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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1996
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 PETROCHEMICALS CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 74-1778313
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8707 Katy Freeway, Suite 300
Houston, Texas 77024
(Address of principal executive offices) (Zip Code)
(713) 461-3322
(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 [ ] No [X]
The number of shares of common stock of the registrant outstanding as of
November 18, 1996 is 4,162,000.
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<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet as of September 30, 1996
and June 30, 1996 .............................................. 2
Consolidated Statement of Operations for the three
months ended September 30, 1996 and 1995 ....................... 3
Consolidated Statement of Cash Flows for the three
months ended September 30, 1996 and 1995 ....................... 4
Notes to Consolidated Financial Statements ....................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 14
Item 6. Exhibits and Reports on Form 8-K ................................. 14
Signature ................................................................. 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................................... $ 153,725 $ 4,780,401
Investment securities ......................................................... -- 6,794,395
Accounts receivable - trade ................................................... 33,186,807 35,278,643
Inventories ................................................................... 15,310,823 11,933,478
Other current assets .......................................................... 13,297,849 11,752,914
------------- ------------
Total current assets ..................................................... 61,949,204 70,539,831
Property, plant and equipment, net ................................................. 255,955,999 81,814,284
Investments in land held for sale .................................................. 3,885,907 6,180,907
Investment in and advances to limited partnership .................................. 3,094,251 2,824,251
Goodwill, net ...................................................................... 225,926,355 --
Other assets, net of accumulated amortization ...................................... 14,405,537 6,522,776
------------- ------------
Total assets ............................................................. $ 565,217,253 $167,882,049
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft ................................................................ $ 3,988,697 $ --
Accounts payable - trade ...................................................... 28,190,240 40,130,860
Payable to Parent ............................................................. 173,675 --
Accrued expenses .............................................................. 14,957,404 4,382,657
Current portion of cash bonus plan ............................................ 7,875,000 --
Current portion of long-term debt ............................................. 13,000,000 --
Dividends payable ............................................................. -- 677,000
------------- ------------
Total current liabilities ................................................ 68,185,016 45,190,517
Revolving line of credit ........................................................... -- 13,000,000
Long-term debt ..................................................................... 298,750,000 --
Cash bonus plan .................................................................... 23,625,000 --
Other liabilities .................................................................. 344,000 344,000
Deferred income taxes .............................................................. 108,128,921 15,763,393
Minority interest in net assets of consolidated subsidiary ......................... -- 1,107,070
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock, $1 par value, 4,162,000 shares authorized
and outstanding ........................................................... 4,162,000 --
Additional paid in capital .................................................... 71,642,622 --
Accumulated deficit ........................................................... (120,306) --
Note receivable from ESOP ..................................................... (9,500,000) --
Net equity of Predecessor ..................................................... -- 92,477,069
------------- ------------
Total stockholders' equity ............................................... 66,184,316 92,477,069
------------- ------------
Total liabilities and stockholders' equity .......................... $ 565,217,253 $167,882,049
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Revenues ......................................................................... $ 127,400,596 $112,529,417
Cost of goods sold ............................................................... 109,003,358 93,027,980
Depreciation and amortization .................................................... 7,981,427 3,689,303
Gross profit ................................................................ 10,415,811 15,812,134
------------- ------------
Selling, general and administrative expenses ..................................... 2,149,881 3,235,987
------------- ------------
Income from operations ................................................. 8,265,930 12,576,147
Interest expense ................................................................. 8,749,765 947,634
Other income, net ................................................................ 1,173,316 310,101
------------- ------------
Income before income taxes and minority interest ....................... 689,481 11,938,614
Provision for income taxes ....................................................... 809,787 4,022,769
Minority interest in net loss of consolidated subsidiary ......................... -- 44,660
------------- ------------
Net income (loss) ...................................................... $ (120,306) $ 7,960,505
============= ============
Loss per share ................................................................... $ (0.03)
=============
Weighted average shares outstanding .............................................. 4,162,000
-------------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------------
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .............................................................. $ (120,306) $ 7,960,505
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation of fixed assets .............................................. 6,474,857 3,689,303
Amortization of goodwill and other assets ................................. 1,506,570
Amortization of debt issue costs .......................................... 405,585 --
Earnings from limited partnership ......................................... (270,000) 100,000
Minority interest in net loss of consolidated subsidiary .................. -- (44,660)
Deferred income taxes ..................................................... 586,112 (1,046,832)
Change in:
Accounts receivable ....................................................... 2,091,836 (16,333,651)
Inventories ............................................................... (3,377,345) (143,970)
Other current assets ...................................................... (1,195,537) (4,670,856)
Other assets .............................................................. (161,721) 295,002
Accounts payable .......................................................... (11,940,620) 20,463,217
Payable to Parent ......................................................... 173,675 --
Accrued expenses .......................................................... 11,074,747 2,193,554
------------- ------------
Net cash provided by operating activities ............................ 5,247,853 12,461,612
Cash flows from investing activities:
Capital expenditures ........................................................... (2,544,546) (1,247,071)
Proceeds from the sale of non-plant assets ..................................... 1,100,000 --
Acquisition of the Company ..................................................... (371,056,866) --
Proceeds from the sale of subsidiary and ranch ................................. 7,800,000 --
Purchase of investment securities .............................................. -- (6,330,990)
Proceeds from the sale of investment securities ................................ 8,488,128 --
------------- ------------
Net cash used in investing activities ................................. (356,213,284) (7,578,061)
Cash flows from financing activities:
Bank overdraft ................................................................. 3,988,697 7,108,804
Proceeds from revolving line of credit ......................................... 7,000,000 25,000,000
Payments of revolving line of credit ........................................... (20,000,000) --
Proceeds from issuance of long-term debt ....................................... 315,000,000 15,000,000
Payments on long-term debt ..................................................... (3,250,000) --
Payment of cash bonus plan ..................................................... (3,500,000) --
Debt issuance costs ............................................................ (14,639,760) --
Investment by Parent ........................................................... 62,261,295 --
Organizational costs ........................................................... (521,477) --
Payments of notes payable ...................................................... -- (305,925)
Redemption of common stock ..................................................... -- (95,440,200)
Proceeds from sale of common stock ............................................. -- 22,600,200
------------- ------------
Net cash provided by (used in) financing activities ................... 346,338,755 (26,037,121)
------------- ------------
Net decrease in cash and cash equivalents ........................................... (4,626,676) (21,153,570)
Cash and cash equivalents, at beginning of period ................................... 4,780,401 22,849,440
------------- ------------
Cash and cash equivalents, at end of period ......................................... $ 153,725 $ 1,695,870
============= ============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
NATURE OF OPERATIONS
The consolidated financial statements include the accounts of Texas
Petrochemicals Corporation and its wholly owned subsidiary, Texas Butylene
Chemical Company, collectively referred to as (the "Company"). The Company
through its facility in Houston, Texas in the largest producer of butadiene and
butene-1, and the second largest producer of methyl tertiary-butyl ether
("MTBE"), in North America, in terms of production capacity. In addition, the
Company is the sole producer of diisobutylene and isobutylene concentrate in the
United States and is the largest domestic merchant supplier of high purity
isobutylene to the chemical market. The Company's products include: (i)
butadiene, primarily used to produce synthetic rubber; (ii) MTBE, used as an
oxygenate and octane enhancer in gasoline; (iii) n-butylenes (butene-1 and
butene-2), used in the manufacture of plastic resins, fuel additives and
synthetic alcohols; and (iv) specialty isobutylenes, primarily used in the
production of specialty rubbers, lubricant additives, detergents and coatings.
The Company's principal feedstocks are crude butadiene, isobutane and
methanol. The Company purchases a significant portion of its crude butadiene
requirements at prices which are adjusted based on the Company's selling price
of butadiene as well as the cost of natural gas used to produce butadiene,
thereby providing the Company with a fixed profit on such sales. Methanol and
isobutane are purchased at prices linked to prevailing market prices.
GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, have been made which are necessary to
fairly present the financial position of the Company as of September 30, 1996
and the results of its operations and cash flows for the interim period ended
September 30, 1996. 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 registration
statement on Form S-4 thereto, for the twelve months ended May 31, 1996 and the
one month transition period ended June 30, 1996. The June 30, 1996 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.
The consolidated balance sheet and the consolidated statements of income
and cash flows for the periods prior to July 1, 1996 include the combined
presentation of the accounts of Texas Olefins Company, Texas Petrochemicals
Corporation, The Texas Falls Corporation and Clarkston Corporation, collectively
referred to as (the "Predecessor"), all of which were merged with and into Texas
Petrochemicals Corporation in conjunction with the Acquisition described in
Note 2.
5
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
2. THE ACQUISITION
On July 1, 1996, Texas Olefins Company ("TOC"), Texas Petrochemicals
Corporation and a raw material supply contract of Clarkston Corporation (the
"Affiliate") were acquired for approximately $377 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 Texas Petrochemicals Holdings, Inc. (the
"Parent"). 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. On the
closing date of the Acquisition, prior to closing, TOC sold to the previous
majority shareholder of TOC for $7.8 million in cash a ranch of approximately
1,900 acres and the livestock and personalty thereon and 80% of the outstanding
capital stock of The Texas Falls Corporation ("The Falls") owned by TOC. In June
1996, the Affiliate was dissolved and a $677,000 liquidating dividend was
declared to its shareholders.
The following unaudited pro forma combined statement of income assumes the
Acquisition occurred on July 1, 1995. The pro forma combined statement of income
reflects several adjusting entries, including but not limited to, increased
depreciation and amortization as a result of the increased basis in fixed assets
and goodwill and increased interest expense from the incurrance of additional
debt. The Acquisition was accounted for as a purchase under generally accepted
accounting principles.
PRO FORMA COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1995
(DOLLARS IN MILLIONS)
(UNAUDITED)
Revenues ........................................................... $112.1
Cost of goods sold ................................................. 89.6
Depreciation and amortization ...................................... 9.0
------
Gross profit .................................................. 13.5
Selling, general and administrative ................................ 2.1
------
Income from operations ................................... 11.4
Interest expense ................................................... 8.0
Other income, net .................................................. 0.3
------
Income before income taxes and minority interest ......... 3.7
Provision for income taxes ......................................... 1.4
Minority interest in net loss of consolidated subsidiary ........... 0.0
------
Net income ............................................... $ 2.3
======
6
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
3. Detail of Certain Balance Sheet Accounts
Inventories:
September 30, June 30,
1996 1996
------------ ------------
Finished goods .............................. $ 8,634,106 $ 5,480,723
Raw materials ............................... 4,878,548 4,533,037
Chemicals and supplies ...................... 1,798,169 1,919,718
------------ ------------
$ 15,310,823 $ 11,933,478
============ ============
Property, plant and equipment:
September 30, June 30,
1996 1996
------------ ------------
Chemical plants ............................. $252,586,559 $173,369,404
Construction in progress .................... 8,266,186 5,377,880
Other ....................................... 2,950,120 13,812,478
------------ ------------
263,802,865 192,559,762
Less accumulated depreciation, depletion
and amortization .................. 7,846,866 110,745,478
------------ ------------
$255,955,999 $ 81,814,284
============ ============
Other Assets:
September 30, June 30,
1996 1996
------------ ------------
Debt issue costs ............................ $ 14,314,878 $ --
Organizational costs ........................ 521,477 --
Investment in The Falls and other ........... -- 6,522,776
------------ ------------
14,836,355 6,522,776
Less accumulated amortization ............... 430,818 --
------------ ------------
$ 14,405,537 $ 6,522,776
============ ============
7
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Accrued Expenses:
September 30, June 30,
1996 1996
------------ -----------
Accrued interest ..................... $ 8,140,508 $ 81,157
Property and sales taxes ............. 3,885,064 2,369,815
Federal and state taxes .............. -- 959,336
Other ................................ 2,931,832 972,349
------------ -----------
$ 14,957,404 $ 4,382,657
============ ===========
Long Term Debt:
September 30, June 30,
1996 1996
------------ -----------
Bank Borrowings:
Term Loans ....................... $136,750,000 $ --
Revolving Credit Loans ........... -- 13,000,000
Senior Subordinated Notes ............ 175,000,000 --
-----------
311,750,000 13,000,000
Less current maturities .............. 13,000,000 --
-----------
Long-term debt ....................... $298,750,000 $13,000,000
============ ===========
The Bank Credit Agreement provides for term loans in the amount of $140
million and a revolving credit facility of $40 million. The debt initially bears
interest at the greater of the prime rate and the federal funds rate plus 1/2%
plus a margin of 1%, due and payable quarterly beginning September 30, 1996. The
Senior Subordinated Notes are due 2006 and bear interest at 11 1/8% payable
semiannually on July 1 and January 1.
4. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has purchase commitments incident to the ordinary conduct of
business. The prices of such purchase commitments are based on formulas which
are determined from the prevailing market rate for such products. These
commitments generally have cancellation provisions given proper notification.
LITIGATION
The Company is involved in various routine legal proceedings which are
incidental to the business. Management of the Company is vigorously defending
such matters and is of the opinion that their ultimate resolution will not have
a material impact on the Company.
8
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
STOCKHOLDER ACTION
Effective July 28, 1995 the Company's Board of Directors approved the
redemption of 25,000 shares of Class A common stock and 1,565,670 shares of
Class B common stock from certain stockholders for total consideration of
approximately $95,000,000. The redemption was paid with cash of approximately
$80,000,000 and with the issuance to a former stockholder of a $15,000,000
promissory note due November 1, 1995 collateralized by 915,000 shares of Class B
common stock and the personal guarantee of an officer of the Company. In
connection with the above redemption the Company's Board of Directors approved
the sale of (1) 351,670 shares of Class B treasury stock to certain officers of
the Company and to a trust at the price of $60 per share, and (2) 25,000 shares
to Class A treasury stock to an officer of the Company at a price of $60 per
share. On September 12, 1995, the stock redemption and other transactions
described above were not ratified by the Company's stockholders. These items
were not ratified due to the abstention of the trustee representing a majority
of Class B common stock. The abstaining stockholder has the right, for up to two
years from September 12, 1995, to vote in favor of or against the aforementioned
transaction or take other action on behalf of the trust beneficiaries. The
Company cannot predict what action the abstaining stockholder will take.
Accordingly, the Company cannot determine the effect, if any, of this
uncertainty on the financial position, results of operations or cash flows of
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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Registration Statement on Form S-4
(Registration No. 333-11569) should be read in conjunction with the discussion
contained herein.
OVERVIEW
The Company's revenues are derived primarily from merchant market sales of
butadiene, MTBE, n-butylenes (butene-1 and butene-2) and specialty isobutylenes
(isobutylene concentrate, high purity isobutylene, and diisobutylene). The
Company's results of operations are affected by a number of factors, including
variations in market demand, production volumes, and the pricing of its products
and primary raw materials. The Company believes that the pricing for its
principal products is primarily dependent on the balance between the global
supply and North American demand for each product, the cost structure of the
various global producers (including their cost of raw materials) and from time
to time, other external factors, such as the implementation of the Clean Air Act
Amendments of 1990, which has significantly increased the demand for MTBE.
Historically, the Company has successfully mitigated the cyclicality of the
markets for certain of its end products by entering into contracts with pricing
which allows for a fixed profit by linking prices directly or indirectly to raw
material costs. In addition, the Company has attempted to optimize the use of
isobutylene, an intermediate feedstock produced by the Company, to produce MTBE
or higher margin specialty products depending on prevailing market conditions.
REVENUES
The Company's revenues are a function of the volume of products sold by the
Company and the prices for such products. The following tables set forth the
Company's historical revenues and the percentages of historical revenues by
product and volume of products sold, for the three months ended September 30,
1996 and 1995.
REVENUES
Three months ended
September 30,
-----------------------------------------
1996 1995
----------------- -----------------
(dollars in millions)
Butadiene ...................... $ 27.4 21% $ 31.7 28%
MTBE ........................... 69.9 55 44.5 40
n-Butylenes .................... 11.1 9 13.4 12
Specialty Isobutylenes ......... 14.9 12 15.4 14
Other(1) ....................... 4.1 3 7.5 6
------ --- ------ ---
Total ..................... $127.4 100% $112.5 100%
====== === ====== ===
- ------------
(1) Includes Clarkston's trading revenues from third parties (prior period
only), utility revenues and revenues realized from the Company's
terminalling facilities.
10
<PAGE>
SALES VOLUMES
Three months ended
September 30,
----------------------
1996 1995
----- -----
(million of pounds,
except where noted)
Butadiene .................................... 171.7 146.2
MTBE(1) ...................................... 85.1 52.1
n-Butylenes .................................. 59.0 81.7
Specialty Isobutylenes ....................... 59.6 90.8
- ------------
(1) Volumes in million of gallons.
RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of
operations.
Three months ended
September 30,
-----------------------------
1996 1995
------------- -------------
(dollars in millions)
Revenues ....................................... $127.4 100% $112.5 100%
Cost of goods sold ............................. 109.0 86 93.0 83
Depreciation and amortization .................. 8.0 6 3.7 3
------ --- ------ ---
Gross profit .............................. 10.4 8 15.8 14
Selling, general and administrative expenses ... 2.1 2 3.2 3
------ --- ------ ---
Income from operations .................... $ 8.3 6% $ 12.6 11%
====== === ====== ===
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
REVENUES
The Company's revenues increased by approximately 13%, or $14.9 million, to
$127.4 million for the three months ended September 30, 1996 from $112.5 million
for the three months ended September 30, 1995. This increase was attributable
primarily to an increase in sales volumes of MTBE which was partially offset by
a decrease in MTBE prices. The volume of MTBE product sold during the period
increased due to increased production created as a result of lower demand for
specialty isobutylenes. Volumes for n-butylenes and specialty isobutylenes were
down compared to the prior period due to a temporary reduction in product
required by one customer. An increase in butadiene volumes was more than offset
by a decrease in butadiene prices, thus causing an overall decrease in butadiene
revenue.
GROSS PROFIT
Gross profit decreased by approximately 34%, or $5.4 million, to $10.4
million for the three months ended September 30, 1996 from $15.8 million for the
three months ended September 30, 1995. Gross margin during this period decreased
to 8.2% from 14.0%. This decrease was primarily attributable to an increase in
depreciation and amortization during the current period as a result of the
increased basis in fixed assets and goodwill from the Acquisition. The decrease
was also attributable to lower margins on MTBE sales as a result of higher
feedstock costs created by supply shortages in the market. The Company was able
to offset a portion of the decline in MTBE margins through an increase in sales
volumes.
11
<PAGE>
INCOME FROM OPERATIONS
Income from operations decreased by approximately 34%, or $4.3 million, to
$8.3 million for the three months ended September 30, 1996 from $12.6 million
for the three months ended September 30, 1995. Operating margin during this
period decreased to 6.5% from 11.2%. This decrease in income from operations and
operating margin was primarily due to the same factors contributing to the
decrease in gross profit and gross margin described above. The decrease was
partially offset by a decrease in selling, general and administrative costs as a
result of cost savings subsequent to the Acquisition.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net cash provided by operating activities was $5.2 million for the three
months ended September 30, 1996 compared to $12.5 million for the three months
ended September 30, 1995. The decrease of $7.3 million was primarily
attributable to changes in working capital as a result of timing differences in
receipts and disbursements of cash. Net cash used in investing activities was
$356.2 million for the three months ended September 30, 1996 compared to $7.6
million for the three months ended September 30, 1995. The increase of $348.6
million was primarily attributable to the Acquisition of the Company on July 1,
1996, partially offset by proceeds from the sale of nonplant assets, investment
securities, the ranch and common stock in The Texas Falls Corporation. Net cash
provided by (used in) financing activities was $346.3 million for the three
months ended September 30, 1996 compared to $(26.0) million for the three months
ended September 30, 1995. The change of $372.3 million was primarily
attributable to the issuance of long-term debt and an investment from the
Parent, in order to finance the Acquisition of the Company.
LIQUIDITY
The Company's liquidity needs arise primarily from principal and interest
payments under the $140 million Bank Credit Agreement and $175 million
Subordinated Notes incurred in connection with the Acquisition. 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 September 30, 1996, to provide adequate funds for ongoing operations,
planned capital expenditures and debt service during the term of such Revolving
Credit Facility. 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 and the
Subordinated Notes. The Bank Credit Agreement and the Subordinated Notes include
certain restrictive covenants which include, but are not limited to, the
maintenance of certain financial ratios and limitations on capital expenditures,
indebtedness, investments and sales of assets and subsidiary stock.
12
<PAGE>
CASH BONUS PLAN
In connection with the Acquisition, the Company established a $35 million
Cash Bonus Plan for certain employees of the Company and certain employees of
its independent contractors. During the three months ended September 30, 1996,
10% of this amount was paid to eligible participants and the remaining payments
will be made in sixteen quarterly installments.
CAPITAL EXPENDITURES
The Company's capital expenditures relate principally to improving
operating efficiencies and maintaining environmental compliance. The Company
expenses approximately $20 million annually for plant maintenance. These
maintenance costs are not treated as capital expenditures.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Part I, Items 1 and 2 and Part II, Item 1 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 oral
forward looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Disclosures.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments with respect to the Company's
legal proceedings previously reported in the Company's Registration Statement on
Form S-4 (Registration No. 333- 11569).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
September 30, 1996.
14
<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 PETROCHEMICALS CORPORATION
(Registrant)
Dated: November 19, 1996 By: /s/ CLAUDE E. MANNING
(Signature)
Claude E. Manning
Chief Financial Officer
15
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