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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JUNE 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 333-37811
TEXAS PETROCHEMICAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) AND 12(g) OF THE ACT:
NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The number of shares of common stock of the registrant outstanding as of
September 25, 2000 is 529,445.
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TEXAS PETROCHEMICAL HOLDINGS, INC.
TABLE OF CONTENTS
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Page
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PART I
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risks 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements With Accountants on Accounting 40
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 44
Item 12. Security Ownership of Certain Beneficial Owners and Management 45
Item 13. Certain Relationships and Related Transactions 46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 46
Signatures 48
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PART I
ITEM 1. BUSINESS
Texas Petrochemical Holdings, Inc. and its wholly owned subsidiary
Texas Petrochemicals LP, formerly Texas Petrochemicals Corporation,
(collectively referred to as the "Company") is the third largest producer of
butadiene, the largest producer of butene-1, and the third largest producer of
methyl teritiary-butyle ether (MTBE) in North America. In addition, the Company
is the sole producer of diisobutylene and isobutylene concentrate in the United
States and 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; (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 packaging.
The Company's manufacturing facility, located approximately one mile
from the Houston Ship Channel provides convenient access to other Gulf Coast
petrochemical producers and is connected to several of its customers and raw
material suppliers through an extensive pipeline network. In addition, the
Company's facility is serviced by rail, tank truck and barge. During fiscal 1997
the Company successfully gained access to the MTBE market on the East Coast of
the United States through the negotiation of a terminalling and storage
agreement with the Northville terminal in Linden, New Jersey.
The Company was founded in 1968, at which time the Company was
principally engaged in the installation of crude butadiene processing
facilities. In 1984, Mr. Dave C. Swalm acquired from Tenneco, Inc. the assets
(principally comprised of the Houston facility) of Petro-Tex Chemical
Corporation ("Petro-Tex") the prior owner of the Company's manufacturing
facility.
On July 1, 1996 Texas Olefins Company ("TOC"), Texas Petrochemicals
Corporation and a raw material supply contract of Clarkston Corporation
(collectively referred to as the "Predecessor") were acquired for approximately
$371 million in a series of transactions (the "Acquisition"). After the
transactions, TOC was merged with and into Texas Petrochemicals Corporation with
Texas Petrochemical Corporation becoming a 100% owned subsidiary of TPC Holding
Corporation which is a 100% owned subsidiary of Texas Petrochemical Holdings,
Inc. Texas Petrochemicals Holdings, Inc. was formed by a group of closely held
investors.
Effective July 1, 2000 Texas Petrochemicals Corporation converted its
legal form from a corporation to a limited partnership, Texas Petrochemicals LP,
pursuant to the conversion provisions of the Texas Business Corporation Act and
the Texas Revised Limited Partnership Act. TPC Holding Corp., Texas
Petrochemicals Corporation's immediate parent prior to the conversion, retained
a direct 1% ownership interest in the partnership and became its sole general
partner. Petrochemical Partnership Holdings, Inc., a new wholly owned subsidiary
of TPC Holding Corp., acquired the remaining 99% ownership interest and
simultaneously became a limited partner of the partnership. This change has no
effect on the current management of the Company or its existing operations. The
Texas Business Corporation Act provides that the effect of the conversion is
that Texas Petrochemicals LP, formerly Texas Petrochemicals Corporation, as a
legal entity continues to exist, without interruption, but in the organizational
form of a Texas limited partnership rather than in the prior organizational form
of a Texas corporation.
The Company's principal executive offices are located at Three
Riverway, Suite 1500, Houston, Texas 77056. The Company's telephone number is
(713) 627-7474.
PRODUCTS
Butadiene is the most widely used feedstock for synthetic rubber
products and is also used in the manufacture of engineered plastics, nylon
fibers and other products. The Company sells butadiene to a stable customer
base. As the third largest producer of butadiene in North America, the Company
believes that many of its customers
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place significant value on its ability to provide a reliable domestic supply of
butadiene and as a result have entered into long-term sales contracts with the
Company.
The Company extracts butadiene from crude butadiene, which is generated
from the production of ethylene and is comprised of a number of valuable
components, including butadiene, isobutylene, n-butylenes, isobutane and
n-butane. Many U.S. ethylene producers rely on third parties such as the Company
to process their crude butadiene streams, as the crude butadiene volumes they
produce are not sufficient to justify the construction of on-site butadiene
recovery facilities. The Company is the largest non-integrated crude butadiene
processor in North America and as a result of its strategic importance to
ethylene producers, the Company has been able to secure long-term supply
contracts covering the majority of its crude butadiene requirements. Such
contracts provide for a fixed profit based on the Company's selling prices for
butadiene, and account for the relatively stable profitability of the Company's
butadiene operations.
MTBE is a motor gasoline blending stock which reduces carbon monoxide
and volatile organic compound emissions and enhances the octane content of
gasoline, and has been one of the fastest growing petrochemicals, in terms of
volume, over the past fifteen years. MTBE is produced by reacting methanol and
isobutylene. The Company's ability to produce isobutylene by three alternative
methods enables it to produce MTBE by the most economical process available to
the Company. The U.S. Clean Air Act of 1990 requires the use of an "oxygenate"
in gasoline sold in certain regions that are not in compliance with air quality
standards. MTBE is the predominate oxygenate used in gasoline. However, as a
result of incidents in which MTBE from gasoline has contaminated drinking water,
the federal government and certain state governments are considering actions
that could reduce or even eventually eliminate the use of MTBE in gasoline.
There can be no assurance that these activities will not impact the Company's
market for MTBE. A significant reduction in the demand for MTBE could have a
material adverse effect on the Company's financial condition or results of
operations. See "MTBE" Environment and Market Issues" section for a further
discussion of MTBE.
The Company is the leading producer of chemical grade butene-1 and
specialty isobutylenes in North America. In recent years, the Company has
increased its sales of these products by increasing its market share in
polyolefin applications and the development of new end-use applications.
Butene-1 is used as a comonomer in the production of high-density polyethylene
("HDPE") and linear low-density polyethylene ("LLDPE"). Both HDPE and LLDPE are
raw materials for the production of trash bags, film wrap, pipe and plastic
containers. Butene-1 is also used to produce butylene oxide, a key component of
detergent additive packages used in many gasoline formulations.
High purity isobutylene is used in the production of butyl rubber,
which is used to produce tires and in specialty chemical applications such as in
the production of resins, antioxidants, paints and coatings, synthetic lubricant
oils and rubber chemicals. The Company is currently the largest domestic
merchant supplier of high purity isobutylene to the chemical market. Isobutylene
concentrate is similar to high purity isobutylene in composition, although its
purity is 88% isobutylene compared to 99.9% in high purity isobutylene. The
Company markets isobutylene concentrate for use in the lubricant additives
business as well as for use in the production of butyl rubber. The Company is
the sole U.S. producer of isobutylene concentrate. Diisobutylene is used
primarily as an intermediate in the manufacturing of alkylphenols for the
surfactant and phenolic resins markets. Other uses include the production of
tackifier and ink resins, dispersants and lubricant oil additives, and rubber
and processing chemicals. The Company is the sole U.S. producer of
diisobutylene.
During 2000 the Company completed the development and construction of a
$12 million polyisobutylene plant. The plant processes various grades of
polyisobutylenes, which are used to produce a broad range of chemicals including
industrial specialties, lubricants and fuel dispersant additives.
The Company's principal feedstocks are crude butadiene, isobutane and
methanol. One of the Company's intermediate products, isobutylene, is used in
the manufacture of MTBE and specialty isobutylenes.
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COMPANY STRATEGY
The Company believes that it has become an industry leader in the
production of the majority of its products by capitalizing on its production
flexibility, its ability to add significant cost effective incremental capacity
across its product lines, the marketing experience of its management team, its
competitive cost position and its customer focus. The Company's strategy is to
strengthen its established presence in its selected markets by focusing on the
following factors:
REDUCE EXPOSURE TO CYCLICAL END-MARKETS The markets in which the
Company competes are cyclical. The Company intends to mitigate the effects of
this cyclicality while benefiting from potential upturns in industry
profitability by optimizing the production of its sales under contracts allowing
for a fixed profit or at prices linked directly or indirectly to raw material
prices.
CAPITALIZE ON PRODUCTION FLEXIBILITY The Company has the ability to
produce a number of its intermediate and finished products (i.e. crude
butadiene, isobutylene and butene-1) by a variety of processes. The Company
intends to capitalize on this ability by shifting production to the most
economical process and production level based upon market conditions, thus
ensuring a reliable source of supply for its customers.
UTILIZE INCREMENTAL CAPACITY The Company can increase its capacity to
produce butadiene, isobutylene and its derivatives at significantly lower cost
than that of new construction. The Company's ability to add incremental
butadiene capacity and its relationships with several North American ethylene
producers are expected to enable it to capture the benefit of increased U.S.
crude butadiene supply.
RESPOND TO FAVORABLE INDUSTRY DYNAMICS The Company's production
flexibility and its ability to add low-cost capacity are crucial to its
capitalizing on market opportunities. The U.S. supply of crude butadiene is
increasing in line with domestic ethylene production, although it is currently
insufficient to meet U.S. demand. Industry operating rates are expected to
remain at current high levels as the increase in domestic crude butadiene
production is expected to replace imports with butadiene demand remaining strong
in support of derivative businesses.
SUSTAIN CUSTOMER FOCUS The Company believes that producing quality
products and providing quality service with dependable supply are key factors in
its ability to compete in the market place for its products. Management believes
that its focus on customer service has resulted in strong customer relationships
and a high degree of customer loyalty. This is evidenced by the fact that
approximately 60% of the Company's current customers have purchased products
from the Company for more than ten years.
REDUCE EMPHASIS ON MTBE The future MTBE market in the United States is
faced with significant uncertainty due to current proposed legislation (See
"MTBE Environmental and Market Issues"). As a result of this uncertainty the
Company has been evaluating and pursuing strategies to reduce its reliance on
profitability from MTBE. The Company plans are to continue to expand in its
existing core businesses and develop new products. There can be no assurance
that such plans will be successful or sufficient to offset any potential future
decline in MTBE profitability. MTBE sales represented 51% and 58% of total sales
revenue in fiscal 1999 and 2000, respectively, while variable margin
contribution from MTBE sales represented 28% and 42% of total variable margin in
fiscal 1999 and 2000, respectively.
OTHER OPERATIONS
The Company operates a cogeneration power plant that supplies
electricity and process steam to the facility's chemical processing operations.
Excess capacity of this power plant, as well as steam and boiler feed water are
currently sold to neighboring facilities under contracts at a price equal to the
cost of fuel plus a fixed profit. In addition, the Company generates revenues
from its terminals in Baytown, Texas and Lake Charles, Louisiana and from
chemical by-product sales to third parties.
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CONTRACTS
The Company enters into three general types of contracts in connection
with its production processes: feedstock supply contracts, product sales
contracts and, to a lesser extent, toll manufacturing agreements. The majority
of these contracts have terms of two to three years and provide for successive
one-year renewals unless either party objects to such renewal in a timely
manner.
Certain of the Company's largest customers account for a significant
percentage of the Company's sales of particular products. The Company had 2
customers, which represented 11% and 14% of sales during the year ended June 30,
2000, and 1999, and 13% and 15% of sales during the year ended June 30, 1998.
Although the Company believes its relationships with its largest customers are
good, the loss of a significant customer or a number of significant customers
would have a material adverse effect on the Company's financial condition,
results of operations and cash flows.
COMPETITION
The petrochemicals businesses in which the Company operates are highly
competitive. Many of the Company's competitors, particularly in the
petrochemicals industry, are larger and have greater financial resources than
the Company. Among the Company's competitors are some of the world's largest
chemical companies and major integrated petroleum companies that have their own
raw material resources. In addition, a significant portion of the Company's
business is based upon widely available technology. Accordingly, barriers to
entry, apart from capital availability, may be low in the commodity product
section of the Company's business, and the entrance of new competitors into the
industry may reduce the Company's ability to capture improving profit margins in
circumstances where overcapacity in the industry is diminishing. Further,
petroleum-rich countries have recently become more significant participants in
the petrochemical industry and may continue to expand their role in this
industry in the future. Any of these developments would have a negative impact
on the Company's financial position, results of operations and cash flows.
Given the nature of the markets in which it competes, the Company
believes it has two primary competitive advantages over its competitors. First,
the Company's position as the most significant merchant crude butadiene
processor in the world has allowed it to secure supply arrangements for crude
butadiene that provide for a fixed profit based on the Company's selling prices
for the finished product. The Company believes that this partially limits its
exposure to fluctuations in raw materials prices. Secondly, the Company's
flexible production processes enable it to take advantage of increases in demand
for its products at a lower cost than its competitors, thus allowing the Company
to meet its customers' needs through the most economic processes. Also, the
Company's flexible production processes enable the Company to conduct
maintenance work on its plant equipment with minimal loss of production.
PATENTS AND LICENSES
The Company presently owns, controls or holds right to approximately 21
patents and seeks patent protection for its proprietary processes where feasible
to do so.
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
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predict whether 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, 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.
ENVIRONMENTAL REGULATION
The Company's policy is to be in compliance with all applicable
environmental laws. The Company is also committed to Responsible Care(R), a
chemical industry initiative to enhance the industry's responsible management of
chemicals. The Company's operations are subject to federal, state, and local
laws and regulations administered by the U.S. Environmental Protection Agency
("EPA"), the U.S. Coast Guard, the Army Corps of Engineers, the Texas Natural
Resource Conservation Commission ("TNRCC"), 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 and stormwater discharges, solid and hazardous
waste disposal and air emissions, and management believes that the Company is in
substantial compliance with the laws and regulations that materially affect its
operations. While management does not expect that compliance with existing
environmental laws will have a material adverse effect on the Company's
financial condition or results of operations, 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 material remediation costs related to its management,
transportation and disposal of solid and hazardous materials and wastes, or to
its pipeline operations. If the Company were to be required to incur such costs,
however, management believes that such costs would not have a material adverse
effect on the Company's results of operations.
The day-to-day operations of the Company are subject to extensive
regulation under the Resource Conservation and Recovery Act ("RCRA"), the
Federal Clean Water Act, the Clean Air Act ("CAA") and similar requirements of
state law. In particular, under the CAA, the EPA and the TNRCC have promulgated,
or are required to promulgate, numerous regulations which affect or will affect
the operations of the Company. The most significant of these are the so-called
Hazardous Organics National Emission Standard for Hazardous Air Pollutants or
HON Rule, the requirements of Title V of the CAA and rules relating to the
control of emissions of nitrogen oxides to reduce ozone levels in greater
Houston's ozone non-attainment area.
The HON Rule requires controls on emissions of certain listed hazardous
air pollutants ("HAPs"). Butadiene, methanol, dimethylformamide, benzene,
styrene, acrylonitrile and MTBE, which are manufactured, used and/or processed
by the Company, have been identified as HAPs for purposes of regulation under
the CAA. Areas of concern in the Company's operations for HAP emissions include
equipment leaks, process vents, product storage, transfer operations and
emissions from wastewater streams. The Company expended $600,000 on wastewater
collection and treatment systems over the past year to comply with the HON rule.
NOx emission control rules adopted in 1994 required compliance by
November 15, 1999. The Company has installed predictive emission monitoring
equipment for NOx emissions on stationary sources at its boiler house. The
Company expended $1.1 million to comply with the NOx RACT Rules.
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The Company's Houston facility is located in Harris County, Texas,
which has been designated as a severe non-attainment area for ozone under the
CAA. Accordingly, the State of Texas is in the process of developing a revised
State Implementation Plan ("SIP") which is expected to require significant
reductions in emissions of ozone precursors, including volatile organic
compounds and oxides of nitrogen in Harris County. The Company anticipates that
the revised SIP will require certain additional emission reductions from the
Company's facilities. Such reductions will require the Company to modify
existing controls, install additional controls for air emissions, or install new
equipment. Since the SIP rules have not yet been finalized, the Company is
unable at this time to predict the cost of modifying its facilities to comply
with any additional requirements that the revised SIP may impose.
The Company has elected to participate in the Voluntary Emissions
Reduction Program ("VERP") sponsored by the TNRCC under which the Company will
voluntarily obtain permits for certain air emission sources that had
historically been "grandfathered" from certain permit requirements. The Company
expects to be required to commit to certain emission reductions in connection
with the VERP. Since the Company voluntarily committed itself to this permitting
effort in 1998, the Texas Legislature enacted Senate Bill 766 which provides
incentives for grandfathered emissions sources to apply for a voluntary
emissions reduction permit instead of remaining grandfathered. In particular,
grandfathered sources are invited to apply for a permit prior to September 1,
2001. The permits provided for under Senate Bill 766 are expected to establish
less stringent emissions controls than would be required under permits for new
emissions sources. Failure to apply for and obtain a permit will result in
emissions fees that will treble annually until a grandfathered facility applies
for a permit. The TNRCC has recently promulgated rules to implement the
requirements of Senate Bill 766. The Company is pursuing available options with
respect to its grandfathered emissions sources that allow the Company to meet
applicable air emissions requirements in a cost-effective manner. Measures
likely to be required as part of the Senate Bill 766 implementation are not
anticipated to have a materially adverse impact on the Company or its
operations.
Section 112 of the CAA requires prevention of accidental releases of
certain listed extremely hazardous substances. The EPA's rules implementing
portions of Section 112, which were signed by the EPA Administrator on May 24,
1996, required the Company to conduct a hazards assessment and to develop a risk
management plan by June 1999. The Company completed the plan and filed it with
the appropriate agencies in a timely manner.
Regulations under Title V of the CAA require a facility-wide inventory
of emissions, sources and the air pollution control requirements applicable to
those sources. The Company filed its Title V application with the TNRCC in July
2000. In connection with the Title V program, the Company may be required to
upgrade its on-going monitoring program once it has received its operating
permit. It is also possible that the Company may be required to make
modifications to some of its equipment in order to comply with requirements
identified through the facility-wide Title V permit process. These anticipated
commitments are not expected to have a material adverse impact on the Company's
operations.
The Company has an active program to manage asbestos-containing
material at its Houston facility in accordance with federal state, and local
environmental, health and safety regulations. The Company does not believe that,
when properly managed, these materials pose a hazard to the health of Company
employees or to the environment. There is no requirement to remove these
materials, provided they are properly managed. As the plant is reconfigured or
additions are made, asbestos-containing materials are appropriately handled by a
certified contractor.
The wastewater treatment system for the Houston facility is 75 percent
owned by the Company and 25 percent owned by a third party, the owner of an
adjacent facility. The treatment system is operated by the Company. The state
discharge permit is held jointly by the Company and a third party. The Company
believes that the system has sufficient capacity for the Company's projected
needs.
The Company has completed the first phase of its work on its stormwater
discharge system and is currently evaluating potential improvements to the
system. The Company has completed installation of noise barriers for certain
equipment.
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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 flows.
The terminals in Baytown and Lake Charles are subject to many of the
same or similar environmental laws and regulations as are applicable at the
Houston facility. Management believes that the terminals are in substantial
compliance with these requirements and that no significant expenditures will be
required at these facilities to allow them to continue to comply with such laws
and regulations.
The EPA has determined that butadiene is a probable human carcinogen.
Effective February 1997, the Occupational Safety and Health Administration
lowered the employee permissible exposure limit ("PEL") over an 8-hour
time-weighted average for butadiene from 1000 parts per million ("ppm") to 1
ppm. The Company has conducted employee exposure monitoring and believes that it
currently meets the PEL at most of its operations. For some operations, the
Company anticipates employees will need to use respirators and that additional
emission controls may be necessary. The Company does not expect that the current
health concerns regarding butadiene will have a material adverse effect on the
Company's financial condition or results of operations, although no assurance
can be given that future studies will not result in more stringent regulation of
butadiene.
EMPLOYEES
As of June 30, 2000, the Company had approximately 292 full-time
employees, all of whom were salaried employees. In addition, the Company
contracts with a third party to provide approximately 129 contract employees to
perform routine maintenance on and around its Houston facility. The Company
believes its relationship with its employees is satisfactory.
SAFETY RECORD
The Company maintains one of the best worker's compensation records in
Texas, equivalent to most clerical operations. Over the last six years, the
Company only experienced one day of lost time injury at the Houston Plant Site.
The Company believes this record is accomplished through extensive classroom and
on-the-job training as well as the efforts of its highly trained 71-member
volunteer emergency response team.
ITEM 2. PROPERTIES
The Company's plant is located on a 257-acre tract approximately one
mile from the Houston Ship Channel and near one of the chemical industry's
largest domestic processing facilities. Approximately 230 acres is owned by the
Company, and 25% of the remaining 27 acres is owned by a third party. The
Company leases from the Port of Houston two ship docks, which accommodate barge
and ocean-going vessels, and has the facilities to be served by rail and by
truck. In addition, the facility is connected by pipeline to customers and
suppliers of raw materials, directly and through other major pipelines in the
immediate area as well as in Texas City, and with salt dome storage facilities
of other companies located at both Mont Belvieu and Pierce Junction, Texas. The
Company's facility also has a laboratory for sampling and testing. The Company
owns and operates a storage and terminal facility at Baytown, Texas, leases
storage and terminal facilities in Lake Charles, Louisiana and Linden, New
Jersey, and leases tank storage capacity in Bayonne, New Jersey. The Company
also leases office space in Three Riverway Plaza, Houston, Texas as its
principal executive offices. The Company believes that is has adequate
facilities for the conduct of its current and planned operations.
ITEM 3. LEGAL PROCEEDINGS
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
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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.
In addition to the matters disclosed under "Environmental Regulation,"
the Company is a party to various claims and litigation arising in the ordinary
course of its business. Management recognizes the uncertainties of litigation
and the possibility that one or more adverse rulings could materially impact
operating results. However, although no assurances can be given, management
believes that other than as disclosed, based on the nature of and its
understanding of the facts and circumstances which give rise to such claims and
litigation, and after considering appropriate reserves that have been
established, that the ultimate resolution of such issues, individually and in
the aggregate, will not have a material adverse effect on the Company's
financial position or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year ended June 30, 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the Company set forth below for the
four years ended June 30, 2000, the one month period ended June 30, 1996 and the
twelve months ended May 31, 1996 should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------- --------------------------------------------------
TWELVE ONE
MONTHS MONTH
ENDED ENDED
MAY 31, JUNE 30, YEAR ENDED JUNE 30,
-------- -------- --------------------------------------------------
1996(2) 1996 1997(3) 1998 1999(1) 2000
-------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 455.6 $ 41.4 $ 490.2 $ 514.8 $ 448.2 $ 744.7
Income from operations 42.0 2.4 18.3 37.3 38.7 68.0
Interest expense 1.6 0.1 39.4 40.5 39.4 39.8
Net income (loss) 16.7 1.2 (15.5) (4.5) (2.2) 12.1
Basic earnings (loss) per common share:
Before extraordinary loss $ -- $ -- $ (32.04) $ (9.86) $ (6.99) $ 23.62
Extraordinary loss -- -- $ (3.33) -- -- --
-------- -------- -------- --------
Net income (loss) $ -- $ -- $ (35.37) $ (9.86) $ (6.99) $ 23.62
======== ======== ======== ========
Diluted earnings (loss) per common share:
Before extraordinary loss $ -- $ -- $ (32.04) $ (9.86) $ (6.99) $ 21.99
Extraordinary loss -- -- (3.33) -- -- --
-------- -------- -------- --------
Net income (loss) $ -- $ -- $ (35.37) $ (9.86) $ (6.99) $ 21.99
======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Total assets $ -- $ 167.9 $ 521.5 $ 497.2 $ 482.8 $ 524.1
Long-term debt -- 13.0 351.9 349.8 337.9 336.0
</TABLE>
----------
(1) In January 1999, the estimated useful live of certain plant assets were
increased from 10 to 15 years. This change was accounted for as a change in
accounting estimate and resulted in $4.2 million decrease in depreciation
expense.
(2) Net income (loss) for the twelve months ended May 31, 1996 includes a
non-recurring charge for impairment of investment in land of $12.6 million, with
an associated income tax benefit of $4.7 million.
(3) Net loss for the year ended June 30, 1997 includes an extraordinary loss of
$1.5 million for early extinguishment of debt.
9
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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 over the past 10 years. 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 product
produced by the Company, to produce MTBE or higher margin specialty products
depending on prevailing market conditions. See "Environmental Regulation"
section for a further discussion of MTBE.
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.
Revenues
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------
1998 1999 2000
-------------- -------------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Butadiene $ 135.0 26% $ 98.2 22% $ 134.2 18%
MTBE 235.4 46 229.3 51 429.5 58
n-Butylenes 55.2 11 45.2 10 76.7 10
Specialty Isobutylenes 73.7 14 62.7 14 89.8 12
Other(1) 15.5 3 12.8 3 14.5 2
-------- --- -------- ---- -------- ---
Total $ 514.8 100% $ 448.2 100% $ 744.7 100%
======== === ======== === ======== ===
</TABLE>
----------
(1) Includes utility revenues and revenues realized from the Company's
terminalling facilities.
Sales Volumes
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
(MILLIONS OF POUNDS, EXCEPT WHERE NOTED)
Butadiene 822.0 821.1 844.6
MTBE(1) 300.4 376.9 450.9
n-Butylenes 320.4 317.5 456.0
Specialty Isobutylenes 369.7 330.9 375.5
</TABLE>
----------
(1) Volumes in millions of gallons. Includes 17.8 million, and 98.5 million and
15.0 million gallons finished MTBE purchased for resale for the years ended
June 30, 2000, 1999 and 1998, respectively.
10
<PAGE> 13
RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of
operations.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1998 1999 2000
----------------- ----------------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues $514.8 100% $448.2 100% $744.7 100%
Cost of goods sold 438.7 85 374.4 84 643.2 87
Non-cash ESOP compensation -- 0.4 -- 0.6 --
Depreciation and amortization 31.8 6 26.8 6 23.8 3
------ ------ ------ ------ ------ ------
Gross profit 44.3 9 46.6 10 77.1 10
Selling, general and administrative 7.0 2 7.9 2 9.1 1
------ ------ ------ ------ ------ ------
Income from operations $ 37.3 7% $ 38.7 8% $ 68.0 9%
====== ====== ====== ====== ====== ======
</TABLE>
YEAR ENDED JUNE 30, 2000 COMPARED TO THE YEAR ENDED JUNE 30, 1999
Revenues
The Company's revenues increased by approximately 66%, or $296.5
million, to $744.7 million for the year ended June 30, 2000 from $448.2
million for the year ended June 30, 1999. The increase was due to higher product
sales prices and sales volumes.
Butadiene revenues increased by approximately 37%, or $36.0 million,
to $134.2 million for the year ended June 30, 2000 from $98.2 million for the
year ended June 30, 1999. The increase was attributable to higher sales prices
and slightly higher sales volumes. A shortage of butadiene supply in the U.S.
market contributed to higher sales prices.
MTBE revenues increased by approximately 87%, or $200.2 million, to
$429.5 million for the year ended June 30, 2000 from $229.3 million for the
year ended June 30, 1999. The increase was due to higher sales prices and sales
volumes. MTBE prices were significantly higher particularly during the last half
of the fiscal year as a result of increases in gasoline and crude oil prices. In
addition, during the last quarter of the fiscal year MTBE prices rose
dramatically as a result of new Reformulated Gas (RFG II) requirements. MTBE
sales volumes were higher due to an increased production rate resulting from
operational efficiencies and no scheduled turnarounds for catalyst change.
n-Butylenes revenues increased by approximately 70%, or $31.5 million
to $76.7 million for the year ended June 30, 2000 from $45.2 million for the
year ended June 30, 1999. N-Butylene sales revenue increased due to higher sales
prices and sales volumes. B-2 sales volumes were significantly higher as these
products were sold into the fuels market.
Speciality isobutylene revenues increased by approximately 43%, or
$27.1 million to $89.8 million for the year ended June 30, 2000 from $62.7
million for the year ended June 30, 1999. The increase was due to higher sales
volumes and sales prices. Sales volumes were higher due to increased customer
demand and a new export business. Sales prices increased due to higher
isobutylene values during the year.
Gross Profit
Gross profit increased by approximately 65%, or $30.5 million to $
77.1 million for the year ended June 30, 2000 from $46.6 million for the year
ended June 30, 1999. Gross margin during the period remained steady at 10.4%.
Gross profit increased during the current fiscal year due to higher sales
volumes of all product groups and higher margins on butadiene and MTBE sales.
Butadiene margins improved over prior year period due to improved spot business,
processing efficiencies from new control room instrumentation and positive
inventory
11
<PAGE> 14
impacts from higher butadiene sale prices. MTBE margins improved over the period
year period due to higher production rates and a larger spread of sales prices
over raw material costs. Gross profit from specialty isobutylenes was unchanged
as higher sales volumes offset the impact of higher raw material costs. Gross
profit also increased due to lower depreciation and amortization charges during
the current period.
Income from Operations
Income from operations increased by approximately 76%, or $29.3
million, to $68.0 million for the year ended June 30, 2000 from $38.7 million
for the year ended June 30, 1999. Operating margin during this period increased
to 9.1% from 8.6%. The increase in income from operations was primarily due to
the same factors contributing to the increase in gross profit described above.
The increase in selling, general and administrative costs was primarily due to
higher MTBE advocacy and consulting costs.
YEAR ENDED JUNE 30, 1999 COMPARED TO THE YEAR ENDED JUNE 30, 1998
Revenues
The Company's revenues decreased by approximately 13%, or $66.6
million, to $448.2 million for the year ended June 30, 1999 from $514.8 million
for the year ended June 30, 1998. The decrease was primarily due to lower
product sales prices, which was partially offset by higher sales volumes.
Butadiene revenues decreased by approximately 27%, or $36.8 million, to
$98.2 million for the year ended June 30, 1999 from $135.0 million for the year
ended June 30, 1998. The decrease was attributable to a decrease in sales
prices. Excess supply and imports of butadiene into the U.S. market contributed
to lower prices. Sales volumes remained stable over the prior year.
MTBE revenues decreased by approximately 3%, or $6.1 million, to $229.3
million for the year ended June 30, 1999 from $235.4 million for the year ended
June 30, 1998. The decrease was due to lower sales prices, which was partially
offset by higher sales volumes. MTBE prices were lower in the current year due
to the lower unleaded gasoline and crude oil prices. Sales volumes increased
over the prior year due to purchases of finished MTBE for resale.
n-Butylenes revenues decreased by approximately 18%, or $10.0 million,
to $45.2 million for the year ended June 30, 1999 from $55.2 million for the
year ended June 30, 1998. n-Butylene sales revenue decreased due to lower sales
prices during most of the fiscal year. Sales volumes of butene-1 and butene-2
were relatively unchanged as compared to the prior year.
Specialty isobutylene revenues decreased by approximately 15%, or $11.0
million, to $62.7 million for the year ended June 30, 1999 from $73.7 million
for the year ended June 30, 1998. The decrease was due to lower sales prices of
all of the Company's specialty products and lower sales volumes of isobutylene
concentrate. Isobutylene concentrate sales volumes were lower due to a planned
turnaround by one of the company's customers during the first half of the fiscal
year.
Gross Profit
Gross profit increased by approximately 5%, or $2.3 million, to $46.6
million for the year ended June 30, 1999 from $44.3 million for the year ended
June 30, 1998. Gross margin during the period increased to 10.4% from 8.6%. The
gross profit increase was primarily due to a change in accounting estimate,
which reduced depreciation expense by $4.2 million during the current year. In
January 1999, the depreciable lives of a certain plant assets were increased
from 10 years to 15 years. With this adjustment excluded, gross margin would
have decreased by $1.9 million over the prior year. The decrease is attributable
to lower MTBE margins caused by a smaller spread between sales prices and raw
materials. The decrease in MTBE margins was partially offset by improved margins
in butadiene, specialty isobutylenes and reductions in operating costs.
12
<PAGE> 15
Income from Operations
Income from operations increased by approximately 4%, or $1.4 million,
to $38.7 million for the year ended June 30, 1999 from $37.3 million for the
year ended June 30, 1998. Operating margin during this period increased to 8.6%
from 7.2%. The increase in income from operations was primarily due to the same
factors contributing the increase in gross profit described above, partially
offset by an increase in selling, general and administrative expenses. This
increase was associated with increased MTBE advocacy costs, software integration
costs and business development activity in the current year.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
YEAR ENDED JUNE 30, 2000 COMPARED TO THE YEAR ENDED JUNE 30, 1999
Net cash provided by operating activities was $42.7 million for the
year ended June 30, 2000 compared to $34.2 million for the year ended June 30,
1999. The increase of $8.5 million was primarily attributable to increased net
income. Net cash used in investing activities was $ 18.4 million for the year
ended June 30, 2000 compared to $12.9 million for the year ended June 30, 1999.
The increase of $ 5.5 million was caused by higher capital expenditures during
the current year. Net cash used in financing activities was $9.4 million for the
year ended June 30, 2000 compared to $ 22.1 million for the year ended June 30,
1999. The decrease of $12.7 million is primarily due to lower repayments on the
revolving line of credit during the current year.
YEAR ENDED JUNE 30, 1999 COMPARED TO THE YEAR ENDED JUNE 30, 1998
Net cash provided by operating activities was $34.2 million for the
year ended June 30, 1999 compared to $35.0 million for the year ended June 30,
1998. The decrease of $0.8 million was primarily attributable to changes in
working capital. Net cash used in investing activities was $12.9 million for the
year ended June 30, 1999 compared to $11.2 million for the year ended June 30,
1998. The increase of $1.7 million was primarily attributable to an increase in
capital expenditures during the current year. Net cash used in financing
activities was $22.1 million for the year ended June 30, 1999 compared to $23.0
million for the year ended June 30, 1998. The decrease of $0.9 million was
primarily attributable to the net change in bank overdraft and reduction in the
outstanding revolving line of credit.
LIQUIDITY
In July 1996 the Company issued $175 million of 11 1/8% Senior
Subordinated Notes due 2006 and $57.7 million of 13 1/2% Discount Notes due
2007, and borrowed $140 million under a Bank Credit Agreement. The Company used
the combined proceeds to finance the Acquisition of Texas Petrochemicals
Corporation. 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 Note 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 $1.7 million was
in use at June 30, 2000, to provide 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 under the Revolving Credit
Facility is limited by the terms of the Bank Credit Agreement, the Discount
Notes and the Subordinated Notes. The Bank Credit Agreement, the Discount Notes
and the 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.
Effective June 30, 1999 the Company
13
<PAGE> 16
obtained an amendment to the Bank Credit Agreement to update the financial
ratios relating to fixed charge coverage and debt to EBITDA for fiscal 2000.
CASH BONUS PLAN
In connection with the Acquisition, the Predecessor established a $35
million Cash Bonus Plan covering substantially all employees of the Predecessor
(or certain affiliates of the Predecessor) and covering certain third-party
contractors who had contributed to the past success of the Predecessor. During
the year ended June 30, 2000, $9.6 million of this amount was paid to eligible
participants and the remaining $0.2 million, which fully retires the debt, was
paid in July 2000.
CAPITAL EXPENDITURES
The Company's capital expenditures for fiscal 2000 related principally
to constructing a $12 million polyisobutylene plant, improving operating
efficiencies and maintaining environmental compliance. Capital expenditures for
year ended June 30, 2000 were $18.8 million, compared to $14.4 million for the
year ended June 30, 1999. The Company expenses approximately $20 million
annually for plant maintenance. These maintenance costs are not treated as
capital expenditures.
RECENTLY ISSUED PRONOUNCEMENTS
In June 1998 the Financial Accounting Standard Board (FASB) issued
Statement of Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Certain Hedging Activities." In June 2000 the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 requires that
all derivative instruments be recorded on the balance sheet at their respective
fair values. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether the
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. SFAS No. 133 and SFAS No. 138 are effective for all fiscal
quarters of all fiscal years beginning after June 30, 2000; the Company adopted
SFAS No. 133 and SFAS No. 138 on July 1, 2000. The Company has both
interest-rate related derivative instruments to manage its exposure on its debt
instruments, as well as commodity derivatives to manage its exposure to
commodity price fluctuations. Upon adoption of SFAS No. 133 and 138 the
Company's management decided not to designate any of its derivative instruments
as part of hedge transactions. Accordingly, during the first quarter of fiscal
2001 the Company recorded a net-of-tax cumulative-effect loss of $0.4 million
into earnings to recognize at fair value all derivative instruments.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Part I, Items 1 and 2 of this document 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.
14
<PAGE> 17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE RISK
The Company maintains an overall interest rate risk-management strategy
that incorporates the use of derivative instruments to minimize its exposure to
changes in the fair value of its fixed rate debt and to volatility in LIBOR
rates associated with its floating rate debt. The derivative instruments that
are used as part of the Company interest rate risk-management strategy include
interest-rate swaps and cap contracts.
In February 1998, the Company entered into a three-year agreement for
$125 million of its Senior Subordinated Notes. The swap agreement effectively
converts a portion of the 11 1/8% fixed rate Senior Subordinated Notes to a
floating debt with a structured collar. Under the agreement the Company's
interest rate is fixed at 10.8% while the six-month LIBOR is set between 5.45%
and 5.76%. If LIBOR rates are set above 6.75% the Company's interest rate is
floating at current LIBOR plus 5.35%. If LIBOR rates are set below 5.25% the
Company's interest rate is fixed at 10.8%. As of June 30, 2000 LIBOR rates were
7.01% resulting in an additional $0.9 million in annual interest expense.
In June 1998, the Company entered into a three-year interest rate cap
for $64 million of its senior debt under the Bank Credit Agreement. The cap
effectively converts a portion of the Company's floating rate bank debt to a
fixed rate of $6.75% plus a margin if the three-month LIBOR rates are above
6.75%. The notional amount on the cap amortizes from $64 million to $32 million
on a quarterly basis over three-year term. As of June 30, 2000 the notional
amount of the cap is $47 million.
Reporting the fair value of these derivative instruments as of June 30,
2000 would result in a loss of approximately $1.3 million.
At June 30, 2000 a hypothetical 1% increase in interest rates would
result in a $0.6 million increase in annual interest expense.
COMMODITY PRICES
The Company manages its exposure to commodity price fluctuations by
entering into contracts on raw material purchases and product sales with third
parties. In addition, the Company periodically enters into future contracts and
swaps to either purchase or sell raw materials or other products in the market.
At June 30, 2000, the Company had open futures contracts to sell unleaded gas
with notional volumes totaling 79,000 barrels. The Company also had open swap
contracts with notional volumes totaling 150,000 barrels. All of these commodity
contracts mature within three months. Reporting the fair value of these
derivative instruments at fiscal year-end 2000 would result in a gain of
approximately $0.7 million.
15
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors 17
Financial Statements
Consolidated Balance Sheet 18
Consolidated Statement of Operations 19
Consolidated Statement of Stockholders' Equity 20
Consolidated Statement of Cash Flows 21
Notes to Consolidated Financial Statements 22
</TABLE>
16
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Texas Petrochemical Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Texas
Petrochemical Holdings, Inc. and subsidiary (the "Company") as of June 30, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended June 30,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United State of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 2000 and
1999 and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 2000, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
August 4, 2000
17
<PAGE> 20
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,929 $ 103
Accounts receivable - trade 64,235 40,220
Inventories 35,957 19,973
Investments in land held for sale 1,068 --
Other current assets 11,398 18,576
--------- ---------
Total current assets 127,587 78,872
Property, plant and equipment, net 219,517 219,706
Investment in land held for sale 990 2,058
Investment in and advances to limited partnership 2,769 2,820
Goodwill, net of accumulated amortization of $19,508 and $14,925 164,978 169,560
Other assets, net 8,239 9,833
--------- ---------
Total assets $ 524,080 $ 482,849
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 7,146 $ 874
Accounts payable - trade 71,775 38,992
Accrued expenses 18,829 19,215
Current portion of cash bonus plan liability 213 7,811
Current portion of long-term debt 8,086 7,465
--------- ---------
Total current liabilities 106,049 74,357
Revolving line of credit 1,650 2,000
Long-term debt 326,255 328,467
Cash bonus plan liability -- 1,959
Deferred income taxes 55,005 55,494
Commitments and contingencies (Note 7)
Common stock held by the ESOP 13,100 12,600
Less: Unearned compensation (2,620) (5,040)
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 voting and 100,000 non-voting and
529,445 and 528,445 voting shares issued and outstanding at
June 30, 2000 and 1999, respectively 5 5
Additional paid in capital 37,408 36,738
Treasury stock, at cost, 2000 shares (257) --
Accumulated deficit (12,515) (23,731)
--------- ---------
Total stockholders' equity 24,641 13,012
--------- ---------
Total liabilities and stockholders' equity $ 524,080 $ 482,849
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 21
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Revenues $ 744,725 $ 448,155 $ 514,790
Cost of goods sold 643,195 374,401 438,725
Non-cash ESOP compensation 570 407 --
Depreciation and amortization 23,800 26,784 31,787
--------- --------- ---------
Gross profit 77,160 46,563 44,278
Selling, general and administrative expenses 9,153 7,927 6,949
--------- --------- ---------
Income from operations 68,007 38,636 37,329
Interest expense 39,773 39,444 40,533
Other income (expense)
Loss on disposal of assets and
investment securities, net -- (44) (436)
Other, net (38) 1,320 993
--------- --------- ---------
(38) 1,276 557
--------- --------- ---------
Income before income taxes 28,196 468 (2,647)
Provision for income taxes 16,060 2,641 1,868
--------- --------- ---------
Net income (loss) $ 12,136 $ (2,173) $ (4,515)
========= ========= =========
Basic income (loss) per common share: $ 23.62 $ (6.99) $ (9.86)
Weighted average shares outstanding-basic 498,945 478,045 457,778
========= ========= =========
Diluted income (loss) per common share: $ 21.99 $ (6.99) $ (9.86)
Weighted average shares outstanding - diluted 535,908 478,045 457,778
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 22
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNT)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID IN ACCUMULATED TREASURY
SHARES VALUE CAPITAL DEFICIT STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 527,778 $ 5 $ 36,264 $ (15,483) $ -- $ 20,786
Net loss (4,515) (4,515)
--------- --------- --------- --------- --------- ---------
Balance, June 30, 1998 527,778 $ 5 $ 36,264 $ (19,998) $ -- $ 16,271
Net loss (2,173) (2,173)
Issuance of common stock 667 67 67
Non-cash ESOP compensation 407 407
Revaluation of ESOP shares to
independently appraised market value (1,560) (1,560)
--------- --------- --------- --------- --------- ---------
Balance, June 30, 1999 528,445 $ 5 $ 36,738 $ (23,731) -- $ 13,012
--------- --------- --------- --------- --------- ---------
Net income 12,136 12,136
Issuance of common stock 1,000 100 100
Non-cash ESOP compensation 570 570
Treasury shares (257) (257)
Revaluation of ESOP shares to
independently appraised market value (920) (920)
--------- --------- --------- --------- --------- ---------
Balance, June 30, 2000 529,445 $ 5 $ 37,408 $ (12,515) (257) $ 24,641
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 23
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 12,136 $ (2,173) $ (4,515)
Adjustments to reconcile net income (loss)
to cash flow from operating activities:
Depreciation of fixed assets 18,985 21,924 25,208
Amortization of intangibles 4,815 4,860 6,579
Amortization of debt issue costs and deferred premium 7,422 6,650 5,902
Deferred income taxes 1,726 (3,363) (3,334)
Earnings from limited partnership (324) (775) (476)
Non-cash ESOP expense 570 407 --
Change in:
Accounts receivable (24,015) 5,078 (636)
Inventories (15,984) (2,763) 716
Other assets 4,928 (4,097) 1,839
Accounts payable, accrued and other 32,397 8,420 3,728
-------- -------- --------
Net cash provided by operating activities 42,656 34,168 35,011
Cash flows from investing activities:
Capital expenditures (18,796) (14,413) (12,466)
Proceeds from asset sales -- 477 871
Distribution received from partnership 375 990 410
-------- -------- --------
Net cash used in investing activities (18,421) (12,946) (11,185)
Cash flows from financing activities:
Bank overdraft 6,272 874 (10,157)
Net repayments on revolving line of credit (350) (10,000) --
Proceeds from issuance of long-term debt -- -- 3,192
Payments on long-term debt (7,465) (6,979) (9,706)
Cash bonus plan payments (9,557) (7,807) (7,807)
Debt issuance and organizational costs (152) (163) (493)
Reduction in note receivable from ESOP 2,000 2,000 2,000
Issued common stock 100
Purchased treasury stock (257) -- --
-------- -------- --------
Net cash used in financing activities (9,409) (22,075) (22,971)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 14,826 (853) 855
Cash and cash equivalents, beginning 103 956 101
-------- -------- --------
Cash and cash equivalents, ending $ 14,929 $ 103 $ 956
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 24
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
On July 1, 1996, Texas Olefins Company ("TOC"), Texas Petrochemicals
Corporation and a raw material supply contract of Clarkston Corporation
(collectively referred to as the "Predecessor") were acquired for approximately
$371 million in a series of transactions (the "Acquisition"). After the
transactions, TOC was merged with and into Texas Petrochemicals Corporation with
Texas Petrochemicals Corporation becoming a 100% owned subsidiary of TPC Holding
Corp., which is a wholly owned subsidiary of Texas Petrochemical Holdings, Inc.
In connection with the Acquisition, Texas Petrochemicals Corporation issued $175
million of Senior Subordinated Notes due 2006 (the "Subordinated Notes") and
borrowed $140 million under the Bank Credit Agreement. Texas Petrochemical
Holdings, Inc. issued $57.7 million in Discount Notes due 2007 (the "Discount
Notes") for net proceeds of $30.0 million and sold $43.8 million in common
stock. Texas Petrochemical Holdings, Inc., TPC Holding Corp. and Texas
Petrochemicals Corporation are collectively referred to as the "Company."
Effective July 1, 2000 Texas Petrochemicals Corporation converted its
legal form from a corporation to a limited partnership pursuant to the
conversion provisions of the Texas Business Corporation Act and the Texas
Revised Limited partnership Act. See discussion Note 13.
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; (iv) specialty isobutylenes, primarily used in the
production of specialty rubbers, lubricant additives, detergents and coatings;
and (v) polyisolbutylenes, used in the prodution of fuel and lube additives,
adhesives, sealants and packaging.
The Company's principal feedstocks are crude butadiene, isobutane and
methanol. The Company purchases a significant portion of its crude butadiene
requirements at prices, which are adjusted based on the Company's selling price
of butadiene as well as the cost of natural gas used to produce butadiene,
thereby providing the Company with a fixed profit on such sales. Methanol and
isobutane are purchased at prices linked to prevailing market prices.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements as of and for the three years
ended June 30, 2000 include the accounts of Texas Petrochemical Holdings, Inc.
and its wholly owned subsidiary, TPC Holding Corp. Intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents.
22
<PAGE> 25
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Inventories
Inventories consist of raw materials, finished goods and chemicals used
in processing and are valued at the lower of average cost or market.
The Company may enter into product exchange agreements with suppliers
whereby certain inventories are exchanged for raw materials. These exchanges are
recorded at the lower of cost or market. Any resulting gains or losses from the
utilization of these exchanges are reflected in cost of chemical products sold.
Balances related to quantities due to or payable by the Company are included in
inventory.
Investment in and Advances to Limited Partnership
The Company and Hollywood Marine, Inc. formed a limited partnership,
Hollywood/Texas Petrochemicals, Ltd., to operate four barges capable of
transporting chemicals. The Company is a 50% limited partner in the limited
partnership. The Company accounts for this investment under the equity method
and records its portion of the limited partnership's net income as other income
in the accompanying statement of operations. Summarized financial information of
the partnership has not been presented because the Company's investment in and
its proportionate share of the partnership's operations are not material.
Long-Lived Assets
Property, plant and equipment are recorded at cost. Turnaround costs
for major units of the manufacturing facilities are capitalized and amortized
over the life of the turnaround. Maintenance and repairs are charged to expense
as incurred while significant improvements are capitalized. Upon retirement or
sale of an asset, the asset and the related accumulated depreciation are removed
from the accounts and any resulting gain or loss is reflected in operations.
Depreciation of property, plant and equipment is computed using the
straight-line method over their estimated useful lives ranging from 3 to 31
years. In January 1999, the estimated useful lives of certain plant assets were
increased from 10 years to 15 years based on engineering analysis. This change
was accounted for as a change in accounting estimate and resulted in a $4.2
million decrease in depreciation expense for fiscal 1999.
Goodwill represents the excess of purchase price paid over the value
assigned to the net tangible and identifiable intangible assets of a business
acquired. Goodwill is amortized over 40 years using the straight-line method.
Debt issue costs relating to the Company's long-term debt are amortized
to interest expense over the scheduled maturity of debt utilizing the effective
interest method. Other assets include patents and catalysts, which are amortized
using the straight-line method over their useful lives ranging from 2 to 7
years.
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. If the undiscounted future cash flows of such assets are
less than the carrying amount, the carrying amount is reduced to fair value and
an impairment loss is recognized.
Revenue Recognition
The Company recognizes revenue from sales of refined products in the
period of delivery.
23
<PAGE> 26
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires that deferred taxes be provided at
enacted tax rates on temporary differences between the carrying amounts of
assets and liabilities for financial and tax reporting purposes.
Earnings per Share
Basic earnings (loss) per share for three years ended June 30, 2000 has
been computed using a weighted average shares outstanding of 498,945, 478,045
and 487,778, respectively. The weighted average shares outstanding used in the
computation of basic earnings (loss) per share are net of 20,000, 40,000 and
60,000 shares held by the Employee Stock Ownership Plan that are not allocated
to employees as of June 30, 2000, 1999 and 1998, respectively. For the years
ended June 30, 2000 and 1999, earnings (loss) used in calculating basic and
diluted earnings (loss) per share has been reduced by $350,000 and $1,170,000,
respectively which reflects the increase in the market value of the shares
allocated to employees, to the extent that such increase has not already been
recognized as compensation expense in the current period or as appreciation in
value in prior periods. For the year ended June 30, 2000, the weighted average
shares outstanding for the diluted earnings per share calculation includes all
ESOP shares outstanding (including unallocated shares) and the effect of stock
options. The effect of unallocated ESOP shares and stock options was not
dilutive for fiscal years 1999 and 1998 for purposes of calculating diluted
earnings (loss) per share.
Employee Stock Ownership Plan
The fair value of common stock held by the Employee Stock Ownership
Plan (See Note 8), as well as unearned compensation related to unallocated
shares are separately presented on the balance sheet between liabilities and
stockholders' equity in a manner similar to redeemable preferred stock as
employees have option to put the shares to the Company. The Company has
recognized as non-cash ESOP compensation, the increase in the fair value of the
common stock for those shares allocated to participant's accounts with the
corresponding offset credited to additional paid in capital.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recently Issued Pronouncements
In June 1998 the Financial Accounting Standard Board (FASB) issued
Statement of Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Certain Hedging Activities." In June 2000 the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 requires that
all derivative instruments be recorded on the balance sheet at their respective
fair values. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether the
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. SFAS No. 133 and SFAS No. 138 are effective for all fiscal
quarters of all fiscal years beginning after June 30, 2000; the Company adopted
SFAS No.
24
<PAGE> 27
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
133 and SFAS No. 138 on July 1, 2000. The Company has both interest-rate related
derivative instruments to manage its exposure on its debt instruments, as well
as commodity derivatives to manage its exposure to commodity price fluctuations.
Upon adoption of SFAS No. 133 and 138 the Company's management decided not to
designate any of its derivative instruments as part of hedge transactions.
Accordingly, during the first quarter of fiscal 2001 the Company recorded a
net-of-tax cumulative-effect loss of $0.4 million into earnings to recognize at
fair value all derivative instruments.
Reclassifications
Certain reclassifications have been made to previously issued financial
statements to conform to the current presentation.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS OF DOLLARS)
INVENTORIES:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Finished goods $ 18,505 $ 10,594
Raw materials 15,915 8,053
Chemicals and supplies 1,537 1,326
-------- --------
$ 35,957 $ 19,973
======== ========
</TABLE>
OTHER CURRENT ASSETS:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Catalyst Inventory $ 7,402 $ 7,463
Deferred turnaround costs 452 2,585
Prepaid and other 3,544 8,528
-------- --------
$ 11,398 $ 18,576
======== ========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Chemical plants $295,124 $277,117
Construction in progress 9,233 8,834
Other 5,592 5,202
-------- --------
309,949 291,153
Less accumulated depreciation and depletion 90,432 71,447
-------- --------
$219,517 $219,706
======== ========
</TABLE>
25
<PAGE> 28
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
ACCRUED EXPENSES:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
2000 1999
--------- ---------
<S> <C> <C>
Accrued interest $ 13,780 $ 13,893
Property and sales taxes 2,218 1,995
State income taxes 639 2,731
Other 2,192 596
-------- --------
$ 18,829 $ 19,215
======== ========
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30,
---------------------
2000 1999
-------- --------
<S> <C> <C>
Bank Credit Agreement:
Term A Loan $ 14,402 $ 18,002
Term B Loan 40,421 41,407
ESOP Loan 2,000 4,000
Revolving Credit Loans 1,650 2,000
Senior Subordinated Notes 225,000 225,000
Discount Notes 50,590 44,394
Deferred premium on Senior Subordinated Notes 1,928 2,250
Long-term financing -- 879
-------- --------
335,991 337,932
Less current maturities 8,086 7,465
-------- --------
Long-term debt $327,905 $330,467
======== ========
</TABLE>
The Bank Credit Agreement originally 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 (1.75% and 3% at June 30, 2000) or the greater of the prime rate
and the federal funds plus 1/2% rate plus a margin (.75% at June 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 Discount Notes are
due 2007 and bear interest at 13 1/2% payable semiannually on January 1 and July
1 beginning 2002. The Bank Credit Agreement, the Discount Notes 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. Effective
June 30, 1999 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 2000.
The fair value of the Senior Subordinated Notes, based on quoted market
prices, was approximately $191 million and $200 million as of June 30, 2000 and
1999, respectively. There is currently not an active market for the Discount
Notes, therefore, the Company estimated that the fair value based on current
interest rates available
26
<PAGE> 29
TEXAS PETROCHEMICALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
for the Company and similar debt instruments, was approximately $35 million as
of June 30, 2000 and 1999. The long-term debt under the Bank Credit Agreement
carries a floating interest rate, therefore, the Company estimates that the
carrying amount of such debt was not materially different from its fair value as
of June 30, 2000 and 1999.
In February 1998, the Company entered into a three-year swap agreement
for $125 million of its Senior Subordinated Notes. The swap agreement
effectively converts a portion of the 11 1/8% fixed rate Senior Subordinated
Notes to a floating debt with a structured collar. Under the agreement the
Company's interest rate is fixed at 10.8% while LIBOR is set between 5.45% and
6.75%. If LIBOR rates are set above 6.75% the Company's interest rate is
floating at current LIBOR plus 5.35%. If LIBOR rates are set between 5.25% and
5.45% the Company's interest rate is floating at current LIBOR plus 5.35%. If
LIBOR rates are set below 5.25% the Company's interest rate is fixed at 10.8%.
As of June 30, 2000 LIBOR rates were 7.01%, resulting in an additional $0.9
million in annual interest expense. In June 1998, the Company entered into a
three-year interest rate cap for $64 million of its senior debt under the Bank
Credit Agreement. The cap effectively converts a portion of the Company's
floating rate bank debt to a fixed rate of 6.75% plus the margin if LIBOR rates
are set above 6.75%. The notional amount of the cap amortized from $64 million
to $32 million on a quarterly basis over the three-year term. As of June 30,
2000 to the notional amount of the cap is $47 million.
Upon adoption of SFAS No. 133 and SFAS No. 138 on July 1, 2000, the
Company marked-to-market the fair value of these derivative instruments into
earnings as the Company decided not to designate these derivatives as part of a
hedge transaction under the requirements of SFAS No. 133 and 138. Accordingly,
the Company recorded a $1.3 million loss as a cumulative-effect adjustment into
earnings during the first quarter of fiscal 2001.
The aggregate scheduled maturities outstanding debt for the succeeding five
years are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2001 $ 8,086
2002 6,987
2003 18,753
2004 24,647
2005 --
</TABLE>
5. FEDERAL AND STATE INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
at June 30, 2000 and June 30, 1999 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
2000 1999
------- -------
<S> <C> <C>
Deferred tax asset (liability) - current:
Cash bonus plan $ 74 2,756
Turnaround costs (159) (905)
Other (816) (537)
------- -------
Total current $ (901) $ 1,314
======= =======
</TABLE>
27
<PAGE> 30
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<S> <C> <C>
Deferred tax asset (liability) - noncurrent:
Investment in land $ 4,573 $ 4,828
Cash bonus plan -- 733
Interest 6,939 5,037
Property, plant and equipment (64,275) (65,872)
Other (170) (220)
-------- --------
$(52,933) $(55,494)
Valuation allowance (2,072) --
-------- --------
Total noncurrent $(55,005) $(55,494)
======== ========
</TABLE>
The Company recognized a $2.1 million valuation allowance in current year
earnings against the deferred tax benefit for the investment in land, which was
not likely to be realized for the portion of loss carryforward which expires in
fiscal year 2003.
The current deferred tax asset (liability) is included in other current
assets in the accompanying balance sheet. The provision for federal and state
income taxes is comprised of the following (in thousand of dollars):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 12,309 $ 5,296 $ 4,259
State 2,025 708 943
-------- -------- --------
14,334 6,004 5,202
-------- -------- --------
Deferred:
Federal 1,726 (3,363) (3,334)
State -- -- --
-------- -------- --------
1,726 (3,363) (3,334)
-------- -------- --------
Total provision
for income taxes $ 16,060 $ 2,641 $ 1,868
======== ======== ========
</TABLE>
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income from before income
taxes. The reasons for this difference are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Statutory federal income tax rate 35% 35% 35%
Computed "expected" federal income tax $ 9,869 $ 164 $ (926)
Increase in tax resulting from:
State income taxes, net of
federal benefit 1,316 460 612
Valuation allowance on land
held for sale 2,072 -- --
Other, net 1,000 413 273
Amortization of goodwill and other 1,803 1,604 1,909
------- ------- -------
Provision for income taxes $16,060 $ 2,641 $ 1,868
======= ======= =======
</TABLE>
28
<PAGE> 31
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Interest $32,479 $34,641 $33,735
Income taxes 16,407 6,897 1,641
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases tank cars under noncancelable operating leases.
Under the terms of the lease agreements, the Company is reimbursed by customers
at a fixed rate per mile, based on the distance the tank cars travel.
Reimbursements were approximately $0.7 million, $0.5 million, $0.8 million, for
the three years ended June 30, 2000, respectively.
Total rent expense was approximately $4.4 million, $4.6 million and
$3.9 million, (net of reimbursements described above and including $0.9 million,
$0.7 million and $.7 million for the rental of barges) for the three years ended
June 30, 2000, respectively. Future minimum lease payments at June 30, 2000 are
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2001 $ 3,984
2002 2,633
2003 1,198
2004 278
2005 --
</TABLE>
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
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.
29
<PAGE> 32
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 adverse impact on the Company's financial position, results of
operations or cash flows.
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 import on the Company's
financial condition, results of operations or cash flows.
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 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.
8. EMPLOYEE BENEFITS
PROFIT SHARING PLAN
The Company has a profit sharing plan that covers all full-time
employees that have completed 90 days or more of service. Employees can
contribute up to 10% of their base compensation to a tax deferred fund. The
Company
30
<PAGE> 33
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
matches at the rate of $.25 per one dollar contributed by the employee up to 6%
of the employee's base compensation. The Company's expense to match employee
contributions was approximately $0.2 million for each of the proceeding three
years, respectively. Additionally, the Company made additional discretionary
contributions to the plan, which amounted to approximately $2.3 million, $2.0
million and $2.1 million, for the three years ended June 30, 2000, respectively.
The Company's contributions vest with the employee at a rate of 20% per year.
EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the Acquisition, the Company established an Employee
Stock Ownership Plan (the "ESOP"), covering substantially all full-time
employees of the Company. The ESOP borrowed $10 million under the Bank Credit
Agreement to purchase 100,000 shares of the Parent's Common Stock at the closing
of the Acquisition. The shares of Common Stock purchased by the ESOP were
pledged as security for the ESOP Loan, and such shares will be released and
allocated to ESOP participants' accounts as the ESOP Loan is discharged. For
employees whose employment commenced prior to October 1, 1996 and who have
attained 21 years of age, participation begins as of the Acquisition date or the
date of commencement of the participant's employment. A participant's ESOP
account vests at the rate of 20% per year. The Company's contributions to the
ESOP, which are used to retire principal and pay interest on the loan is
reported as compensation expense. Principal and interest payments made for the
three years ended June 30, 2000 amounted to $2.2 million, $2.4 million and $2.6
million, respectively. As of June 30, 2000, 80,000 shares have been allocated to
employees.
STOCK OPTION PLAN
In October 1996, the Company approved to the Stock Option Plan (the
"Plan") to reserve up to 27,778 shares of Common Stock to certain officers,
directors and key employees of the Company. In April 1998 the Company amended
the Plan to reserve up to an additional 42,000 shares of Common Stock under the
plan. The term of the options issued under the Plan cannot exceed ten years from
the date of grant. The options issued to date vest ratable over a three-year
period from the date of grant and are exercisable at $100 per share for those
options granted prior to June 30, 1998 and $126 per share for those shares
granted subsequently.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Balance, July 1, 1997 27,778
Granted 11,500
Exercised --
Canceled (1,000)
-------
Balance, June 30, 1998 38,278
Granted --
Exercised (667)
Canceled (5,333)
-------
Balance, June 1999 32,278
-------
Granted 26,522
Exercised (1,000)
Canceled (5,500)
-------
Balance, June 30, 2000 52,300
=======
</TABLE>
31
<PAGE> 34
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company applies APB 25 and related interpretations in accounting
for the Plan. There has been no compensation cost recognized by the Company
associated with the Plan as the exercise price of the options at the dates of
measurement were equivalent to the estimated fair value of the common stock on
that date. Had compensation cost for the Plan been determined based on the
method consistent with SFAS No. 123, the Company's net income (loss) and net
income (loss) per share for the three years ended June 30, 2000 would have not
been materially different on a pro forma basis.
CASH BONUS PLAN LIABILITY
In connection with the Acquisition, the Predecessor established the $35
million Cash Bonus Plan covering substantially all employees of the Predecessor
(or certain affiliates of the Predecessor) and covering the employees of certain
third-party contractors who had contributed to the past success of the
Predecessor. All participants of the plan as of July 2, 1996 were distributed
10% of the cash bonus in August 1996, and the remaining amount is to be paid in
sixteen quarterly installments which began in October 1996. During the year
ended June 2000, $9.6 million was paid to eligible participants and the
remaining $0.2 million, which retires the debt, was paid in July 2000.
9. RELATED PARTY TRANSACTIONS
In December 1999 the Company made a loan to its Director of Research in
the amount of $0.2 million of which $0.2 million remained outstanding as of June
30, 2000. The loan carries an interest rate of 8%.
In June 1998 the Company issued $0.2 million to its Executive Vice
President and Chief Financial Officer which has been paid in full as of June 30,
2000. The proceeds from the loan were utilized to purchase outstanding shares of
the Parent's common stock at fair market value. The loan carried an interest
rate of 7%.
During fiscal 1999 the Company made payments totaling $0.3 million to a
consulting firm whose majority shareholder is also an outside director and
shareholder of the Company. No such expenditures were made in fiscal 2000.
The Chairman of the Company receives annual compensation of $0.2 million for
consulting services provided to the Company and reimbursements of approximately
$25,000 per year for office expenses.
10. CONCENTRATION OF CREDIT RISK
The Company sells its products primarily to chemical and petroleum
based companies in North America. For the three years ended June 30, 2000
approximately 34%, 34% and 41%, respectively, of the Company's sales were to
four customers. The Company had two customers, which represented 11% and 14% of
sales during the year ended June 30, 2000 and 1999, and 13% and 15% of sales
during the year ended June 30, 1998. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral for
accounts receivable. The Company's credit losses have been minimal.
The Company maintains its cash deposits and short-term investments with
a major bank and a financial services company which at certain times exceed the
federally insured limits. Management assesses the financial condition of these
institutions and believes that any possible credit loss is minimal.
32
<PAGE> 35
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. FINANCIAL INSTRUMENTS
At June 30, 2000 the Company estimated that the carrying value and fair
value of its financial instruments, other than long-term debt (See Note 4), were
approximately equal due to the short-term nature of the instruments. Such
instruments include cash and cash equivalents, accounts receivable and accounts
payable.
The Company enters into certain derivative financial instruments as
part of its interest rate risk management and commodity price risk management.
At June 30, 2000, the Company had open futures contracts to sell unleaded gas
with notional volumes totaling 79,000 barrels. The Company also had open swap
contracts with notional volumes totaling 150,000 barrels. All of these commodity
contracts mature within three months. Interest rate swaps, caps, collars and
floors are classified as matched transactions. The differential to be paid or
received as interest rates change is accrued and recognized as an adjustment to
interest expense. Gains and losses associated with commodity-related derivative
instruments are recognized in earnings concurrently with the related hedged
transaction. The fair value of derivative financial instruments are the amounts
at which they could be settled based on estimates from dealers. As of June 30,
2000, reporting the estimated fair values of derivative financial instruments
would result in a loss of approximately $1.3 million on the interest rate
instruments and a gain of approximately $0.7 million on the commodity
instruments. See discussion of the impact of adopting SFAS No. 133 and SFAS No.
138, effective July 1, 2000, in Notes 2 and 4.
33
<PAGE> 36
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. 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:
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>
34
<PAGE> 37
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Balance Sheet
June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Total Eliminations
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ -- $ 103 $ -- $ 103
Accounts receivable - trade 40,220 40,220
Inventories 19,973 19,973
Other current assets (48) 18,624 18,576
---------- ---------- ---------- ---------- ---------
Total current assets (48) 78,920 78,872
Property, plant and equipment, net 219,706 219,706
Investments in land held for sale 2,058 2,058
Investment in and advances to limited partnership 2,820 2,820
Goodwill, net 169,560 169,560
Other assets, net of accumulated amortization 459 9,374 9,833
Consolidated subsidiaries 59,518 59,518 (119,036) --
---------- ---------- ---------- ---------- ---------
Total assets $ 59,929 $ 59,518 $ 482,438 $ (119,036) $ 482,849
========== ========== ========== ========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ -- $ -- $ 874 $ -- $ 874
Accounts payable - trade 38,992 38,992
Payable to Parent 1,987 (1,987) --
Accrued expenses 17,228 1,987 19,215
Current portion of cash bonus plan 7,811 7,811
Current portion of long-term debt 7,465 7,465
---------- ---------- ---------- ---------- ---------
Total current liabilities 74,357 74,357
Revolving line of credit 2,000 2,000
Long-term debt 44,394 284,073 328,467
Cash bonus plan 1,959 1,959
Deferred income taxes (5,037) 60,531 55,494
Common stock held by the ESOP 12,600 12,600
Less: unearned compensation (5,040) (5,040)
Stockholders' equity:
Common Stock 5 4,162 (4,162) 5
Additional paid in capital 36,738 72,212 72,050 (144,262) 36,738
Accumulated deficit (23,731) (12,694) (12,694) 25,388 (23,731)
Note receivable from ESOP (4,000) 4,000 --
---------- ---------- ---------- ---------- ---------
Total stockholders' equity 13,012 59,518 59,518 (119,036) 13,012
---------- ---------- ---------- ---------- ---------
Total liabilities and stockholders' equity $ 59,929 $ 59,518 $ 482,438 $ (119,036) $ 482,849
========== ========== ========== ========== =========
</TABLE>
35
<PAGE> 38
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Year Ended June 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ 744,725 $ -- $ 744,725
Cost of goods sold 643,195 643,195
Non-cash compensation 570 570
Depreciation and amortization 23,800 23,800
---------- ---------
Gross profit 77,160 77,160
Selling, general and administrative expenses 14 9,139 9,153
---------- ---------- ---------- ---------- ---------
Income (loss) from operations (14) 68,021 68,007
Interest expense 6,249 33,524 39,773
Other income (expense) (38) (38)
---------- ---------- ---------- ---------- ---------
Income (loss) before income taxes (6,263) 34,459 28,196
Provision (benefit) for income taxes (1,896) 17,956 16,060
Equity in net income loss of subsidiaries 16,503 16,503 (33,006) --
---------- ---------- ---------- ---------- ---------
Net income (loss) $ 12,136 $ 16,503 $ 16,503 $ (33,006) $ 12,136
========== ========== ========== ========== =========
</TABLE>
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Year Ended June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ 448,155 $ -- $ 448,155
Cost of goods sold 374,401 374,401
Non-cash ESOP compensation 407 407
Depreciation and amortization 26,784 26,784
---------- ----------
Gross profit 46,563 46,563
Selling, general and administrative expenses 11 7,916 7,927
---------- ---------- ---------- ---------- ----------
Income (loss) from operations (11) 38,647 38,636
Interest expense 5,491 33,953 39,444
Other income 1,276 1,276
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (5,502) 5,970 468
Provision (benefit) for income taxes (1,897) 4,538 2,641
Equity in net loss of subsidiaries 1,432 1,432 (2,864) --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (2,173) $ 1,432 $ 1,432 $ (2,864) $ (2,173)
========== ========== ========== ========== ==========
</TABLE>
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Year Ended June 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
<S> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ 514,790 $ -- $ 514,790
Cost of goods sold 438,725 438,725
Depreciation and amortization 31,787 31,787
---------- ----------
Gross profit 44,278 44,278
Selling, general and administrative expenses 61 6,888 6,949
---------- ---------- ---------- ---------- ----------
Income (loss) from operations (61) 37,390 37,329
Interest expense 4,813 35,720 40,533
Other income 557 557
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (4,874) 2,227 (2,647)
Provision (benefit) for income taxes (1,756) 3,624 1,868
Equity in net income of subsidiaries (1,397) (1,397) 2,794 --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (4,515) $ (1,397) $ (1,397) $ 2,794 $ (4,515)
========== ========== ========== ========== ==========
</TABLE>
36
<PAGE> 39
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Year Ended June 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) $ 12,136 $ 16,503 $ 16,503 $(33,006) $ 12,136
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 18,985 18,985
Amortization of goodwill and other assets 4,815 4,815
Amortization of debt issue costs 6,249 1,173 7,422
Earnings from limited partnership (324) (324)
Deferred income taxes (1,902) 3,628 1,726
Non-cash ESOP compensation 570 570
Change in:
Accounts receivable (24,015) (24,015)
Inventories (15,984) (15,984)
Other assets 187 4,741 4,928
Accounts payable, accrued and other 10 32,397 (10) 32,397
-------- -------- -------- -------- ---------
Net cash provided by operating activities 16,670 16,513 42,489 (33,016) 42,656
Cash flows from investing activities:
Capital expenditures (18,796) (18,796)
Distribution from limited partnership 375 375
-------- -------- -------- -------- ---------
Net cash used in investing activities (18,421) (18,421)
Cash flows from financing activities:
Change in bank overdraft 6,272 6,272
Net repayments under revolver (350) (350)
Payments on long-term debt (7,465) (7,465)
Payment of cash bonus plan (9,557) (9,557)
Debt issuance costs (152) (152)
Issued common stock 100 100
Purchased treasury stock (257) (257)
Reduction in note receivable from ESOP 2,000 2,000
-------- -------- -------- -------- ---------
Net cash used in financing activities (157) (9,252) (9,409)
-------- -------- -------- -------- ---------
Net increase (decrease) in cash and cash equivalents 16,513 16,513 14,816 (33,016) 14,826
Cash and cash equivalents, at beginning of period 103 103
-------- -------- -------- -------- ---------
Cash and cash equivalents, at end of period $ 16,513 $ 16,513 $ 14,919 $(33,016) $ 14,929
======== ======== ======== ======== =========
</TABLE>
37
<PAGE> 40
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Year Ended June 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) $(2,173) $1,432 $ 1,432 $(2,864) $ (2,173)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 21,924 21,924
Amortization of goodwill and other assets 4,860 4,860
Amortization of debt issue costs 5,491 1,159 6,650
Earnings from limited partnership (775) (775)
Deferred income taxes (1,903) (1,460) (3,363)
Non-cash ESOP compensation 407 407
Change in:
Accounts receivable 5,078 5,078
Inventories (2,763) (2,763)
Other assets 86 (4,183) (4,097)
Accounts payable, accrued and other (69) 8,489 8,420
------- ------ ------- ------- --------
Net cash provided by operating activities 1,432 1,432 34,168 (2,864) 34,168
Cash flows from investing activities:
Capital expenditures 14,413) (14,413)
Proceeds from the sale of non-plant assets 477 477
Distribution from limited partnership 990 990
------- ------ ------- ------- --------
Net cash used in investing activities 12,946) (12,946)
Cash flows from financing activities:
Change in bank overdraft 874 874
Net repayments under revolver 10,000) (10,000)
Payments on long-term debt (6,979) (6,979)
Payment of cash bonus plan (7,807) (7,807)
Debt issuance costs (163) (163)
Reduction in note receivable from ESOP 2,000 2,000
------- ------ ------- ------- --------
Net cash used in financing activities 22,075) (22,075)
------- ------ ------- ------- --------
Net increase (decrease) in cash and cash equivalents 1,432 1,432 (853) (2,864) (853)
Cash and cash equivalents, at beginning of period 956 956
------- ------ ------- ------- --------
Cash and cash equivalents, at end of period $ 1,432 $1,432 $ 103 $(2,864) $ 103
======= ====== ======= ======= ========
</TABLE>
38
<PAGE> 41
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Year Ended June 30, 1998
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantors Eliminations Total
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,515) $ (1,397) $ (1,397) $2,794 $ (4,515)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 25,208 25,208
Amortization of goodwill and other assets 6,579 6,579
Amortization of debt issue costs 4,813 1,089 5,902
Earnings from limited partnership (476) (476)
Deferred income taxes (1,654) (1,680) (3,334)
Change in:
Accounts receivable (636) (636)
Inventories 716 716
Other assets (4) 1,843 1,839
Accounts payable, accrued and other 67 3,661 3,728
---------- ---------- ---------- ------ ---------
Net cash provided by operating activities (1,293) (1,397) 34,907 2,794 35,011
Cash flows from investing activities:
Capital expenditures (12,466) (12,466)
Proceeds from the sale of non-plant assets 871 871
Distribution from limited partnership 410 410
---------- ---------- ---------- ------ ---------
Net cash used in investing activities (11,185) (11,185)
Cash flows from financing activities:
Change in bank overdraft (10,157) (10,157)
Net repayments under revolver -- --
Proceeds from issuance of long-term debt 3,192 3,192
Payments on long-term debt (9,706) (9,706)
Payment of cash bonus plan (7,807) (7,807)
Debt issuance costs (104) (389) (493)
Reduction in note receivable from ESOP 2,000 2,000
---------- ---------- ---------- ------ ---------
Net cash used in financing activities (104) (22,867) (22,971)
---------- ---------- ---------- ------ ---------
Net increase (decrease) in cash and cash equivalents (1,397) (1,397) 855 2,794 855
Cash and cash equivalents, at beginning of period 101 101
---------- ---------- ---------- ------ ---------
Cash and cash equivalents, at end of period $ (1,397) $ (1,397) $ 956 $2,794 $ 956
========== ========== ========== ====== =========
</TABLE>
39
<PAGE> 42
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS, CONTINUED
13. SUBSEQUENT EVENT
Effective July 1, 2000 Texas Petrochemicals Corporation converted its
legal form from a corporation to a limited partnership, Texas Petrochemicals LP,
pursuant to the conversion provisions of the Texas Business Corporation Act and
the Texas Revised Limited Partnership Act. TPC Holding Corp., Texas
Petrochemicals Corporation's immediate parent prior to the conversion, retained
a direct 1% ownership interest in the partnership and became its sole general
partner. Petrochemical Partnership Holdings, Inc., a new wholly owned subsidiary
of TPC Holding Corp., acquired the remaining 99% ownership interest and
simultaneously became a limited partner of the partnership. This change has no
effect on the current management of the Company or its existing operations. The
Texas Business Corporation Act provide that the effect of the conversion is that
Texas Petrochemicals LP, formerly Texas Petrochemicals Corporation, as a legal
entity continues to exist, without interruption, but in the organizational form
of a Texas limited partnership rather than in the prior organizational form of a
Texas corporation.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 13, 2000 the Audit Committee of the Board of Directors of
TPC Holdings Inc., (the "Company") recommended, and the Company's Board of
Directors approved, the engagement of PricewaterhouseCoopers LLP to audit the
consolidated financial statements of the Company for the fiscal year ending June
30, 2001. In connection with the audits of the Company's consolidated financial
statements for the three years ended June 30, 2000, (i) the Company had no
disagreements with Deloitte & Touche LLP ("D&T"), the Company's former auditors,
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure which, if not resolved to the
satisfaction of D&T, would have caused D&T to make reference to the matter in
their reports; and (ii) there were no "reportable events" as defined in Item
304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934.
40
<PAGE> 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
directors and executive officers of the Company. Each director is elected for a
one-year term or until such person's successor is duly elected and qualified.
Years of
<TABLE>
<CAPTION>
Years of
service with the
Company
Name Age Position or its predecessors
---- --- -------- --------------------
<S> <C> <C> <C>
Hunter W. Henry Jr. 72 Director 2
William R. Huff 50 Director 4
William A. McMinn 70 Director and Chairman 16
Steve A. Nordaker 53 Director 3
Susan O. Rheney 41 Director 4
Gary L. Rosenthal 51 Director 2
John T. Shelton 69 Director 16
Guy E. Sutherland 64 Director 1
B. W. Waycaster 61 Director, President and Chief Executive Officer 8
Carl S. Stutts 53 Executive Vice President, Chief Financial Officer 2
Stephen R. Wright 52 Sr. Vice President, Secretary and General Counsel 4
William F. Howard 57 Sr. Vice President Operations 24
</TABLE>
Mr. Henry has held various manufacturing and management positions in
the Dow Chemical Company, including Vice President - Business Operations for
Latin America, Vice President - Manufacturing Dow Badische, General Manager -
Michigan Division, President - Dow Brazil, President - Dow USA and Executive
Vice President of Dow Chemical Company (1982 - 1988). Mr. Henry was on Dow's
board from 1979 to 1993 and has served on the Executive, Compensation, Health
and Safety Committees and as Chairman of the Finance and Investment Policy
Committee. Mr. Henry also served as Chairman of the Board of Dowell
Schlumberger, 1985 - 1988.
Mr. Huff has been President of the General Manager of WRH Partners,
L.L.C., the General Partner of The Huff Alternative Income Fund, L.P. (the "Huff
Fund") since 1994. He also has been President of one of the general managers of
W.R. Huff Asset Management Co., L.L.C., an investment management firm, since
1984. Mr. Huff serves on the Board of Directors as the designee of the Huff Fund
and also serves on the Board of Directors of e.spire Communications, Inc.
Mr. McMinn has been Chairman of the Board of the Company since 1996. He
was Corporate Vice President and Manager of the Industrial Chemical Group of FMC
Corporation, a manufacturer of machinery and chemical products, from 1973
through 1985. He became President and Chief Executive Officer of Cain Chemical
Inc., a producer of petrochemicals, in 1987 and served in that capacity until
its acquisition by Occidental Petroleum in May 1988. He became Chairman of the
Board of Directors of Arcadian Corporation in August 1990 and served in that
capacity until it was sold in April 1997.
41
<PAGE> 44
Mr. Nordaker has been a Managing Director of Chase Securities since
August 1995. From 1982 to 1995, he was a Group Manager at Texas Commerce Bank
National Association and, in addition, served in several capacities at Texas
Commerce Bank in the Energy Group, including Section Manager and Division
Manager. From May 1977 to March 1982, Mr. Nordaker was a Manager of Projects for
The Frantz Company, an engineering consulting firm servicing the oil refinery
and petrochemical industry. Prior thereto, he was a chemical engineer with
Universal Oil Products. Mr. Nordaker serves on the Board of Directors as the
Designee of Chase Venture, an affiliate of Chase Securities.
Ms. Rheney has been a principal of The Sterling Group, Inc. since
February 1992. She worked as an independent financial consultant from December
1990 to January 1992. Prior to that time, from June 1987 to November 1990, she
was an associate at Sterling. Ms. Rheney is also a director of American Plumbing
& Mechanical, Inc.
Mr. Rosenthal has served as President of Heaney Rosenthal, Inc. which
focuses on investment, acquisition and advice to various businesses since 1994,
and as Chairman of the Board, President and CEO of AXIA Incorporated since 1998.
Mr. Rosenthal previously served as Chairman of the Board (1990-1994) and CEO
(1994) of Wheatley TXT Corp.
Mr. Shelton has been Vice Chairman of the Board, Executive Vice
President and Chief Operations Officer of the Company since 1983. Prior thereto,
Mr. Shelton held various positions in the chemicals industry including Vice
President - Manufacturing of Oxirane Corporation and Manager -
Manufacturing/Engineering of Atlantic Richfield Company.
Mr. Sutherland has held various management positions in Phillips
Petroleum Company including President, Phillips Driscopipe, President, Applied
Automation, Vice President, Chemicals and Senior Vice President Phillips
Chemical Company. Mr. Sutherland was employed by Phillips for 41 years and spent
time on Wall Street for the Company as well as Washington, DC where he was on
loan to the government as part of the Presidents Executive Exchange Program. He
was Chairman of the NPRA Petrochemical Committee and on the Executive Committee
of the NPRA and active in CMA. He currently serves on the Board of WeststarBank,
member Arvest Group, the Advisory Board of ChemConnect, Inc. and as Managing
Member of Sutherland-Wheeler Farm LLC.
Mr. Waycaster has been President and Chief Executive Officer of the
Company since 1992. Prior thereto, Mr. Waycaster spent 27 years with The Dow
Chemical Company and was serving as Vice President of the Hydrocarbons and
Resources when he left to join the Company. Mr. Waycaster is a Board member of
the American Chemistry Council, National Petrochemical and Refiners Association,
and serves on the Advisory Board of ChemConnect, Inc.
Mr. Stutts joined the Company in April 1998 as Vice President of
Finance and Corporate Development. Previously, he was a general partner of
Columbine Venture Funds, an institutional venture capital fund focusing on
investments in early stage companies. From 1971 to 1988 he held various
management positions in Tenneco, Inc. and its subsidiary companies.
Mr. Wright joined the Company in August 1996 as Vice President and
General Counsel. From January 1996 until he joined the Company, Mr. Wright was
engaged in the private practice of law, either as a sole practitioner or of
counsel to Andrews & Kurth, L.L.P. For over five years prior thereto, Mr. Wright
was the Vice President and General Counsel or the Senior Vice President and
General Counsel of Destec Energy, Inc. In July 1999, he was named the Company's
Senior Vice President for Law and Administration.
42
<PAGE> 45
Mr. Howard has been Senior Vice President Operations of the Company
since July 1999, and he was promoted to Senior Vice President Operations in
March 2000. He joined the Company in 1976 and has held various positions in
Manufacturing and Maintenance. Prior to 1976, Mr. Howard was with Exxon
Chemical. Mr. Howard has 30 years of experience in the chemicals industry.
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees of the Company receive
an annual retainer of $15,000 and a fee of $500 for each meeting of the Board or
any committee thereof that they attend. Directors who are also employees of the
Company do not receive Director compensation.
43
<PAGE> 46
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the total value of compensation received
by the Chief Executive Officer and the four most highly compensated executive
officers, other than the Chief Executive Officer, who served as executive
officers of the Company for the three years ended June 30, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Position Year(1) Salary Bonus
--------------------------- ------- -------- --------
<S> <C> <C> <C>
B. W. Waycaster, President and
Chief Executive Officer 2000 $300,000 $575,436
1999 300,000 459,156
1998 300,000 507,186
Stephen R. Wright, Senior Vice
President, Secretary and
General Counsel 2000 $180,000 $345,272
1999 180,000 275,494
1998 180,000 281,138
H.E. Sebastian
Vice President, Marketing and Supply (2)2000 $131,250 $335,671
1999 175,000 265,500
1998 58,333 19,779
Carl S. Stutts, Executive Vice President,
Chief Financial Officer 2000 $175,000 $335,671
1999 175,000 267,841
1998 41,761 --
Floyd W. Howard, Senior Vice President
Operations 2000 $150,000 $223,762
</TABLE>
----------
(1) None of the executive officers has received perquisites, the value of which
exceeded the lesser of $50,000 or 10% of the salary and bonus of such
executive officer.
(2) Mr. Sebastian resigned from the Company in March 2000.
The following table sets forth the number and dollar value of exercised and
unexercised options held by each of the named executive officers at June 30,
2000.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Options at June 30, 2000 June 30, 2000
Exercisable Not Exercisable Exercisable Not Exercisable
----------- --------------- ----------- ----------------
<S> <C> <C> <C> <C>
B.W. Waycaster 3,428 9,072 $105,268 $45,360
William F. Howard -- 5,000 -- 25,000
Carl S. Stutts 3,333 1,667 103,323 51,677
Stephen R. Wright 1,350 3,650 41,850 18,250
</TABLE>
44
<PAGE> 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 8, 2000, the number and
percentage of the outstanding shares of Common Stock beneficially owned by (a)
each person known by the Company to beneficially own more than 5% of such stock,
(b) each director of the Company, (c) each of the Named Executive Officers of
the Company, and (d) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner Of Common Stock Common Stock
------------------------------------ --------------- ------------
<S> <C> <C>
Gordon A. Cain 69,000 13.0%
Eight Greenway Plaza, Suite 702
Houston, TX 77046
Hunter W. Henry Jr. -- --
1148 Thousand Oaks
San Marcos, TX 78666
William F. Howard
1309 Town Circle
Baytown, TX 77520 3,000 0.6%
William R. Huff -- --
67 Park Place
Morristown, NJ 07960
William A. McMinn 15,000(1) 2.8%
Eight Greenway Plaza, Suite 702
Houston, TX 77046
Steve A. Nordaker -- --
600 Travis, 20th Floor
Houston, TX 77002
Susan O. Rheney 5,000 0.9%
Eight Greenway Plaza, Suite 702
Houston, TX 77046
Gary L. Rosenthal 1,450(2) 0.3%
600 Travis, Suite 6110
Houston, TX 77002
John T. Shelton 10,000 1.9%
3 Inwood Oaks
Houston, TX 77024
Carl S. Stutts 5,833(3) 1.1%
3801 Swartmore Street
Houston, TX 77056
Guy E. Sutherland -- --
1821 S.E. Glynnwood Dr.
Bartlesville, OK 74006-6121
Bill W. Waycaster 43,428(4) 8.2%
Three Riverway, Suite 1500
Houston, TX 77056
Stephen R. Wright 3,000(5) 0.6%
Three Riversay, Suite 1500
Houston, TX 77056
All directors and Named Executive
Officers as a group (11 persons) 155,711 29.4%
Texas Petrochemicals Corporation ESOP 100,000 18.9%
Capital Southwest Corporation 30,000 5.7%
12900 Preston Road, Suite 700
Dallas, TX 75230
Chase Venture Capital Associates, L.P. 60,000 11.3%
380 Madison Avenue
New York, NY 10017
The Huff Alternative Income Fund, L.P. 57,778 10.9%
67 Park Place
Morristown, NJ 07960
</TABLE>
(1) Includes 5,000 shares subject to options exercisable as of June 30,
2000.
(2) Does not include 2,000 shares held in Trust for Mr. Rosenthal's
descendants. Mr. Rosenthal disclaims beneficial ownership of the
shares.
(3) Includes 3,333 shares subject to options exercisable as of June 30,
2000.
(4) Includes 3,428 shares subject to options exercisable as of June 30,
2000.
(5) Includes 1,350 shares subject to options exercisable as of June 30,
2000.
45
<PAGE> 48
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
9. RELATED PARTY TRANSACTIONS
In December 1999 the Company made a loan to its Director of Research in
the amount of $0.2 million of which $0.2 million remained outstanding as of June
30, 2000. The loan carries an interest rate of 8%.
In June 1998 the Company issued $0.2 million to its Executive Vice
President and Chief Financial Officer which has been paid in full as of June 30,
2000. The proceeds from the loan were utilized to purchase outstanding shares of
the Parent's common stock at fair market value. The loan carried an interest
rate of 7%.
During fiscal 1999 the Company made payments totaling $0.3 million to a
consulting firm whose majority shareholder is also an outside director and
shareholder of the Company. The Chairman of the Company receives annual
compensation of $0.2 million for consulting services provided to the Company and
reimbursements of approximately $25,000 per year for office expenses.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 of Form S-4, File
No. 333-11569).
3.2 Bylaws of the Company (incorporated by reference to Exhibit
3.2 of Form S-4, File No. 333-11569).
3.3 Certificate of Limited partnership of Texas Petrochemicals LP.
3.4 Agreement of Limited Partnership of Texas Petrochemicals LP.
4.1 Indenture dated as of July 1, 1996 by and between the Company
and Fleet National Bank, as Trustee, with respect to the
11 1/8% Senior Subordinated Notes due 2006, including the form
of the Note (incorporated by reference to Exhibit 4.1 of Form
S-4, File No. 333-11569).
4.2 Indenture dated as of March 1, 1997 by and between the Company
and Fleet National Bank, as Trustee, with respect to the
11 1/8% Series B Senior Subordinated Notes due 2006, including
the form of Note (incorporated by reference to Exhibit 4.2 of
Form S-4, File No. 333-24589).
4.3 First Supplemental Indenture dated June 28, 2000 amending and
supplementing Senior Discount Notes due 2007.
5.1 Opinion of Bracewell & Patterson as to the validity of the
11 1/8% Senior Subordinated Notes die 2006 and the validity of
the 11 1/8% Series B Senior Subordinated Notes due 2006.
(incorporated by reference to Exhibit 5.1 of Form S-4, File
No. 333-11569).
10.1 Holdings' 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.1 of Form S-4, File No. 333-11569).
10.2 TPC Employee Stock Ownership Plan (incorporated by reference
to Exhibit 10.2 of Form S-4, file No. 333-11569).
10.3 TPC Employee Stock Ownership Plan Trust Agreement
(incorporated by reference to Exhibit 10.3 of Form S-4, File
No. 333-11569).
10.4 TPC Cash Bonus Plan (incorporated by reference to Exhibit 10.4
of Form S-4, File No. 333-11569).
10.5 Security Agreement by and between Boatmen's Trust Company of
Texas and the Company (incorporated by reference to Exhibit
10.5 of Form S-4, File No. 333-11569).
10.6 TPC Profit Sharing Plan (incorporated by reference to Exhibit
10.6 of Form S-4, File No. 333-11569).
10.7 Lease for Calcasieu Parish, Louisiana (incorporated by
reference to Exhibit 10.7 of Form S-4, File No. 333-11569).
10.8 Credit Agreement dated as of July 1, 1996 among the Company,
Texas Commerce Bank, National Association, ABN AMRO North
America, Inc., and The Bank of Nova Scotia (incorporated by
reference to Exhibit 10.8 of Form S-4, File No. 333-11569).
46
<PAGE> 49
10.9 Security Agreement date as of July 1, 1996 by and between the
Company and Texas Commerce Bank, National Association
(incorporated by reference to Exhibit 10.9 of Form S-4, File
No. 333-11569).
10.10 Pledge Agreement date as of July 1, 1996 by and between the
Company and Texas Commerce Bank, National Association
(incorporated by reference to Exhibit 10.10 of Form S-4, File
No. 333-11569).
10.11 Letter Agreement dated May 6, 1996 by and among The Sterling
Group, Inc., Texas Petrochemical Holdings, Inc., TPC Holding,
and the Company (incorporated by reference 10.11 of Form S-4,
File No. 333-11569).
10.12 Form of Indemnity Agreement between the Company and each of
its officers and directors (incorporated by reference to
Exhibit 10.12 of Form S-4, File No. 333-11569).
10.13 Form of Tax Sharing Agreement among Texas Petrochemical
Holdings, Inc., TPC Holding, the Company and Texas Butylene
Chemical Corporation (incorporated by reference to Exhibit
10.13 of Form S-4, File No. 333-11569).
10.14 Employment Agreement with Bill W. Waycaster (incorporated by
reference to Exhibit 10.14 of Form S-4, File No. 333-11569).
10.15 Amendment to Credit Agreement dated as of June 30, 1999 by and
among the Company, Chase Bank of Texas, National Association,
ABN AMRO North America, Inc., the Bank of Nova Scotia and
other financial institutions listed on the signature pages
attached. (incorporated by reference to Exhibit 10.15 of Form
10K, File No. 333-1569).
10.16 Amended and Restated Credit Agreement among TPC Holdings
Corp., Texas Petrochemicals LP, Chase Bank of Texas-National
Association, ABN AMRO North America, Inc. and The Bank of Nova
Scotia.
10.17 Note Modification Agreement dated June 30, 2000 between Texas
Petrochemicals LP.
21 Subsidiaries of the Company (incorporated to Exhibit 21 of
Form S-4, File No. 333-11569).
25.1 Statement of Eligibility and Qualification on Form T-1 of
Fleet National Bank as Trustee under the Indenture dated as of
July 1, 1996 (incorporated by reference to Exhibit 25.1 of
Form S-4, File No. 333-11569).
25.2 Statement of Eligibility and Qualification on Form T-1 of
Fleet National Bank as Trustee under the Indenture dated as of
March 1, 1997 (incorporated by reference to Exhibit 25.2 of
Form S-4, File No. 333-24589).
27 Financial Data Schedule
(b) Financial Statement Schedules
Not applicable
(c) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
June 30, 2000.
47
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, September 25, 2000.
TEXAS PETROCHEMICAL HOLDINGS, INC.
(Registrant)
By: /s/ B.W. Waycaster
--------------------------------------
B.W. Waycaster
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
to be signed below by the following persons on behalf of the registrant in the
indicated capacities on September 25, 2000.
/s/ WILLIAM A. McMINN Chairman
------------------------------------------
William A. McMinn
/s/ B.W. WAYCASTER Director, President and
------------------------------------------ Chief Executive Officer
B.W. Waycaster
/s/ HUNTER W. HENRY JR. Director
------------------------------------------
Hunter W. Henry Jr.
/s/ WILLIAM R. HUFF Director
------------------------------------------
William R. Huff
/s/ STEVE A. NORDAKER Director
------------------------------------------
Steve A. Nordaker
/s/ SUSAN O. RHENEY Director
------------------------------------------
Susan O. Rheney
/s/ GARY L. ROSENTHAL Director
------------------------------------------
Gary L. Rosenthal
/s/ JOHN T. SHELTON Director
------------------------------------------
John T. Shelton
/s/ GUY E. SUTHERLAND Director
------------------------------------------
Guy E. Sutherland
/s/ CARL S. STUTTS Executive Vice President,
------------------------------------------ Chief Financial Officer
Carl S. Stutts
48
<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended (incorporated
by reference to Exhibit 3.1 of Form S-4, File No. 333-11569).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of
Form S-4, File No. 333-11569).
3.3 Certificate of Limited partnership of Texas Petrochemicals LP.
3.4 Agreement of Limited Partnership of Texas Petrochemicals LP.
4.1 Indenture dated as of July 1, 1996 by and between the Company and
Fleet National Bank, as Trustee, with respect to the 11 1/8% Senior
Subordinated Notes due 2006, including the form of the Note
(incorporated by reference to Exhibit 4.1 of Form S-4, File No.
333-11569).
4.2 Indenture dated as of March 1, 1997 by and between the Company and
Fleet National Bank, as Trustee, with respect to the 11 1/8% Series B
Senior Subordinated Notes due 2006, including the form of Note
(incorporated by reference to Exhibit 4.2 of Form S-4, File No.
333-24589).
4.3 First Supplemental Indenture dated June 28, 2000 amending and
supplementing Senior Discount Notes due 2007.
5.1 Opinion of Bracewell & Patterson as to the validity of the 11 1/8%
Senior Subordinated Notes due 2006 and the validity of the 11 1/8%
Series B Senior Subordinated Notes due 2006 (incorporated by
reference to Exhibit 5.1 of Form S-4, File No. 333-24589).
10.1 Holdings' 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.1 of Form S-4, File No. 333-11569).
10.2 TPC Employee Stock Ownership Plan (incorporated by reference to
Exhibit 10.2 of Form S-4, file No. 333-11569).
10.3 TPC Employee Stock Ownership Plan Trust Agreement (incorporated by
reference to Exhibit 10.3 of Form S-4, File No. 333-11569).
10.4 TPC Cash Bonus Plan (incorporated by reference to Exhibit 10.4 of
Form S-4, File No. 333-11569).
10.5 Security Agreement by and between Boatmen's Trust Company of Texas
and the Company (incorporated by reference to Exhibit 10.5 of Form
S-4, File No. 333-11569).
10.6 TPC Profit Sharing Plan (incorporated by reference to Exhibit 10.6 of
Form S-4, File No. 333-11569).
10.7 Lease for Calcasieu Parish, Louisiana (incorporated by reference to
Exhibit 10.7 of Form S-4, File No. 333-11569).
10.8 Credit Agreement dated as of July 1, 1996 among the Company, Texas
Commerce Bank, National Association, ABN AMRO North America, Inc.,
and The Bank of Nova Scotia (incorporated by reference to Exhibit
10.8 of Form S-4, File No. 333-11569).
</TABLE>
<PAGE> 52
<TABLE>
<S> <C>
10.9 Security Agreement date as of July 1, 1996 by and between the Company
and Texas Commerce Bank, National Association (incorporated by
reference to Exhibit 10.9 of Form S-4, File No. 333-11569).
10.10 Pledge Agreement date as of July 1, 1996 by and between the Company
and Texas Commerce Bank, National Association (incorporated by
reference to Exhibit 10.10 of Form S-4, File No. 333-11569).
10.11 Letter Agreement dated May 6, 1996 by and among The Sterling Group,
Inc., Texas Petrochemical Holdings, Inc., TPC Holding, and the
Company (incorporated by reference 10.11 of Form S-4, File No.
333-11569).
10.12 Form of Indemnity Agreement between the Company and each of its
officers and directors (incorporated by reference to Exhibit 10.12 of
Form S-4, File No. 333-11569).
10.13 Form of Tax Sharing Agreement among Texas Petrochemical Holdings,
Inc., TPC Holding, the Company and Texas Butylene Chemical
Corporation (incorporated by reference to Exhibit 10.13 of Form S-4,
File No. 333-11569).
10.14 Employment Agreement with Bill W. Waycaster (incorporated by
reference to Exhibit 10.14 of Form S-4, File No. 333-11569).
10.15 Amendment to Credit Agreement dated as of June 30, 1999 by and among
the Company, Chase Bank of Texas, National Association, ABN AMRO
North America, Inc., the Bank of Nova Scotia and other financial
institutions listed on the signature pages attached. (incorporated by
reference to Exhibit 10.15 of Form 10K, File No. 333-1569).
10.16 Amended and Restated Credit Agreement among TPC Holdings Corp., Texas
Petrochemicals LP, Chase Bank of Texas-National Association, ABN AMRO
North America, Inc. and The Bank of Nova Scotia.
10.17 Note Modification Agreement dated June 30, 2000 between Texas
Petrochemicals LP.
21 Subsidiaries of the Company (incorporated to Exhibit 21 of Form S-4,
File No. 333-11569).
25.1 Statement of Eligibility and Qualification on Form T-1 of Fleet
National Bank as Trustee under the Indenture dated as of July 1, 1996
(incorporated by reference to Exhibit 25.1 of Form S-4, File No.
333-11569).
25.2 Statement of Eligibility and Qualification on Form T-1 of Fleet
National Bank as Trustee under the Indenture dated as of March 1,
1997 (incorporated by reference to Exhibit 25.2 of Form S-4, File No.
333-24589).
27 Financial Data Schedule
</TABLE>
