UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 1997
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.)
THREE RIVERWAY, SUITE 1500
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 627-7474
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes [X] No [ ]
The number of shares of common stock of the registrant outstanding as of May
12, 1997 is 4,162,000.
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet as of March 31, 1997 and June 30, 1996....... 2
Consolidated Statement of Operations for the three and nine months ended
March 31, 1997 and 1996.............................................. 3
Consolidated Statement of Cash Flows for the nine months ended
March 31, 1997 and 1996.............................................. 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.................................................. 15
Item 6. Exhibits and Reports on Form 8-K................................... 15
Signature.................................................................. 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
CONSOLIDATED BALANCE SHEET
(IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 127 $ 4,780
Investment securities ................................... -- 6,794
Accounts receivable - trade ............................. 37,992 35,280
Inventories ............................................. 23,563 11,933
Other current assets .................................... 17,096 11,753
--------- --------
Total current assets ................................. 78,778 70,540
Property, plant and equipment, net .......................... 246,521 81,814
Investments in land held for sale ........................... 3,886 6,181
Investment in and advances to limited partnership ........... 2,958 2,824
Goodwill, net ............................................... 220,249 --
Other assets, net of accumulated amortization ............... 12,499 6,523
--------- --------
Total assets ......................................... $ 564,891 $167,882
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Bank overdraft .......................................... $ 10,661 $ --
Accounts payable - trade ................................ 30,431 40,131
Accrued expenses ........................................ 10,867 4,383
Current portion of cash bonus plan ...................... 7,875 --
Current portion of long-term debt ....................... 6,437 --
Dividends payable ....................................... -- 677
--------- --------
Total current liabilities ............................ 66,271 45,191
Revolving line of credit .................................... 16,180 13,000
Long-term debt .............................................. 300,926 --
Cash bonus plan ............................................. 19,687 --
Deferred income taxes and other ............................. 105,055 16,107
Minority interest in net assets of consolidated subsidiary .. -- 1,107
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock, $1 par value, 4,162,000 shares authorized
and outstanding ......................................... 4,162 --
Additional paid in capital .............................. 71,643 --
Accumulated deficit ..................................... (10,533) --
Note receivable from ESOP ............................... (8,500) --
Net equity of Predecessor ............................... -- 92,477
--------- --------
Total stockholders' equity ........................... 56,772 92,477
--------- --------
Total liabilities and stockholders' equity ......... $ 564,891 $167,882
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- -----------------------------
1997 1996 1997 1996
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues ............................................... $ 120,529 $ 107,203 $ 367,265 $ 333,710
Cost of goods sold ..................................... 109,140 91,362 325,647 278,919
Depreciation and amortization .......................... 7,635 3,782 23,529 11,185
----------- --------- ----------- ---------
Gross profit ......................................... 3,754 12,059 18,089 43,606
Selling, general and administrative expenses ........... 1,899 2,549 6,127 8,399
----------- --------- ----------- ---------
Income from operations ........................... 1,855 9,510 11,962 35,207
Interest expense ....................................... 8,722 569 26,089 2,134
Other income (expense)
Loss on disposal of assets and
investment securities, net ........................ -- (4,496) -- (4,165)
Impairment of investment in land ..................... -- (12,592) -- (12,592)
Other, net ........................................... 547 (477) 2,035 (598)
----------- --------- ----------- ---------
547 (17,565) 2,035 (17,355)
----------- --------- ----------- ---------
Income (loss) before income taxes,
extraordinary loss and minority
interest ........................................ (6,320) (8,624) (12,092) 15,718
Provision (benefit) for income taxes ................... (2,093) (3,782) (3,015) 4,359
----------- --------- ----------- ---------
Income (loss) before extraordinary
loss and minority interest ...................... (4,227) (4,842) (9,077) 11,359
Extraordinary loss from early extinguishment
of debt, net of tax benefit of $784 .................. 1,456 -- 1,456 --
Minority interest in net loss of
consolidated subsidiary .............................. -- 39 -- 128
----------- --------- ----------- ---------
Net income (loss) ................................ $ (5,683) $ (4,803) $ (10,533) $ 11,487
=========== ========= =========== =========
Loss per common share:
Before extraordinary loss ...................... $ (1.02) $ (2.18)
Extraordinary loss ............................. (.35) (.35)
----------- -----------
$ (1.37) $ (2.53)
=========== ===========
Weighted average shares outstanding .................... 4,162,000 4,162,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------------------
1997 1996
--------- --------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) ................................................................. $ (10,533) $ 11,487
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Extraordinary loss ................................................................ 1,456 --
Impairment of investment in land .................................................. -- 12,592
Depreciation of fixed assets ...................................................... 19,097 11,185
Amortization of goodwill and other assets ......................................... 4,432 --
Amortization of debt issue costs and deferred premium ............................. 1,170 --
Minority interest in net loss of consolidated subsidiary .......................... -- (128)
Deferred income taxes ............................................................. (1,710) (2,064)
Earnings from limited partnership ................................................. (584) --
Change in:
Accounts receivable ............................................................. (2,712) (5,744)
Inventories ..................................................................... (11,630) 6,557
Other current and non-current assets ............................................ (5,000) (10,013)
Accounts payable ................................................................ (9,700) 4,752
Accrued expenses and other liabilities .......................................... 6,140 (5,642)
--------- --------
Net cash provided by (used in) operating activities .......................... (9,574) 22,982
Cash flows from investing activities:
Capital expenditures .............................................................. (6,552) (2,330)
Proceeds from the sale of non-plant assets ........................................ 3,132 --
Acquisition of the Company ........................................................ (371,057) --
Distribution received from investment in limited partnership ...................... 450 --
Proceeds from the sale of subsidiary and ranch .................................... 7,800 --
Purchase of investment securities ................................................. -- (6,331)
Proceeds from the sale of investment securities ................................... 8,488 6,039
--------- --------
Net cash used in investing activities ........................................ (357,739) (2,622)
Cash flows from financing activities:
Bank overdraft .................................................................... 10,661 5,373
Net borrowings from revolving line of credit ...................................... 3,180 30,000
Proceeds from issuance of long-term debt .......................................... 368,000 18,600
Payments on long-term debt ........................................................ (60,609) (15,305)
Payment of cash bonus plan ........................................................ (7,438) --
Debt issuance and organizational costs ............................................ (15,594) --
Investment by Parent .............................................................. 62,960 --
Reduction in note receivable from ESOP ............................................ 1,500 --
Dividends paid .................................................................... -- (7,963)
Redemption of common stock ........................................................ -- (95,440)
Proceeds from sale of common stock ................................................ -- 22,600
--------- --------
Net cash provided by (used in) financing activities .......................... 362,660 (42,135)
--------- --------
Net decrease in cash and cash equivalents ............................................. (4,653) (21,775)
Cash and cash equivalents, at beginning of period ..................................... 4,780 22,849
--------- --------
Cash and cash equivalents, at end of period ........................................... $ 127 $ 1,074
========= ========
</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 March 31, 1997 and
the results of its operations and cash flows for the interim period ended March
31, 1997. 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"). Texas Olefins Company was 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
NINE MONTHS ENDED MARCH 31, 1996
(IN MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
Revenues .................................................... $ 332.8
Cost of goods sold .......................................... 269.8
Depreciation and amortization ............................... 27.2
-------------
Gross profit ............................................ 35.8
Selling, general and administrative ......................... 5.8
-------------
Income from operations .............................. 30.0
Interest expense ............................................ 23.9
Other expense
Loss on disposal of assets and investment securities, net (4.2)
Impairment of investment in land ........................ (12.6)
Other, net .............................................. (1.0)
-------------
(17.8)
-------------
Loss before income taxes and minority interest ...... (11.7)
Benefit for income taxes .................................... (4.2)
-------------
Net loss ............................................ $ (7.5)
=============
Loss per share ...................................... $ (1.80)
=============
Weighted average shares outstanding ................. 4,162,000
=============
6
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS OF DOLLARS)
INVENTORIES:
MARCH 31, JUNE 30,
1997 1996
-------- --------
Finished goods $ 16,161 $ 5,480
Raw materials 5,515 4,533
Chemicals and supplies 1,887 1,920
-------- --------
$ 23,563 $ 11,933
======== ========
PROPERTY, PLANT AND EQUIPMENT:
MARCH 31, JUNE 30,
1997 1996
-------- --------
Chemical plants $252,492 $173,369
Construction in progress 10,692 5,378
Other 2,066 13,812
-------- --------
265,250 192,559
Less accumulated depreciation, depletion
and amortization 18,729 110,745
-------- --------
$246,521 $ 81,814
======== ========
OTHER ASSETS:
MARCH 31, JUNE 30,
1997 1996
-------- --------
Debt issue costs $ 12,773 $ -
Organizational costs 572 -
Intangibles and other 2,000 6,523
-------- --------
15,345 6,523
Less accumulated amortization 2,846 -
-------- --------
$ 12,499 $ 6,523
======== ========
ACCRUED EXPENSES:
MARCH 31, JUNE 30,
1997 1996
-------- --------
Accrued interest $ 7,301 $ 81
Property and sales taxes 2,403 2,370
Federal and state taxes - 959
Other 1,163 973
-------- --------
$ 10,867 $ 4,383
======== ========
7
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
LONG TERM DEBT:
MARCH 31, JUNE 30,
1997 1996
-------- --------
Bank Borrowings:
Term A Loan $ 26,641 $ -
Term B Loan 44,250
ESOP Loan 8,500 -
Revolving Credit Loans 16,180 13,000
Subordinated Notes 225,000 -
Deferred premium on Subordinated Notes 2,972 -
-------- --------
323,543 13,000
Less current maturities 6,437 -
-------- --------
Long-term debt $317,106 $ 13,000
======== ========
The Bank Credit Agreement provided for term loans in the amount of $130
million, an ESOP loan of $10 million, and a revolving credit facility of up to
$40 million. The debt under the Bank Credit Agreement bears interest, at the
option of the borrower, based on the LIBOR rate plus a margin (2.5% at March 31,
1997) or the greater of the prime rate and the federal funds rate plus 1/2% plus
a margin (1.5% at March 31, 1997). Quarterly principal and interest payments are
made under the Bank Credit Agreement. The Subordinated Notes are due 2006 and
bear interest at 11 1/8% payable semiannually on January 1 and July 1. The Bank
Credit Agreement and the Subordinated Notes include certain restrictive
covenants, which include but are not limited to, limitations on capital
expenditures, indebtedness, investments and sales of assets and subsidiary
stock. Additionally, the Bank Credit Agreement requires the Company to maintain
certain financial ratios. On March 28, 1997 the Company obtained an amendment to
the Bank Credit Agreement to update the financial ratios relating to fixed
charge coverage, debt to EBITDA, and net worth.
On March 13, 1997 the Company closed on the sale of $50 million aggregate
principal of its 11 1/8% Senior Subordinated Notes Due 2006 in a Rule 144a
offering. The terms of the notes were identical, except as to the offering
price, to the terms of the Senior Subordinated Notes issued by the Company in
July 1996. The Company applied the net proceeds received from the offering to
reduce the Term A Loan.
4. INCOME TAXES
The Company's benefit for income taxes for the three and nine months ended
March 31, 1997 differs from that expected using statutory rates primarily
because of the Company's amortization of goodwill related to the Acquisition
which is not deductible for tax purposes.
8
<PAGE>
TEXAS PETROCHEMICALS CORPORATION (AND PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
5. 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.
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 Company's stockholders did not ratify the
stock redemption and other transactions described above. 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 and nine months ended March
31, 1997 and 1996.
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
---------------------------------------- ----------------------------------------
1997 1996 1997 1996
---------------- ---------------- ---------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Butadiene .......................... $ 34.7 29% $ 23.5 22% $ 97.3 26% $ 83.9 25%
MTBE ............................... 52.1 43 37.8 35 180.2 49 129.4 39
n-Butylenes ........................ 12.1 10 11.7 11 33.6 9 37.0 11
Specialty Isobutylenes ............. 16.7 14 24.2 23 42.6 12 58.1 17
Other(1) ........................... 4.9 4 10.0 9 13.5 4 25.3 8
------ --- ------ --- ------ --- ------ ---
Total .............................. $120.5 100% $107.2 100% $367.2 100% $333.7 100%
====== === ====== === ====== === ====== ===
</TABLE>
- ----------
(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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
(MILLION OF POUNDS, EXCEPT WHERE NOTED)
Butadiene 190.6 154.6 547.1 449.9
MTBE(1) 61.9 42.6 212.3 153.8
n-Butylenes 59.5 71.2 175.0 224.4
Specialty Isobutylenes 75.7 105.7 176.5 290.3
- ----------
(1) Volumes in million of gallons.
RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------------- ------------------------------------
1997 1996 1997 1996
-------------- --------------- --------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ........................................ $120.5 100% $107.2 100% $367.2 100% $333.7 100%
Cost of goods sold .............................. 109.1 91 91.3 85 325.6 89 278.9 84
Depreciation and amortization ................... 7.6 6 3.8 4 23.5 6 11.2 3
------ --- ------ --- ------ --- ------ ---
Gross profit ................................ 3.8 3 12.1 11 18.1 5 43.6 13
Selling, general and administrative ............. 1.9 1 2.6 2 6.1 2 8.4 3
------ --- ------ --- ------ --- ------ ---
Income from operations ...................... $ 1.9 2% $ 9.5 9% $ 12.0 3% $ 35.2 10%
====== === ====== === ====== === ====== ===
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1996
REVENUES
The Company's revenues increased by approximately 12%, or $13.3 million, to
$120.5 million for the three months ended March 31, 1997 from $107.2 million for
the three months ended March 31, 1996. Butadiene revenues increased as a result
of continued strong market demand and increased production levels. Butadiene
processing efficiencies and debottlenecking has increased production rates 17%
above prior year levels. Specialty isobutylene revenues decreased as a compared
to the prior year as a result of lower sales volumes of isobutylene concentrate.
Lower isobutane costs and improved customer demand for isobutylene concentrate
during the third quarter helped improve sales volumes and revenues as compared
to the first half of this fiscal year. High purity isobutylene and diisobutylene
revenues decreased slightly during the period as a result of lower sales volumes
compared to the prior year. With lower sales volumes for isobutylene
concentrate, compared to the prior year, the Company continued to shift its
isobutylene production, an intermediate feedstock, to the production of MTBE.
MTBE sales volumes and revenue increased as a result of the production levels.
N-butylenes sales revenue increased slightly as compared to the prior year.
Butene-1 sales revenues increased approximately 25% as a result of successful
marketing and stable demand. This increase was partially offset by a reduction
in sales of butene-2. Existing market conditions allowed the Company's major
butene-2 customer to find alternative feedstocks.
11
<PAGE>
GROSS PROFIT
Gross profit decreased by approximately 69%, or $8.3 million, to $3.8
million for the three months ended March 31, 1997 from $12.1 million for the
three months ended March 31, 1996. Gross margin during the period decreased to
3.2% from 11.3%. The decrease was primarily attributable to lower margins on
MTBE and specialty isobutylene sales. MTBE margins were adversely affected by
depressed MTBE sales prices and high feedstock costs. MTBE sales prices dropped
in the third quarter following the end of the oxygen mandate season. Methanol
prices during the quarter increased approximately 41% as a result of a
supply/demand imbalance in the market. Isobutane prices remained slightly higher
compared to the prior quarter. In December 1996, the Company made the decision
to shut down its Dehydro-1 unit as a result of the decline in MTBE margins. The
unit was shut down for 25 days at the beginning of the third quarter. The unit
has a production capacity of approximately 9,000 barrels per day of isobutylene.
Higher natural gas prices also contributed to a lower gross margin during the
quarter. Gross profits from sales of butadiene and butene-1 increased over the
prior year and were used to partially offset the above decrease. Gross profit
was also negatively impacted by increased depreciation and amortization expense
during the current period as a result of the increased basis in fixed assets and
goodwill from the Acquisition .
INCOME FROM OPERATIONS
Income from operations decreased by approximately 80%, or $7.6 million, to
$1.9 million for the three months ended March 31, 1997 from $9.5 million for the
three months ended March 31, 1996. Operating margin during this period decreased
to 1.6% from 8.9%. 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.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
1996
REVENUES
The Company's revenues increased by approximately 10%, or $33.5 million, to
$367.2 million for the nine months ended March 31, 1997 from $333.7 million for
the nine months ended March 31, 1996. Butadiene revenues increased as a result
of continued strong demand and increased production levels. Butadiene processing
efficiencies and debottlenecking has increased production rates 17% above prior
year levels. Specialty isobutylene revenues decreased as compared to the prior
year as a result of lower sales volumes of isobutylene concentrate. The Company
supplies all of its isobutylene concentrate to two customers, both of which were
adversely affected by high isobutane prices during the period. High purity
isobutylene and diisobutylene revenues decreased slightly during the period as a
result of lower sales volumes compared to the prior year. With lower sales
volumes for isobutylene concentrate the Company shifted its isobutylene
production, an intermediate feedstock, to the production of MTBE. MTBE sales
volumes and revenue increased as a result of the production levels. N-butylene
sales revenues decreased slightly as a result of lower sales volumes of
butene-2. Existing market conditions allowed the Company's major butene-2
customer to find alternative feedstocks. Butene-1 sales revenues increased
approximately 13% as a result of successful marketing and stable demand.
12
<PAGE>
GROSS PROFIT
Gross profit decreased by approximately 58%, or $25.5 million, to $18.1 for
the nine months ended March 31, 1997 from $43.6 million for the nine months
ended March 31, 1996. Gross margin during the period decreased to 4.9% from
13.1%. The decrease was primarily attributable to lower margins on MTBE and
specialty isobutylene sales. MTBE margins were adversely affected by depressed
MTBE sales prices during the third quarter and high feedstock costs. MTBE sales
prices dropped in the third quarter following the end of the oxygen mandate
season. Average isobutane and methanol prices are approximately 20% higher than
in prior year. In December 1996, as a result of the decline in MTBE margins, the
Company shut down its Dehydro-1 unit for 52 days which has a production capacity
of approximately 9,000 barrels per day of isobutylene. Additionally, during
October 1996, the Company temporarily shut down Dehydro-1 for 21 days as a
result of a scheduled turnaround in order to install a new waste heat boiler.
Higher natural gas prices also contributed to a lower gross profit during the
current period. Gross profits from sales of butadiene and butene-1 increased
over the prior year and were used to partially offset the above decrease. Gross
profit was also negatively impacted by increased depreciation and amortization
expense during the current period as a result of the increased basis in fixed
assets and goodwill from the Acquisition .
INCOME FROM OPERATIONS
Income from operations decreased by approximately 66%, or $23.2 million, to
$12.0 million for the nine months ended March 31, 1997 from $35.2 million for
the nine months ended March 31, 1996. Operating margin during the period
decreased to 3.3% from 10.5%. 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
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
1996
Net cash provided by (used in) operating activities was $(9.6) million for
the nine months ended March 31, 1997 compared to $23.0 million for the nine
months ended March 31, 1996. The decrease of $32.6 million was primarily
attributable to the decrease in overall profitability and to a lessor extent,
changes in working capital as a result of timing differences in receipts and
disbursements of cash. Net cash used in investing activities was $357.7 million
for the nine months ended March 31, 1997 compared to $2.6 million for the nine
months ended March 31, 1996. The increase of $355.1 million was primarily
attributable to the Acquisition of the Company on July 1, 1996, partially offset
by proceeds from the sale of non-plant assets, investment securities, the ranch
and common stock in The Falls. Net cash provided by (used in) financing
activities was $362.7 million for the nine months ended March 31, 1997 compared
to $(42.1) million for the nine months ended March 31, 1996. The change of
$404.8 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
Predecessor.
13
<PAGE>
LIQUIDITY
The Company's liquidity needs arise primarily from principal and interest
payments under the Bank Credit Agreement and the Subordinated Notes. The
Company's primary source of funds to meet debt service requirements is net cash
flow provided by operating activities. Operating cash flow is significantly
impacted by raw materials cost as well as the selling price and volume variances
of finished goods. The Company enters into supply contracts for certain of its
products in order to mitigate the impact of changing prices. Additionally, the
Company has a $40 million Revolving Credit Facility, of which $16.2 million was
in use at March 31, 1997, 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, limitations
on capital expenditures, indebtedness, investments and sales of assets and
subsidiary stock. Additionally, the Bank Credit Agreement requires the Company
to maintain certain financial ratios. On March 28, 1997 the Company obtained an
amendment to the Bank Credit Agreement to update the financial ratios relating
to fixed charge coverage, debt to EBITDA, and net worth.
On March 13, 1997 the Company closed on the sale of $50 million aggregate
principal of its 11 1/8% Senior Subordinated Notes Due 2006 in a Rule 144a
offering. The terms of the notes were identical, except as to the offering
price, to the terms of the Senior Subordinated Notes issued by the Company in
July 1996. The Company applied the net proceeds received from the offering to
reduce the Term A Loan. The Company is commencing an exchange offer to exchange
the unregistered securities for identical securities, which have been registered
under the Securities Act.
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. In August 1996, 10% of this amount was paid to
eligible participants and the remaining payments have been and will continue to
be made in quarterly installments.
CAPITAL EXPENDITURES
The Company's capital expenditures relate principally to improving operating
efficiencies and maintaining environmental compliance. The plan for fiscal 1997
capital expenditures is approximately $8 million. The Company expenses
approximately $20 million annually for plant maintenance. These maintenance
costs are not treated as capital expenditures.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Part I, Items 1 and 2 of this document include forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. Although the Company believes that the expectations reflected in such
forward looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed in conjunction with the forward looking statements included herein
("Cautionary Disclosures"). Subsequent written or oral forward looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Disclosures.
14
<PAGE>
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
The following reports on Form 8-K were filed during the three months
ended March 31, 1997.
FINANCIAL
DATE OF ITEM STATEMENTS
REPORT REPORTED FILED
January 28, 1997 Item 4 None
March 6, 1997 Item 5 None
15
<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: May 12, 1997 By: Claude E. Manning
(Signature)
Claude E. Manning
Chief Financial Officer
16
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