedness; limitations on credit extended to Millennium and demands from creditors and suppliers for additional credit restrictions or security; the ability of raw material suppliers to fulfill their commitments; the ability of Millennium and Equistar to achieve their productivity improvement, cost reduction and working capital targets, and the occurrence of operating problems at manufacturing facilities of Millennium or Equistar; risks of doing business outside the United States, including currency fluctuations; the cost of compliance with the extensive environmental regulations affecting the chemical industry and exposure to liabilities for environmental remediation and other environmental matters relating to Millennium's and Equistar's current and former operations; pricing and other competitive pressures; and legal proceedings relating to present and former operations (including proceedings based on alleged exposure to lead-based paints and lead pigments, asbestos and other materials), ongoing and future tax audits, pension and retiree medical costs, and other claims. A further description of these risks, uncertainties and other matters can be found in Exhibit 99.1 to Millennium's Quarterly Report on Form 10-Q for the period ended June 30, 2003. Millennium disclaims any obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.
Listen in live to Millennium's 2003 third quarter earnings
and outlook discussion on Wednesday, November 12, 2003 at 1:00 p.m. EST
via webcast at http://www.millenniumchem.com and
click on the Investor Relations icon.
The teleconference number is 973-582-2703.
Replay will be available until November 19, 2003 at 973-341-3080,
reservation no. 4300414.
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Millions, except per share data)
TABLE I
Three months ended Nine months ended
September 30, September 30,
----------------- -----------------
2003 2002 2003 2002
------- ------- ------- -------
(Restated) (Restated)
Net sales $ 431 $ 411 $ 1,262 $ 1,167
Operating costs and expenses
Cost of products sold 362 317 1,019 945
Selling, development and
administrative 31 38 98 89
Depreciation and amortization 28 26 83 76
Reorganization and office
closure costs 15 -- 16 --
------- ------- ------- -------
Operating (loss) income (5) 30 46 57
Net interest expense (23) (22) (68) (64)
(Loss) earnings on Equistar
investment
-operating income (loss) 3 21 (14) 6
- interest (15) (15) (45) (45)
- loss on sale of assets -- -- (4) --
- debt prepayment cost -- -- (6) --
Net other income (expense) 2 (1) 1 (2)
------- ------- ------- -------
(Loss) income before income
taxes, minority interest and
cumulative effect of
accounting change (38) 13 (90) (48)
Benefit from (provision for)
income taxes 11 (7) 32 24
------- ------- ------- -------
(Loss) income before minority
interest and cumulative effect
of accounting change (27) 6 (58) (24)
Minority interest (1) (1) (5) (2)
------- ------- ------- -------
(Loss) income before cumulative
effect of accounting change (28) 5 (63) (26)
Cumulative effect of
accounting change -- -- (1) (305)
------- ------- ------- -------
Net (loss) income $ (28) $ 5 $ (64) $ (331)
======= ======= ======= =======
Basic and diluted EPS ($/share)
- before accounting change $ (0.44) $ 0.08 $ (0.98) $ (0.41)
- from accounting change -- -- (0.02) (4.80)
------- ------- ------- -------
- after accounting change $ (0.44) $ 0.08 $ (1.00) $ (5.21)
======= ======= ======= =======
Weighted-average number
of shares used to
compute basic EPS 64.051 63.618 63.960 63.547
Weighted-average number
of shares used to
compute diluted EPS 64.051 63.938 63.960 63.547
MILLENNIUM CHEMICALS INC.
SEGMENT INFORMATION
(Millions)
TABLE II
2002 2003
---------------------------------- --------------------
1Q* 2Q* 3Q* 4Q* FY* 1Q* 2Q 3Q
----- ----- ----- ----- ----- ----- ----- -----
NET SALES
Titanium
Dioxide 262 300 296 271 1,129 288 293 293
Acetyls 65 83 91 95 334 102 99 115
Specialty
Chemicals 24 22 24 21 91 25 24 23
----- ----- ----- ----- ----- ----- ----- -----
Total 351 405 411 387 1,554 415 416 431
OPERATING
INCOME (1)
Titanium
Dioxide 10 15 21 17 63 21 23 7
Acetyls (8) 3 8 8 11 7 5 6
Specialty
Chemicals 4 2 2 (2) 6 2 2 (1)
Other 1 -- (1) -- -- (3) (6) (17)
----- ----- ----- ----- ----- ----- ----- -----
Total 7 20 30 23 80 27 24 (5)
DEPRECIATION
AND
AMORTIZATION
Titanium
Dioxide 20 20 21 22 83 22 23 24
Acetyls 3 3 3 2 11 3 3 2
Specialty
Chemicals 2 2 2 2 8 2 2 2
----- ----- ----- ----- ----- ----- ----- -----
Total 25 25 26 26 102 27 28 28
CAPITAL
SPENDING
Titanium
Dioxide 12 11 14 24 61 7 10 9
Acetyls -- -- 1 -- 1 -- -- 1
Specialty
Chemicals 1 1 3 4 9 1 1 --
----- ----- ----- ----- ----- ----- ----- -----
Total 13 12 18 28 71 8 11 10
--------------------
* Restated
(1) The Other segment includes $1 million of costs in the second
quarter of 2003, $15 million of costs in the third quarter of
2003 associated with the Company's cost reduction program, and a
$5 million benefit in the second quarter of 2002 from the
reduction of reserves due to favorable resolution of
environmental claims related to predecessor businesses reserved
for in prior years.
MILLENNIUM CHEMICALS INC.
CONSOLIDATED BALANCE SHEETS
(Millions)
Table III
September 30, December 31,
2003 2002
------- -------
(Restated)
ASSETS
Current assets
Cash and cash equivalents $ 158 $ 125
Trade receivables, net 238 210
Inventories 427 406
Other current assets 66 78
------- -------
Total current assets 889 819
Property, plant and equipment, net 849 862
Investment in Equistar 494 563
Other assets 48 46
Goodwill 106 106
------- -------
Total assets $ 2,386 $ 2,396
======= =======
LIABILITIES AND
SHAREHOLDERS' DEFICIT
Current liabilities
Notes payable $ -- $ 4
Other short-term borrowings -- 14
Current maturities of long-term debt 99 12
Trade accounts payable 200 274
Income taxes payable 21 44
Accrued expenses and other
liabilities 154 127
------- -------
Total current liabilities 474 475
Long-term debt 1,264 1,212
Deferred income taxes 290 337
Other liabilities 380 388
------- -------
Total liabilities 2,408 2,412
Minority interest 28 19
Shareholders' deficit (50) (35)
------- -------
Total liabilities and
shareholders' deficit $ 2,386 $ 2,396
======= =======
MILLENNIUM CHEMICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions)
TABLE IV
Nine months ended
September 30,
------------------
2003 2002
----- -----
(Restated)
Cash flows from operating activities:
Net loss $ (64) $(331)
Adjustments to reconcile net loss
to net cash (used in) provided by
operating activities:
Cumulative effect of accounting change 1 305
Depreciation and amortization 83 76
Deferred income tax benefit (43) (26)
Loss on Equistar investment 69 39
Net change in trade working capital (104) (9)
Minority interest and other 5 6
Net change in other assets and liabilities 6 (8)
----- -----
Cash (used in) provided by operating activities (47) 52
----- -----
Cash flows from investing activities:
Capital expenditures (29) (43)
----- -----
Cash flows from financing activities:
Dividends to shareholders (17) (26)
Net proceeds of borrowings 117 24
----- -----
Cash provided by (used in) financing activities 100 (2)
----- -----
Effect of exchange rate changes on cash 9 (2)
----- -----
Increase in cash and cash equivalents 33 5
Cash and cash equivalents at beginning of year 125 114
----- -----
Cash and cash equivalents at end of period $ 158 $ 119
===== =====
MILLENNIUM CHEMICALS INC.
EARNINGS AND EPS RECONCILIATION
(MILLIONS, EXCEPT PER SHARE DATA)
Table V
Three months ended
September 30,
2003 2002
---------------- ----------------
Net Loss EPS Net Loss EPS
----- ------ ----- ------
(Restated)
--------------
Reported GAAP $ (28) $(0.44) $ 5 $ 0.08
Reorganization and
office closure costs 10 0.16 -- --
Collection of note receivable (2) (0.03) -- --
----- ------ ----- ------
Adjusted GAAP $ (20) $(0.31) $ 5 $ 0.08
===== ====== ===== ======
Nine months ended
September 30,
2003 2002
---------------- ----------------
Net Loss EPS Net Loss EPS
----- ------ ----- ------
(Restated)
--------------
Reported GAAP $ (64) $(1.00) $(331) $(5.21)
Cumulative effect of
accounting change:
Goodwill write-off -- -- 305 4.80
Asset retirement obligations 1 0.02 -- --
Reorganization and
office closure costs 10 0.16 -- --
Legacy claims -- -- (3) (0.05)
Collection of note receivable (2) (0.03) -- --
Company's share of Equistar's:
Loss on sale of assets 3 0.04 -- --
Debt prepayment cost 4 0.06 -- --
----- ------ ----- ------
Adjusted GAAP $ (48) $(0.75) $ (29) $(0.46)
===== ====== ===== ======