-------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _______________
REGISTRATION NUMBER 333-11569
----------
TEXAS PETROCHEMICAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0504002
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
THREE RIVERWAY, SUITE 1500
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 627-7474
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes [X] No [ ]
The number of shares of common stock of the registrant outstanding as of
February 11, 2000 is 528,445.
-------------------------------------------------------------
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet as of December 31, 1999 and June 30, 1999.......1
Consolidated Statement of Operations for the three and six months ended
December 31, 1999 and 1998..............................................2
Consolidated Statement of Cash Flows for the six months ended
December 31, 1999 and 1998..............................................3
Notes to Consolidated Financial Statements.................................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................13
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................20
Item 6. Exhibits and Reports on Form 8-K.....................................20
Signature....................................................................21
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 3,316 $ 103
Accounts receivable - trade ........................... 51,189 40,220
Inventories ........................................... 30,947 19,973
Other current assets .................................. 14,586 18,576
------------ ------------
Total current assets ............................... 100,038 78,872
Property, plant and equipment, net ........................ 216,139 219,706
Investments in land held for sale ......................... 2,058 2,058
Investment in and advances to limited partnership ......... 2,900 2,820
Goodwill, net ............................................. 167,269 169,560
Other assets, net of accumulated amortization ............. 9,143 9,833
------------ ------------
Total assets ....................................... $ 497,547 $ 482,849
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdraft ........................................ $ 4,331 $ 874
Accounts payable - trade .............................. 53,051 38,992
Accrued expenses ...................................... 19,075 19,215
Current portion of cash bonus plan .................... 5,935 7,811
Current portion of long-term debt ..................... 6,938 7,465
------------ ------------
Total current liabilities .......................... 89,330 74,357
Revolving line of credit .................................. -- 2,000
Long-term debt ............................................ 328,010 328,467
Cash bonus plan ........................................... -- 1,959
Deferred income taxes ..................................... 53,514 55,494
Commitments and contingencies (Note 3)
Common Stock held by the ESOP ............................. 12,600 12,600
Less: unearned compensation ............................... (3,780) (5,040)
Stockholder's equity:
Common stock, $0.01 par value, 1,000,000 voting and
100,000 shares non-voting authorized, 528,445 voting
shares issued and outstanding ...................... 5 5
Additional paid in capital ............................ 36,998 36,738
Treasury Stock ........................................ (126) --
Accumulated deficit ................................... (19,004) (23,731)
------------ ------------
Total stockholder's equity ......................... 17,873 13,012
------------ ------------
Total liabilities and stockholder's equity ....... $ 497,547 $ 482,849
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues .................................... $ 185,976 $ 104,918 $ 339,978 $ 204,944
Cost of goods sold .......................... 161,749 89,305 293,798 169,581
Non-cash ESOP compensation .................. 130 130 260 130
Depreciation and amortization ............... 5,950 7,749 11,813 15,441
--------- --------- --------- ---------
Gross profit .............................. 18,147 7,734 34,107 19,792
Selling, general and administrative expenses 2,432 1,761 4,422 4,079
--------- --------- --------- ---------
Income from operations ................ 15,715 5,973 29,685 15,713
Interest expense ............................ 9,544 10,104 19,311 19,848
Other income (expense):
Loss on disposal of non-plant assets .. -- (44) -- (44)
Other, net ............................ (179) 302 (77) 989
--------- --------- --------- ---------
(179) 258 (77) 945
Income (loss) before income taxes ..... 5,992 (3,873) 10,297 (3,190)
Provision (benefit) for income taxes ........ 2,974 (907) 5,310 (7)
--------- --------- --------- ---------
Net income (loss) ..................... $ 3,018 $ (2,966) $ 4,987 $ (3,183)
========= ========= ========= =========
Basic income (loss) per share ............... $ 6.09 $ (8.70) $ 10.12 $ (9.21)
========= ========= ========= =========
Weighted average shares outstanding - basic . 495,278 475,278 492,778 472,778
========= ========= ========= =========
Diluted income (loss) per share ............. $ 6.01 $ (8.70) $ 9.99 $ (9.21)
========= ========= ========= =========
Weighted average shares outstanding - diluted 501,939 475,278 499,439 472,778
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................... $ 4,987 $ (3,183)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation of fixed assets ......................... 9,411 12,982
Amortization of goodwill and other assets ............ 2,400 2,457
Amortization of debt issue costs and deferred premium 3,624 3,233
Loss on disposal of non-plant assets ................. -- 44
Earnings from limited partnership .................... (230) (460)
Deferred income taxes ................................ (1,753) (2,385)
Non-cash ESOP compensation ........................... 260 130
Change in:
Accounts receivable ................................ (10,969) 295
Inventories ........................................ (10,974) (934)
Other assets ....................................... 3,580 (4,259)
Accounts payable ................................... 14,059 2,809
Accrued expenses ................................... (138) 282
---------- ----------
Net cash provided by operating activities ....... 14,257 11,011
Cash flows from investing activities:
Capital expenditures ................................. (5,844) (10,793)
Proceeds from the sale of non-plant assets ........... -- 477
Distribution from limited partnership ................ 150 567
---------- ----------
Net cash used in investing activities ........... (5,694) (9,749)
Cash flows from financing activities:
Change in bank overdraft ............................. 3,455 3,955
Net borrowings (repayments) under revolver ........... (2,000) 600
Proceeds from issuance of long-term debt ............. -- --
Payments on long-term debt ........................... (3,819) (3,496)
Payment of cash bonus plan ........................... (3,834) (3,910)
Debt issuance costs .................................. (152) (163)
Reduction in note receivable from ESOP ............... 1,000 1,000
---------- ----------
Net cash used in financing activities ................ (5,350) (2,014)
---------- ----------
Net increase (decrease) in cash and cash equivalents ..... 3,213 (752)
Cash and cash equivalents, at beginning of period ........ 103 956
---------- ----------
Cash and cash equivalents, at end of period .............. $ 3,316 $ 204
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
NATURE OF OPERATIONS
The consolidated financial statements include the accounts of Texas
Petrochemical Holdings, Inc. and its wholly owned subsidiary, TPC Holding Corp.,
collectively referred to as (the "Company"). The Company through its facility in
Houston, Texas is the 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 terms of production capacity. In addition, the
Company is the sole producer of diisobutylene and isobutylene concentrate in the
United States and is the largest domestic merchant supplier of high purity
isobutylene to the chemical market. The Company's products include: (i)
butadiene, primarily used to produce synthetic rubber; (ii) MTBE, used as an
oxygenate and octane enhancer in gasoline; (iii) n-butylenes (butene-1 and
butene-2), used in the manufacture of plastic resins, fuel additives and
synthetic alcohols; and (iv) specialty isobutylenes, primarily used in the
production of specialty rubbers, lubricant additives, detergents and coatings.
The Company's principal feedstocks are crude butadiene, isobutane and
methanol. The Company purchases a significant portion of its crude butadiene
requirements at prices that are adjusted based on the Company's selling price of
butadiene as well as the cost of natural gas used to produce butadiene, thereby
providing the Company with a fixed profit on such sales. Methanol and isobutane
are purchased at prices linked to prevailing market prices.
GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, have been made which are necessary to
fairly present the financial position of the Company as of December 31, 1999 and
the results of its operations and cash flows for the interim period ended
December 31, 1999. The results of the interim period should not be regarded as
necessarily indicative of results that may be expected for the entire year. The
financial information presented herein should be read in conjunction with the
audited financial statements and notes included in the Company's Form 10-K
thereto, for the year ended June 30, 1999. The June 30, 1999 balance sheet was
derived from audited financial statements but does not include all disclosures
required by generally accepted accounting principles. Certain amounts from prior
periods have been reclassified to conform to current period presentation.
4
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
EARNINGS PER SHARE
The basic and diluted weighted average shares outstanding used in the
computation of earnings (loss) per share are net of 30,000 and 50,000 shares
held by the Employee Stock Ownership Plan that are not allocated to employees as
of December 31, 1999 and 1998, respectively. The diluted weighted average shares
outstanding for the three and six months ended December 31, 1999 includes the
dilutive effect of stock options outstanding of 6,661 shares. The effect of
options was antidilutive for the three and six months ended December 31, 1998
and therefore was excluded from the earning/loss per share calculation.
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS OF DOLLARS)
INVENTORIES:
DECEMBER 31, JUNE 30,
1999 1999
------------ ------------
Finished goods ............................... $ 19,610 $ 10,594
Raw materials ................................ 10,014 8,053
Chemicals and supplies ....................... 1,323 1,326
------------ ------------
$ 30,947 $ 19,973
============ ============
OTHER CURRENT ASSETS:
DECEMBER 31, JUNE 30,
1999 1999
------------ ------------
Catalyst Inventory ............................. $ 4,448 $ 7,463
Deferred turnaround costs ...................... 1,280 2,585
Prepaid and other .............................. 8,858 8,528
------------ ------------
$ 14,586 $ 18,576
============ ============
PROPERTY, PLANT AND EQUIPMENT:
DECEMBER 31, JUNE 30,
1999 1999
------------ ------------
Chemical plants .................................. $ 282,425 $ 277,117
Construction in progress ......................... 9,370 8,834
Other ............................................ 5,202 5,202
------------ ------------
296,997 291,153
Less accumulated depreciation, depletion
and amortization ............................. 80,858 71,447
------------ ------------
$ 216,139 $ 219,706
============ ============
5
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
ACCRUED EXPENSES:
DECEMBER 31, JUNE 30,
1999 1999
------------ ------------
Accrued interest ............................... $ 12,787 $ 13,893
Property and sales taxes ....................... 3,582 1,995
Federal and state taxes ........................ 1,957 2,731
Other .......................................... 749 596
------------ ------------
$ 19,075 $ 19,215
============ ============
LONG TERM DEBT:
DECEMBER 31, JUNE 30,
1999 1999
------------ ------------
Bank Credit Agreement:
Term A Loan ................................. $ 16,202 $ 18,002
Term B Loan ................................. 40,914 41,407
ESOP Loan ................................... 3,000 4,000
Revolving Credit Loans ...................... -- 2,000
Senior Subordinated Notes ...................... 225,000 225,000
Discount Notes ................................. 47,391 44,394
Deferred premium on Senior Subordinated Notes .. 2,089 2,250
Long-term financing ............................ 352 879
------------ ------------
334,948 337,932
Less current maturities ........................ 6,938 7,465
------------ ------------
Long-term debt ................................. $ 328,010 $ 330,467
============ ============
The Bank Credit Agreement provides for term loans in the amount of $130
million, an ESOP loan of $10 million, and a revolving credit facility of up to
$40 million. Quarterly principal and interest payments are made under the Bank
Credit Agreement. The final payments under the ESOP Loan, Term A Loan and Term B
Loan are due on June 30, 2001, December 31, 2002 and June 30, 2004,
respectively. The Revolving Credit Loan facility is currently scheduled to
expire on December 31, 2002. The debt under the Bank Credit Agreement bears
interest, at the option of the borrower, based on the LIBOR rate plus a margin
(2.0% and 3% for Term A and Term B, respectively at December 31, 1999) or the
greater of the prime rate and the federal funds rate plus 1/2% plus a margin
(1.0% at December 31, 1999). Substantially all assets of the Company are pledged
as collateral under the Bank Credit Agreement. The Senior Subordinated Notes are
due 2006 and bear interest at 11 1/8% payable semiannually on January 1 and July
1. The Discount Notes are due 2007 and bear interest at 13 1/2% payable
semiannually on January 1 and July 1 beginning in 2002. The Bank Credit
Agreement, the Senior Subordinated Notes and the Discount Notes include certain
restrictive covenants which include, but are not limited to, limitations on
capital expenditures, indebtedness, investments and sales of assets and
subsidiary stock. Additionally, the Bank Credit Agreement requires the Company
to maintain certain financial ratios. As of 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.
6
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
3. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has purchase commitments incident to the ordinary conduct of
business. The prices of such purchase commitments are based on formulas, which
are determined from the prevailing market rate for such products. These
commitments generally have cancellation provisions given proper notification.
LITIGATION
The Company is involved in various routine legal proceedings which are
incidental to the business. Management of the Company is vigorously defending
such matters and is of the opinion that their ultimate resolution will not have
a material impact on the Company.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state and local laws and
regulations administered by the U.S. Environmental Protection Agency, the U.S.
Coast Guard, the Army Corps of engineers, the Texas Natural Resource
Conservation Commission, the Texas General Land Office, the Texas Department of
Health and various local regulatory agencies. The Company holds all required
permits and registrations necessary to comply substantially with all applicable
environmental laws and regulations, including permits and registrations for
wastewater discharges, solid and hazardous waste disposal and air emissions, and
management believes that the Company is in substantial compliance with all such
laws and regulations. While management does not expect the cost of compliance
with existing environmental laws will have a material adverse effect on the
Company's financial condition, results of operations or cash flows, there can be
no assurance that future legislation, regulation or judicial or administrative
decisions will not have such an effect.
4. SUPPLEMENTAL GUARANTOR INFORMATION
TPC Holding Corp. a wholly owned subsidiary of Texas Petrochemical Holdings,
Inc. has fully and unconditionally guaranteed, on a joint and several basis,
Texas Petrochemical Holdings, Inc's. obligations relative to the Discount Notes
due 2007 in an Event of Default. TPC Holding Corp. conducts its operations
through its subsidiaries and is dependent upon distribution from these
subsidiaries as its source of cash flow. Management has determined that
separate, full financial statements of TPC Holding Corp. ("Guarantor") would not
be material to investors and such financial statements are not provided.
Supplemental combining financial information of Texas Petrochemical Holdings,
Inc. is presented below:
7
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Balance Sheet
December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
NON- ELIMIN-
PARENT GUARANTOR GUARANTORS ATIONS TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................... $ -- $ -- $ 3,316 $ -- $ 3,316
Accounts receivable - trade ....................... 51,189 51,189
Inventories ....................................... 30,947 30,947
Other current assets .............................. (177) 14,763 14,586
--------- --------- --------- --------- ---------
Total current assets ......................... (177) 100,215 100,038
Property, plant and equipment, net ....................... 216,139 216,139
Investments in land held for sale ........................ 2,058 2,058
Investment in and advances to limited partnership ........ 2,900 2,900
Goodwill, net ............................................ 167,269 167,269
Other assets, net of accumulated amortization ............ 431 8,712 9,143
Consolidated subsidiaries ................................ 67,744 67,744 (135,488) --
--------- --------- --------- --------- ---------
Total assets ................................. $ 67,998 $ 67,744 $ 497,293 $(135,488) $ 497,547
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft .................................... $ -- $ -- $ 4,331 $ -- $ 4,331
Accounts payable - trade .......................... 53,051 53,051
Payable to Parent ................................. 413 (413) --
Accrued expenses .................................. 18,662 413 19,075
Current portion of cash bonus plan ................ 5,935 5,935
Current portion of long-term debt ................. 6,938 6,938
--------- --------- --------- --------- ---------
Total current liabilities .................... 89,330 89,330
Revolving line of credit ................................. -- --
Long-term debt ........................................... 47,391 280,619 328,010
Deferred income taxes .................................... (6,086) 59,600 53,514
Common stock held by the ESOP ............................ 12,600 12,600
Less: unearned compensation .............................. (3,780) (3,780)
Stockholders' equity:
Common Stock ...................................... 5 4,162 (4,162) 5
Additional paid in capital ........................ 36,998 73,472 72,310 (145,782) 36,998
Treasury stock .................................... (126) (126)
Accumulated deficit ............................... (19,004) (5,728) (5,728) 11,456 (19,004)
Note receivable from ESOP ......................... (3,000) 3,000 --
--------- --------- --------- --------- ---------
Total stockholders' equity ................... 17,873 67,744 67,744 (135,488) 17,873
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 67,998 $ 67,744 $ 497,293 $(135,488) $ 497,547
========= ========= ========= ========= =========
</TABLE>
8
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Balance Sheet
June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
NON- ELIMIN-
PARENT GUARANTOR GUARANTORS ATIONS TOTAL
--------- --------- --------- --------- ---------
<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>
9
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
<TABLE>
<CAPTION>
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Six Months Ended December 31, 1999
(in thousands)
NON- ELIMIN-
PARENT GUARANTOR GUARANTORS ATIONS TOTAL
--------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ - $ 339,978 $ - $ 339,978
Cost of goods sold 293,798 293,798
Non-cash ESOP compensation 260 260
Depreciation and amortization 11,813 11,813
--------- ---------
Gross profit 34,107 34,107
Selling, general and administrative expenses 2 4,420 4,422
--------- ------- --------- --------- ---------
Income (loss) from operations (2) 29,687 29,685
Interest expense 3,024 16,287 19,311
Other income (expense) (77) (77)
--------- ------- ---------- --------- ----------
Income (loss) before income taxes (3,026) 13,323 10,297
Provision (benefit) for income taxes (1,047) 6,357 5,310
Equity in net income of subsidiaries 6,966 6,966 (13,932)
--------- ------- --------- ----------
Net income $ 4,987 $ 6,966 $ 6,966 $ (13,932) $ 4,987
========= ========= ========= ========== =========
<CAPTION>
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Six Months Ended December 31, 1998
(in thousands)
NON- ELIMIN-
PARENT GUARANTOR GUARANTORS ATIONS TOTAL
--------- ------- --------- --------- ---------
Revenues $ - $ - $ 204,944 $ - $ 204,944
Cost of goods sold 169,581 169,581
Non-cash ESOP compensation 130 130
Depreciation and amortization 15,441 15,441
--------- ---------
Gross profit 19,792 19,792
Selling, general and administrative expenses 7 4,072 4,079
--------- ------- --------- --------- ---------
Income (loss) from operations (7) 15,720 15,713
Interest expense 2,656 17,192 19,848
Other income (expense):
Loss on disposal of non-plant assets (44) (44)
Other, net 989 989
--------- ---------
945 945
--------- ------- --------- --------- ---------
Income (loss) before income taxes (2,663) (527) (3,190)
Provision (benefit) for income taxes (919) 912 (7)
Equity in net income of subsidiaries (1,439) (1,439) 2,878
---------- -------- --------- ---------
Net income (loss) $ (3,183) $(1,439) $ (1,439) $ 2,878 $ (3,183)
========== ======== ========== ========= ==========
</TABLE>
10
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
<TABLE>
<CAPTION>
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Six Months Ended December 31, 1999
(in thousands)
NON-
PARENT GUARANTOR GUARANTORS ELIMINATIONS TOTAL
---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,987 $ 6,966 $ 6,966 $ (13,932) $ 4,987
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 9,411 9,411
Amortization of goodwill and other assets 2,400 2,400
Amortization of debt issue costs 3,024 600 3,624
Earnings from limited partnership (230) (230)
Deferred income taxes (1,047) (706) (1,753)
Non-cash ESOP compensation 260 260
Change in:
Accounts receivable (10,969) (10,969)
Inventories (10,974) (10,974)
Other assets 3,580 3,580
Accounts payable, accrueds and other 2 13,919 13,921
---------- --------- --------- ---------- ---------
Net cash provided by operating
activities 6,966 6,966 14,257 (13,932) 14,257
Cash flows from investing activities:
Capital expenditures (5,844) (5,844)
Distribution from limited partnership 150 150
---------- --------- --------- ---------- ---------
Net cash used in investing
activities (5,694) (5,694)
Cash flows from financing activities:
Change in bank overdraft 3,455 3,455
Net repayments under revolver (2,000) (2,000)
Payments on long-term debt (3,819) (3,819)
Payment of cash bonus plan (3,834) (3,834)
Debt issuance costs (152) (152)
Reduction in note receivable from ESOP 1,000 1,000
---------- --------- --------- ---------- ---------
Net cash used in financing activities (5,350) (5,350)
---------- --------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents 6,966 6,966 3,213 (13,932) 3,213
Cash and cash equivalents, at beginning of period 103 103
---------- --------- --------- ---------- ---------
Cash and cash equivalents, at end of period $ 6,966 $ 6,966 $ 3,316 $ (13,932) $ 3,316
========== ========= ========= =========== =========
</TABLE>
11
<PAGE>
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
<TABLE>
<CAPTION>
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Six Months Ended December 31, 1998
(in thousands)
NON-
PARENT GUARANTOR GUARANTORS ELIMINATIONS TOTAL
---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,183) $ (1,439) $ (1,439) $ 2,878 $ (3,183)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 12,982 12,982
Amortization of goodwill and other assets 2,457 2,457
Amortization of debt issue costs 2,656 577 3,233
Loss on disposal of non-plant assets 44 44
Earnings from limited partnership (460) (460)
Deferred income taxes (919) (1,466) (2,385)
Non-cash ESOP compensation 130 130
Change in:
Accounts receivable 295 295
Inventories (934) (934)
Other assets (4,259) (4,259)
Accounts payable, accrueds and other 7 3,084 3,091
---------- --------- --------- ---------- ---------
Net cash provided by operating
activities (1,439) (1,439) 11,011 2,878 11,011
Cash flows from investing activities:
Capital expenditures (10,793) (10,793)
Proceeds from the sale of non-plant assets 477 477
Distribution from limited partnership 567 567
---------- --------- --------- ---------- ---------
Net cash used in investing activities (9,749) (9,749)
Cash flows from financing activities:
Change in bank overdraft 3,955 3,955
Net repayments under revolver 600 600
Proceeds from issuance of long-term debt
Payments on long-term debt (3,496) (3,496)
Payment of cash bonus plan (3,910) (3,910)
Debt issuance costs (163) (163)
Reduction in note receivable from ESOP 1,000 1,000
---------- --------- --------- ---------- ---------
Net cash used in financing activities (2,014) (2,014)
---------- --------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (1,439) (1,439) (752) 2,878 (752)
Cash and cash equivalents, at beginning of period 956 956
---------- --------- --------- ---------- ---------
Cash and cash equivalents, at end of period $ (1,439) $ (1,439) $ 204 $ 2,878 $ 204
=========== ========== ========= ========== =========
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto of the Company included
elsewhere in this report.
OVERVIEW
The Company's revenues are derived primarily from merchant market sales of
butadiene, MTBE, n-butylenes (butene-1 and butene-2) and specialty isobutylenes
(isobutylene concentrate, high purity isobutylene, and diisobutylene). The
Company's results of operations are affected by a number of factors, including
variations in market demand, production volumes, and the pricing of its products
and primary raw materials. The Company believes that the pricing for its
principal products is primarily dependent on the balance between the global
supply and North American demand for each product, the cost structure of the
various global producers (including their cost of raw materials) and from time
to time, other external factors, such as the implementation of the Clean Air Act
Amendments of 1990, which has significantly increased the demand for MTBE.
Historically, the Company has successfully mitigated the cyclicality of the
markets for certain of its end products by entering into contracts with pricing
which allows for a fixed profit by linking prices directly or indirectly to raw
material costs. In addition, the Company has attempted to optimize the use of
isobutylene, an intermediate feedstock produced by the Company, to produce MTBE
or higher margin specialty products depending on prevailing market conditions.
MTBE ENVIRONMENTAL AND MARKET ISSUES
The possibly adverse effects of MTBE on health and the environment has
become a statewide concern in California because MTBE has appeared in certain
drinking water wells. It is believed that this is the result of leaks from older
underground gasoline storage tanks and pipelines.
In addition, certain bodies of water have shown the presence of MTBE. A
typical source of MTBE in these bodies is the operation of two-cycle outboard
motors, which do not fully combust gasoline. Certain regulatory bodies are
considering imposing limitations on the use of two-cycle outboard motors in
bodies of water that are also used as sources of drinking water.
In California, the legislature required the state Department of Health
Services (DHS) to assess MTBE and to set the maximum permissible levels of MTBE
in drinking water in 1999. The levels are referred to as the primary and
secondary maximum contaminant levels (MCLs). Secondary MCLs or secondary
drinking water standards apply to chemicals in public drinking water that may
adversely affect the taste, odor, or appearance of the water, and may cause
people served by the public water system to discontinue its use. In January
1999, the DHS adopted 5 parts per billion (ppb) as the California secondary MCL
for MTBE based upon the aesthetic factors alone. On December 13, 1999, the
Western States Petroleum Association and California Chamber of Commerce filed a
petition with Department of Health Services, asking that the secondary MCL for
MTBE be repealed or amended, based on DHS' misapplication of statutory criteria,
failure to consider all relevant and available scientific evidence, and failure
to conduct a public hearing or submit its preliminary findings to scientific
peer review. That petition was pending as of December 31, 1999.
13
<PAGE>
The primary MCL for MTBE in California is pending in the regulatory process
at this time. The DHS has proposed 13 ppb as the primary MCL for MTBE. It
accepted public comments on the proposal through November 1, 1999. It is unknown
at this time whether the proposed primary MCL would be adopted as the applicable
standard in California or when it would become effective, although the DHS
anticipates that the adoption process will be completed by mid-2000. The DHS is
authorized to modify the proposed primary MCL for MTBE in response to public
comments. The primary MCL for MTBE is based upon the public health goal (PHG)
for MTBE, and the technical feasibility and costs associated with compliance.
Notably, however, a public health goal of 13 ppb for MTBE was set by the
California Office of Environmental Health Hazard Assessment (OEHHA) in March
1999 based exclusively on public health considerations. PHGs represent the level
of chemicals in drinking water that would pose no significant health risks to
individuals, and are non-mandatory goals. Until a primary MCL is adopted, the
DHS will enforce the action level of 13 ppb for MTBE in lieu of the former level
of 35 ppb set in 1991. If MTBE is found in a drinking water supply at levels
exceeding 13 ppb, it is expected that the DHS will require treatment for the
removal of MTBE from the water system to attain compliance.
On March 25, 1999, California Governor Gray Davis declared that, "on balance,
there is a significant risk to the environment from using (MTBE) in gasoline in
California," and issued an executive order calling for the removal of MTBE from
gasoline at the earliest possible date and no later than December 31, 2002.
Governor Davis also mandated state agencies to conduct an environmental analysis
and evaluation of ethanol as a possible substitute for MTBE and to seek relief
from the requirement of the CAA to use oxygenates in gasoline in certain areas
of the state. Several bills codifying the Executive Order have been introduced
in the California legislature. Senate Bill 192 would prohibit the sale of
gasoline containing MTBE on or after January 1, 2003. The bill would also
require the State Energy Resources Conservation and Development Commission to
report to the legislature the amount of MTBE used in gasoline in California by
refineries on a quarterly basis. As of December 1999, SB 192 was still pending
in the legislature. Senate Bill 989 was passed into law and will become
effective January 1, 2000. The new law will require various state agencies to
develop guidelines for the investigation, remediation, and clean up of MTBE in
ground water. The bill also authorizes the California Environmental Protection
Agency to prohibit the use of MTBE in motor vehicle fuel before December 31,
2002, on a sub-regional basis in the Bay Area Air Basin, or in any other air
basin in the state. On December 9, 1999, the California Air Resources Board
(ARB) approved a new set of rules that, it says, will ban the additive MTBE
while preserving all the air-quality benefits obtained from the state's
cleaner-burning gasoline program. The new rules, known officially as the Phase 3
gasoline regulation (CaRFG3), prohibit the formulation of gasoline with MTBE
after December 31, 2002. In addition, bills to limit or ban the use of MTBE have
been introduced in New Jersey, New York, and New Hampshire.
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 predominate oxygenate used, a panel appointed by
the EPA has issued a report calling for the reduction in the use of MTBE in
gasoline. No assurance can be given that actions will not be taken to restrict
or prohibit the use of MTBE in certain areas of the country or to remove the
oxygenate requirement from the CAA. Any restriction on or prohibition of the use
of MTBE could have a material adverse effect on the Company's financial
condition or results of operations.
14
<PAGE>
REVENUES
The Company's revenues are a function of the volume of products sold by the
Company and the prices for such products. The following tables set forth the
Company's historical revenues and the percentages of historical revenues by
product and volume of products sold, for the three and six months ended December
31, 1999 and 1998.
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------- -------------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Butadiene ............ $ 31.9 17% $ 26.7 25% $ 58.1 17% $ 53.1 26%
MTBE ................. 112.2 60 50.6 48 205.5 61 94.8 46
n-Butylenes .......... 17.2 9 12.5 12 33.9 10 23.7 12
Specialty Isobutylenes 21.1 12 11.8 12 35.5 10 26.6 13
Other(1) ............. 3.6 2 3.3 3 7.0 2 6.7 3
------ ------ ------ ------ ------ ------ ------ ------
Total ................ $186.0 100% $104.9 100% $340.0 100% $204.9 100%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ----------
(1) Includes utility revenues and revenues realized from the Company's
terminalling facilities.
SALES VOLUMES
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
(MILLIONS OF POUNDS, EXCEPT WHERE NOTED)
Butadiene ............................ 221.8 217.2 428.7 413.2
MTBE(1) .............................. 133.6 85.8 250.4 151.4
n-Butylenes .......................... 100.1 86.6 218.1 169.7
Specialty Isobutylenes ............... 91.1 61.3 157.7 136.2
(1) Volumes in millions of gallons. Includes 47.1 million, 8.0 million, 79.3
million and 12.0 million gallons of finished MTBE purchased for resale for the
three months ended December 31, 1999 and 1998, and the six months ended December
31, 1999 and 1998, respectively.
RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------- -------------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues .......................... $186.0 100% $104.9 100% $340.0 100% $204.9 100%
Cost of goods sold ................ 161.8 87 89.3 85 293.8 86 169.6 83
Non-cash ESOP compensation ........ 0.1 -- 0.1 1 0.3 -- 0.1 --
Depreciation and amortization ..... 6.0 3 7.8 7 11.8 4 15.4 7
------ ------ ------ ------ ------ ------ ------ ------
Gross profit .................. 18.1 10 7.7 7 34.1 10 19.8 10
Selling, general and administrative 2.4 1 1.7 1 4.4 1 4.1 2
------ ------ ------ ------ ------ ------ ------ ------
Income from operations ........ $ 15.7 9% $ 6.0 6% $ 29.7 9% $ 15.7 8%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
15
<PAGE>
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 1998
REVENUES
The Company's revenues increased by approximately 77%, or $81.1 million, to
$186.0 million for the three months ended September 30, 1999 from $104.9 million
for the three million ended September 30, 1998. Butadiene sales revenues
increased due to higher sales prices and slightly higher sales volumes. MTBE
sales revenues increased approximately 122% as a result of higher sales volumes
and sales prices as compared to the prior year quarter. MTBE prices are
significantly higher as a result of increases in gasoline and crude oil prices.
MTBE sales volumes were higher due to increase resale of purchased product and
higher production rates. N-butylene sales revenues increased 38% due to higher
sales volumes and sales prices. Specialty isobutylene sales revenues increased
79% due to higher sales volumes and sales prices. Sales volumes were higher due
to increase customer demand and new export business.
GROSS PROFIT
Gross profit increased by approximately 135%, or $10.4 million, to $18.1
million for the three months ended September 30, 1999 from $7.7 million for the
three months ended September 30, 1998. Gross margin during this period increased
to 9.7% from 7.3%. Gross profit increased during the period due to higher sales
volumes of all product groups and higher margins on butadiene and MTBE sales.
Butadiene margins improved over the prior year period due to improved spot
business, processing efficiencies and positive inventory impacts from higher
butadiene sales prices. MTBE margins improved over the prior year period due to
higher production rates and a larger spread of sales prices over raw material
costs. Gross profit also increased due to lower depreciation and amortization
charges during the current period. Depreciation and amortization was lower by
$1.8 million due to the change in depreciable lives of certain plant assets from
10 years to 15 years beginning in January 1999.
INCOME FROM OPERATIONS
Income from operations increased by approximately 162%, or $9.7 million, to
$15.7 million for the three months ended September 30, 1999 from $6.0 million
for the three months ended September 30, 1998. Operating margin during this
period increased to 8.4% from 5.7%. This 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 costs.
16
<PAGE>
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
1998
REVENUES
The Company's revenues increased by approximately 66%, or $135.1 million, to
$340.0 million for the six months ended September 30, 1999 from $204.9 million
for the six months ended September 30, 1998. Butadiene sales revenues increased
due to higher sales prices and slightly higher sales volumes. MTBE sales
revenues increased approximately 117% as a result of higher sales volumes and
sales prices as compared to the prior year quarter. MTBE prices are
significantly higher as a result of increases in gasoline and crude oil prices.
MTBE sales volumes were higher due to increase resale of purchased product and
higher production rates. N-butylene sales revenues increased 43% due to higher
sales volumes and sales prices. Specialty isobutylene sales revenues increased
33% due to higher sales volumes and sales prices. Sales volumes were higher due
to increase customer demand and new export business.
GROSS PROFIT
Gross profit increased by approximately 72%, or $14.3 million, to $34.1
million for the six months ended September 30, 1999 from $19.8 million for the
six months ended September 30, 1998. Gross margin during this period increased
to 10.0% from 7.7%. Gross profit increased during the period due to higher sales
volumes of all product groups and higher margins on butadiene and MTBE sales.
Butadiene margins improved over the prior year period due to improved spot
business, processing efficiencies and positive inventory impacts from higher
butadiene sales prices. MTBE margins improved over the prior year period due to
higher production rates and a larger spread of sales prices over raw material
costs. Gross profit also increased due to lower depreciation and amortization
charges during the current period. Depreciation and amortization was lower by
$3.6 million due to the change in depreciable lives of certain plant assets from
10 years to 15 years beginning in January 1999.
INCOME FROM OPERATIONS
Income from operations increased by approximately 89%, or $14.0 million, to
$29.7 million for the six months ended September 30, 1999 from $15.7 million for
the six months ended September 30, 1998. Operating margin during this period
increased to 8.7% from 7.7%. This 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 costs.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
1998
Net cash provided by operating activities was $14.3 million for the six
months ended December 31, 1999 compared to $11.0 million for the six months
ended December 31, 1998. The increase of $3.3 million was attributable to
increased net income and changes in working capital. Net cash used in investing
activities was $5.7 million for the six months ended December 31, 1999 compared
to $9.7 million for the six months ended December 31, 1998. The decrease of $4.0
million was attributable to lower capital expenditures. Net cash used in
financing activities was $5.4 million for the six months ended December 31, 1999
compared to $2.0 million for the six months ended December 31, 1998. The
increase of $3.4 million was attributable to repayments under the revolver.
LIQUIDITY
The Company's liquidity needs arise primarily from principal and interest
payments under the Bank Credit Agreement and the Subordinated Notes. The
Company's primary source of funds to meet debt service requirements is net cash
flow provided by operating activities. Operating cash flow is significantly
impacted by raw materials cost as well as the selling price and volume variances
of finished goods. The Company enters into supply contracts for certain of its
products in order to mitigate the impact of changing prices. Additionally, the
Company has a $40 million Revolving Credit Facility, all of which was available
for use at December 31, 1999, to provide adequate funds for ongoing operations,
working capital and planned capital expenditures. The Company believes that the
availability of funds under the Revolving Credit Facility are sufficient to
cover any current liquidity needs which could arise as a result of negative
working capital. The Company's ability to borrow is limited by the terms of the
Bank Credit Agreement, the Subordinated Notes and the Discount Notes. The Bank
Credit Agreement, the Subordinated Notes and the Discount Notes include certain
restrictive covenants, which include but are not limited to, the maintenance of
certain financial ratios and limitations on capital expenditures, indebtedness,
investments and sales of assets and subsidiary stock. As of 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.
CASH BONUS PLAN
In connection with the Acquisition, the Predecessor established a $35
million Cash Bonus Plan covering substantially all employees of the Predecessor
(or certain affiliates of the Predecessor) and covering certain third-party
contractors who have contributed to the past success of the Predecessor. During
the six months ended December 31, 1999, $3.8 million of this amount was paid to
eligible participants and the remaining $5.9 million will be made in future
quarterly installments ending in July 2000.
CAPITAL EXPENDITURES
The Company's capital expenditures relate principally to improving operating
efficiencies and maintaining environmental compliance. Capital expenditures for
the six months ended December 31, 1999 were $5.8 million. The Company expenses
approximately $20 million annually for plant maintenance. These maintenance
costs are not treated as capital expenditures.
18
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company has entered into interest rate
swap and cap agreements, and may have entered into other types of contracts,
which are included in the scope of SFAS No. 133. The Company will analyze SFAS
No. 133 to determine what effect it will have on the Company's future financial
statements and disclosures. In June 1999, SFAS No. 137 was issued to delay the
required effective date of SFAS No. 133 from fiscal years beginning after June
15, 1999 to fiscal years beginning after June 15, 2000.
YEAR 2000 CONVERSION
The Company recognized the need to ensure that its systems, equipment
and operations would not be adversely impacted by the change to the calendar
year 2000. The issues arise from computer programs, computer equipment and other
equipment with embedded chips or processors that use two digits rather than four
to designate the year. Date-sensitive computer operations may recognize a date
using "00" as the year 1900 rather than the year 2000, resulting in system
failures or miscalculations, which could potentially cause operational
disruptions.
In preparation the Company established a Steering Committee composed of
members all functional groups of organization to address these issues. This
committee was responsible for prioritizing the Company's efforts and ensuring
that the appropriate resources both internal and external had been dedicated to
the project. The committee's assessment was focused on those areas, which were
considered high-risk critical business processes. The assessment and future
progress based on the following categories including plant automation and
process control, client server, desktop, communications, enterprise
infrastructure and overall readiness. The total estimated spending for all
categories ranged from $15 to $16 million. The majority of these costs relate to
capital investments made in automating our plant production processes and in
upgrading our financial accounting systems.
The Company believes that all significant systems controlled by the Company
were Year 2000 ready in the last half of calendar 1999. The Company's operations
are dependent upon third parties for continuous supply of raw materials, natural
gas, transportation and storage. While the Company attempted to obtain an
assessment of the readiness of these third parties, there was no assurance that
all third parties would have their systems ready. The Company developed
contingency plans that were implemented prior to end of calendar 1999. These
contingency plans were developed to avoid any material interruption of our core
business operations. These plans included alternative operating procedures and
appropriate staffing on critical dates.
The Company believes that it took all of the appropriate steps to prevent
any year 2000 issues from arising. The Company performed a review of all of its
systems subsequent to the change of the calendar year end date and noted no
instances of failure within any of its critical operating systems. The Company
will continue to monitor its systems into the foreseeable future to identify any
potential issues, which may arise as a result of the year 2000.
ALL STATEMENTS REGARDING YEAR 2000 MATTERS CONTAINED IN THE QUARTERLY REPORT ON
FORM 10-Q ARE "YEAR 2000 READINESS DISCLOSURES" WITHIN THE MEANING OF THE YEAR
2000 INFORMATION AND READINESS DISCLOSURE ACT.
19
<PAGE>
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This document may include forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Although the
Company believes that the expectations reflected in such forward looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved. Important factors that could cause actual
results to differ materially from the Company's expectations are disclosed in
conjunction with the forward looking statements included herein ("Cautionary
Disclosures"). Subsequent written oral forward looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Disclosures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant quantitative or qualitative changes during
the second fiscal quarter of 2000 in the Company's risk sensitive instruments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments with respect to the Company's legal
proceedings previously reported in the Company's Form 10-K for the year ended
June 30, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
December 31, 1999.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEXAS PETROCHEMICAL HOLDINGS, INC.
(Registrant)
Dated: February 11, 2000 By: CARL S. STUTTS
------------------------------
(Signature)
Carl S. Stutts
Vice President Finance and
Corporate Development
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM TEXAS PETROCHEMICAL HOLDINGS, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 3,316
<SECURITIES> 0
<RECEIVABLES> 51,189
<ALLOWANCES> 0
<INVENTORY> 30,947
<CURRENT-ASSETS> 100,038
<PP&E> 216,139
<DEPRECIATION> 80,858
<TOTAL-ASSETS> 497,547
<CURRENT-LIABILITIES> 89,330
<BONDS> 272,391
0
0
<COMMON> 5
<OTHER-SE> 17,868
<TOTAL-LIABILITY-AND-EQUITY> 497,547
<SALES> 339,978
<TOTAL-REVENUES> 339,978
<CGS> 293,798
<TOTAL-COSTS> 310,293
<OTHER-EXPENSES> (77)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,311
<INCOME-PRETAX> 10,297
<INCOME-TAX> 5,310
<INCOME-CONTINUING> 4,987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,987
<EPS-BASIC> 10.12
<EPS-DILUTED> 9.99
</TABLE>
