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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2002
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file no. 333-59054-01
Chevron Phillips Chemical Company LLC
(Exact name of the Registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
73-1590261 (I.R.S. Employer Identification Number) |
10001 Six Pines Drive
The Woodlands, TX 77380-1498
(Address of principal executive offices, including zip code)
(832) 813-4100
(Registrant's telephone number, including area code)
Chevron Tower
1301 McKinney Street
Houston, TX 77010-3030
(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 ý No o
Chevron Phillips Chemical Company LLC
Index
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Chevron Phillips Chemical Company LLC
Condensed Consolidated Statement of Operations
(Unaudited)
| |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Millions |
|||||||||||||||
| 2002 |
2001 |
2002 |
2001 |
||||||||||||
| Revenue | |||||||||||||||
| Net sales | $ | 1,387 | $ | 1,521 | $ | 2,534 | $ | 3,346 | |||||||
| Equity in income (loss) of affiliates, net | 9 | (3 | ) | 8 | (6 | ) | |||||||||
| Other income | 13 | 147 | 27 | 179 | |||||||||||
| Total revenue | 1,409 | 1,665 | 2,569 | 3,519 | |||||||||||
| Costs and Expenses | |||||||||||||||
| Cost of goods sold | 1,272 | 1,431 | 2,335 | 3,231 | |||||||||||
| Selling, general and administrative | 98 | 161 | 189 | 289 | |||||||||||
| Research and development | 13 | 15 | 24 | 28 | |||||||||||
| Total costs and expenses | 1,383 | 1,607 | 2,548 | 3,548 | |||||||||||
| Income (Loss) Before Interest and Taxes | 26 | 58 | 21 | (29 | ) | ||||||||||
| Interest income | 2 | 2 | 4 | 5 | |||||||||||
| Interest expense | (14 | ) | (28 | ) | (32 | ) | (61 | ) | |||||||
| Income (Loss) Before Taxes | 14 | 32 | (7 | ) | (85 | ) | |||||||||
| Income taxes | (3 | ) | (2 | ) | (4 | ) | (3 | ) | |||||||
| Net Income (Loss) | $ | 11 | $ | 30 | $ | (11 | ) | $ | (88 | ) | |||||
See Notes to Condensed Consolidated Financial Statements.
Chevron Phillips Chemical Company LLC
Condensed Consolidated Balance Sheet
(Unaudited)
| Millions |
June 30, 2002 |
December 31, 2001 |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||
| Current assets | |||||||||
| Cash and cash equivalents | $ | 90 | $ | 111 | |||||
| Accounts receivable, net | 800 | 782 | |||||||
| Inventories | 637 | 638 | |||||||
| Other current assets | 12 | 20 | |||||||
| Total current assets | 1,539 | 1,551 | |||||||
| Property, plant and equipment, net | 3,994 | 3,968 | |||||||
| Investment in and advances to affiliates | 417 | 259 | |||||||
| Other assets and deferred charges | 60 | 82 | |||||||
| Total Assets | $ | 6,010 | $ | 5,860 | |||||
LIABILITIES AND MEMBERS' CAPITAL |
|||||||||
| Current liabilities | |||||||||
| Accounts payable | $ | 509 | $ | 449 | |||||
| Accrued income and other taxes | 36 | 57 | |||||||
| Secured borrowings | 300 | 199 | |||||||
| Other current liabilities | 106 | 115 | |||||||
| Total current liabilities | 951 | 820 | |||||||
| Long-term debt | 1,498 | 1,507 | |||||||
| Other liabilities and deferred credits | 102 | 99 | |||||||
| Total liabilities | 2,551 | 2,426 | |||||||
| Members' capital | 3,458 | 3,450 | |||||||
| Accumulated other comprehensive income (loss) | 1 | (16 | ) | ||||||
| Total Liabilities and Members' Capital | $ | 6,010 | $ | 5,860 | |||||
See Notes to Condensed Consolidated Financial Statements.
Chevron Phillips Chemical Company LLC
Condensed Consolidated Statement of Cash Flows
(Unaudited)
| |
Six months ended June 30, |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Millions |
||||||||||
| 2002 |
2001 |
|||||||||
| Cash Flows From Operating Activities | ||||||||||
| Net loss | $ | (11 | ) | $ | (88 | ) | ||||
| Adjustments to reconcile net loss to net cash flows provided by operating activities | ||||||||||
| Depreciation, amortization and retirements | 129 | 145 | ||||||||
| Undistributed equity in losses (income) of affiliates, net | (1 | ) | 7 | |||||||
| Changes in operating working capital | 17 | (126 | ) | |||||||
| Other operating cash flow activity | 18 | 70 | ||||||||
| Net cash flows provided by operating activities | 152 | 8 | ||||||||
| Cash Flows From Investing Activities | ||||||||||
| Capital and investment expenditures | (176 | ) | (130 | ) | ||||||
| Advances to Qatar Chemical Company Ltd. (Q-Chem) | (125 | ) | — | |||||||
| Decrease in other investments | — | 15 | ||||||||
| Net cash flows used in investing activities | (301 | ) | (115 | ) | ||||||
| Cash Flows From Financing Activities | ||||||||||
| Decrease in commercial paper, net | (501 | ) | (545 | ) | ||||||
| Increase in secured borrowings, net | 101 | 205 | ||||||||
| Decrease in note payable to member, net | — | (50 | ) | |||||||
| Proceeds from the issuance of other debt | 502 | 509 | ||||||||
| Contributions from members | 19 | — | ||||||||
| Post-closing adjustments from (to) members | 7 | (13 | ) | |||||||
| Net cash flows provided by financing activities | 128 | 106 | ||||||||
| Net Decrease in Cash and Cash Equivalents | (21 | ) | (1 | ) | ||||||
| Cash and Cash Equivalents at Beginning of Period | 111 | 156 | ||||||||
| Cash and Cash Equivalents at End of Period | $ | 90 | $ | 155 | ||||||
See Notes to Condensed Consolidated Financial Statements.
Chevron Phillips Chemical Company LLC
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. General Information
The company, through its subsidiaries, manufactures and markets a wide range of petrochemicals and plastics on a worldwide basis, with manufacturing facilities in existence or under construction in the United States, Puerto Rico, Singapore, China, South Korea, Saudi Arabia, Qatar, Mexico and Belgium. Chevron Phillips Chemical Company LLC is owned 50% each by ChevronTexaco Corporation (ChevronTexaco) and Phillips Petroleum Company (Phillips).
The unaudited condensed consolidated financial statements included herein include the accounts of Chevron Phillips Chemical Company LLC and its wholly-owned subsidiaries (collectively, "CPChem"), and should be read in conjunction with the consolidated financial statements included in CPChem's Annual Report on Form 10-K for the year ended December 31, 2001. The financial statements and accompanying Management's Discussion and Analysis of Financial Condition and Results of Operations have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Some information and footnote disclosures required by generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The financial statements include all normal recurring adjustments that CPChem considers necessary for a fair presentation. Certain amounts for prior periods have been reclassified in order to conform to the current reporting presentation.
Note 2. New Accounting Pronouncements
CPChem adopted Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," effective January 1, 2002. Implementation of this standard did not have a material effect on consolidated results of operations, financial position or liquidity.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses the accounting and reporting requirements for legal obligations associated with the retirement of long-lived assets. This standard requires that a liability for an asset retirement obligation, measured at fair value, be recognized in the period in which it is incurred if a reasonable estimate of fair value is determinable. That initial fair value is capitalized as part of the carrying amount of the long-lived asset and subsequently depreciated. The liability is adjusted each year for accretion, with a charge to the statement of operations. SFAS No. 143 will become effective for CPChem beginning January 1, 2003. CPChem is currently reviewing the new standard to determine what impact, if any, implementation of this standard will have on consolidated results of operations and financial position.
Note 3. Comprehensive Income (Loss)
| |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Millions |
|||||||||||||
| 2002 |
2001 |
2002 |
2001 |
||||||||||
| Net income (loss) | $ | 11 | $ | 30 | $ | (11 | ) | $ | (88 | ) | |||
| Foreign currency translation adjustments | 19 | (5 | ) | 17 | (13 | ) | |||||||
| Comprehensive income (loss) | $ | 30 | $ | 25 | $ | 6 | $ | (101 | ) | ||||
Note 4. Business Interruption Insurance Settlement
In June 2001, agreement was reached among Phillips and various insurers to settle the business interruption insurance claim associated with the March 2000 incident at CPChem's (formerly Phillips') Houston Chemical Complex K-Resin® styrene-butadiene copolymer (SBC) plant. After adjusting for previously accrued claims, CPChem recognized $118 million in Other Income as a special item in the second quarter 2001 in connection with the settlement.
Note 5. Investments
CPChem advanced Qatar Chemical Company Ltd. (Q-Chem), a 49% owned equity investment, $125 million during the first six months of 2002 under a subordinated loan agreement. Funds received by Q-Chem under the agreement are used towards the cost of construction and start-up of the Qatar complex. Advances bear interest at market-based rates and, upon completion of the complex, are to be repaid from cash available after the payment of debt obligations on Q-Chem's $750 million senior bank debt, subject to certain financial tests. The loan is subordinate to Q-Chem's senior bank debt.
Summarized financial information for Phillips Sumika Polypropylene Company (Phillips Sumika) and Q-Chem, which are significant equity investments from time to
time as defined by the SEC, and for all other equity investments in the aggregate follows:
| |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Millions |
|||||||||||||
| 2002 |
2001 |
2002 |
2001 |
||||||||||
| Phillips Sumika | |||||||||||||
| Revenues | $ | 56 | $ | 48 | $ | 98 | $ | 98 | |||||
| Loss before income taxes | (6 | ) | (9 | ) | (13 | ) | (21 | ) | |||||
| Net loss | (6 | ) | (9 | ) | (13 | ) | (21 | ) | |||||
Q-Chem |
|||||||||||||
| Revenues | — | — | — | — | |||||||||
| Loss before income taxes | (5 | ) | (1 | ) | (10 | ) | (2 | ) | |||||
| Net loss | (5 | ) | (1 | ) | (10 | ) | (2 | ) | |||||
Other equity investments |
|||||||||||||
| Revenues | 188 | 172 | 336 | 333 | |||||||||
| Income before income taxes | 30 | 6 | 39 | 3 | |||||||||
| Net income | 29 | 4 | 36 | — | |||||||||
Note 6. Debt
Long-term debt, net of applicable debt discounts, as shown on the condensed consolidated balance sheet follows:
| Millions |
June 30, 2002 |
December 31, 2001 |
||||||
|---|---|---|---|---|---|---|---|---|
| Commercial paper | $ | 493 | $ | 1,002 | ||||
| 7% notes due 2011 | 500 | 500 | ||||||
| 53/8% notes due 2007 | 500 | — | ||||||
| Other | 11 | 11 | ||||||
| Subtotal | 1,504 | 1,513 | ||||||
| Unamortized debt discount | (6 | ) | (6 | ) | ||||
| Total | $ | 1,498 | $ | 1,507 | ||||
On June 21, 2002, Chevron Phillips Chemical Company LLC and its wholly-owned subsidiary, Chevron Phillips Chemical Company LP, jointly and severally issued $500 million of senior unsecured 53/8% notes in a private placement. The notes are due in June 2007 and interest is payable semiannually, with the first interest payment due December 15, 2002. The notes contain certain covenants such as limitations on liens, sale/leaseback transactions, sales of assets and business combinations that CPChem does not consider to be restrictive to normal operations. Proceeds from this debt issuance were used to retire a portion of outstanding commercial paper obligations and for general corporate purposes.
In accordance with obligations under the registration rights agreement entered into in connection with the private placement notes, the LLC and the LP filed a joint registration statement on Form S-4 with the SEC on August 6, 2002 to register $500 million of exchange notes. The exchange notes have terms substantially identical to the private placement notes, except that the exchange notes are freely tradeable. As of the date of this report, the registration statement has not been declared effective by the SEC.
In addition to the debt information presented in the preceding table, at June 30, 2002, CPChem had $300 million of borrowings outstanding under a trade receivables securitization agreement. These borrowings are classified as short-term and are secured by $445 million of trade receivables. At December 31, 2001, $199 million of borrowings were outstanding secured by $269 million of receivables. CPChem renewed its trade receivables securitization agreement on May 21, 2002 for an additional 364 days on terms similar to those of the agreement that expired during the month.
CPChem's $700 million 364-day credit facility expired on July 1, 2002 and its $900 million three-year credit facility expires on July 1, 2003. As of the date of this report, CPChem had received commitments from banks totaling $775 million towards an anticipated $800 million of new revolving credit facilities, consisting of a $400 million 364-day credit facility and a $400 million three-year credit facility. These credit facilities, which are expected to be in place by the end of the third quarter of 2002, will be on substantially the same terms as the $700 million and $900 million credit agreements. CPChem will terminate the existing three-year facility upon the closing of the new credit facilities.
Note 7. Termination Benefits
Accrued termination benefits payable totaled $6 million at December 31, 2001 and were paid in the first half of 2002.
Note 8. Contingencies
In the case of all known contingencies, CPChem records an undiscounted liability when the loss is probable and the amount is reasonably estimable. These liabilities are not reduced for potential insurance recoveries. If applicable, undiscounted receivables are recorded for probable insurance or other third-party recoveries. Based on currently available information, CPChem believes it is remote that future costs related to known contingent liabilities will exceed current accruals by an amount that would have a material adverse effect on consolidated results of operations, financial position or liquidity.
As facts concerning contingencies become known, CPChem reassesses its position both with respect to accrued liabilities and other potential exposures. Estimates that are particularly sensitive to future change include legal matters and contingent liabilities for environmental remediation. Estimated future environmental remediation costs are subject to change due to such factors as the unknown magnitude of cleanup costs, prospective changes in laws and regulations, the unknown timing and extent of remedial actions that may be required and the
determination of CPChem's liability in proportion to other responsible parties. Estimated future costs related to legal matters are subject to change as events occur and as additional information becomes available during the administrative and litigation process.
CPChem is a party to a number of legal proceedings pending in various courts or agencies for which, in some instances, no provision has been made. While the final outcome of these proceedings cannot be predicted with certainty, CPChem believes that none of these proceedings, when resolved, will have a material adverse effect on consolidated results of operations, financial position or liquidity.
Note 9. Segment Information
Effective January 1, 2002, CPChem restructured the composition of its operating segments as follows:
Olefins & Polyolefins—This segment gathers, buys, sells and fractionates natural gas liquids, and manufactures and markets olefins products such as ethylene and propylene. This segment also manufactures and markets normal alpha olefins and polyolefin products such as polyethylene, polypropylene and polyethylene pipe.
Aromatics & Styrenics—This segment manufactures and markets aromatics products such as benzene, styrene, paraxylene and cyclohexane. This segment also manufactures and markets polystyrene and SBC sold under the trademark K-Resin®.
Specialty Products—This segment manufactures and markets a variety of specialty products, including organosulfur chemicals and high-performance polyphenylene sulfide polymers and compounds sold under the trademark Ryton™.
Financial information by segment follows. Prior year information has been restated to conform to the current segment reporting presentation.
| Millions |
Olefins & Polyolefins |
Aromatics & Styrenics |
Specialty Products |
Corporate, Other & Eliminations |
Total |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three months ended June 30, 2002 | ||||||||||||||||
| Net sales—external | $ | 809 | $ | 487 | $ | 91 | $ | — | $ | 1,387 | ||||||
| Net sales—inter-segment | 74 | 36 | 1 | (111 | ) | — | ||||||||||
| Income (loss) before interest & taxes | (9 | ) | 32 | 14 | (11 | ) | 26 | |||||||||
Three months ended June 30, 2001 |
||||||||||||||||
| Net sales—external | 961 | 463 | 97 | — | 1,521 | |||||||||||
| Net sales—inter-segment | 56 | 28 | — | (84 | ) | — | ||||||||||
| Income before interest & taxes | 27 | 29 | 9 | (7 | ) | 58 | ||||||||||
Six months ended June 30, 2002 |
||||||||||||||||
| Net sales—external | 1,490 | 868 | 176 | — | 2,534 | |||||||||||
| Net sales—inter-segment | 129 | 58 | 1 | (188 | ) | — | ||||||||||
| Income (loss) before interest & taxes | (9 | ) | 20 | 24 | (14 | ) | 21 | |||||||||
Six months ended June 30, 2001 |
||||||||||||||||
| Net sales—external | 2,165 | 984 | 197 | — | 3,346 | |||||||||||
| Net sales—inter-segment | 117 | 74 | — | (191 | ) | — | ||||||||||
| Income (loss) before interest & taxes | (28 | ) | (8 | ) | 17 | (10 | ) | (29 | ) | |||||||
Total assets—June 30, 2002 |
3,553 |
1,768 |
479 |
210 |
6,010 |
|||||||||||
| Total assets—December 31, 2001 | 3,465 | 1,679 | 467 | 249 | 5,860 | |||||||||||
Note 10. Condensed Consolidating Financial Statements
Condensed consolidating financial statements follow. This information is presented in accordance with SEC rules and regulations as they relate to the outstanding debt jointly and severally issued by Chevron Phillips Chemical Company LLC and Chevron Phillips Chemical Company LP.
The LLC is the non-operating parent holding company. The LP is the primary U.S. operating company. "Other Entities" is principally comprised of foreign operations and the holding companies that have direct ownership of the LP. These consolidating financial statements were prepared using the equity method of accounting for investments.
Chevron Phillips Chemical Company LLC
Condensed Consolidating Statement of Operations
For the three months ended June 30, 2002
(Unaudited)
| Millions |
LLC |
LP |
Other Entities |
Eliminations |
Total |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | ||||||||||||||||||
| Net sales | $ | — | $ | 1,249 | $ | 207 | $ | (69 | ) | $ | 1,387 | |||||||
| Equity in income (loss) of affiliates, net | 25 | (2 | ) | 1 | (15 | ) | 9 | |||||||||||
| Other income | — | 19 | 30 | (36 | ) | 13 | ||||||||||||
| Total revenue | 25 | 1,266 | 238 | (120 | ) | 1,409 | ||||||||||||
| Costs and Expenses | ||||||||||||||||||
| Cost of goods sold | — | 1,149 | 190 | (67 | ) | 1,272 | ||||||||||||
| Selling, general and administrative | — | 117 | 19 | (38 | ) | 98 | ||||||||||||
| Research and development | — | 13 | — | — | 13 | |||||||||||||
| Total costs and expenses | — | 1,279 | 209 | (105 | ) | 1,383 | ||||||||||||
| Income (Loss) Before Interest and Taxes | 25 | (13 | ) | 29 | (15 | ) | 26 | |||||||||||
| Interest income | — | 1 | 1 | — | 2 | |||||||||||||
| Interest expense | (14 | ) | — | — | — | (14 | ) | |||||||||||
| Income (Loss) Before Taxes | 11 | (12 | ) | 30 | (15 | ) | 14 | |||||||||||
| Income taxes | — | — | (3 | ) | — | (3 | ) | |||||||||||
| Net Income (Loss) | $ | 11 | $ | (12 | ) | $ | 27 | $ | (15 | ) | $ | 11 | ||||||
Note 10. Condensed Consolidating Financial Statements (Continued)
Chevron Phillips Chemical Company LLC
Condensed Consolidating Statement of Operations
For the three months ended June 30, 2001
(Unaudited)
| Millions |
LLC |
LP |
Other Entities |
Eliminations |
Total |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | ||||||||||||||||||
| Net sales | $ | — | $ | 1,465 | $ | 305 | $ | (249 | ) | $ | 1,521 | |||||||
| Equity in income (loss) of affiliates, net | 57 | (4 | ) | 22 | (78 | ) | (3 | ) | ||||||||||
| Other income | — | 140 | 24 | (17 | ) | 147 | ||||||||||||
| Total revenue | 57 | 1,601 | 351 | (344 | ) | 1,665 | ||||||||||||
| Costs and Expenses | ||||||||||||||||||
| Cost of goods sold | — | 1,423 | 257 | (249 | ) | 1,431 | ||||||||||||
| Selling, general and administrative | — | 142 | 36 | (17 | ) | 161 | ||||||||||||
| Research and development | — | 15 | — | — | 15 | |||||||||||||
| Total costs and expenses | — | 1,580 | 293 | (266 | ) | 1,607 | ||||||||||||
| Income Before Interest and Taxes | 57 | 21 | 58 | (78 | ) | 58 | ||||||||||||
| Interest income | — | 1 | 1 | — | 2 | |||||||||||||
| Interest expense | (27 | ) | (1 | ) | — | — | (28 | ) | ||||||||||
| Income Before Taxes | 30 | 21 | 59 | (78 | ) | 32 | ||||||||||||
| Income taxes | — | — | (2 | ) | — | (2 | ) | |||||||||||
| Net Income | $ | 30 | $ | 21 | $ | 57 | $ | (78 | ) | $ | 30 | |||||||
Note 10. Condensed Consolidating Financial Statements (Continued)
Chevron Phillips Chemical Company LLC
Condensed Consolidating Statement of Operations
For the six months ended June 30, 2002
(Unaudited)
| Millions |
LLC |
LP |
Other Entities |
Eliminations |
Total |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | ||||||||||||||||||
| Net sales | $ | — | $ | 2,271 | $ | 390 | $ | (127 | ) | $ | 2,534 | |||||||
| Equity in income (loss) of affiliates, net | 20 | (17 | ) | (13 | ) | 18 | 8 | |||||||||||
| Other income | — | 49 | 53 | (75 | ) | 27 | ||||||||||||
| Total revenue | 20 | 2,303 | 430 | (184 | ) | 2,569 | ||||||||||||
| Costs and Expenses | ||||||||||||||||||
| Cost of goods sold | — | 2,095 | 364 | (124 | ) | 2,335 | ||||||||||||
| Selling, general and administrative | — | 215 | 52 | (78 | ) | 189 | ||||||||||||
| Research and development | — | 24 | — | — | 24 | |||||||||||||
| Total costs and expenses | — | 2,334 | 416 | (202 | ) | 2,548 | ||||||||||||
| Income (Loss) Before Interest and Taxes | 20 | (31 | ) | 14 | 18 | 21 | ||||||||||||
| Interest income | — | 2 | 2 | — | 4 | |||||||||||||
| Interest expense | (31 | ) | — | (1 | ) | — | (32 | ) | ||||||||||
| Income (Loss) Before Taxes | (11 | ) | (29 | ) | 15 | 18 | (7 | ) | ||||||||||
| Income taxes | — | — | (4 | ) | — | (4 | ) | |||||||||||
| Net Income (Loss) | $ | (11 | ) | $ | (29 | ) | $ | 11 | $ | 18 | $ | (11 | ) | |||||
Note 10. Condensed Consolidating Financial Statements (Continued)
Chevron Phillips Chemical Company LLC
Condensed Consolidating Statement of Operations
For the six months ended June 30, 2001
(Unaudited)
| Millions |
LLC |
LP |
Other Entities |
Eliminations |
Total |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue | ||||||||||||||||||
| Net sales | $ | — | $ | 3,313 | $ | 726 | $ | (693 | ) | $ | 3,346 | |||||||
| Equity in loss of affiliates, net | (29 | ) | (11 | ) | (88 | ) | 122 | (6 | ) | |||||||||
| Other income | — | 167 | 39 | (27 | ) | 179 | ||||||||||||
| Total revenue | (29 | ) | 3,469 | 677 | (598 | ) | 3,519 | |||||||||||
| Costs and Expenses | ||||||||||||||||||
| Cost of goods sold | — | 3,274 | 650 | (693 | ) | 3,231 | ||||||||||||
| Selling, general and administrative | — | 261 | 55 | (27 | ) | 289 | ||||||||||||
| Research and development | — | 28 | — | — | 28 | |||||||||||||
| Total costs and expenses | — | 3,563 | 705 | (720 | ) | 3,548 | ||||||||||||
| Loss Before Interest and Taxes | (29 | ) | (94 | ) | (28 | ) | 122 | (29 | ) | |||||||||
| Interest income | — | 2 | 3 | — | 5 | |||||||||||||
| Interest expense | (59 | ) | (1 | ) | (1 | ) | — | (61 | ) | |||||||||
| Loss Before Taxes | (88 | ) | (93 | ) | (26 | ) | 122 | (85 | ) | |||||||||
| Income taxes | — | — | (3 | ) | — | (3 | ) | |||||||||||
| Net Loss | $ | (88 | ) | $ | (93 | ) | $ | (29 | ) | $ | 122 | $ | (88 | ) | ||||
Note 10. Condensed Consolidating Financial Statements (Continued)
Chevron Phillips Chemical Company LLC
Condensed Consolidating Balance Sheet
June 30, 2002
(Unaudited)
| Millions |
LLC |
LP |
Other Entities |
Eliminations |
Total |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Current assets | |||||||||||||||||
| Cash and cash equivalents | $ | 4 | $ | 50 | $ | 36 | $ | — | $ | 90 | |||||||
| Accounts receivable, net | 35 | 994 | 692 | (921 | ) | 800 | |||||||||||
| Inventories | — | 531 | 106 | — | 637 | ||||||||||||
| Other current assets | 1 | 6 | 5 | — | 12 | ||||||||||||
| Total current assets | 40 | 1,581 | 839 | (921 | ) | 1,539 | |||||||||||
| Property, plant and equipment, net | — | 3,707 | 287 | — | 3,994 | ||||||||||||
| Investment in and advances to affiliates | 5,546 | 88 | 5,032 | (10,249 | ) | 417 | |||||||||||
| Other assets and deferred charges | 6 | 41 | 13 | — | 60 | ||||||||||||
| Total Assets | $ | 5,592 | $ | 5,417 | $ | 6,171 | $ | (11,170 | ) | $ | 6,010 | ||||||
| Current liabilities | |||||||||||||||||
| Accounts payable | $ | 636 | $ | 544 | $ | 250 | $ | (921 | ) | $ | 509 | ||||||
| Secured borrowings | — | — | 300 | — | 300 | ||||||||||||
| Other current liabilities | 11 | 110 | 21 | — | 142 | ||||||||||||
| Total current liabilities | 647 | 654 | 571 | (921 | ) | 951 | |||||||||||
| Long-term debt | 1,487 | 11 | — | — | 1,498 | ||||||||||||
| Other liabilities and deferred credits | — | 89 | 13 | — | 102 | ||||||||||||
| Total liabilities | 2,134 | 754 | 584 | (921 | ) | 2,551 | |||||||||||
| Members' capital | 3,458 | 4,663 | 5,586 | (10,249 | ) | 3,458 | |||||||||||
| Accumulated other comprehensive income | — | — | 1 | — | 1 | ||||||||||||
| Total Liabilities and Members' Capital | $ | 5,592 | $ | 5,417 | $ | 6,171 | $ | (11,170 | ) | $ | 6,010 | ||||||
Note 10. Condensed Consolidating Financial Statements (Continued)
Chevron Phillips Chemical Company LLC
Condensed Consolidating Balance Sheet
December 31, 2001
| Millions |
LLC |
LP |
Other Entities |
Eliminations |
Total |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Current assets | ||||||||||||||||||
| Cash and cash equivalents | $ | — | $ | 71 | $ | 40 | $ | — | $ | 111 | ||||||||
| Accounts receivable, net | 37 | 944 | 543 | (742 | ) | 782 | ||||||||||||
| Inventories | — | 541 | 97 | — | 638 | |||||||||||||
| Other current assets | — | 17 | 3 | — | 20 | |||||||||||||
| Total current assets | 37 | 1,573 | 683 | (742 | ) | 1,551 | ||||||||||||
| Property, plant and equipment, net | — | 3,681 | 287 | — | 3,968 | |||||||||||||
| Investment in and advances to affiliates | 5,430 | 86 | 4,916 | (10,173 | ) | 259 | ||||||||||||
| Other assets and deferred charges | 5 | 60 | 17 | — | 82 | |||||||||||||
| Total Assets | $ | 5,472 | $ | 5,400 | $ | 5,903 | $ | (10,915 | ) | $ | 5,860 | |||||||
| Current liabilities | ||||||||||||||||||
| Accounts and notes payable | $ | 516 | $ | 472 | $ | 203 | $ | (742 | ) | $ | 449 | |||||||
| Secured borrowings | — | — | 199 | — | 199 | |||||||||||||
| Other current liabilities | 10 | 142 | 20 | — | 172 | |||||||||||||
| Total current liabilities | 526 | 614 | 422 | (742 | ) | 820 | ||||||||||||
| Long-term debt | 1,496 | 11 | — | — | 1,507 | |||||||||||||
| Other liabilities and deferred credits | — | 87 | 12 | — | 99 | |||||||||||||
| Total liabilities | 2,022 | 712 | 434 | (742 | ) | 2,426 | ||||||||||||
| Members' capital | 3,450 | 4,688 | 5,485 | (10,173 | ) | 3,450 | ||||||||||||
| Accumulated other comprehensive loss | — | — | (16 | ) | — | (16 | ) | |||||||||||
| Total Liabilities and Members' Capital | $ | 5,472 | $ | 5,400 | $ | 5,903 | $ | (10,915 | ) | $ | 5,860 | |||||||
Note 10. Condensed Consolidating Financial Statements (Continued)
Chevron Phillips Chemical Company LLC
Condensed Consolidating Statement of Cash Flows
For the six months ended June 30, 2002
(Unaudited)
| Millions |
LLC |
LP |
Other Entities |
Eliminations |
Total |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash Flows From Operating Activities | |||||||||||||||||||
| Net income (loss) | $ | (11 | ) | $ | (29 | ) | $ | 11 | $ | 18 | $ | (11 | ) | ||||||
| Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities | |||||||||||||||||||
| Depreciation, amortization and retirements | — | 121 | 8 | — | 129 | ||||||||||||||
| Undistributed equity in loss (income) of affiliates, net | 13 | 23 | 20 | (57 | ) | (1 | ) | ||||||||||||
| Changes in operating working capital | 114 | 11 | (108 | ) | — | 17 | |||||||||||||
| Other operating cash flow activity | (6 | ) | 25 | (1 | ) | — | 18 | ||||||||||||
| Net cash flows provided by (used in) operating activities | 110 | 151 | (70 | ) | (39 | ) | 152 | ||||||||||||
| Cash Flows From Investing Activities | |||||||||||||||||||
| Capital and investment expenditures | — | (171 | ) | (5 | ) | — | (176 | ) | |||||||||||
| Advances to Qatar Chemical Company Ltd. (Q-Chem) | — | — | (125 | ) | — | (125 | ) | ||||||||||||
| Increase in other investments | (129 | ) | — | — | 129 | — | |||||||||||||
| Net cash flows used in investing activities | (129 | ) | (171 | ) | (130 | ) | 129 | (301 | ) | ||||||||||
| Cash Flows From Financing Activities | |||||||||||||||||||
| Decrease in commercial paper, net | (501 | ) | — | — | — | (501 | ) | ||||||||||||
| Increase in secured borrowings, net | — | — | 101 | — | 101 | ||||||||||||||
| Increase (decrease) in other debt | 498 | (1 | ) | 5 | — | 502 | |||||||||||||
| Contributions from members | 19 | — | 129 | (129 | ) | 19 | |||||||||||||
| Distributions to members | — | — | (39 | ) | 39 | — | |||||||||||||
| Post-closing adjustments from members | 7 | — | — | — | 7 | ||||||||||||||
| Net cash flows provided by (used in) financing activities | 23 | (1 | ) | 196 | (90 | ) | 128 | ||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 4 | (21 | ) | (4 | ) | — | (21 | ) | |||||||||||
| Cash and Cash Equivalents at Beginning of Period | — | 71 | 40 | — | 111 | ||||||||||||||
| Cash and Cash Equivalents at End of Period | $ | 4 | $ | 50 | $ | 36 | $ | — | $ | 90 | |||||||||
Note 10. Condensed Consolidating Financial Statements (Continued)
Chevron Phillips Chemical Company LLC
Condensed Consolidating Statement of Cash Flows
For the six months ended June 30, 2001
(Unaudited)
| Millions |
LLC |
LP |
Other Entities |
Eliminations |
Total |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash Flows From Operating Activities | |||||||||||||||||||
| Net loss | $ | (88 | ) | $ | (93 | ) | $ | (29 | ) | $ | 122 | $ | (88 | ) | |||||
| Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities | |||||||||||||||||||
| Depreciation, amortization and retirements | — | 121 | 24 | — | 145 | ||||||||||||||
| Undistributed equity in loss of affiliates, net | 82 | 12 | 88 | (175 | ) | 7 | |||||||||||||
| Changes in operating working capital | 51 | 37 | (214 | ) | — | (126 | ) | ||||||||||||
| Other operating cash flow activity | 146 | 39 | (115 | ) | — | 70 | |||||||||||||
| Net cash flows provided by (used in) operating activities | 191 | 116 | (246 | ) | (53 | ) | 8 | ||||||||||||
| Cash Flows From Investing Activities | |||||||||||||||||||
| Capital expenditures | — | (124 | ) | (6 | ) | — | (130 | ) | |||||||||||
| Decrease (increase) in investments | (79 | ) | (1 | ) | 15 | 80 | 15 | ||||||||||||
| Net cash flows provided by (used in) investing activities | (79 | ) | (125 | ) | 9 | 80 | (115 | ) | |||||||||||
| Cash Flows From Financing Activities | |||||||||||||||||||
| Decrease in commercial paper, net | (545 | ) | — | — | — | (545 | ) | ||||||||||||
| Increase in secured borrowings, net | — | — | 205 | — | 205 | ||||||||||||||
| Decrease in notes payable to member, net | (50 | ) | — | — | — | (50 | ) | ||||||||||||
| Proceeds from the issuance of other debt | 496 | 13 | — | — | 509 | ||||||||||||||
| Contributions from members | — | — | 80 | (80 | ) | — | |||||||||||||
| Distributions to members | — | — | (53 | ) | 53 | — | |||||||||||||
| Post-closing adjustments to members | (13 | ) | — | — | — | (13 | ) | ||||||||||||
| Net cash flows provided by (used in) financing activities | (112 | ) | 13 | 232 | (27 | ) | 106 | ||||||||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | — | 4 | (5 | ) | — | (1 | ) | ||||||||||||
| Cash and Cash Equivalents at Beginning of Period | — | 75 | 81 | — | 156 | ||||||||||||||
| Cash and Cash Equivalents at End of Period | $ | — | $ | 79 | $ | 76 | $ | — | $ | 155 | |||||||||
Note 11. Subsequent Event
On July 1, 2002, CPChem sold $250 million of Preferred LLC Interests, purchased 50% each by ChevronTexaco and Phillips. Preferred distributions are cumulative at 9% per annum and are payable quarterly from cash earnings, as defined in CPChem's Second Amended and Restated Limited Liability Company Agreement. The securities have no stated maturity date and are redeemable quarterly, in increments of $25 million, when CPChem's ratio of debt to total capitalization falls below a stated level. The Preferred LLC Interests are also redeemable at the sole option of CPChem at any time. Proceeds were used to retire a portion of outstanding commercial paper obligations.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with the condensed consolidated financial statements and notes which precede this discussion, and with Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes included in CPChem's Annual Report on Form 10-K for the year ended December 31, 2001.
Results of Operations
Consolidated
| |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Millions |
|||||||||||||
| 2002 |
2001 |
2002 |
2001 |
||||||||||
| Income (loss) before interest & taxes | $ | 26 | $ | 58 | $ | 21 | $ | (29 | ) | ||||
| Less special items | — | 81 | (10 | ) | 64 | ||||||||
| Income (loss) before interest & taxes, as adjusted | $ | 26 | $ | (23 | ) | $ | 31 | $ | (93 | ) | |||
Income before interest and taxes for the three months ended June 30, 2002 was $26 million compared with $58 million during the same period in 2001. Income before interest and taxes for the first half of 2002 totaled $21 million compared with a loss before interest and taxes of $29 million for the first half of 2001. Results in 2002 included special items charges of $10 million recorded in the first quarter. Results in 2001 included a net benefit from special items of $81 million in the second quarter and $64 million in the first half. Excluding special items, income before interest and taxes was $26 million and $31 million for the three and six month periods in 2002, respectively, compared with losses of $23 million and $93 million, respectively, during the same periods in 2001.
Special items are nonrecurring or infrequently occurring transactions that CPChem does not consider representative of ongoing operations. Special items in 2002 consisted of a $6 million pension curtailment charge and $4 million of accelerated depreciation associated with the permanent shutdown in February 2002 of two polyethylene particle loop reactors at the Orange, Texas facility. Special items in 2001 included a $118 million benefit in the second quarter, recorded as Other Income, in connection with the settlement of a business interruption insurance claim associated with the March 2000 incident at the Houston Chemical Complex K-Resin plant. Special items in the first half of 2001 also included costs associated with the collapse of a styrene column at the St. James, Louisiana facility in February 2001.
Olefins & Polyolefins
| |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Millions |
|||||||||||||
| 2002 |
2001 |
2002 |
2001 |
||||||||||
| Income (loss) before interest & taxes | $ | (9 | ) | $ | 27 | $ | (9 | ) | $ | (28 | ) | ||
| Less special items | — | (10 | ) | (4 | ) | (21 | ) | ||||||
| Income (loss) before interest & taxes, as adjusted | $ | (9 | ) | $ | 37 | $ | (5 | ) | $ | (7 | ) | ||
Excluding special items, loss before interest and taxes for Olefins & Polyolefins totaled $9 million in the second quarter of 2002 compared to income before interest and taxes of $37 million in the same period in 2001. Loss before interest and taxes totaled $5 million in the first half of 2002 and $7 million in the first half of 2001.
Comparing the two second-quarter periods, lower earnings from ethylene in the 2002 period more than offset improved results from polyethylene. Lower ethylene sales prices were partially offset by lower feedstock and energy prices. Polyethylene gross margins increased due to lower ethylene prices and lower energy costs, partially offset by lower sales prices.
Olefins & Polyolefins operating results improved $2 million in the first six months of 2002 compared with the same 2001 period. Increased polyethylene, normal alpha olefins (NAO) and natural gas liquids margins contributed to the improved results. Polyethylene and NAO margins increased due to lower ethylene prices and lower energy costs, partially offset by lower sales prices. Ethylene earnings were down in the 2002 period primarily due to lower margins and volumes. The margin impact was the results of lower sales prices partially offset by lower feedstock and energy prices.
Aromatics & Styrenics
| |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Millions |
|||||||||||||
| 2002 |
2001 |
2002 |
2001 |
||||||||||
| Income (loss) before interest & taxes | $ | 32 | $ | 29 | $ | 20 | $ | (8 | ) | ||||
| Less special items | — | 89 | (6 | ) | 84 | ||||||||
| Income (loss) before interest & taxes, as adjusted | $ | 32 | $ | (60 | ) | $ | 26 | $ | (92 | ) | |||
Aromatics & Styrenics income before interest and taxes, excluding special items, was $32 million for the second quarter of 2002 compared to a $60 million loss in the corresponding period in 2001. Excluding special items, income before interest and taxes was $26 million for the first six months of 2002 compared to a $92 million loss in the first six months of 2001. Special items in 2002 consisted of a $6 million pension curtailment charge related to enhanced benefits granted to terminated employees at the Puerto Rico facility. Special items in 2001 included a $118 million benefit recorded in the second quarter in connection with the settlement of a business interruption insurance claim associated with the March 2000 incident at the Houston Chemical Complex K-Resin plant. Special items in the first half of 2001 also included costs associated with the collapse of the styrene column at the St. James facility.
Aromatics & Styrenics operating results benefited from higher styrene production and sales volumes, and improved gross margins in the second quarter of 2002, as styrene production at the St. James facility was restored in October 2001 following a shutdown in February 2001 due to the column
collapse. Earnings from benzene improved as a result of higher sales prices and lower operating costs in 2002. Paraxylene results also improved due to lower feedstock and operating expenses, partially offset by lower selling prices. Aromatics & Styrenics results also benefited in the second quarter of 2002 from lower depreciation due to the retirement of benzene and cyclohexane assets at the Puerto Rico facility in December 2001. Results in the second quarter of 2002 include the reversal of the remaining $14 million lower-of-cost-or-market inventory reserve initially established in 2001. The reserve was reversed as a result of improved market conditions and prices.
Operating results for Aromatics & Styrenics improved $118 million during the first half of 2002 compared with the first half of 2001. This improvement included the reversal of the full $25 million lower-of-cost-or-market inventory reserve established in 2001. Earnings from styrene were higher in 2002 despite lower average sales prices as production at the St. James facility was restored in October 2001 following the February 2001 shutdown due to the column collapse. Earnings from benzene in 2002 improved as a result of lower operating costs. This benefit was partially offset by lower average sales prices in 2002, although prices have improved steadily since the beginning of 2002. Aromatics & Styrenics results also benefited in 2002 from lower expenses associated with the cessation of benzene and cyclohexane operations at the Puerto Rico facility in the first quarter of 2001 and lower depreciation in 2002 due to the subsequent retirement of those assets in December 2001. The shutdown of the Puerto Rico motor fuels reformer in March 2001 also contributed to improved results. Paraxylene results increased due to lower operating expenses, partially offset by lower selling prices.
Following a successful phased-in start up, the force majeure status of CPChem's K-Resin SBC plant at the Houston Chemical Complex was lifted on May 1, 2002.
Specialty Products
| |
Three months ended June 30, |
Six months ended June 30, |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Millions |
||||||||||||
| 2002 |
2001 |
2002 |
2001 |
|||||||||
| Income before interest & taxes | $ | 14 | $ | 9 | $ | 24 | $ | 17 | ||||
| Less special items | — | 2 | — | 2 | ||||||||
| Income before interest & taxes, as adjusted | $ | 14 | $ | 7 | $ | 24 | $ | 15 | ||||
Income before interest and taxes for Specialty Products was $14 million in the second quarter of 2002 compared with $7 million in the prior year period, and $24 million in the first half of 2002 compared with $15 million in the first half of 2001. Improved earnings for Ryton™ polyphenylene sulfide polymers and compounds was the primary reason for the increases.
Corporate and Other
| |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Millions |
|||||||||||||
| 2002 |
2001 |
2002 |
2001 |
||||||||||
| Loss before interest & taxes | $ | (11 | ) | $ | (7 | ) | $ | (14 | ) | $ | (10 | ) | |
| Less special items | — | — | — | (1 | ) | ||||||||
| Loss before interest & taxes, as adjusted | $ | (11 | ) | $ | (7 | ) | $ | (14 | ) | $ | (9 | ) | |
Interest expense. Interest expense was $14 million and $32 million, respectively, for the three and six month periods ended June 30, 2002, compared with $28 million and $61 million for the same periods in 2001. The decreases resulted from lower average debt balances and lower rates on outstanding variable-rate debt, primarily the commercial paper program.
Outlook
Excess manufacturing capacity in many sectors of the chemicals market and the weakened U.S. economy continue to negatively impact CPChem, generally resulting in lower margins and reduced product demand in most business lines. Partially offsetting this, the recent decline in the U.S. dollar relative to other currencies has improved CPChem's export competitiveness. Although CPChem expects existing industry and market conditions to be a challenge for the near term, CPChem is continuing to focus on reducing costs, improving efficiencies and ensuring safe and reliable operations.
Liquidity and Capital Resources
Cash balances decreased $21 million during the first six months of 2002. Cash used for capital and investment expenditures, including advances to Q-Chem, was slightly higher than cash provided by operating activities combined with cash proceeds from higher net levels of outstanding debt.
Operating Activities
Cash provided by operating activities totaled $152 million during the first half of 2002 compared with $8 million during the first half of 2001. The change was primarily due to improved operating results and an increase in accounts payable in the 2002 period, compared with a $231 million decrease in accounts payable during the six month period in 2001.
Investing Activities
Capital and investment expenditures totaled $176 million during the first half of 2002 compared with $130 million in the prior year period. Approximately $112 million of 2002 expenditures were invested in Olefins & Polyolefins, $50 million in Aromatics & Styrenics, $9 million in Specialty Products and the remaining $5 million in corporate-level expenditures. In addition, CPChem advanced $125 million to Q-Chem in the first six months of 2002 under a subordinated loan agreement. See Note 5 of Notes to Condensed Consolidated Financial Statements for further discussion of the advances to Q-Chem.
CPChem expects to invest a total of approximately $325 million for capital projects and investments in 2002, and in addition, to advance Q-Chem approximately $240 million under the subordinated loan agreement.
CPChem announced plans in 2002 for a 50%-owned joint venture project at Al Jubail, Saudi Arabia. The project, expected to cost approximately $1 billion, will produce benzene, ethylbenzene, styrene and propylene. The project will be constructed on a site adjacent to the existing aromatics complex owned by Saudi Chevron Phillips Company (Saudi Chevron Phillips), a 50%-owned CPChem joint venture. Final approval of the project is anticipated in early 2004, with start-up expected in 2006. In addition, Saudi Chevron Phillips is increasing its cyclohexane capacity at the existing facility to 620 million pounds per year. The additional capacity is expected to be operational by the first quarter of 2003. CPChem will continue to market the products that are exported from the region.
In June 2002, CPChem and Qatar Petroleum amended the Q-Chem II joint venture agreement signed in June 2001 to provide for the construction of a larger ethane cracker than was previously planned. The amended agreement also provides that the ethane cracker will be developed jointly with QATOFIN, a joint venture of Atofina SA and QAPCO. In connection with this change in the project scope, CPChem and Qatar Petroleum entered into a joint venture agreement in June 2002 with Atofina SA and QAPCO to jointly develop the ethane cracker.
Financing Activities
Cash provided by financing activities totaled $128 million in the first six months of 2002 compared with $106 million in the prior year period. The increase was primarily due to contributions in 2002 from Phillips related to productivity levels at the K-Resin plant and cash received in 2002 from post-closing adjustments from the members.
On June 21, 2002, Chevron Phillips Chemical Company LLC and Chevron Phillips Chemical Company LP, jointly and severally issued $500 million of senior unsecured 53/8% notes in a private placement. Proceeds from this debt issuance were used to retire a portion of outstanding commercial paper obligations and for general corporate purposes. See Note 6 of Notes to Condensed Consolidated Financial Statements for further discussion.
In March 2001, CPChem issued $500 million of senior unsecured 7% notes in a private placement. Proceeds were used to repay a $100 million note payable to ChevronTexaco, to retire a portion of outstanding commercial paper obligations and for general corporate purposes. Almost all of the holders of the private placement notes subsequently tendered their notes for registered exchange notes with terms substantially identical to the private placement notes, except that the exchange notes are freely tradeable.
CPChem's $700 million 364-day credit facility expired on July 1, 2002 and its $900 million three-year credit facility expires on July 1, 2003. As of the date of this report, CPChem had received commitments from banks totaling $775 million towards an anticipated $800 million of new revolving credit facilities, consisting of a $400 million 364-day credit facility and a $400 million three-year credit facility. These credit facilities, which are expected to be in place by the end of the third quarter of 2002, will be on substantially the same terms as the $700 million and $900 million credit agreements. CPChem will terminate the existing three-year facility upon the closing of the new credit facilities.
CPChem renewed its trade receivables securitization agreement on May 21, 2002 for an additional 364 days on terms similar to those of the agreement that expired during the month. Net additional funds received during the first six months of 2002 under CPChem's trade receivables securitization program totaled $101 million compared with $205 million during the 2001 period.
On July 1, 2002, CPChem sold $250 million of Preferred LLC Interests, purchased 50% each by ChevronTexaco and Phillips. Proceeds were used to retire a portion of outstanding commercial paper obligations. See Note 11 of Notes to Condensed Consolidated Financial Statements for further discussion.
Other
Contingencies. See Note 8 of Notes to Condensed Consolidated Financial Statements for a discussion of contingencies.
New Accounting Pronouncements. See Note 2 of Notes to Condensed Consolidated Financial Statements for a discussion of new accounting pronouncements.
CAUTIONARY STATEMENTS REGARDING FORWARD LOOKING INFORMATION
This Management's Discussion and Analysis of Financial Condition and Results of Operations contains "forward-looking statements" within the meaning of the federal securities laws. Such statements can generally be identified with words and phrases such as "believes," "expects," "anticipates," "should," "estimates," "foresees" or other words and phrases of similar meaning. Where CPChem expresses an expectation or belief as to future results, there can be no assurance that the expectation or belief will result, be achieved or be accomplished. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, CPChem believes such assumptions or bases to be reasonable and to be made in good faith. Assumed facts or bases almost always vary from actual results, and the differences between assumed facts or bases and actual results can be material, depending on the circumstances. The more significant factors that, if erroneous, could cause actual results to differ materially from those expressed include, among others: the timing and duration of periods of expansion and contraction within the chemicals business, plans for the construction, modernization or de-bottlenecking of domestic and foreign chemical plants, prices of feedstocks and products, force majeure events, accidents, labor relations, political risks, changes in foreign and domestic laws, rules and regulations and the interpretation and enforcement thereof, regulatory decisions relating to taxes, the environment and human resources, the U.S. economy, results of financing efforts and overall financial market conditions. All forward-looking statements in this Form 10-Q are qualified in their entirety by the cautionary statements contained in this section. CPChem does not undertake to update, revise or correct any of the forward-looking information.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
CPChem's exposure to market risk is described in Item 7a of its Annual Report on Form 10-K for the year ended December 31, 2001. CPChem believes its exposure to market risk has not changed materially at June 30, 2002.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer of CPChem
99.2 Certification of Chief Financial Officer of CPChem
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed by CPChem on June 17, 2002 to report the renewal of CPChem's accounts receivable securitization agreement and the statuses of its revolving credit facilities and bond offering.
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.
| CHEVRON PHILLIPS CHEMICAL COMPANY LLC | ||||
Date: August 7, 2002 |
/s/ GREG G. MAXWELL Greg G. Maxwell Vice President and Controller (Chief Accounting Officer) |
|||