Millennium's erratic figures bring a closer look from SEC

October 03, 2004|By JAY HANCOCK

SECURITIES REGULATORS are slow and distracted, but they are not comatose.

Goof once on your financial reports, they might not notice. Goof twice, they might cock an eye.

Goof up several times in various ways that overstate income and capital by tens of millions of dollars, and you will soon have an enduring relationship with the Securities and Exchange Commission.

Hunt Valley-based Millennium Chemicals, maker of titanium dioxide paint pigment and pending merger bride of Lyondell Chemical Co., just took its third shot at reporting financial results for the late 1990s and early 2000s.

Its efforts to correct and re-correct its reports have involved half a dozen major bookkeeping items ranging from pension liability and expenses to incorrect tax computation. It has filed more than a dozen amendments to its quarterly and annual financial reports.

And now the SEC has knocked. The agency is conducting an informal inquiry into partly-off-the-books expenses allocated to a joint venture from 1998 to 2002 that Millennium, in its first major restatement, decided should have been reported by the mother company, according to regulatory filings.

There is no indication of intentional wrongdoing; the SEC opens numerous probes that never go anywhere. But the inquiry and serial restatements cast a shadow on a company that hasn't made money in years, saw boss William M. Landuyt resign last year and paid executives bonuses based on the results that were later restated.

Millennium's latest major redo, worthy of a Buster Keaton movie, was filed in August and involved correcting a previous correction relating to deferred taxes. It delayed the $1.4 billion Lyondell deal, which was supposed to be done by now.

Houston-based Lyondell is "absolutely" committed to consummating the merger despite the SEC inquiry, disclosed Sept. 16, said company spokeswoman Susan Moore. "We are expecting a close date in the fourth quarter."

The latest restatement cut deferred-tax liabilities by $15 million in several years but did not affect operating income. A restatement in November 2003, however, affected both balance and income sheets and substantially depreciated Millennium's results from 1998 to 2002.

For 1998, for example, income from continuing operations plunged from $171 million to $13 million, and shareholders' equity fell from $1.61 billion to $1.44 billion. The 2001 loss from continuing operations grew from $47 million before the restatement to $54 million, and $897 million in shareholders' equity that year turned into $505 million - two revisions later.

So anybody who bought Millennium stock those years based on its financial reports was buying an illusion.

The SEC is looking at one aspect of the five-year revision - administrative expenses Millennium had assigned to Equistar Chemicals, a venture 70.5 percent owned by Lyondell and 29.5 percent by Millennium.

After Landuyt resigned as CEO and chairman in July 2003, Millennium decided the expenses, amounting to $20 million from 2000 to 2002, should have been allocated to itself, not Equistar.

That would have made Millennium's income results worse than initially reported, although it's hard to gauge how much. The November restatement lumped the Equistar-cost changes with other revisions of reports issued under Landuyt. Those changes related to a gold deal, pension liability and tax-related and other issues.

Landuyt, now a senior partner at Charterhouse Group, a New York investment boutique, declined to comment about the SEC inquiry or the accounting revisions and referred me to Millennium.

Millennium is led these days by CEO Robert E. Lee and Chief Financial Officer John E. Lushefski. They have been with the company since 1996 and both, along with Landuyt, received bonus payments tied to profit targets that later were revised downward.

Millennium spokeswoman Amy Drusano declined to comment on whether the bonuses for the amended years, which in Landuyt's case exceeded $1.5 million, could have been inflated by the inaccurate accounting. David J.P. Meachin, chairman of Millennium's audit committee and head of Cross Border Enterprises in New York, did not return my calls.

In any event, Millennium's relationship with the SEC seems likely to live on after the company is absorbed by Lyondell.

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