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, 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
February 12, 1998 is 4,162,000.
<PAGE>
TEXAS PETROCHEMICALS CORPORATION
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet as of December 31, 1997 and June 30, 1997 1
Consolidated Statement of Operations for the three and six months ended
December 31, 1997 and 1996 2
Consolidated Statement of Cash Flows for the six months ended
December 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS PETROCHEMICALS CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
DECEMBER 31, JUNE 30,
1997 1997
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ................. $ 139 $ 101
Accounts receivable - trade ............... 48,450 44,662
Inventories ............................... 21,348 17,926
Other current assets ...................... 15,719 19,683
--------- ---------
Total current assets ................... 85,656 82,372
Property, plant and equipment, net ............ 231,870 239,959
Investments in land held for sale ............. 2,579 3,886
Investment in and advances to
limited partnership ......................... 3,032 2,969
Goodwill, net ................................. 177,663 179,598
Other assets, net of accumulated amortization . 13,640 12,325
--------- ---------
Total assets ........................... $ 514,440 $ 521,109
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft ............................ $ 5,030 $ 10,157
Accounts payable - trade .................. 36,017 29,942
Accrued expenses .......................... 20,735 16,917
Current portion of cash bonus plan ........ 7,811 7,811
Current portion of long-term debt ......... 7,234 6,438
--------- ---------
Total current liabilities .............. 76,827 71,265
Revolving line of credit ...................... 5,000 12,000
Long-term debt ................................ 295,509 299,236
Cash bonus plan ............................... 13,673 17,573
Deferred income taxes ......................... 65,566 65,959
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock, $1 par value, 4,162,000
shares authorized and outstanding ...... 4,162 4,162
Additional paid in capital ................ 71,643 71,643
Accumulated deficit ....................... (10,940) (12,729)
Note receivable from ESOP ................. (7,000) (8,000)
--------- ---------
Total stockholders' equity ............. 57,865 55,076
--------- ---------
Total liabilities and stockholders'
equity ............................. $ 514,440 $ 521,109
========= =========
See accompanying notes to consolidated financial statements.
1
<PAGE>
TEXAS PETROCHEMICALS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------- -------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues ........................................... $ 141,105 $ 119,336 $ 276,548 $ 246,736
Cost of goods sold ................................. 122,189 108,035 235,840 217,892
Depreciation and amortization ...................... 7,736 7,912 15,463 15,894
----------- ----------- ----------- -----------
Gross profit ..................................... 11,180 3,389 25,245 12,950
Selling, general and administrative expenses ....... 1,667 1,548 3,180 2,843
----------- ----------- ----------- -----------
Income from operations ....................... 9,513 1,841 22,065 10,107
Interest expense ................................... 8,766 8,618 17,839 17,367
Other income (expense):
Loss on disposal of non-plant assets ......... (436)
Other, net ................................... 136 315 432 1,488
----------- ----------- ----------- -----------
136 315 (4) 1,488
Income (loss) before income taxes ............ 883 (6,462) 4,222 (5,772)
Provision (benefit) for income taxes ............... 786 (1,732) 2,432 (922)
----------- ----------- ----------- -----------
Net income (loss) ............................ $ 97 $ (4,730) $ 1,790 $ (4,850)
=========== =========== =========== ===========
Income (loss) per share ............................ $ 0.02 $ (1.14) $ 0.43 $ (1.17)
=========== =========== =========== ===========
Weighted average shares outstanding ................ 4,162,000 4,162,000 4,162,000 4,162,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
TEXAS PETROCHEMICALS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
------------------------
1997 1996
-------- ---------
Cash flows from operating activities:
Net income (loss) ........................... $ 1,790 $ (4,850)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation of fixed assets ................ 12,571 12,921
Amortization of goodwill and other assets ... 2,892 2,973
Amortization of debt issue costs and
deferred premium .......................... 543 811
Loss on sale of non-plant assets ............ 436 --
Earnings from limited partnership ........... (278) (270)
Deferred income taxes ....................... (784) (584)
Change in:
Accounts receivable ....................... (3,788) (5,834)
Inventories ............................... (3,422) (10,011)
Other assets .............................. 300 (1,735)
Accounts payable .......................... 7,262 (8,878)
Accrued expenses .......................... 4,182 15,322
-------- ---------
Net cash provided by (used in)
operating activities ................. 21,704 (135)
Cash flows from investing activities:
Capital expenditures ........................ (4,480) (5,171)
Proceeds from the sale of non-plant assets .. 871 1,311
Distribution from limited partnership ....... 215 250
Acquisition of the Company .................. -- (366,277)
Proceeds from sale of Predecessor assets .... -- 16,288
-------- ---------
Net cash used in investing activities .. (3,394) (353,599)
Cash flows from financing activities:
Change in bank overdraft .................... (5,127) 10,478
Net borrowings (repayments) under revolver .. (7,000) (8,500)
Proceeds from issuance of long-term debt .... 3,192 315,000
Payments on long-term debt .................. (5,962) (6,500)
Payment of cash bonus plan .................. (3,900) (5,469)
Debt issuance costs ......................... (475) (14,522)
Reduction in note receivable from ESOP ...... 1,000 1,000
Investment by Parent ........................ -- 62,909
Organizational costs ........................ -- (521)
-------- ---------
Net cash provided by (used in)
financing activities ................. (18,272) 353,875
-------- ---------
Net increase in cash and cash equivalents ....... 38 141
Cash and cash equivalents, at beginning
of period ..................................... 101 --
Cash and cash equivalents, at end of period ..... $ 139 $ 141
======== =========
See accompanying notes to consolidated financial statements.
3
<PAGE>
TEXAS PETROCHEMICALS CORPORATION
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 is the largest producer of butadiene and
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, 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 December 31, 1997 and
the results of its operations and cash flows for the interim period ended
December 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 Form 10-K
thereto, for the year ended June 30, 1997. The June 30, 1997 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 PETROCHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS OF DOLLARS)
INVENTORIES:
DECEMBER 31, JUNE 30,
1997 1997
------- -------
Finished goods ........................... $ 9,919 $ 8,500
Raw materials ............................ 9,551 7,504
Chemicals and supplies ................... 1,878 1,922
------- -------
$21,348 $17,926
======= =======
PROPERTY, PLANT AND EQUIPMENT:
DECEMBER 31, JUNE 30,
1997 1997
-------- --------
Chemical plants ................................ $259,771 $259,293
Construction in progress ....................... 6,901 3,047
Other .......................................... 2,084 1,934
-------- --------
268,756 264,274
Less accumulated depreciation, depletion
and amortization ........................... 36,886 24,315
-------- --------
$231,870 $239,959
======== ========
OTHER ASSETS:
DECEMBER 31, JUNE 30,
1997 1997
------- -------
Debt issue costs ........................... $13,501 $13,026
Organizational costs ....................... 573 573
Prepaid insurance costs .................... 1,710 --
Intangibles and other ...................... 2,000 2,000
------- -------
17,784 15,599
Less accumulated amortization .............. 4,144 3,274
------- -------
$13,640 $12,325
======= =======
5
<PAGE>
TEXAS PETROCHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
ACCRUED EXPENSES:
DECEMBER 31, JUNE 30,
1997 1997
------- -------
Accrued interest ......................... $14,469 $13,203
Property and sales taxes ................. 5,555 2,866
Federal and state taxes .................. 80 135
Other .................................... 631 713
------- -------
$20,735 $16,917
======= =======
LONG TERM DEBT:
DECEMBER 31, JUNE 30,
1997 1997
-------- --------
Bank Credit Agreement:
Term A Loan ........................... $ 22,503 $ 25,781
Term B Loan ........................... 42,886 44,000
ESOP Loan ............................. 7,000 8,000
Revolving Credit Loans ................ 5,000 12,000
Senior Subordinated Notes ................ 225,000 225,000
Deferred premium on Senior
Subordinated Notes .................... 2,732 2,893
Long-term financing ...................... 2,622 --
-------- --------
307,743 317,674
Less current maturities .................. 7,234 6,438
-------- --------
Long-term debt ........................... $300,509 $311,236
======== ========
The Bank Credit Agreement provided for term loans in the amount of $130
million, an ESOP loan of $10 million, and a revolving credit facility of up to
$40 million. Quarterly principal and interest payments are made under the Bank
Credit Agreement. The final payments under the ESOP Loan, Term A Loan and Term B
Loan are due on June 30, 2001, December 31, 2002 and June 30, 2004,
respectively. The Revolving Credit Loan facility is currently scheduled to
expire on December 31, 2002. The debt under the Bank Credit Agreement bears
interest, at the option of the borrower, based on the LIBOR rate plus a margin
(2.5% and 3% for Term A and Term B, respectively at December 31, 1997) or the
greater of the prime rate and the federal funds rate plus 1/2% plus a margin
(1.5% at December 31, 1997). Substantially all assets of the Company are pledged
as collateral under the Bank Credit Agreement. The Senior Subordinated Notes are
due 2006 and bear interest at 11 1/8% payable semiannually on January 1 and July
1. The Bank Credit Agreement and the Senior Subordinated Notes include certain
restrictive covenants, which include but are not limited to, limitations on
capital expenditures, indebtedness, investments and sales of assets and
subsidiary stock. Additionally, the Bank Credit Agreement requires the Company
to maintain certain financial ratios. On July 31, 1997 the Company obtained an
amendment to the Bank Credit Agreement to waive the debt to EBITDA ratio at June
30, 1997 and to update the financial ratios relating to fixed charge coverage
and debt to EBITDA for fiscal 1998.
6
<PAGE>
TEXAS PETROCHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
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.
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.
7
<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.
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, 1997 and 1996.
REVENUES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------------------- ----------------------------------------
1997 1996 1997 1996
---------------- ---------------- ---------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Butadiene .......................... $ 36.6 26% $ 35.2 30% $ 72.6 26% $ 62.6 25%
MTBE ............................... 64.1 45 58.2 48 125.8 45 128.1 52
n-Butylenes ........................ 16.6 12 10.4 9 32.5 12 21.5 9
Specialty Isobutylenes ............. 19.1 14 11.0 9 37.4 14 25.9 11
Other(1) ........................... 4.7 3 4.5 4 8.2 3 8.6 3
------ --- ------ --- ------ --- ------ ---
Total .............................. $141.1 100% $119.3 100% $276.5 100% $246.7 100%
====== === ====== === ====== === ====== ===
</TABLE>
- ----------
(1) Includes utility revenues and revenues realized from the Company's
terminalling facilities.
8
<PAGE>
SALES VOLUMES
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
(MILLION OF POUNDS, EXCEPT WHERE NOTED)
Butadiene ...................... 203.6 184.7 402.3 356.4
MTBE(1) ........................ 73.4 65.2 141.3 150.3
n-Butylenes .................... 93.0 56.5 178.3 115.5
Specialty Isobutylenes ......... 91.5 41.2 178.7 100.8
- -----------
(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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------------- ----------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ........................................... $141.1 100% $119.3 100% $276.5 100% $246.7 100%
Cost of goods sold ................................. 122.2 87 108.0 90 235.8 85 217.9 88
Depreciation and amortization ...................... 7.7 5 7.9 7 15.5 6 15.9 7
------ --- ------ --- ------ --- ------ ---
Gross profit ................................... 11.2 8 3.4 3 25.2 9 12.9 5
Selling, general and administrative ................ 1.7 1 1.6 1 3.2 1 2.8 1
------ --- ------ --- ------ --- ------ ---
Income from operations ......................... $ 9.5 7% $ 1.8 2% $ 22.0 8% $ 10.1 4%
====== === ====== === ====== === ====== ===
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 1996
REVENUES
The Company's revenues increased by approximately 18%, or $21.8 million, to
$141.1 million for the three months ended December 31, 1997 from $119.3 million
for the three months ended December 31, 1996. Butadiene sales volumes increased
as a result of strong market demand and higher production levels. MTBE sales
revenues were higher as a result of higher sales volumes during the current
period partially offset by lower sales prices. Sales volumes of MTBE are higher
due to the partial shutdown of dehydro production in December 1996. N-butylene
sales revenue increased significantly due to higher sales volumes. Sales volumes
of butene-1 and butene-2 increased due to sales in the chemical and export
markets. Specialty isobutylene sales revenues increased primarily due to higher
sales volumes of isobutylene concentrate and high-purity isobutylene.
GROSS PROFIT
Gross profit increased by approximately 229%, or $7.8 million, to $11.2
million for the three months ended December 31, 1997 from $3.4 million for the
three months ended December 31, 1996. Gross margin during this period increased
to 7.9% from 2.8%. This increase was primarily attributable to higher MTBE
margins and increased sales volumes of n-butylenes and specialty isobutylenes.
During the current quarter MTBE margins improved as a result of higher sales
volumes and lower feedstock costs.
9
<PAGE>
INCOME FROM OPERATIONS
Income from operations increased by approximately 428%, or $7.7 million, to
$9.5 million for the three months ended December 31, 1997 from $1.8 million for
the three months ended December 31, 1996. Operating margin during this period
increased to 6.7% from 1.5%. This increase in income from operations and
operating margin was primarily due to the same factors contributing to the
increase in gross profit and gross margin described above.
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
1996
REVENUES
The Company's revenues increased by approximately 12%, or $29.8 million, to
$276.5 million for the six months ended December 31, 1997 from $246.7 million
for the six months ended December 31, 1996. Butadiene sales revenues increased
approximately 16% as a result of higher sales volumes. Butadiene sales continue
to remain strong as a result of market demand and increased production levels.
MTBE sales revenues were lower as a result of lower sales volumes during the
current period partially offset by higher sales prices. Sales volumes of MTBE
are lower due to the shift in isobutylene production, an intermediate feedstock,
to the production of isobutylene concentrate. Sales volumes of isobutylene
concentrate have returned to more historical levels due to improvements in
market fundamentals. Sales of high-purity isobutylene and diisobutylene were
relatively unchanged. N-butylene sales revenue increased significantly due to
higher sales volumes. Sales volumes of butene-1 increased due to an unplanned
shutdown of a major competitor in the market. The Company was able to
successfully increase its butene-1 production rates to meet this demand from
customers. Sales volumes of butene-2 to the chemical market also increased
during the current year.
GROSS PROFIT
Gross profit increased by approximately 95%, or $12.3 million, to $25.2
million for the six months ended December 31, 1997 from $12.9 million for the
six months ended December 31, 1996. Gross margin during this period increased to
9.1% from 5.2%. This increase was primarily attributable to higher MTBE margins
and increased sales volumes of n-butylenes and specialty isobutylenes. MTBE
average sales prices were higher during the current period compared to the prior
period due to a shortage of prompt MTBE bbls. in the market and a strong driving
season. MTBE margins also improved as a result of lower feedstock costs.
INCOME FROM OPERATIONS
Income from operations increased by approximately 118%, or $11.9 million, to
$22.0 million for the six months ended December 31, 1997 from $10.1 million for
the six months ended December 31, 1996. Operating margin during this period
increased to 8.0% from 4.1%. This increase in income from operations and
operating margin was primarily due to the same factors contributing to the
increase in gross profit and gross margin described above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increase approximately $0.3
million, to $3.2 million for the six months ended December 31, 1997 from $2.9
million for the six months ended December 31, 1996. The increase in selling,
general and administrative expenses was associated with increased business
development activity in the current period.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
1996
Net cash provided by (used in) operating activities was $21.7 million for
the six months ended December 31, 1997 compared to $(0.1) million for the six
months ended December 31, 1996. The change of $21.8 million was attributable to
increased profitability offset by changes in working capital as a result of
timing differences in receipts and disbursements of cash. Net cash used in
investing activities was $3.4 million for the six months ended December 31, 1997
compared to $353.6 million for the six months ended December 31, 1996. The
decrease of $350.2 million was attributable to the Acquisition of the Company
during the prior year. Net cash provided by (used in) financing activities was
$(18.3) million for the six months ended December 31, 1997 compared to $353.9
million for the six months ended December 31, 1996. The change of $372.2 million
was attributable to the financing of the Acquisition of the Company during the
prior year.
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 $5 million was in
use at December 31, 1997, 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 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. On July 31, 1997 the Company obtained an amendment to the Bank
Credit Agreement to waive the debt to EBITDA ratio at June 30, 1997 and to
update the financial ratios relating to fixed charge coverage and debt to EBITDA
for fiscal 1998.
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, 1997, $3.9 million of this amount was paid to
eligible participants and the remaining $21.5 million will be made in future
quarterly installments.
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, 1997 were $4.5 million. The Company expenses
approximately $20 million annually for plant maintenance. These maintenance
costs are not treated as capital expenditures.
11
<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.
12
<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 Form 10-K for the year ended
June 30, 1997.
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, 1997.
13
<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: February 12, 1998 By: CLAUDE E. MANNING
(Signature)
Claude E. Manning
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 139
<SECURITIES> 0
<RECEIVABLES> 48,450
<ALLOWANCES> 0
<INVENTORY> 21,348
<CURRENT-ASSETS> 85,656
<PP&E> 231,870
<DEPRECIATION> 36,886
<TOTAL-ASSETS> 514,440
<CURRENT-LIABILITIES> 76,827
<BONDS> 225,000
0
0
<COMMON> 4,162
<OTHER-SE> 53,703
<TOTAL-LIABILITY-AND-EQUITY> 514,440
<SALES> 276,548
<TOTAL-REVENUES> 276,548
<CGS> 235,840
<TOTAL-COSTS> 254,483
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,839
<INCOME-PRETAX> 4,222
<INCOME-TAX> 2,432
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,790
<EPS-PRIMARY> .43
<EPS-DILUTED> 0
</TABLE>
