-------------------------------------------------------------
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 MARCH 31, 1999
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 May
13, 1999 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 March 31, 1999 and June 30, 1998 ...... 1
Consolidated Statement of Operations for the three and nine months ended
March 31, 1999 and 1998 ............................................. 2
Consolidated Statement of Cash Flows for the nine months ended
March 31, 1999 and 1998 ............................................. 3
Notes to Consolidated Financial Statements ............................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results
of Operations .......................................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 13
Item 6. Exhibits and Reports on Form 8-K .................................. 13
Signature ................................................................. 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
MARCH 31, JUNE 30,
1999 1998
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 77 $ 956
Accounts receivable - trade ...................... 39,529 45,298
Inventories ...................................... 15,980 17,210
Other current assets ............................. 15,889 13,636
--------- ---------
Total current assets .......................... 71,475 77,100
Property, plant and equipment, net ................... 222,670 227,217
Investments in land held for sale .................... 2,058 2,579
Investment in and advances to limited partnership .... 2,871 3,035
Goodwill, net ........................................ 170,706 174,143
Other assets, net of accumulated amortization ........ 10,245 13,163
--------- ---------
Total assets .................................. $ 480,025 $ 497,237
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft ................................... $ 2,331 $ --
Accounts payable - trade ......................... 30,354 28,000
Accrued expenses ................................. 10,571 21,787
Current portion of cash bonus plan ............... 7,810 7,811
Current portion of long-term debt ................ 6,999 6,982
--------- ---------
Total current liabilities ..................... 58,065 64,580
Revolving line of credit ............................. 14,800 12,000
Long-term debt ....................................... 329,355 330,814
Cash bonus plan ...................................... 3,881 9,766
Deferred income taxes ................................ 56,376 59,806
Commitments and contingencies (Note 4)
Common stock held by the ESOP .................... 12,600 10,000
Less: Unearned Compensation ..................... (5,670) (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 ....................... 36,608 36,264
Accumulated deficit .............................. (25,997) (19,998)
--------- ---------
Total stockholders' equity .................... 10,618 16,271
Total liabilities and stockholders' equity .. $ 480,025 $ 497,237
========= =========
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues ........................... $ 108,090 $ 113,369 $ 313,034 $ 389,917
Cost of goods sold ................. 92,394 98,430 261,975 334,270
Non-cash ESOP compensation ......... 147 -- 277 --
Depreciation and amortization ...... 5,657 7,757 21,098 23,220
--------- --------- --------- ---------
Gross profit ..................... 9,892 7,182 29,684 32,427
Selling, general and
administrative expenses ........... 1,771 1,897 5,850 5,080
--------- --------- --------- ---------
Income from operations ....... 8,121 5,285 23,834 27,347
Interest expense ................... 9,890 10,041 29,738 30,208
Other income (expense):
Loss on disposal of
non-plant assets ........... -- -- (44) (436)
Other, net ................... 209 308 1,198 740
--------- --------- --------- ---------
209 308 1,154 304
Income (loss) before
income taxes ................ (1,560) (4,448) (4,750) (2,557)
Provision (benefit) for income taxes (174) (1,128) (181) 488
--------- --------- --------- ---------
Net income (loss) ............ $ (1,386) $ (3,320) $ (4,569) $ (3,045)
========= ========= ========= =========
Income (loss) per share ............ $ (2.89) $ (7.21) $ (12.07) $ (6.69)
========= ========= ========= =========
Weighted average shares outstanding 480,278 460,278 475,278 455,278
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................... $ (4,569) $ (3,045)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation of fixed assets ......................... 17,413 18,881
Amortization of goodwill and other assets ............ 3,685 4,339
Amortization of debt issue costs and deferred premium 4,941 4,386
Loss on disposal of non-plant assets ................. 44 436
Earnings from limited partnership .................... (616) (446)
Deferred income taxes ................................ (3,235) (3,264)
Non-cash ESOP compensation ........................... 277 --
Change in:
Accounts receivable ................................ 5,769 7,142
Inventories ........................................ 1,230 (6,596)
Other assets ....................................... (955) 2,398
Accounts payable ................................... 2,354 (6,414)
Accrued expenses ................................... (10,960) (6,057)
-------- --------
Net cash provided by operating activities ....... 15,378 11,760
Cash flows from investing activities:
Capital expenditures ................................. (12,863) (8,907)
Proceeds from the sale of non-plant assets ........... 477 871
Distribution from limited partnership ................ 780 410
-------- --------
Net cash used in investing activities ........... (11,606) (7,626)
Cash flows from financing activities:
Change in bank overdraft ............................. 2,331 (4,910)
Net borrowings (repayments) under revolver ........... 2,800 10,400
Proceeds from issuance of long-term debt ............. -- 3,192
Payments on long-term debt ........................... (5,233) (7,900)
Payment of cash bonus plan ........................... (5,886) (5,850)
Debt issuance costs .................................. (163) (568)
Reduction in note receivable from ESOP ............... 1,500 1,500
-------- --------
Net cash used in financing activities ........... (4,651) (4,136)
-------- --------
Net increase (decrease) in cash and cash equivalents ..... (879) (2)
Cash and cash equivalents, at beginning of period ........ 956 101
-------- --------
Cash and cash equivalents, at end of period .............. $ 77 $ 99
======== ========
</TABLE>
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 that 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 March 31, 1999 and
the results of its operations and cash flows for the interim period ended March
31, 1999. 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:
MARCH 31, JUNE 30,
1999 1998
-------- --------
Finished goods ................................. $ 7,268 $ 4,701
Raw materials .................................. 7,381 10,415
Chemicals and supplies ......................... 1,331 2,094
-------- --------
$ 15,980 $ 17,210
PROPERTY, PLANT AND EQUIPMENT:
MARCH 31, JUNE 30,
1999 1998
-------- --------
Chemical plants ................................ $268,370 $260,808
Construction in progress ....................... 18,901 13,624
Other .......................................... 2,335 2,308
-------- --------
289,606 276,740
Less accumulated depreciation, depletion
and amortization ........................... 66,936 49,523
-------- --------
$222,670 $227,217
OTHER ASSETS:
MARCH 31, JUNE 30,
1999 1998
-------- --------
Debt issue costs ............................... $ 14,104 $ 13,984
Organizational costs ........................... 573 573
Intangibles and other .......................... 2,862 4,502
-------- --------
17,539 19,059
Less accumulated amortization .................. 7,294 5,896
-------- --------
$ 10,245 $ 13,163
5
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
ACCRUED EXPENSES:
MARCH 31, JUNE 30,
1999 1998
-------- --------
Accrued interest ................................. $ 7,759 $ 14,581
Property and sales taxes ......................... 955 2,836
Federal and state taxes .......................... 816 3,629
Other ............................................ 1,041 741
-------- --------
$ 10,571 $ 21,787
LONG TERM DEBT:
MARCH 31, JUNE 30,
1999 1998
-------- --------
Bank Credit Agreement:
Term A Loan ................................... $ 18,752 $ 21,003
Term B Loan ................................... 41,653 42,393
ESOP Loan ..................................... 4,500 6,000
Revolving Credit Loans ........................ 14,800 12,000
Senior Subordinated Notes ........................ 225,000 225,000
Discount Notes ................................... 42,991 38,958
Deferred premium on Senior Subordinated Notes .... 2,330 2,571
Long-term financing .............................. 1,128 1,871
-------- --------
351,154 349,796
Less current maturities .......................... 6,999 6,982
-------- --------
Long-term debt ................................... $344,155 $342,814
======== ========
The Bank Credit Agreement provides 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
(2.5% and 3% for Term A and Term B, respectively at March 31, 1999) or the
greater of the prime rate and the federal funds rate plus 1/2% plus a margin
(1.5% at March 31, 1999). 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
March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
--------- ---------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ - $ 77 $ - $ 77
Accounts receivable - trade 39,529 39,529
Inventories 15,980 15,980
Other current assets (41) 15,930 15,889
--------- --------- --------- ----------- ---------
Total current assets (41) 71,516 71,475
Property, plant and equipment, net 222,670 222,670
Investments in land held for sale 2,058 2,058
Investment in and advances to limited partnership 2,871 2,871
Goodwill, net 170,706 170,706
Other assets, net of accumulated amortization 472 9,773 10,245
Consolidated subsidiaries 55,561 55,561 (111,122) -
--------- --------- --------- --------- ------
Total assets $ 55,992 $ 55,561 $ 479,594 $ (111,122) $480,025
========= ========= ========= =========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Bank overdraft $ - $ - $ 2,331 $ - $ 2,331
Accounts payable - trade 30,354 30,354
Accrued expenses 10,571 10,571
Current portion of cash bonus plan 7,810 7,810
Current portion of long-term debt 6,999 6,999
--------- --------- --------- ----------- ---------
Total current liabilities 58,065 58,065
Revolving line of credit 14,800 14,800
Long-term debt 42,991 286,364 329,355
Cash bonus plan 3,881 3,881
Deferred income taxes (4,547) 60,923 56,376
Common stock held by the ESOP 12,600 12,600
Less: unearned compensation (5,670) (5,670)
Stockholders' equity:
Common Stock 5 4,162 (4,162) 5
Additional paid in capital 36,608 71,582 71,920 (143,502) 36,608
Accumulated deficit (25,997) (16,021) (16,021) 32,042 (25,997)
Note receivable from ESOP (4,500) 4,500 -
--------- --------- --------- ----------- -------
Total stockholders' equity 10,618 55,561 55,561 (111,122) 10,618
--------- --------- --------- ------------ ---------
Total liabilities and stockholders' equity $ 55,992 $ 55,561 $479,594 $ (111,122) $480,025
========= ========= ======== ============ ========
</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
Nine Months Ended March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
--------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ - $ 313,034 $ - $ 313,034
Cost of goods sold 261,975 261,975
Non-cash ESOP compensation 277 277
Depreciation and amortization 21,098 21,098
--------- ---------
Gross profit 29,684 29,684
Selling, general and administrative expenses 8 5,842 5,850
--------- ------- --------- --------- ---------
Income (loss) from operations (8) 23,842 23,834
Interest expense 4,074 25,664 29,738
Other income (expense):
Loss on disposal of non-plant assets (44) (44)
Other, net 1,198 1,198
--------- ---------
1,154 1,154
--------- ------- --------- --------- ---------
Income (loss) before income taxes (4,082) (668) (4,750)
Provision (benefit) for income taxes (1,408) 1,227 (181)
Equity in net income of subsidiaries (1,895) (1,895) 3,790
--------- ------- --------- ---------
Net income (loss) $ (4,569) $(1,895) $ (1,895) $ 3,790 $ (4,569)
========= ======= ========= ========= =========
</TABLE>
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Nine Months Ended March 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
--------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ - $389,917 $ - $ 389,917
Cost of goods sold 334,270 334,270
Depreciation and amortization 23,220 23,220
--------- ---------
Gross profit 32,427 32,427
Selling, general and administrative expenses 8 5,072 5,080
--------- ------- --------- --------- ---------
Income (loss) from operations (8) 27,355 27,347
Interest expense 3,571 26,637 30,208
Other income (loss) 304 304
--------- ------- --------- --------- ---------
Income (loss) before income taxes (3,579) 1,022 (2,557)
Provision (benefit) for income taxes (1,305) 1,793 488
Equity in net income of subsidiaries (771) (771) 1,542
--------- ------- --------- ---------
Net income $ (3,045) $ (771) $ (771) $ 1,542 $ (3,045)
========= ========= ========= ========= =========
</TABLE>
10
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Nine Months Ended March 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
--------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,569) $ (1,895) $ (1,895) $ 3,790 $ (4,569)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 17,413 17,413
Amortization of goodwill and other assets 3,685 3,685
Amortization of debt issue costs 4,074 867 4,941
Loss on disposal of non-plant assets 44 44
Earnings from limited partnership (616) (616)
Deferred income taxes (1,408) (1,827) (3,235)
Non-cash ESOP compensation 277 277
Change in:
Accounts receivable 5,769 5,769
Inventories 1,230 1,230
Other assets (955) (955)
Accounts payable, accrueds and other 8 (8,614) (8,606)
---------- --------- --------- ---------- ---------
Net cash provided by operating
activities (1,895) (1,895) 15,378 3,790 15,378
Cash flows from investing activities:
Capital expenditures (12,863) (12,863)
Proceeds from the sale of non-plant assets 477 477
Distribution from limited partnership 780 780
---------- --------- --------- ---------- ---------
Net cash used in investing activities (11,606) (11,606)
Cash flows from financing activities:
Change in bank overdraft 2,331 2,331
Net repayments under revolver 2,800 2,800
Proceeds from issuance of long-term debt
Payments on long-term debt (5,233) (5,233)
Payment of cash bonus plan (5,886) (5,886)
Debt issuance costs (163) (163)
Reduction in note receivable from ESOP 1,500 1,500
---------- --------- --------- ---------- ---------
Net cash used in financing
activities (4,651) (4,651)
---------- --------- --------- ---------- ---------
Net increase (decrease) in cash and
cash equivalents (1,895) (1,895) (879) 3,790 (879)
Cash and cash equivalents, at beginning
of period 956 956
---------- --------- --------- ---------- ---------
Cash and cash equivalents, at end of period $ (1,895) $ (1,895) $ 77 $ 3,790 $ 77
========== ========= ========= ========== =========
</TABLE>
11
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Nine Months Ended March 31, 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) $ (3,045) $ (771) $ (771) $ 1,542 $ (3,045)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 18,881 18,881
Amortization of goodwill and other assets 4,339 4,339
Amortization of debt issue costs 3,571 815 4,386
Loss on sale of non-plant assets 436 436
Earnings from limited partnership (446) (446)
Deferred income taxes (3,264) (3,264)
Change in:
Accounts receivable 7,142 7,142
Inventories (6,596) (6,596)
Other assets (1,297) 3,695 2,398
Accounts payable, accruels and other (12,471) (12,471)
---------- --------- --------- ---------- ---------
Net cash provided by operating
activities (771) (771) 11,760 1,542 11,760
Cash flows from investing activities:
Capital expenditures (8,907) (8,907)
Proceeds from the sale of non-plant assets 871 871
Distribution from limited partnership 410 410
---------- --------- --------- ---------- ---------
Net cash used in investing activities (7,626) (7,626)
Cash flows from financing activities:
Change in bank overdraft (4,910) (4,910)
Net repayments under revolver 10,400 10,400
Proceeds from issuance of long-term debt 3,192 3,192
Payments on long-term debt (7,900) (7,900)
Payment of cash bonus plan (5,850) (5,850)
Debt issuance costs (568) (568)
Reduction in note receivable from ESOP 1,500 1,500
---------- --------- --------- ---------- ---------
Net cash used in financing activities (4,136) (4,136)
---------- --------- --------- ---------- ---------
Net increase (decrease) in cash and
cash equivalents (771) (771) (2) 1,542 (2)
Cash and cash equivalents, at beginning of period 101 101
---------- --------- --------- ---------- ---------
Cash and cash equivalents, at end of period $ (771) $ (771) $ 99 $ 1,542 $ 99
========== ========= ========= ========== =========
</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.
On March 26, 1999 the Governor of California issued an executive order which
stated an objective of phasing out MTBE usage in California no later than
December 31, 2002. The Company is continuing its efforts to assure the ongoing
viability of its MTBE business while concurrently evaluating alternatives to the
production of MTBE. There can be no assurances that future results will not be
impacted negatively by the California decision or that MTBE usage in the United
States will be diminished.
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 and nine months ended March
31, 1999 and 1998.
<TABLE>
<CAPTION>
REVENUES
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------- ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Butadiene ............ $ 22.8 21% $ 31.6 28% $ 75.9 24 $104.2 27%
MTBE ................. 55.3 51 49.9 44 150.0 48 175.7 45
n-Butylenes .......... 10.1 9 10.7 10 33.9 11 43.2 11
Specialty Isobutylenes 16.9 16 17.5 15 43.5 14 54.9 14
Other(1) ............. 3.0 3 3.7 3 9.7 3 11.9 3
------ --- ------ --- ------ --- ------ ---
Total ................ $108.1 100% $113.4 100% $313.0 100% $389.9 100%
====== === ====== === ====== === ====== ===
</TABLE>
- ---------------
(1) Includes utility revenues and revenues realized from the Company's
terminalling facilities.
13
<PAGE>
SALES VOLUMES
THREE MONTHS ENDED NINE MONTH ENDED
MARCH 31, MARCH 31,
------------------ -----------------
1999 1998 1999 1998
----- ------ ----- -----
(MILLIONS OF POUNDS, EXCEPT WHERE NOTED)
Butadiene ...................... 200.4 202.4 613.6 604.7
MTBE(1) ........................ 110.0 70.3 261.4 211.6
n-Butylenes .................... 73.0 62.0 242.7 240.3
Specialty Isobutylenes ......... 97.6 90.3 233.8 269.0
- ----------
(1) Volumes in millions of gallons. Includes 37.9 million, 5.5 million, 49.8
million and 11.5 million gallons of finished MTBE purchased for resale for the
three months ended March 31, 1999 and 1998 and the nine months ended March 31,
1999 and 1998, respectively.
RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues .......................... $108.1 100% $113.4 100% $313.0 100% $389.9 100%
Cost of goods sold ................ 92.4 86 98.4 87 262.0 84 334.3 86
Non-cash ESOP compensation ........ 0.1 -- -- -- 0.3 -- -- --
Depreciation and amortization ..... 5.7 5 7.8 7 21.1 6 23.2 6
Gross profit .................. 9.9 9 7.2 6 29.6 10 32.4 8
Selling, general and administrative 1.8 1 1.9 1 5.8 2 5.1 1
------ --- ------ --- ------ --- ------ ---
Income from operations ........ $ 8.1 8% $ 5.3 5% $ 23.8 8% $ 27.3 7%
====== === ====== === ====== === ====== ===
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998
REVENUES
The Company's revenues decreased by approximately 5%, or $5.3 million, to
$108.1 million for the three months ended March 31, 1999 from $113.4 million for
the three months ended March 31, 1998. Butadiene sales revenues decreased
approximately 28% as a result of lower sales prices. Butadiene sales volumes
remained stable while sales prices dropped significantly as compared to the
prior year due to an oversupply of imported product in the market. MTBE sales
revenues increased approximately 11% as a result of higher sales volumes due to
the purchase of finished material for resale. The increase in sales volume
offset are significantly lower MTBE prices due to low gasoline and crude oil
prices during the period. N-butylene and specialty isobutylene sales revenue was
essentially unchanged as higher sales volumes offset declines in average sales
prices.
14
<PAGE>
GROSS PROFIT
Gross profit increased by approximately 38%, or $2.7 million, to $9.9
million for the three months ended March 31, 1999 from $7.2 million for the
three months ended March 31, 1998. Gross margin during this period increased to
9.2% from 6.3%. This increase in gross profit was primarily due to the change in
depreciation and amortization due to an increase in the useful life of the plant
facility. During the current quarter despite lower butadiene sales prices, 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.
N-butylene and specialty isobutylene margins improved as compared to the prior
quarter due to higher sales volumes.
INCOME FROM OPERATIONS
Income from operations increased by approximately 53%, or $2.8 million, to
$8.1 million for the three months ended March 31, 1999 from $5.3 million for the
three months ended March 31, 1998. Operating margin during this period increased
to 7.5% from 4.7%. This increase in income from operations was primarily due to
the same factors contributing to the decrease in gross profit described above.
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
1998
REVENUES
The Company's revenues decreased by approximately 20%, or $76.9 million, to
$313.0 million for the nine months ended March 31, 1999 from $389.9 million for
the nine months ended March 31, 1998. Butadiene sales revenues decreased
approximately 27% as a result of lower sales prices partially offset by higher
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 15% as a result of lower sales prices as
compared to the prior year partially offset by higher sales volumes. 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 due to
lower sales prices. 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 volume is attributable to customer demand.
GROSS PROFIT
Gross profit decreased by approximately 9%, or $2.8 million, to $29.6
million for the nine months ended March 31, 1999 from $32.4 million for the nine
months ended March 31, 1998. Gross margin during this period increased to 9.5%
from 8.3%. This decrease in gross profit was primarily attributable to lower
MTBE margins and lower sales volumes of specialty isobutylenes. The decrease in
gross profit was offset by a reduction in depreciation and amortization due to
an increase in the useful life of the plant facility. Additionally, during the
current period, despite lower sales prices, the Company's butadiene margin
increased due to lower spot crude butadiene prices.
15
<PAGE>
INCOME FROM OPERATIONS
Income from operations decreased by approximately 13%, or $3.5 million, to
$23.8 million for the nine months ended March 31, 1999 from $27.3 million for
the nine months ended March 31, 1998. Operating margin during this period
increased to 7.6% from 7.0%. 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
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
1998
Net cash provided by operating activities was $15.4 million for the nine
months ended March 31, 1999 compared to $11.8 million for the nine months ended
March 31, 1998. The increase of $3.6 million was attributable to increases in
working capital offset by an increase in net loss. Net cash used in investing
activities was $11.6 million for the nine months ended March 31, 1999 compared
to $7.6 million for the nine months ended March 31, 1998. The increase of $4.0
million was attributable to increased capital expenditures. Net cash used in
financing activities was $4.7 million for the nine months ended March 31, 1999
compared to $4.1 million for the nine months ended March 31, 1998. The increase
of $0.6 million was attributable to the change in bank overdraft and lower
borrowings of long-term debt and the revolver.
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 $14.8 million was
in use at March 31, 1999, 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 and the Subordinated 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.
16
<PAGE>
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 nine months ended March 31, 1999, $5.9 million of this amount was paid to
eligible participants and the remaining $11.7 million will be made in future
quarterly installments.
CAPITAL EXPENDITURES
The Company's capital expenditures relate principally to improving operating
efficiencies and maintaining environmental compliance. Capital expenditures for
the nine months ended March 31, 1999 were $12.9 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.
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 they are not expected to have a material impact on the Company's
financial position, results of operations or cash flows. In addition to
evaluating its own compliance with the year 2000, the Company is currently
requesting all of its major customers and suppliers to supply it with a report
of the status of their compliance. At this point, the Company has not received
sufficient responses to determine its exposure to non-compliance by a third
party. The Company is in the process of preparing a contingency plan for the
year 2000.
17
<PAGE>
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 or oral forward looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Disclosures.
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
March 31, 1999.
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: May 13, 1999 By: CARL S. STUTTS
------------------------------
(Signature)
Carl S. Stutts
Vice President Finance and
Corporate Development
19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 77
<SECURITIES> 0
<RECEIVABLES> 39,529
<ALLOWANCES> 0
<INVENTORY> 15,980
<CURRENT-ASSETS> 71,475
<PP&E> 222,670
<DEPRECIATION> 66,936
<TOTAL-ASSETS> 480,025
<CURRENT-LIABILITIES> 58,065
<BONDS> 267,991
0
0
<COMMON> 5
<OTHER-SE> 10,611
<TOTAL-LIABILITY-AND-EQUITY> 480,025
<SALES> 313,034
<TOTAL-REVENUES> 313,034
<CGS> 261,975
<TOTAL-COSTS> 289,200
<OTHER-EXPENSES> (1,154)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,738
<INCOME-PRETAX> (4,750)
<INCOME-TAX> (181)
<INCOME-CONTINUING> (4,569)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,569)
<EPS-PRIMARY> (12.07)
<EPS-DILUTED> (12.07)
</TABLE>
