<PAGE> 1
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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, 2000
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 _, 2000 is 529,445.
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TEXAS PETROCHEMICAL HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet as of September 30, 2000 and June 30, 2000 1
Consolidated Statement of Operations for the three months ended
September 30, 2000 and 1999 2
Consolidated Statement of Cash Flows for the three months ended
September 30, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
</TABLE>
i
<PAGE> 3
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,
2000 2000
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,838 $ 14,929
Accounts receivable - trade 66,605 64,235
Inventories 35,064 35,957
Investment in land held for sale 1,068 1,068
Other current assets 11,613 11,398
------------- -------------
Total current assets 119,188 127,587
Property, plant and equipment, net 217,999 219,517
Investment in land held for sale 990 990
Investment in and advances to limited partnership 2,679 2,769
Goodwill, net 163,832 164,978
Other assets, net of accumulated amortization 8,622 8,239
------------- -------------
Total assets $ 513,310 $ 524,080
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 6,063 $ 7,146
Accounts payable - trade 69,917 71,775
Accrued expenses 14,596 18,829
Current portion of cash bonus plan -- 213
Current portion of long-term debt 7,098 8,086
------------- -------------
Total current liabilities 97,674 106,049
Revolving line of credit 2,050 1,650
Long-term debt 321,128 326,255
Deferred income taxes 53,778 55,005
Commitments and contingencies (Note 3)
Common stock held by the ESOP 13,100 13,100
Less: unearned compensation (1,965) (2,620)
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 voting
and 100,000 shares non-voting authorized, 529,445 voting
shares issued and outstanding 5 5
Additional paid in capital 37,563 37,408
Treasury stock (257) (257)
Accumulated deficit (9,766) (12,515)
------------- -------------
Total stockholders' equity 27,545 24,641
------------- -------------
Total liabilities and stockholders' equity $ 513,310 $ 524,080
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Revenues $ 220,588 $ 154,002
Cost of goods sold 195,620 132,049
Non-cash ESOP compensation 155 130
Depreciation and amortization 6,122 5,864
------------- -------------
Gross profit 18,691 15,959
Selling, general and administrative expenses 2,646 1,990
------------- -------------
Income from operations 16,045 13,969
Interest expense 9,750 9,767
Other income (expense), net (287) 102
------------- -------------
Income before income taxes and cumulative 6,008 4,304
effect of accounting change
Provision for income taxes 2,694 2,336
Cumulative effect of accounting change 410 --
------------- -------------
(net of $221 income tax benefit)
Net income $ 2,904 $ 1,968
============= =============
Basic income per share
Income before cumulative effect of accounting change $ 6.47 $ 4.01
Cumulative effect of accounting change (.80) --
------------- -------------
Income per share $ 5.67 $ 4.01
============= =============
Weighted average shares outstanding - basic 511,945 490,678
============= =============
Diluted income per share
Income before cumulative effect of accounting change $ 6.18 $ 3.95
Cumulative effect of accounting change (.77) --
------------- -------------
Income per share $ 5.41 $ 3.95
============= =============
Weighted average shares outstanding - diluted 536,422 497,339
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,904 $ 1,968
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets 4,976 4,668
Amortization of goodwill and other assets 1,146 1,193
Amortization of debt issuance costs and deferred premium 2,021 1,812
Earnings from limited partnership (60) (124)
Deferred income taxes (593) (966)
Non-cash ESOP compensation 155 130
Non-cash change in FV of derivatives 995 --
Change in:
Accounts receivable (2,370) (7,822)
Inventories 893 (653)
Other assets (1,980) 79
Accounts payable (1,858) 11,692
Accrued expenses (4,874) (4,596)
------------- -------------
Net cash provided by operating activities 1,355 7,381
Cash flows from investing activities:
Capital expenditures (3,458) (876)
Distribution from limited partnership 150 --
------------- -------------
Net cash used in investing activities (3,308) (876)
Cash flows from financing activities:
Change in bank overdraft (1,083) (874)
Net borrowings (repayments) under revolver 400 (2,000)
Payments on long-term debt (7,742) (1,910)
Payment of cash bonus plan (213) (1,949)
Debt issuance costs -- (152)
Reduction in note receivable from ESOP 500 500
------------- -------------
Net cash used in financing activities (8,138) (6,385)
------------- -------------
Net increase (decrease) in cash and cash equivalents (10,091) 120
Cash and cash equivalents, at beginning of period 14,929 103
------------- -------------
Cash and cash equivalents, at end of period $ 4,838 $ 223
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
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 third 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 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 and (v) polyisobutylenes, used in the
production of fuel and lube additives, adhesives, sealants and packing.
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 margin 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 10-Q 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, 2000
and the results of its operations and cash flows for the interim period ended
September 30, 2000. 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, 2000. The June 30, 2000 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.
EARNINGS PER SHARE
The basic and diluted weighted average shares outstanding used in the
computation of earnings per share are net of 15,000 and 35,000 shares held by
the Employee Stock Ownership Plan that are not allocated to employees as of
September 30, 2000 and 1999, respectively. The diluted weighted average shares
outstanding for the three months ended September 30, 2000 and 1999 include the
dilutive effect of stock options outstanding of 6,977 shares and 6,661 shares,
respectively.
4
<PAGE> 7
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
INVENTORIES:
SEPTEMBER 30, JUNE 30,
2000 2000
------------- -------------
<S> <C> <C>
Finished goods $ 19,783 $ 18,505
Raw materials 14,113 15,915
Chemicals and supplies 1,168 1,537
------------- -------------
$ 35,064 $ 35,997
============= =============
OTHER CURRENT ASSETS:
SEPTEMBER 30, JUNE 30,
2000 2000
------------- -------------
Catalyst inventory $ 7,105 $ 7,402
Deferred turnaround costs 1,845 452
Prepaid and other 2,663 3,544
------------- -------------
$ 11,613 $ 11,398
============= =============
PROPERTY, PLANT AND EQUIPMENT:
SEPTEMBER 30, JUNE 30,
2000 2000
------------- -------------
Chemical plants $ 296,671 $ 295,124
Construction in progress 11,047 9,233
Other 5,689 5,592
------------- -------------
313,407 309,949
Less accumulated depreciation, depletion
and amortization 95,408 90,432
------------- -------------
$ 217,999 $ 219,517
============= =============
ACCRUED EXPENSES:
SEPTEMBER 30, JUNE 30,
2000 2000
------------- -------------
Accrued interest $ 7,239 $ 13,780
Property and sales taxes 2,973 2,218
Federal and state income taxes 2,740 639
Other 1,644 2,192
------------- -------------
$ 14,596 $ 18,829
============= =============
</TABLE>
5
<PAGE> 8
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
<TABLE>
<CAPTION>
LONG TERM DEBT:
SEPTEMBER 30, JUNE 30,
2000 2000
------------- -------------
<S> <C> <C>
Bank Credit Agreement:
Term A Loan $ 11,624 $ 14,402
Term B Loan 35,957 40,421
ESOP Loan 1,500 2,000
Revolving Credit Loans 2,050 1,650
Senior Subordinated Notes 225,000 225,000
Discount Notes 52,297 50,590
Deferred premium on Senior Subordinated Notes 1,848 1,928
------------- -------------
330,276 335,991
Less current maturities 7,098 8,086
------------- -------------
Long-term debt $ 323,178 $ 327,905
============= =============
</TABLE>
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
(1.50% and 3.00% for Term A and Term B, respectively at September 30, 2000) or
the greater of the prime rate and the federal funds rate plus 1/2% plus a margin
(.50% at September 30, 2000). 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 Bank Credit Agreement and the Senior Subordinated 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. During the quarter ended
September 30, 2000, in compliance with the excess cash flow provisions, the
Company made a prepayment of $ 5.7 million towards the term loans under the Bank
Credit Agreement.
3. 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.
6
<PAGE> 9
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
LITIGATION
Legal actions have been filed in several states for recovery for alleged
property damage and/or costs of remediation and replacement of water supplies
due to the presence of MTBE. As of this point in time, the Company has not been
named in any of these actions; however, no assurance can be given that the
Company will not be named in these or other future actions.
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.
Under federal and state environmental laws, companies may be liable for
remediation of contamination at on-site and off-site waste management and
disposal areas. Management believes that the Company is not likely to be
required to incur remediation costs related to its management, transportation
and disposal of solid and hazardous materials and wastes, or to its pipeline
operations.
The Company received a Notice of Violation ("NOV") on March 10, 2000 from
the EPA relating to certain discrepancies alleged to have been found during
routine inspections conducted by EPA in 1995 and 1997. The NOV has not yet led
to the filing of a judicial complaint against the Company. The EPA, the
Department of Justice, and the Company are currently exploring the possibility
of an agreed upon settlement of issues. The anticipated settlement of such
issues is not expected to have a material adverse impact on the Company's
financial condition, results of operations or cash flow.
A bill (S.B. 2962) has been introduced in Congress to reduce the use of
MTBE nationwide within four (4) years of enactment of the bill, and to allow
states to opt out of the oxygenate requirement of the Clean Air Act ("CAA")
beginning in 2001. The Company is not able to predict whether such legislation
will be adopted, or, if adopted, the extent to which MTBE demand would be
reduced as a result; it is possible, however, that such reduction could be
material. Although the EPA continues to require oxygenates to be added to
gasoline in certain regions of the country either year-round or during the
winter months, and MTBE continues to be the leading oxygenate used, EPA has
called for reduction in the use of MTBE in gasoline. Any restriction on or
prohibition of the use of MTBE could have a material adverse effect on the
Company's financial condition or results of operations.
7
<PAGE> 10
4. ACCOUNTING CHANGE
On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Certain
Hedging Activities" and SFAS No. 138, "Accounting for Derivative Instruments and
Certain Hedging Activity, and Amendment of SFAS 133". Accordingly, upon adoption
of these pronouncements the Company recorded all derivative instruments on the
balance sheet at their respective fair values with an offsetting entry as a
cumulative change in accounting principle, net of tax. The cumulative effect on
earnings is a pre-tax charge of $0.6 million less a tax benefit of $0.2 million.
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:
8
<PAGE> 11
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Balance Sheet
September 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
------------ ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 3 $ 4,835 $ -- $ 4,838
Accounts receivable - trade -- -- 66,605 -- 66,605
Inventories -- -- 35,064 -- 35,064
Investment in land held for sale -- -- 1,068 -- 1,068
Other current assets (229) -- 11,852 (10) 11,613
------------ ------------ ------------ ------------ ------------
Total current assets (229) 3 119,424 119,188
Property, plant and equipment, net -- -- 217,999 -- 217,999
Investments in land held for sale -- -- 990 -- 990
Investment in and advances to limited partnership -- -- 2,679 -- 2,679
Goodwill, net -- -- 163,832 -- 163,832
Other assets, net of accumulated amortization 391 -- 8,231 -- 8,622
Consolidated subsidiaries 83,300 83,307 -- (166,607) --
------------ ------------ ------------ ------------ ------------
Total assets $ 83,462 $ 83,310 $ 513,155 $ (166,617) $ 513,310
============ ============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ -- $ -- $ 6,063 $ -- $ 6,063
Accounts payable - trade -- -- 69,917 -- 69,917
Payable to Parent -- 10 2,740 (2,750) --
Accrued expenses -- -- 11,856 2,740 14,596
Current portion of long-term debt -- -- 7,098 -- 7,098
------------ ------------ ------------ ------------ ------------
Total current liabilities -- 10 97,674 (10) 97,674
Revolving line of credit -- -- 2,050 -- 2,050
Long-term debt 52,297 -- 268,831 -- 321,128
Deferred income taxes (7,515) -- 61,293 -- 53,778
Common stock held by the ESOP 13,100 -- -- -- 13,100
Less: unearned compensation (1,965) -- -- -- (1,965)
Stockholders' equity:
Partners' equity -- -- 84,807 (84,807) --
Common Stock 5 -- -- -- 5
Additional paid in capital 37,563 75,435 -- (75,435) 37,563
Treasury stock (257) -- -- -- (257)
Accumulated deficit (9,766) 7,865 -- (7,865) (9,766)
Note receivable from ESOP -- -- (1,500) 1,500 --
------------ ------------ ------------ ------------ ------------
Total stockholders' equity 27,545 83,300 83,307 (166,607) 27,545
------------ ------------ ------------ ------------ ------------
Total liabilities and stockholders' equity $ 83,462 $ 83,310 $ 513,155 $ (166,617) $ 513,310
============ ============ ============ ============ ============
</TABLE>
9
<PAGE> 12
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Balance Sheet
June 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
--------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 10 $ 14,919 $ -- $ 14,929
Accounts receivable:
Trade 64,235 64,235
Inventories 35,957 35,957
Investments in land held for sale 1,068 1,068
Other current assets (223) 11,631 (10) 11,398
--------- --------- --------- --------- ---------
Total current assets (223) 10 127,810 (10) 127,587
Property, plant and equipment, net 219,517 219,517
Investments in land held for sale 990 990
Investment in and advances to limited
partnership 2,769 2,769
Goodwill, net 164,978 164,978
Other assets, net of accumulated amortization 404 7,835 8,239
Consolidated subsidiaries 78,591 78,591 (157,182) --
--------- --------- --------- --------- ---------
Total assets $ 78,772 $ 78,601 $ 523,899 $(157,192) $ 524,080
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ $ -- $ 7,146 $ -- $ 7,146
Accounts payable - trade 71,775 71,775
Payable to affiliate 10 639 (649) --
Accrued expenses 18,190 639 18,829
Current portion of cash bonus plan 213 213
Current portion of long-term debt 8,086 8,086
--------- --------- --------- --------- ---------
Total current liabilities 10 106,049 (10) 106,049
Revolving line of credit 1,650 1,650
Long-term debt 50,590 275,665 326,255
Cash bonus plan --
Deferred income taxes (6,939) 61,944 55,005
Common stock held by the ESOP 13,100 13,100
Less: unearned compensation (2,620) (2,620)
Stockholders' equity:
Common Stock 5 4,162 (4,162) 5
Additional paid in capital 37,408 74,782 72,620 (147,402) 37,408
Treasury stock (257) (257)
Accumulated deficit (12,515) 3,809 3,809 (7,618) (12,515)
Note receivable from ESOP (2,000) 2,000
--------- --------- --------- ---------
Total stockholders' equity 24,641 78,591 78,591 (157,182) 24,641
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity $ 78,772 $ 78,601 $ 523,899 $(157,192) $ 524,080
========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 13
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, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
-------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ 220,588 $ -- $ 220,588
Cost of goods sold 195,620 195,620
Non-cash ESOP compensation 155 155
Depreciation and amortization 6,122 6,122
--------- ---------
Gross profit 18,691 18,691
Selling, general and administrative expenses 10 2,636 2,646
-------- -------- --------- ------- ---------
Income (loss) from operations (10) 16,055 16,045
Interest expense 1,721 8,029 9,750
Other income (expense) (287) (287)
-------- -------- --------- ------- ---------
Income (loss) before income taxes (1,731) 7,739 6,008
Provision (benefit) for income taxes (574) 3,268 2,694
Equity in net income of subsidiaries 4,061 4,061 -- (8,122) --
Cumulative effect of accounting change, net
of tax -- -- 410 -- 410
-------- -------- --------- ------- ---------
Net income $ 2,904 $ 4,061 $ 4,061 $(8,122) $ 2,904
======== ======== ========= ======= =========
</TABLE>
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Three Months Ended September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
-------- --------- -------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ 154,002 $ -- $ 154,002
Cost of goods sold 132,049 132,049
Non-cash ESOP compensation 130 130
Depreciation and amortization 5,864 5,864
--------- ---------
Gross profit 15,959 15,959
Selling, general and administrative expenses 1 1,989 1,990
-------- --------- --------- -------- ---------
Income (loss) from operations (1) 13,970 13,969
Interest expense 1,512 8,255 9,767
Other income (expense) 102 102
-------- --------- --------- -------- ---------
Income (loss) before income taxes (1,513) 5,817 4,304
Provision (benefit) for income taxes (521) 2,857 2,336
Equity in net income of subsidiaries 2,960 2,960 (5,920)
-------- --------- --------- -------- ---------
Net income (loss) $ 1,968 $ 2,960 $ 2,960 $ (5,920) $ 1,968
======== ========= ========= ======== =========
</TABLE>
11
<PAGE> 14
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, 2000
(in thousands);
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
---------- ---------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,904 $ 4,061 $ 4,061 $ (6,965) $ 2,904
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 4,976 4,976
Amortization of goodwill and other assets 1,146 1,146
Amortization of debt issue costs 1,720 301 2,021
Earnings from limited partnership (60) (60)
Deferred income taxes (576) (17) (593)
Non-cash ESOP compensation 155 155
Non-cash change in FV of derivatives 995 995
Change in:
Accounts receivable (2,370) (2,370)
Inventories 893 893
Other assets 13 (1,993) (1,980)
Accounts payable, accrued and other -- (7) (6,725) (6,732)
---------- ---------- -------------- ------------ ----------
Net cash provided by operating activities 4,061 4,054 1,362 (6,965) 1,355
Cash flows from investing activities:
Capital expenditures (3,458) (3,458)
Distribution from Limited partnership 150 150
---------- ---------- -------------- ------------ ----------
Net cash used in investing activities (3,308) (3,308)
Cash flows from financing activities:
Change in bank overdraft (1,083) (1,083)
Net repayments under revolver 400 400
Payments on long-term debt (7,742) (7,742)
Payment of cash bonus plan (213) (213)
Reduction in note receivable from ESOP 500 500
---------- ---------- -------------- ------------ ----------
Net cash used in financing activities (8,138) (8,138)
---------- ---------- -------------- ------------ ----------
Net increase (decrease) in cash and cash equivalents 4,061 4,054 (10,084) (6,965) (10,091)
Cash and cash equivalents, at beginning of period 10 14,919 14,929
---------- ---------- -------------- ------------ ----------
Cash and cash equivalents, at end of period $ 4,061 $ 4,064 $ 4,835 $ (6,965) $ 4,838
========== ========== ============== ============ ==========
</TABLE>
12
<PAGE> 15
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, 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) $ 1,968 $ 2,960 $ 2,960 $ (5,920) $ 1,968
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 4,668 4,668
Amortization of goodwill and other assets 1,193 1,193
Amortization of debt issue costs 1,512 300 1,812
Earnings from limited partnership (124) (124)
Deferred income taxes (524) (442) (966)
Non-cash ESOP compensation 130 130
Change in:
Accounts receivable (7,822) (7,822)
Inventories (653) (653)
Other assets 79 79
Accounts payable, accrued and other 4 7,092 7,096
--------- --------- ------------- --------- ---------
Net cash provided by operating activities 2,960 2,960 7,381 (5,920) 7,381
Cash flows from investing activities:
Capital expenditures (876) (876)
--------- --------- ------------- --------- ---------
Net cash used in investing activities (876) (876)
Cash flows from financing activities:
Change in bank overdraft (874) (874)
Net repayments under revolver (2,000) (2,000)
Payments on long-term debt (1,910) (1,910)
Payment of cash bonus plan (1,949) (1,949)
Debt issuance costs (152) (152)
Reduction in note receivable from ESOP 500 500
--------- --------- ------------- --------- ---------
Net cash used in financing activities (6,385) (6,385)
--------- --------- ------------- --------- ---------
Net increase (decrease) in cash and cash equivalents 2,960 2,960 120 (5,920) 120
Cash and cash equivalents, at beginning of period 103 103
--------- --------- ------------- --------- ---------
Cash and cash equivalents, at end of period $ 2,960 $ 2,960 $ 223 $ (5,920) $ 223
========= ========= ============= ========= =========
</TABLE>
13
<PAGE> 16
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, fuel products (MTBE, butene-2 and alkylate), specialty n-butylene and
isobutylenes (butene-1, isobutylene concentrate, high purity isobutylene,
diisobutylene and polyisobutylene). 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.
MTBE ENVIRONMENTAL AND MARKET ISSUES
There is concern in a number of states that MTBE may enter drinking water
supplies as a result of leaks in underground gasoline storage tanks. As a result
of this concern, California enacted a law banning MTBE from gasoline as of
December 31, 2002. Seven other states (Arizona, Connecticut, Maine, Minnesota,
Nebraska, New York and South Dakota) have enacted similar laws, providing for
reduction or elimination of MTBE from gasoline. In addition, the State of
California has adopted a maximum contaminant level ("MCL") for MTBE in drinking
water supplies of 13 ppb. If MTBE is found at levels exceeding 13 ppb, it is
expected that the water would have to be treated to reduce MTBE concentration to
a level at or below 13 ppb. In addition, a bill (S.B. 2962) has been introduced
in Congress to eliminate the use of MTBE nationwide within four (4) years of
enactment of the bill, and to allow states to opt out of the oxygenate
requirement of the CAA beginning in 2001. The Company is not able to predict
whether such legislation will be adopted, or, if adopted, the extent to which
MTBE demand would be reduced as a result; it is possible, however, that such
reduction could be material. Various scientific bodies have evaluated MTBE as a
possible human carcinogen. To date, the International Agency on Research on
Cancer (IARC), the National Toxicology Program (NTP) and the California Cancer
Identification Committee (CIC) have found MTBE not to be classifiable as a
possible, probable or known human carcinogen. California EPA has designated MTBE
as a possible human carcinogen.
Although the EPA continues to require oxygenates to be added to gasoline in
certain regions of the country either year-round or during the winter months,
and MTBE continues to be the leading oxygenate used, the EPA has called for
reduction in the use of MTBE in gasoline. Any restriction on or prohibition of
the use of MTBE could have a material adverse effect on the Company's financial
condition or results of operations.
14
<PAGE> 17
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 group and volume of products sold, for the three months ended September
30, 2000 and 1999.
Revenues
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------------------
2000 1999
----------------------- -----------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Butadiene $ 44.3 20% $ 26.1 17%
Fuel Products(1) 129.7 59 98.3 64
n-Butylene and Isobutylenes(2) 42.0 19 26.2 17
Other(3) 4.6 2 3.4 2
---------- ---------- ---------- ----------
Total $ 220.6 100% $ 154.0 100%
========== ========== ========== ==========
</TABLE>
----------
(1) Includes revenue from sales of MTBE, butene-2 and alkylate
(2) Includes revenue from sales of butene-1, isobutylene concentrate,
high-purity isobutylene, diisobutylene and polyisobutylene.
(3) Includes utility revenues and revenues realized from the Company's
terminalling facilities.
Sales Volumes
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
------- -----
(MILLIONS OF POUNDS, EXCEPT WHERE NOTED)
<S> <C> <C>
Butadiene 217.2 206.9
Fuel Products(1) 110.5 127.3
Specialty n-Butylene and Isobutylenes 160.5 130.5
</TABLE>
----------
(1) Volumes in millions of gallons. Includes 29.1 million and 32.3 million
gallons of finished MTBE purchased for resale for the three months ended
September 30, 2000 and 1999, respectively.
RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------------------------------
2000 1999
----------------------------- -----------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues $ 220.6 100% $ 154.0 100%
Cost of goods sold 195.6 89 132.0 86
Non-cash ESOP compensation 0.2 -- 0.1 --
Depreciation and amortization 6.1 3 5.9 4
------------- ------------- ------------- -------------
Gross profit 18.7 8 16.0 10
Selling, general and administrative expenses 2.6 1 2.0 1
------------- ------------- ------------- -------------
Income from operations $ 16.1 7% $ 14.0 9%
============= ============= ============= =============
</TABLE>
Three months ended September 30, 2000 compared to the three months ended
September 30, 1999
15
<PAGE> 18
REVENUES
The Company's revenues increased by approximately 43%, or $66.6 million, to
$220.6 million for the three months ended September 30, 2000 from $154.0 million
for the three months ended September 30, 1999. Butadiene sales revenues
increased due to higher sales prices and sales volumes than in the prior year
quarter. Butadiene sales prices were higher during the current period because of
strong demand and limited extraction capacity. Fuel products sales revenues
increased primarily as a result of higher MTBE sales prices and higher butene-2
sales volumes as compared to the prior year quarter. MTBE prices are higher as a
result of increases in gasoline and crude oil prices. Butene-2 sales volumes
were higher during the current period attributable to increased production
rates. Specialty n-butylene and isobutylenes sale revenues increased over the
prior year quarter due to higher sales volumes and sales prices. Sales volumes
for isobutylene concentrate were lower in the prior year quarter due to reduced
customer demand largely attributable to temporary downtime at customer
facilities. Sales prices for specialty n-butylene and isobutylenes were higher
as a result of increases in feedstock costs.
GROSS PROFIT
Gross profit increased by approximately 17%, or $2.7 million, to $18.7
million for the three months ended September 30, 2000 from $16.0 million for the
three months ended September 30, 1999. Gross margin during this period decreased
to 8.5% from 10.4%. Gross profit during the current period increased principally
due to higher sales volumes of butadiene and higher margins on MTBE sales. MTBE
gross profit increased as a result of higher sales prices that were partially
offset by lower sales volumes resulting from a scheduled maintenance turnaround.
Gross profit from specialty n-butylene and isobutylenes was unchanged as higher
sales volumes offset the impact of higher raw material costs.
INCOME FROM OPERATIONS
Income from operations increased by approximately 15%, or $2.1 million, to
$16.1 million for the three months ended September 30, 2000 from $14.0 million
for the three months ended September 30, 1999. Operating margin during this
period decreased to 7.3% from 9.1%. This increase in income from operations was
primarily due to the same factors contributing to the decrease in gross profit
described above. The selling, general and administrative costs increased due to
higher MTBE advocacy costs and consulting expenses.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Three months ended September 30, 2000 compared to the three months ended
September 30, 1999
Net cash provided by operating activities was $1.4 million for the three
months ended September 30, 2000 compared to $7.4 million for the three months
ended September 30, 1999. The decrease of $6.0 million was primarily
attributable to changes in working capital. Net cash used in investing
activities was $3.3 million for the three months ended September 30, 2000
compared to $0.9 million for the three months ended September 30, 1999. The
increase of $2.4 million was attributable to higher capital expenditures. Net
cash used in financing activities was $8.1 million for the three months ended
September 30, 2000 compared to $6.4 million for the three months ended September
30, 1999. The increase of $1.8 million was attributable to repayments of
borrowing under the term loans of the Bank Credit Agreement.
16
<PAGE> 19
LIQUIDITY
The Company's liquidity needs arise primarily from principal and interest
payments under the Bank Credit Agreement and the Subordinated Notes. Interest
payments are not made on the Discount Notes until 2002. 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 $2.1 million was used at
September 30, 2000 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. During the quarter ended
September 30, 2000, in compliance with the excess cash flow provisions, the
Company made a prepayment of $ 5.7 million towards the term loans under the Bank
Credit Agreement.
CAPITAL EXPENDITURES
The Company's capital expenditures relate principally to improving production
capacity and improving operating efficiencies. Capital expenditures for three
months ended September 30, 2000 were $3.5 million. The Company expenses
approximately $20 million annually for plant maintenance. These maintenance
costs are not treated as capital expenditures.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant quantitative or qualitative changes during
the first fiscal quarter of 2001 in the Company's risk sensitive instruments.
17
<PAGE> 20
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, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On September 30, 2000 the Company filed a Form 8-K describing a
change in its certified accountants.
18
<PAGE> 21
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 14, 2000 By: /s/ Carl S. Stutts
--------------------------------------
(Signature)
Carl S. Stutts
Executive Vice President,
Chief Financial Officer
19
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
