UNITED STATES
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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _______________
REGISTRATION NUMBER 333-11569
----------
TEXAS PETROCHEMICAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0504002
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
THREE RIVERWAY, SUITE 1500
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 627-7474
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------
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 requirement for the past 90 days. Yes X No _
The number of shares of common stock of the registrant outstanding as of
November 13, 1998 is 527,778.
- -------------------------------------------------------------
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet as of September 30, 1998 and June
30, 1998 1
Consolidated Statement of Operations for the three months ended
September 30, 1998 and 1997 2
Consolidated Statement of Cash Flows for the three months ended
September 30, 1998 and 1997 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 97 $ 956
Accounts receivable - trade ............................. 31,290 45,298
Inventories ............................................. 25,141 17,210
Other current assets .................................... 15,676 13,636
--------- ---------
Total current assets ................................. 72,204 77,100
Property, plant and equipment, net .......................... 224,773 227,217
Investments in land held for sale ........................... 2,579 2,579
Investment in and advances to limited partnership ........... 2,913 3,035
Goodwill, net ............................................... 172,997 174,143
Other assets, net of accumulated amortization ............... 11,624 13,163
--------- ---------
Total assets ......................................... $ 487,090 $ 497,237
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Bank overdraft .......................................... $ 201 $ --
Accounts payable - trade ................................ 25,322 28,000
Accrued expenses ........................................ 16,968 21,787
Current portion of cash bonus plan ...................... 7,811 7,811
Current portion of long-term debt ....................... 6,993 6,982
--------- ---------
Total current liabilities ............................ 57,295 64,580
Revolving line of credit .................................... 12,500 12,000
Long-term debt .............................................. 330,292 330,814
Cash bonus plan ............................................. 7,809 9,766
Deferred income taxes ....................................... 58,640 59,806
Commitments and contingencies (Note 4)
Common stock held by the ESOP ............................... 10,000 10,000
Less: unearned compensation ................................. (5,500) (6,000)
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 voting and
100,000 non-voting shares authorized, 527,778
voting shares issued and outstanding .................... 5 5
Additional paid in capital .............................. 36,264 36,264
Accumulated deficit ..................................... (20,215) (19,998)
--------- ---------
Total stockholders' equity ........................... 16,054 16,271
--------- ---------
Total liabilities and stockholders' equity ......... $ 487,090 $ 497,237
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1997
--------- ---------
Revenues ......................................... $ 100,026 $ 135,443
Cost of goods sold ............................... 80,276 113,651
Depreciation and amortization .................... 7,692 7,727
--------- ---------
Gross profit ................................. 12,058 14,065
Selling, general and administrative expenses ..... 2,318 1,516
--------- ---------
Income from operations ................... 9,740 12,549
Interest expense ................................. 9,744 10,237
Other income (expense):
Loss on disposal of non-plant assets ......... -- (436)
Other, net ................................... 687 296
--------- ---------
687 (140)
--------- ---------
Income before income taxes ............... 683 2,172
Provision for income taxes ....................... 900 1,238
--------- ---------
Net income ............................... $ (217) $ 934
========= =========
Basic income (loss) per share .................... $ (0.46) $ 2.07
========= =========
Weighted average shares outstanding .............. 470,278 450,278
========= =========
See accompanying notes to consolidated financial statements.
2
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
Cash flows from operating activities:
Net income (loss) ................................... $ (217) $ 934
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets ........................ 6,463 6,280
Amortization of goodwill and other assets ........... 1,229 1,446
Amortization of debt issue costs and deferred premium 1,617 1,436
Loss on sale of non-plant assets .................... -- 436
Earnings from limited partnership ................... (208) (128)
Deferred income taxes ............................... (1,276) 435
Change in:
Accounts receivable ............................... 14,008 328
Inventories ....................................... (7,931) 1,274
Other assets ...................................... (914) (2,060)
Accounts payable .................................. (2,678) (2,382)
Accrued expenses .................................. (4,600) (3,095)
-------- --------
Net cash provided by operating activities ...... 5,493 4,904
Cash flows from investing activities:
Capital expenditures ................................ (4,019) (1,871)
Proceeds from the sale of non-plant assets .......... -- 871
Distribution from limited partnership ............... 330 40
-------- --------
Net cash used in investing activities .......... (3,689) (960)
Cash flows from financing activities:
Change in bank overdraft ............................ 201 695
Net borrowings (repayments) under revolver .......... 500 (2,000)
Proceeds from issuance of long-term debt ............ -- 3,192
Payments on long-term debt .......................... (1,744) (4,039)
Payment of cash bonus plan .......................... (1,957) (1,948)
Debt issuance costs ................................. (163) (290)
Reduction in note receivable from ESOP .............. 500 500
-------- --------
Net cash used in financing activities .......... (2,663) (3,890)
-------- --------
Net increase (decrease) in cash and cash equivalents .... (859) 54
Cash and cash equivalents, at beginning of period ....... 956 101
-------- --------
Cash and cash equivalents, at end of period ............. $ 97 $ 155
======== ========
See accompanying notes to consolidated financial statements.
3
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
NATURE OF OPERATIONS
The consolidated financial statements include the accounts of Texas
Petrochemical Holdings, Inc. and its wholly owned subsidiary, TPC Holding Corp.,
collectively referred to as (the "Company"). The Company through its facility in
Houston, Texas is the second largest producer of butadiene, the largest producer
of butene-1, and the third largest producer of methyl tertiary-butyl ether
("MTBE"), in North America, in terms of production capacity. In addition, the
Company is the sole producer of diisobutylene and isobutylene concentrate in the
United States and is the largest domestic merchant supplier of high purity
isobutylene to the chemical market. The Company's products include: (i)
butadiene, primarily used to produce synthetic rubber; (ii) MTBE, used as an
oxygenate and octane enhancer in gasoline; (iii) n-butylenes (butene-1 and
butene-2), used in the manufacture of plastic resins, fuel additives and
synthetic alcohols; and (iv) specialty isobutylenes, primarily used in the
production of specialty rubbers, lubricant additives, detergents and coatings.
The Company's principal feedstocks are crude butadiene, isobutane and
methanol. The Company purchases a significant portion of its crude butadiene
requirements at prices, which are adjusted based on the Company's selling price
of butadiene as well as the cost of natural gas used to produce butadiene,
thereby providing the Company with a fixed profit on such sales. Methanol and
isobutane are purchased at prices linked to prevailing market prices.
GENERAL
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 10Q 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, have been made which are necessary to
fairly present the financial position of the Company as of September 30, 1998
and the results of its operations and cash flows for the interim period ended
September 30, 1998. The results of the interim period should not be regarded as
necessarily indicative of results that may be expected for the entire year. The
financial information presented herein should be read in conjunction with the
audited financial statements and notes included in the Company's Form 10-K
thereto, for the year ended June 30, 1998. The June 30, 1998 balance sheet 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 current period presentation.
4
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS OF DOLLARS)
INVENTORIES:
SEPTEMBER 30, JUNE 30,
1998 1998
------- -------
Finished goods ............................. $ 9,601 $ 4,701
Raw materials .............................. 13,964 10,415
Chemicals and supplies ..................... 1,576 2,094
------- -------
$25,141 $17,210
======= =======
PROPERTY, PLANT AND EQUIPMENT:
SEPTEMBER 30, JUNE 30,
1998 1998
------- -------
Chemical plants ........................... $266,764 $260,808
Construction in progress ................... 11,661 13,624
Other ...................................... 2,335 2,308
------- -------
280,760 276,740
Less accumulated depreciation, depletion
and amortization ....................... 55,987 49,523
-------- --------
$224,773 $227,217
======== ========
OTHER ASSETS:
SEPTEMBER 30, JUNE 30,
1998 1998
------- -------
Debt issue costs ........................... $14,147 $13,984
Organizational costs ....................... 573 573
Intangibles and other ...................... 3,265 4,502
------- -------
17,985 19,059
Less accumulated amortization .............. 6,361 5,896
------- -------
$11,624 $13,163
======= =======
5
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
ACCRUED EXPENSES:
SEPTEMBER 30, JUNE 30,
1998 1998
------- -------
Accrued interest ........................... $ 7,662 $14,581
Property and sales taxes ................... 4,011 2,836
Federal and state taxes .................... 3,418 3,629
Other ...................................... 1,877 741
------- -------
$16,968 $21,787
======= =======
LONG TERM DEBT:
SEPTEMBER 30, JUNE 30,
1998 1998
------- -------
Bank Credit Agreement:
Term A Loan ............................. $ 20,252 $ 21,003
Term B Loan ............................. 42,146 42,393
ESOP Loan ............................... 5,500 6,000
Revolving Credit Loans .................. 12,500 12,000
Senior Subordinated Notes .................. 225,000 225,000
Discount Notes ............................. 40,273 38,958
Deferred premium on Senior Subordinated Notes 2,491 2,571
Long-term financing ........................ 1,623 1,871
------- -------
349,785 349,796
Less current maturities .................... 6,993 6,982
------- -------
Long-term debt ............................. $342,792 $342,814
======== ========
The Bank Credit Agreement provided for term loans in the amount of $130
million, an ESOP loan of $10 million, and a revolving credit facility of up to
$40 million. Quarterly principal and interest payments are made under the Bank
Credit Agreement. The final payments under the ESOP Loan, Term A Loan and Term B
Loan are due on June 30, 2001, December 31, 2002 and June 30, 2004,
respectively. The Revolving Credit Loan facility is currently scheduled to
expire on December 31, 2002. The debt under the Bank Credit Agreement bears
interest, at the option of the borrower, based on the LIBOR rate plus a margin
(2.0% and 3% for Term A and Term B, respectively at September 30, 1998) or the
greater of the prime rate and the federal funds rate plus 1/2% plus a margin
(1.5% at September 30, 1998). Substantially all assets of the Company are
pledged as collateral under the Bank Credit Agreement. The Senior Subordinated
Notes are due 2006 and bear interest at 11 1/8% payable semiannually on January
1 and July 1. The Discount Notes are due 2007 and bear interest at 13 1/2%
payable semiannually on January 1 and July 1 beginning in 2002. The Bank Credit
Agreement, the Senior Subordinated Notes and the Discount Notes include certain
restrictive covenants, which include but are not limited to, limitations on
capital expenditures, indebtedness, investments and sales of assets and
subsidiary stock. Additionally, the Bank Credit Agreement requires the Company
to maintain certain financial ratios. On June 30, 1998 the Company obtained an
amendment to the Bank Credit Agreement to update the financial ratios relating
to fixed charge coverage and debt to EBITDA for fiscal 1999 and part of fiscal
2000.
6
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
4. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has purchase commitments incident to the ordinary conduct of
business. The prices of such purchase commitments are based on formulas, which
are determined from the prevailing market rate for such products. These
commitments generally have cancellation provisions given proper notification.
LITIGATION
The Company is involved in various routine legal proceedings which are
incidental to the business. Management of the Company is vigorously defending
such matters and is of the opinion that their ultimate resolution will not have
a material impact on the Company.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state and local laws and
regulations administered by the U.S. Environmental Protection Agency, the U.S.
Coast Guard, the Army Corps of engineers, the Texas Natural Resource
Conservation Commission, the Texas General Land Office, the Texas Department of
Health and various local regulatory agencies. The Company holds all required
permits and registrations necessary to comply substantially with all applicable
environmental laws and regulations, including permits and registrations for
wastewater discharges, solid and hazardous waste disposal and air emissions, and
management believes that the Company is in substantial compliance with all such
laws and regulations. While management does not expect the cost of compliance
with existing environmental laws will have a material adverse effect on the
Company's financial condition, results of operations or cash flows, there can be
no assurance that future legislation, regulation or judicial or administrative
decisions will not have such an effect.
5. SUPPLEMENTAL GUARANTOR INFORMATION
TPC Holding Corp. a wholly owned subsidiary of Texas Petrochemical Holdings,
Inc. has fully and unconditionally guaranteed, on a joint and several basis,
Texas Petrochemical Holdings, Inc's. obligations relative to the Discount Notes
due 2007 in an Event of Default. TPC Holding Corp. conducts its operations
through its subsidiaries and is dependent upon distribution from these
subsidiaries as its source of cash flow. Management has determined that
separate, full financial statements of TPC Holding Corp. ("Guarantor") would not
be material to investors and such financial statements are not provided.
Supplemental combining financial information of Texas Petrochemical Holdings,
Inc. is presented below:
7
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Balance Sheet
September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
--------- --------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ -- $ -- $ 97 $ -- $ 97
Accounts receivable - trade ................................... 31,290 31,290
Inventories ................................................... 25,141 25,141
Other current assets .......................................... (73) 15,749 15,676
--------- --------- ------------ ------------ ---------
Total current assets ....................................... (73) 72,277 72,204
Property, plant and equipment, net ................................ 224,773 224,773
Investments in land held for sale ................................. 2,579 2,579
Investment in and advances to limited partnership ................. 2,913 2,913
Goodwill, net ..................................................... 172,997 172,997
Other assets, net of accumulated amortization ..................... 471 11,153 11,624
Consolidated subsidiaries ......................................... 56,834 56,834 (113,668) --
--------- --------- ------------ ------------ ---------
Total assets ............................................... $ 57,232 $ 56,834 $ 486,692 $ (113,668) $ 487,090
========= ========= ============ ============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Bank overdraft ................................................ $ -- $ -- $ 201 $ -- $ 201
Accounts payable - trade ...................................... 25,322 25,322
Accrued expenses .............................................. 16,968 16,968
Current portion of cash bonus plan ............................ 7,811 7,811
Current portion of long-term debt ............................. 6,993 6,993
Total current liabilities .................................. 57,295 57,295
Revolving line of credit .......................................... 12,500 12,500
Long-term debt .................................................... 40,273 290,019 330,292
Cash bonus plan ................................................... 7,809 7,809
Deferred income taxes ............................................. (3,595) 62,235 58,640
Common stock held by the ESOP ..................................... 10,000 10,000
Less: unearned compensation ....................................... (5,500) (5,500)
Stockholders' equity:
Common Stock .................................................. 5 4,162 (4,162) 5
Additional paid in capital .................................... 36,264 70,305 71,643 (141,948) 36,264
Accumulated deficit ........................................... (20,215) (13,471) (13,471) 26,942 (20,215)
Note receivable from ESOP ..................................... (5,500) 5,500 --
--------- --------- ------------ ------------ ---------
Total stockholders' equity ................................. 16,054 56,834 56,834 (113,668) 16,054
--------- --------- ------------ ------------ ---------
Total liabilities and stockholders' equity ............... $ 57,232 $ 56,834 $ 486,692 $ (113,668) $ 487,090
========= ========= ============ ============ =========
</TABLE>
8
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Balance Sheet
June 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
--------- --------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ -- $ -- $ 956 $ -- $ 956
Accounts receivable - trade ................................... 45,298 45,298
Inventories ................................................... 17,210 17,210
Other current assets .......................................... 2,850 10,786 13,636
--------- --------- ------------ ------------ ---------
Total current assets ....................................... 2,850 74,250 77,100
Property, plant and equipment, net ................................ 227,217 227,217
Investments in land held for sale ................................. 2,579 2,579
Investment in and advances to limited partnership ................. 3,035 3,035
Goodwill, net ..................................................... 174,143 174,143
Other assets, net of accumulated amortization ..................... 484 12,679 13,163
Consolidated subsidiaries ......................................... 55,679 55,679 (111,358) --
--------- --------- ------------ ------------ ---------
Total assets ............................................... $ 59,013 $ 55,679 $ 493,903 $ (111,358) $ 497,237
========= ========= ============ ============ =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable - trade ...................................... $ -- $ -- $ 28,000 $ -- $ 28,000
Accrued expenses .............................................. 2,919 18,868 21,787
Current portion of cash bonus plan ............................ 7,811 7,811
Current portion of long-term debt ............................. 6,982 6,982
--------- --------- ------------ ------------ ---------
Total current liabilities .................................. 2,919 61,661 64,580
Revolving line of credit .......................................... 12,000 12,000
Long-term debt .................................................... 38,958 291,856 330,814
Cash bonus plan ................................................... 9,766 9,766
Deferred income taxes ............................................. (3,135) 62,941 59,806
Common stock held by the ESOP ..................................... 10,000 10,000
Less: unearned compensation ....................................... (6,000) (6,000)
Stockholders' equity:
Common Stock .................................................. 5 4,162 (4,162) 5
Additional paid in capital .................................... 36,264 69,805 71,643 (141,448) 36,264
Accumulated deficit ........................................... (19,998) (14,126) (14,126) 28,252 (19,998)
Note receivable from ESOP ..................................... (6,000) 6,000 --
--------- --------- ------------ ------------ ---------
Total stockholders' equity ................................. 16,271 55,679 55,679 (111,358) 16,271
--------- --------- ------------ ------------ ---------
Total liabilities and stockholders' equity ............... $ 59,013 $ 55,679 $ 493,903 $ (111,358) $ 497,237
========= ========= ============ ============ =========
</TABLE>
9
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Three Months Ended September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
<S> <C> <C> <C> <C> <C>
Revenues ................................................. $ -- $ -- $ 100,026 $ -- $ 100,026
Cost of goods sold ....................................... -- -- 80,276 -- 80,276
Depreciation and amortization ............................ -- -- 7,692 -- 7,692
--------- --------- --------- --------- ---------
Gross profit ...................................... -- -- 12,058 -- 12,058
Selling, general and administrative expenses ............. 3 -- 2,315 -- 2,318
--------- --------- --------- --------- ---------
Income (loss) from operations ............... (3) 9,743 -- 9,740
Interest expense ......................................... 1,329 8,415 -- 9,744
Other income (expense):
Loss on disposal of non-plant assets
Other, net ........................................ -- -- 687 -- 687
--------- ---------
-- -- 687 -- 687
--------- --------- --------- --------- ---------
Income (loss) before income taxes ........... (1,332) -- 2,015 683
Provision (benefit) for income taxes .............. (460) 1,360 900
Equity in net income of subsidiaries ..................... 655 655 (1,310)
--------- --------- --------- --------- ---------
Net income (loss) ........................... $ (217) $ 655 $ 655 $ (1,310) $ (217)
========= ========= ========= ========= =========
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Three Months Ended September 30, 1997
(in thousands)
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
Revenues ................................................. $ -- $ -- $ 135,443 $ -- $ 135,443
Cost of goods sold ....................................... -- -- 113,651 -- 113,651
Depreciation and amortization ............................ -- -- 7,727 -- 7,727
--------- --------- --------- --------- ---------
Gross profit ...................................... -- -- 14,065 -- 14,065
Selling, general and administrative expenses ............. 3 -- 1,513 -- 1,516
--------- --------- --------- --------- ---------
Income (loss) from operations ............... (3) -- 12,552 -- 12,549
Interest expense ......................................... 1,164 -- 9,073 -- 10,237
Other income (loss) ...................................... -- -- (140) -- (140)
--------- --------- --------- --------- ---------
Income (loss) before income taxes ........... (1,167) -- 3,339 -- 2,172
Provision (benefit) for income taxes ..................... (408) -- 1,646 -- 1,238
Equity in net income of subsidiaries ..................... 1,693 1,693 -- (3,386) --
--------- --------- --------- --------- ---------
Net income .................................. $ 934 $ 1,693 $ 1,693 $ (3,386) $ 934
========= ========= ========= ========= =========
</TABLE>
10
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Three Months Ended September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
-------- -------- --------------- ------------ ------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................... $ (217) $ 655 $ 655 $ (1,310) $ (217)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets ................................ -- -- 6,463 -- 6,463
Amortization of goodwill and other assets ................... -- -- 1,229 -- 1,229
Amortization of debt issue costs ............................ 1,329 -- 288 -- 1,617
Earnings from limited partnership ........................... -- -- (208) -- (208)
Deferred income taxes ....................................... (460) -- (816) -- (1,276)
Change in:
Accounts receivable ..................................... -- -- 14,008 -- 14,008
Inventories ............................................. -- -- (7,931) -- (7,931)
Other assets ............................................ -- -- (914) -- (914)
Accounts payable, accrueds and other .................... 3 -- (7,281) -- (7,278)
-------- -------- ----------------------------------
Net cash provided by operating activities ........... 655 655 5,493 (1,310 5,493
Cash flows from investing activities:
Capital expenditures ........................................ -- -- (4,019) -- (4,019)
Proceeds from the sale of non-plant assets
Distribution from limited partnership ....................... -- -- 330 -- 330
-------- -------- ----------------------------------
Net cash used in investing activities ............... -- -- (3,689) -- (3,689)
Cash flows from financing activities:
Change in bank overdraft .................................... -- -- 201 -- 201
Net repayments under revolver ............................... -- -- 500 -- 500
Proceeds from issuance of long-term debt
Payments on long-term debt .................................. -- -- (1,744) -- (1,744)
Payment of cash bonus plan .................................. -- -- (1,957) -- (1,957)
Debt issuance costs ......................................... -- -- (163) -- (163)
Reduction in note receivable from ESOP ...................... -- -- 500 -- 500
-------- -------- ----------------------------------
Net cash used in financing activities ............... -- -- (2,663) -- (2,663)
-------- -------- ----------------------------------
Net increase (decrease) in cash and cash equivalents ............... 655 655 (859 (1,310 (859)
Cash and cash equivalents, at beginning of period .................. -- -- 956 -- 956
-------- -------- ----------------------------------
Cash and cash equivalents, at end of period ........................ $ 655 $ 655 $ 97 $ (1,310) $ 97
======== ======== ==================================
</TABLE>
11
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Three Months Ended September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
------- --------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................ $ 934 $ 1,693 $ 1,693 $(3,386) $ 934
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets ................................. -- -- 6,280 -- 6,280
Amortization of goodwill and other assets .................... -- -- 1,446 -- 1,446
Amortization of debt issue costs ............................. 1,164 -- 272 -- 1,436
Loss on sale of non-plant assets ............................. -- -- 436 -- 436
Earnings from limited partnership ............................ -- -- (128) -- (128)
Deferred income taxes ........................................ -- -- 435 -- 435
Change in:
Accounts receivable ...................................... -- -- 328 -- 328
Inventories .............................................. -- -- 1,274 -- 1,274
Other assets ............................................. (405) -- (1,655) -- (2,060)
Accounts payable, accrueds and other ..................... -- -- (5,477) -- (5,477)
------- ------- ------- ------- -------
Net cash provided by operating activities ............ 1,693 1,693 4,904 (3,386) 4,904
Cash flows from investing activities:
Capital expenditures ......................................... -- -- (1,871) -- (1,871)
Proceeds from the sale of non-plant assets ................... -- -- 871 -- 871
Distribution from limited partnership ........................ -- -- 40 -- 40
------- ------- ------- ------- -------
Net cash used in investing activities ................ -- -- (960) -- (960)
Cash flows from financing activities:
Change in bank overdraft ..................................... -- -- 695 -- 695
Net repayments under revolver ................................ -- -- (2,000) -- (2,000)
Proceeds from issuance of long-term debt ..................... -- -- 3,192 -- 3,192
Payments on long-term debt ................................... -- -- (4,039) -- (4,039)
Payment of cash bonus plan ................................... -- -- (1,948) -- (1,948)
Debt issuance costs .......................................... -- -- (290) -- (290)
Reduction in note receivable from ESOP ....................... -- -- 500 -- 500
------- ------- ------- ------- -------
Net cash used in financing activities ................ -- -- (3,890) -- (3,890)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents ................ 1,693 1,693 54 (3,386) 54
Cash and cash equivalents, at beginning of period ................... -- -- 101 101
------- ------- ------- ------- -------
Cash and cash equivalents, at end of period ......................... $ 1,693 $ 1,693 $ 155 $(3,386) $ 155
======= ======= ======= ======= =======
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto of the Company included
elsewhere in this report.
OVERVIEW
The Company's revenues are derived primarily from merchant market sales of
butadiene, MTBE, n-butylenes (butene-1 and butene-2) and specialty isobutylenes
(isobutylene concentrate, high purity isobutylene, and diisobutylene). The
Company's results of operations are affected by a number of factors, including
variations in market demand, production volumes, and the pricing of its products
and primary raw materials. The Company believes that the pricing for its
principal products is primarily dependent on the balance between the global
supply and North American demand for each product, the cost structure of the
various global producers (including their cost of raw materials) and from time
to time, other external factors, such as the implementation of the Clean Air Act
Amendments of 1990, which has significantly increased the demand for MTBE.
Historically, the Company has successfully mitigated the cyclicality of the
markets for certain of its end products by entering into contracts with pricing
which allows for a fixed profit by linking prices directly or indirectly to raw
material costs. In addition, the Company has attempted to optimize the use of
isobutylene, an intermediate feedstock produced by the Company, to produce MTBE
or higher margin specialty products depending on prevailing market conditions.
REVENUES
The Company's revenues are a function of the volume of products sold by the
Company and the prices for such products. The following tables set forth the
Company's historical revenues and the percentages of historical revenues by
product and volume of products sold, for the three months ended September 30,
1998 and 1997.
REVENUES
THREE MONTHS ENDED
SEPTEMBER 30,
-------------
1998 1997
---------------- -----------------
(DOLLARS IN MILLIONS)
Butadiene ...................... $ 26.4 27% $ 36.0 27%
MTBE ........................... 44.2 44 61.7 45
n-Butylenes .................... 11.2 11 15.9 12
Specialty Isobutylenes ......... 14.8 15 18.3 13
Other(1) ....................... 3.4 3 3.5 3
------- ------ ------- ------
Total .......................... $ 100.0 100% $ 135.4 100%
======= ====== ======= ======
(1) Includes utility revenues and revenues realized from the Company's
terminalling facilities.
13
<PAGE>
SALES VOLUMES
THREE MONTHS ENDED
SEPTEMBER 30,
-------------
1998 1997
---- ----
(MILLION OF POUNDS, EXCEPT WHERE NOTED)
Butadiene .................................... 195.9 198.8
MTBE(1) ...................................... 65.6 67.9
n-Butylenes .................................. 82.9 85.2
Specialty Isobutylenes ....................... 74.9 87.2
(1) Volumes in million of gallons.
RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------
1998 1997
---------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues ....................................... $ 100.0 100% $135.4 100%
Cost of goods sold ............................. 80.3 80 113.6 84
Depreciation and amortization .................. 7.7 8 7.7 6
------- ------- ------ -----
Gross profit ............................... 12.0 12 14.1 10
Selling, general and administrative expenses ... 2.3 2 1.5 1
------- ------- ------ -----
Income from operations ..................... $ 9.7 10% $12.6 9%
======= ======= ====== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997
REVENUES
The Company's revenues decreased by approximately 26%, or $35.4 million, to
$100.0 million for the three months ended September 30, 1998 from $135.4 million
for the three months ended September 30, 1997. Butadiene sales revenues
decreased approximately 27% as a result of lower sales prices and slightly lower
sales volumes. Butadiene sales prices have dropped significantly as compared to
the prior year due to an oversupply of imported product in the market. MTBE
sales revenues decreased approximately 28% as a result of lower sales prices as
compared to the prior year quarter. MTBE prices are significantly lower as a
result of its relationship to gasoline and crude oil prices. N-butylene sale
revenues also decreased over the prior year quarter due to lower sales prices
and lower sales volumes. Specialty isobutylene sales revenues decreased due to
lower sales volumes of isobutylene concentrate, which was partially offset by
higher sales volumes of high purity isobutylene and diisobutylene. Sales volumes
of isobutylene concentrate were lower due to a planned outage at one of the
Company's major customers. Improvements in high purity isobutylene and
diisobutylene sales volumes is attributable to customer demand.
14
<PAGE>
GROSS PROFIT
Gross profit decreased by approximately 15%, or $2.1 million, to $12.0
million for the three months ended September 30, 1998 from $14.1 million for the
three months ended September 30, 1997. Gross margin during this period increased
to 12.0% from 10.4%. This decrease in gross profit was primarily attributable to
lower MTBE margins and lower sales volumes of n-butylenes and specialty
isobutylenes. During the current quarter despite lower butadiene sales prices
and volume, the Company's margin increased due to lower spot crude butadiene
prices. MTBE margins were lower as compared to the prior quarter due to lower
sales prices, however the majority of the price decline was offset by lower
feedstock costs.
INCOME FROM OPERATIONS
Income from operations decreased by approximately 23%, or $2.9 million, to
$9.7 million for the three months ended September 30, 1998 from $12.6 million
for the three months ended September 30, 1997. Operating margin during this
period increased to 9.7% from 9.3%. This decrease in income from operations was
primarily due to the same factors contributing to the decrease in gross profit
described above. An increase in selling, general and administrative costs
attributable to software integration and business development contributed to the
decline in income from operations.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997
Net cash provided by operating activities was $5.5 million for the three
months ended September 30, 1998 compared to $4.9 million for the three months
ended September 30, 1997. The increase of $0.6 million was attributable to
decreased net income offset by reductions in working capital. Net cash used in
investing activities was $3.7 million for the three months ended September 30,
1998 compared to $1.0 million for the three months ended September 30, 1997. The
increase of $2.7 million was attributable to increased capital expenditures. Net
cash used in financing activities was $2.7 million for the three months ended
September 30, 1998 compared to $3.9 million for the three months ended September
30, 1997. The decrease of $1.2 million was attributable to lower repayments of
long-term debt.
15
<PAGE>
LIQUIDITY
The Company's liquidity needs arise primarily from principal and interest
payments under the Bank Credit Agreement and the Subordinated Notes. The
Company's primary source of funds to meet debt service requirements is net cash
flow provided by operating activities. Operating cash flow is significantly
impacted by raw materials cost as well as the selling price and volume variances
of finished goods. The Company enters into supply contracts for certain of its
products in order to mitigate the impact of changing prices. Additionally, the
Company has a $40 million Revolving Credit Facility, of which $12.5 million was
in use at September 30, 1998, to provide adequate funds for ongoing operations,
working capital and planned capital expenditures. The Company believes that the
availability of funds under the Revolving Credit Facility are sufficient to
cover any current liquidity needs which could arise as a result of negative
working capital. The Company's ability to borrow is limited by the terms of the
Bank Credit Agreement, the Subordinated Notes and the Discount Notes. The Bank
Credit Agreement, the Subordinated Notes and the Discount Notes include certain
restrictive covenants, which include but are not limited to, the maintenance of
certain financial ratios and limitations on capital expenditures, indebtedness,
investments and sales of assets and subsidiary stock. On June 30, 1998 the
Company obtained an amendment to the Bank Credit Agreement to update the
financial ratios relating to fixed charge coverage and debt to EBITDA for fiscal
1999 and part of fiscal 2000.
CASH BONUS PLAN
In connection with the Acquisition, the Predecessor established a $35
million Cash Bonus Plan covering substantially all employees of the Predecessor
(or certain affiliates of the Predecessor) and covering certain third-party
contractors who have contributed to the past success of the Predecessor. During
the quarter ended September 30, 1998, $2.0 million of this amount was paid to
eligible participants and the remaining $15.6 million will be made in eight
equal future quarterly installments.
CAPITAL EXPENDITURES
The Company's capital expenditures relate principally to improving operating
efficiencies and maintaining environmental compliance. Capital expenditures for
three months ended September 30, 1998 were $4.0 million. The Company expenses
approximately $20 million annually for plant maintenance. These maintenance
costs are not treated as capital expenditures.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share," SFAS
No. 129 "Disclosure of Information about Capital Structure," SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." During 1998, the FASB issued SFAS No.
132 "Employers Disclosures about Pensions and Other Postretirement Benefits,"
and SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Company has adopted the provisions of SFAS No. 128, SFAS No.
129, SFAS 130, SFAS 131 and SFAS 132 with no material revisions to the
disclosure in the financial statements. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company will analyze
this pronouncement to determine what, if any, additional disclosures will be
required thereunder.
16
<PAGE>
YEAR 2000 CONVERSION
The Company has recognized the need to ensure that its systems, equipment
and operations will not be adversely impacted by the change to the calendar year
2000. As such, the Company has taken steps to identify areas of risk and has
begun addressing these issues. The Company is currently in the process of
installing an upgraded information technology (IT) system and anticipates that
it will be fully implemented by mid calendar year 1999. The Company made the
decision to upgrade its IT system prior to concerns surrounding the year 2000.
Management believes the full implementation of this IT system will ensure the
Company's financial systems are compliant with the year 2000. The Company is
also evaluating its non-IT systems, consisting primarily of plant processing
equipment, for year 2000 compliance. The Company has not fully quantified these
areas but it is not expected to have a material impact on the Company's
financial position, results of operations or cash flows. In addition to
evaluating our own compliance with the year 2000, the Company is currently
requesting all of our major customers and suppliers to supply us with a status
of their compliance. At this point the Company has not received sufficient
responses to determine our exposure to non-compliance by a third party. The
Company currently does not have a contingency plan for the year 2000.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This document may include forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Although the
Company believes that the expectations reflected in such forward looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved. Important factors that could cause actual
results to differ materially from the Company's expectations are disclosed in
conjunction with the forward looking statements included herein ("Cautionary
Disclosures"). Subsequent written oral forward looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Disclosures.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments with respect to the Company's legal
proceedings previously reported in the Company's Form 10-K for the year ended
June 30, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
September 30, 1998.
18
<PAGE>
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.
TEXAS PETROCHEMICAL HOLDINGS, INC.
(Registrant)
Dated: November 13, 1998 By: /s/ CARL S. STUTTS
--------------------------------
(Signature)
Carl S. Stutts
Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 97
<SECURITIES> 0
<RECEIVABLES> 31,290
<ALLOWANCES> 0
<INVENTORY> 25,141
<CURRENT-ASSETS> 72,204
<PP&E> 224,773
<DEPRECIATION> 55,987
<TOTAL-ASSETS> 487,090
<CURRENT-LIABILITIES> 51,295
<BONDS> 265,273
0
0
<COMMON> 5
<OTHER-SE> 16,049
<TOTAL-LIABILITY-AND-EQUITY> 487,090
<SALES> 100,026
<TOTAL-REVENUES> 100,226
<CGS> 80,276
<TOTAL-COSTS> 90,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,744
<INCOME-PRETAX> 683
<INCOME-TAX> 900
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (217)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> 0.00
</TABLE>
