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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
---------------
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-9988
REXENE CORPORATION
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 75-2104131
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
No.)
5005 LBJ FREEWAY
DALLAS, TEXAS 75244
(Address of Principal Executive (Zip Code)
Offices)
</TABLE>
(214) 450-9000
(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 requirements for the past 90 days. Yes __X__ No _____
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes __X__ No _____
At October 19, 1994, 10,624,306 shares of common stock, par value $0.01 per
share, of Rexene Corporation were outstanding.
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<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 1994
and 1993........................................................................................ 1
Condensed Consolidated Statements of Operations for the Nine Months Ended September 30, 1994 and
1993............................................................................................ 2
Condensed Consolidated Balance Sheets as of September 30, 1994 and December 31, 1993............ 3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1994 and
1993............................................................................................ 4
Notes to Condensed Consolidated Financial Statements............................................ 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 8
PART II -- OTHER INFORMATION............................................................................... 12
</TABLE>
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
Net sales............................................................................... $ 142,937 $ 111,188
----------- -----------
Operating expenses:
Cost of sales......................................................................... 109,408 96,651
Marketing, general and administrative................................................. 9,184 8,148
Research and development.............................................................. 1,786 1,703
----------- -----------
120,378 106,502
----------- -----------
Operating income........................................................................ 22,559 4,686
Interest expense:
Cash.................................................................................. (9,634) (6,185)
Non-cash.............................................................................. (3,185) (6,359)
Interest income......................................................................... 666 309
Other, net.............................................................................. 914 (157)
----------- -----------
Income (loss) before income taxes....................................................... 11,320 (7,706)
Income tax expense...................................................................... 4,506 120
----------- -----------
Net income (loss)....................................................................... $ 6,814 $ (7,826)
----------- -----------
----------- -----------
Weighted average shares outstanding..................................................... 11,063 10,501
----------- -----------
----------- -----------
Net income (loss) per share............................................................. $ 0.62 $ (0.75)
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
1
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REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993
----------- -----------
<S> <C> <C>
Net sales............................................................................... $ 386,153 $ 326,460
----------- -----------
Operating expenses:
Cost of sales......................................................................... 308,961 284,900
Marketing, general and administrative................................................. 25,971 24,494
Research and development.............................................................. 4,936 4,875
----------- -----------
339,868 314,269
----------- -----------
Operating income........................................................................ 46,285 12,191
Interest expense:
Cash.................................................................................. (21,763) (18,261)
Non-cash.............................................................................. (16,208) (18,681)
Interest income......................................................................... 1,522 1,005
Other, net.............................................................................. 646 (208)
----------- -----------
Income (loss) before income taxes....................................................... 10,482 (23,954)
Income tax expense (benefit)............................................................ 4,329 (4,319)
----------- -----------
Net income (loss)....................................................................... $ 6,153 $ (19,635)
----------- -----------
----------- -----------
Weighted average shares outstanding..................................................... 10,886 10,501
----------- -----------
----------- -----------
Net income (loss) per share............................................................. $ 0.57 $ (1.87)
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
2
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REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Unrestricted...................................................................... $ 50,658 $ 28,288
Restricted 2,306 2,247
Accounts receivable, net............................................................ 75,566 57,820
Inventories......................................................................... 55,347 52,621
Income taxes receivable............................................................. -- 4,965
Prepaid expenses and other.......................................................... 1,076 1,522
------------- ------------
Total current assets.............................................................. 184,953 147,463
Property, plant and equipment, net.................................................. 253,115 244,346
Reorganization value in excess of amounts allocable to identifiable assets, net..... 3,460 3,660
Intangible assets, net.............................................................. 3,326 4,198
Other noncurrent assets............................................................. 31,927 30,369
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$ 476,781 $ 430,036
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable.................................................................... $ 27,976 $ 27,386
Accrued liabilities................................................................. 8,053 8,116
Accrued interest.................................................................... 12,639 3,097
Income taxes payable................................................................ 5,312 --
Employee benefits payable........................................................... 5,884 3,754
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Total current liabilities......................................................... 59,864 42,353
Long-term debt...................................................................... 300,509 281,764
Other noncurrent liabilities........................................................ 71,077 65,840
Deferred income taxes............................................................... 42,725 45,216
Stockholders' equity (deficit):
Common stock, par value $0.01 per share; 100 million shares authorized; 10.6 and
10.5 million shares issued and outstanding, respectively......................... 106 105
Paid-in capital................................................................... 27,486 26,529
Accumulated deficit............................................................... (25,618) (31,771)
Foreign currency translation adjustment........................................... 632 --
------------- ------------
Total stockholders' equity (deficit).............................................. 2,606 (5,137)
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$ 476,781 $ 430,036
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</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1994 1993
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................................................ $ 6,153 $ (19,635)
---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization........................................................ 13,884 12,925
Non-cash interest expense............................................................ 16,208 18,681
Deferred income taxes................................................................ (2,491) (2,687)
Change in:
Accounts receivable................................................................ (17,710) (12,027)
Inventories........................................................................ (2,720) 4,288
Prepaid expenses and other......................................................... 435 379
Income taxes....................................................................... 10,277 (1,683)
Accounts payable................................................................... 568 3,002
Accrued interest................................................................... 9,542 5,999
Employee benefits payable and accrued liabilities.................................. 2,066 (865)
Increase (decrease) in other noncurrent liabilities.................................. (208) 1,721
Other................................................................................ (506) (764)
---------- ----------
Total adjustments...................................................................... 29,345 28,969
---------- ----------
Net cash provided by operating activities................................................ 35,498 9,334
---------- ----------
Cash flows from investing activities:
Capital expenditures................................................................... (21,089) (10,688)
Proceeds from issuance of common stock, net............................................ 958 --
---------- ----------
Net cash used for investing activities................................................... (20,131) (10,688)
---------- ----------
Cash flows from financing activities:
Bank borrowings under the Old Credit Agreement......................................... 7,000 --
---------- ----------
Net cash provided by financing activities................................................ 7,000 --
---------- ----------
Effect of exchange rate changes on cash.................................................. 62 --
---------- ----------
Net increase (decrease) in cash and cash equivalents..................................... 22,429 (1,354)
Cash and cash equivalents at beginning of period......................................... 30,535 34,202
---------- ----------
Cash and cash equivalents at end of period............................................... $ 52,964 $ 32,848
---------- ----------
---------- ----------
Supplemental cash flow information:
Cash paid for interest................................................................. $ 11,955 $ 11,910
Cash paid for income taxes............................................................. $ 203 $ --
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
Rexene Corporation manufactures and markets thermoplastic and petrochemical
products including low density polyethylene and polypropylene resins, plastic
films and styrene, which are integral elements in the manufacture of a wide
variety of industrial and consumer products. Rexene Corporation and its
subsidiaries are hereinafter sometimes collectively or separately referred to as
the "Company".
The accompanying condensed consolidated financial statements are unaudited;
however, in management's opinion, all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the results of
operations, financial position, and cash flows for the periods shown have been
made. Results for interim periods are not necessarily indicative of those to be
expected for the full year. The interim condensed consolidated financial
statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included in the 1993 Annual Report on Form 10-K and
with the registration statements filed on October 21, 1994 with the Securities
and Exchange Commission.
2. INCOME TAXES
The income tax expense (benefit) is composed of (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current:
Federal.................................... $ 4,683 $ (2,095) $ 6,632 $ (2,174)
State...................................... 48 511 188 542
Deferred income taxes........................ (225) 1,704 (2,491) (2,687)
--------- --------- --------- ---------
$ 4,506 $ 120 $ 4,329 $ (4,319)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
<S> <C> <C>
Raw materials................................................... $ 18,202 $ 11,313
Work in progress................................................ 7,016 6,694
Finished goods.................................................. 30,129 34,614
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$ 55,347 $ 52,621
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------------- ------------
</TABLE>
5
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REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NONCURRENT ASSETS
The cost and accumulated depreciation of property, plant and equipment and
cost and accumulated amortization of reorganization value in excess of amounts
allocable to identifiable assets and intangible assets are as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
<S> <C> <C>
Property, plant and equipment................................... $ 285,633 $ 264,052
Accumulated depreciation........................................ (32,518) (19,706)
------------- ------------
$ 253,115 $ 244,346
------------- ------------
------------- ------------
Reorganization value in excess of amounts allocable to
identifiable assets............................................ $ 4,298 $ 4,298
Accumulated amortization........................................ (838) (638)
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$ 3,460 $ 3,660
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------------- ------------
Intangible assets............................................... $ 5,544 $ 5,598
Accumulated amortization........................................ (2,218) (1,400)
------------- ------------
$ 3,326 $ 4,198
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</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
<S> <C> <C>
Old Senior Notes................................................ $ 253,000 $ 253,000
Old Subordinated Notes.......................................... 99,629 95,342
Less: unamortized discount...................................... (61,120) (68,578)
------------- ------------
291,509 279,764
Bank borrowings under the Old Credit Agreement.................. 9,000 2,000
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$ 300,509 $ 281,764
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</TABLE>
6. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In October 1994, the Compensation Committee of the Board of Directors
adopted a noncontributory defined benefit Supplemental Executive Retirement Plan
("SERP") covering certain key employees of the Company. The Company will fund
the SERP from time to time at the discretion of the Compensation Committee or
the Board of Directors.
The projected benefit obligation under this plan as of October 3, 1994 was
approximately $3.2 million and the annual periodic cost is approximately
$950,000 beginning with the fourth quarter of 1994.
7. CONTINGENCIES
The Company is subject to extensive environmental laws and regulations
concerning, for example, emissions to the air, discharges to surface and
subsurface waters and the generation, handling, storage, transportation,
treatment and disposal of waste and other materials. The Company believes that,
in light of its historical expenditures, it will have adequate resources to
conduct its operations in compliance with currently applicable environmental and
health and safety laws and regulations. However, in order to comply with
changing licensing and regulatory standards, the Company may be required to make
additional significant site or operational modifications. Further, the Company
has
6
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. CONTINGENCIES (CONTINUED)
incurred and may in the future incur liability to clean up waste or
contamination at its current or former facilities, or which it may have disposed
of at facilities operated by third parties. On the basis of reasonable
investigation and analysis, management believes that the approximately $23.0
million accrued in the September 30, 1994 balance sheet is adequate for the
total potential environmental liability with respect to contaminated sites.
However, no assurance can be given that all potential liabilities arising out of
the Company's present or past operations have been identified or that the
amounts that might be required to remediate such conditions will not be
significant to the Company. The Company continually reviews its estimates of
potential environmental liabilities.
The Company is a party to various lawsuits arising in the ordinary course of
business and to certain other lawsuits which are set forth in Note 20 to the
Consolidated Financial Statements included in the Company's 1993 Annual Report
on Form 10-K. There have been no material changes to the certain other lawsuits
described in the aforementioned Note 20, except as described in the registration
statements filed on October 21, 1994 with the Securities and Exchange
Commission.
With respect to each of the litigation matters filed against the Company,
the Company believes that, based upon its current knowledge of the facts of each
case, the Company has meritorious defenses to the various claims made and
intends to defend each such suit vigorously. Although there can be no assurance
of the final resolution of any of these litigation matters, the Company does not
believe that the outcome of any of these lawsuits will have a material adverse
effect on the Company's financial position or results of operations.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The polyethylene, polypropylene and styrene markets in which the Company
competes are cyclical markets that are sensitive to relative changes in supply
and demand, which are in turn affected by general economic conditions. The
Company's plastic film and Rextac-R- amorphous polyalphaolefins ("APAO")
businesses are generally less sensitive to the economic cycles. Historically,
the cyclical segments have experienced alternating periods of tight supply and
rising prices and profit margins, followed by periods of large capacity
additions resulting in oversupply and declining prices and profit margins.
Following a significant improvement in domestic economic growth since the second
half of 1993, these markets experienced increased levels of demand which have
resulted in greater capacity utilization and higher domestic and export prices.
According to industry consultants, during the first six months of 1994, domestic
demand for low density polyethylene, polypropylene and styrene increased by
approximately 9%, 14% and 5%, respectively, compared to the first six months of
1993. This increase in demand has enabled the Company and the petrochemical
industry in general to increase selling prices significantly at a time when
feedstock costs have either not increased or only increased modestly compared to
end product prices. For example, from December 1993 to September 1994, the
Company increased the average selling prices of its polyethylene, polypropylene
and styrene by 28%, 18% and 66% per pound, respectively. During the same period,
prices for the Company's major feedstocks, ethane and propane, were relatively
stable, and the price for benzene increased 63%.
Principal raw materials purchased by the Company consist of ethane, propane
(extracted from natural gas liquids), propylene and benzene for the polymer and
styrene businesses and polyethylene resins for the film business. The prices of
feedstocks fluctuate widely based on the prices of natural gas and oil. During
the past four years, feedstocks accounted for between approximately 24% and 32%
of the Company's total cost of sales. As a result, the Company's ability to pass
on increases in raw material costs to customers has a significant impact on
operating results. Current market conditions for the Company's products indicate
that increases in feedstock costs may be passed on to customers, but an adverse
change in market conditions for such products could reduce pricing flexibility,
including the ability to pass on any such increase.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1993
Growth in the United States economy resulted in the strengthening of the
petrochemical and polymer markets in which the Company participated during the
nine months ended September 30, 1994. This resulted in increased volumes, prices
and margins for the Company in most of its product lines. Net sales increased
$31.7 million (or 29%) from $111.2 million for the three months ended September
30, 1993 to $142.9 million for the three months ended September 30, 1994 due to
a general increase in demand for all product lines. Styrene sales increased $8.7
million (or 53%) in the third quarter of 1994 as compared to the third quarter
of 1993 due to a price increase of 8 cents per pound (or 33%) and a volume
increase of 11.3 million pounds (or 16%). Polyethylene sales increased $8.7
million (or 29%) principally due to a volume increase of 10.6 million pounds (or
13%) and a price increase of 5 cents per pound (or 14%). Plastic film sales
increased $8.2 million (or 21%) in the third quarter of 1994 as compared to the
third quarter of 1993, principally due to a volume increase of 8.7 million
pounds (or 22%). Polypropylene sales increased $2.0 million (or 12%) in the
third quarter of 1994 as compared to the third quarter of 1993 principally due
to a volume increase of 1.8 million pounds (or 5%) and a price increase of 3
cents per pound (or 7%). Excess feedstock sales increased $4.5 million (or 237%)
in the third quarter of 1994 as compared to the third quarter of 1993.
The Company's gross profit percentage increased from 13% for the three
months ended September 30, 1993 to 23% for the comparable period in 1994
principally due to the increase in selling prices and sales volumes discussed
above.
8
<PAGE>
Marketing, general and administrative expenses increased $1.0 million (or
13%) from $8.1 million for the third quarter of 1993 to $9.2 million for the
third quarter of 1994 principally due to higher employee benefits that are
related to the Company's improved operating performance. Research and
development expenses for the third quarter of 1994 remained relatively stable
compared to the third quarter of 1993.
Due primarily to the factors described above, operating income increased
$17.9 million (or 381%) for the three months ended September 30, 1994, as
compared to the corresponding period in 1993.
Cash interest expense increased $3.4 million (or 56%) and non-cash interest
expense decreased $3.2 million (or 50%) principally due to the decision not to
exercise the pay-in-kind feature on the Old Subordinated Notes for the interest
payment that will be due on November 15, 1994.
Other, net increased $1.1 million for the third quarter of 1994 as compared
to the third quarter of 1993, principally due to the receipt of approximately
$1.0 million of insurance proceeds received in settlement of a claim related to
a prior lawsuit.
Income tax expense increased $4.4 million in the third quarter of 1994 as
compared to the third quarter of 1993 principally due to the Company's improved
operating performance.
Due primarily to the factors described above, for the third quarter of 1994,
the Company earned net income of $6.8 million as compared to a net loss of $7.8
million for the third quarter of 1993.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1993
Growth in the United States economy resulted in the strengthening of the
petrochemical and polymer markets in which the Company participated during the
nine months ended September 30, 1994. This resulted in increased volumes, prices
and margins for the Company in most of its product lines. Net sales increased
$59.7 million (or 18%) from $326.5 million for the nine months ended September
30, 1993 to $386.2 million for the nine months ended September 30, 1994 due to a
general increase in demand for all product lines. Plastic film sales increased
$16.3 million (or 15%) in the first nine months of 1994 as compared to the first
nine months of 1993 principally due to a volume increase of 20.0 million pounds
(or 18%). Styrene sales increased $16.2 million (or 35%) in the first nine
months of 1994 as compared to the first nine months of 1993 due to a volume
increase of 37.6 million pounds (or 19%) and a price increase of 3 cents per
pound (or 15%). Polyethylene sales increased $9.9 million (or 11%) in the first
nine months of 1994 as compared to the first nine months of 1993, principally
due to a volume increase of 24.4 million pounds (or 10%). Polypropylene sales
increased $6.3 million (or 13%) in the first nine months of 1994 as compared to
the first nine months of 1993 due to a volume increase of 7.9 million pounds (or
7%). APAO sales increased $2.4 million (or 19%) in the first nine months of 1994
as compared to the first nine months of 1993, principally due to a volume
increase of 5.1 million pounds (or 22%). Excess feedstock sales increased $8.2
million (or 136%) in the first nine months of 1994 as compared to the first nine
months of 1993.
The Company's gross profit percentage increased from 13% for the nine months
ended September 30, 1993 to 20% for the same period in 1994 principally due to
the increase in selling prices and sales volumes discussed above.
Marketing, general and administrative expenses increased $1.5 million (or
6%) for the first nine months of 1994 as compared to the same period in 1993
principally due to higher employee benefits that are related to the Company's
improved operating performance, partially offset by lower marketing and bad debt
expenses. Research and development expenses for the first nine months of 1994
remained relatively stable compared to the first nine months of 1993.
Due primarily to the factors described above, operating income increased
$34.1 million (or 280%) for the nine months ended September 30, 1994 as compared
to the corresponding period in 1993.
9
<PAGE>
Cash interest expense increased $3.5 million (or 19%) and non-cash interest
expense decreased $2.5 million (or 13%) principally due to the decision not to
exercise the pay-in-kind feature on the Old Subordinated Notes for the interest
payment that will be due on November 15, 1994.
Other, net increased $.9 million for the nine months ended September 30,
1994 as compared to the nine months ended September 30, 1993, principally due to
the receipt of approximately $1.0 million of insurance proceeds received in
settlement of a claim related to a prior lawsuit.
The income tax expense of $4.3 million for the first nine months of 1994
reflects current income taxes payable of $6.8 million, partially offset by
deferred income tax benefits of $2.5 million. The income tax benefit for the
same period in 1993 reflects the current income tax benefits from the carryback
of 1993 pre-tax losses to prior years and the effect of deferred income taxes.
Due primarily to the factors discussed above, for the first nine months of
1994, the Company earned net income of $6.2 million as compared to a net loss of
$19.6 million for the first nine months of 1993.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1994, cash generated from
operations increased $26.2 million as compared to the comparable period in 1993.
This increase was principally due to higher operating income and receipt of $5.5
million of federal income tax refunds, partially offset by the effect of
increased accounts receivable resulting principally from higher sales.
On September 16, 1994 and September 23, 1994, the Company filed registration
statements with the Securities and Exchange Commission as part of a
recapitalization plan (the "Recapitalization") for proposed public offerings of
8 million shares of common stock (together with options granted to the
underwriters to purchase an additional 1,200,000 shares) (the "Common Stock
Offering") and $175 million aggregate principal amount of senior notes due 2004
(the "Senior Notes", together with the Common Stock Offering, the "Offerings"),
respectively. The Company also obtained a commitment letter from a bank for a
$100 million term loan (the "Term Loan") and an $80 million revolving credit
facility (the "Revolving Credit Facility", together with the Term Loan, the "New
Credit Agreement"). The Recapitalization also includes the call for redemption
of the Company's Increasing Rate Senior Notes due 1999 (the "Old Senior Notes")
and Increasing Rate Subordinated Notes due 2002 (the "Old Subordinated Notes"
and, together with the Old Senior Notes, the "Old Notes") and repayment in full
of the outstanding indebtedness under the Company's existing credit agreement
with Transamerica Business Credit Corporation (the "Old Credit Agreement"). The
accrued interest under the Old Notes payable on November 15, 1994 (the next
payment date) is approximately $16.7 million. The Company intends to make this
interest payment solely in cash.
The Company will record an extraordinary non-cash loss from the redemption
of the Old Notes. Such loss will be recognized in the period during which the
Old Notes are redeemed. If the redemption had occurred on September 30, 1994,
the extraordinary loss (net of tax benefits) from the redemption of Old Notes
would have been $24.2 million.
The New Credit Agreement provides for up to $100 million of term loans and
up to $80 million of revolving credit loans for working capital and for letters
of credit. The Company will be required to repay a portion of its borrowings
under the Term Loan each year, commencing in 1995, so as to retire such
indebtedness in its entirety by November 1999. Availability of borrowings under
the Revolving Credit Facility will be based upon a formula related to inventory
and accounts receivable and is contingent upon the receipt by the Company of
gross proceeds from the Common Stock Offering of at least $85 million and of
aggregate gross proceeds from the Offerings of at least $275 million.
After the Recapitalization, the Company will have substantial principal
repayment obligations. The Company will be required to make quarterly principal
payments under the Term Loan commencing on March 31, 1995. The first four
payments will each be in the amount of $2.5 million, the next four payments will
each be in the amount of approximately $3.75 million and all payments thereafter
10
<PAGE>
will each be in the amount of $6.25 million, so as to retire such indebtedness
in its entirety by November 1999. In addition, under the New Credit Agreement,
the Company has certain mandatory prepayment obligations in the event annual
cash flow exceeds certain levels. The Senior Notes will mature in 2004. The
Company believes that following the consummation of the Offerings, based on
current levels of operations and anticipated growth, its cash flow from
operations, together with other available sources of liquidity, including
borrowings under the Revolving Credit Facility, will be adequate for the
foreseeable future to make scheduled payments of principal and interest under
the New Credit Agreement and interest payments on the Senior Notes, to permit
anticipated capital expenditures and to fund working capital requirements.
However, the ability of the Company to satisfy these obligations depends on a
number of significant assumptions regarding the demand for the Company's
products, raw material costs and other factors.
The New Credit Agreement and the Indenture will contain covenants which,
among other things, restrict the ability of the Company to incur additional
indebtedness, create or permit liens, effect certain asset sales and engage in
certain mergers or similar transactions. The New Credit Agreement will also
contain certain financial covenants relating to the financial condition of the
Company, including covenants relating to the ratio of its earnings to its
interest expense, the ratio of its earnings to its fixed charges and a leverage
ratio. These covenants could limit the Company's ability to obtain additional
financing and engage in certain corporate activities. Continued compliance with
such covenants will depend upon a variety of factors, including general economic
conditions and other factors beyond the control of the Company.
During 1992 and 1993, the Company expended approximately $15.1 and $17.0
million, respectively, for capital expenditures. For 1994, the Company has
budgeted $31.0 million for capital expenditures, of which approximately $21.1
million had been spent through September 1994. For 1995, the Company has
budgeted approximately $30.0 million for proposed capital expenditures. In
addition, the Company is exploring a number of possible product development
opportunities which would require additional capital expenditures. For example,
the Company has announced the development of a new polyolefin polymer,
REXFLEX-TM- FPO. The Company is currently producing experimental quantities of
this product in a small-scale pilot plant at the Odessa Facility and is in the
process of developing process technology for a commercial plant. At this time,
however, no budgeting decision has been made regarding this or other similar
projects.
A number of potential environmental liabilities exist which relate to
contaminated property. In addition, a number of potential environmental costs
relate to pending or proposed environmental regulations. No assurance can be
given that all of the potential liabilities arising out of the Company's present
or past operations have been identified or that the amounts that might be
required to remediate such sites or comply with pending or proposed
environmental regulations can be accurately estimated; however, on the basis of
reasonable investigation and analysis, management believes that the
approximately $23.0 million accrued in the September 30, 1994 balance sheet is
adequate for the total potential environmental liability of the Company with
respect to contaminated sites. If, however, additional liabilities with respect
to environmental contamination are identified, there is no assurance that
additional amounts that might be required to remediate such potential sites
would not have a material adverse effect on the financial condition of the
Company. In addition, future regulatory developments could restrict or possibly
prohibit existing methods of environmental compliance, such as the disposal of
waste water in deep injection wells. At this time, the Company is unable to
determine the potential consequences such possible future regulatory
developments would have on its financial condition. Management continually
reviews on an on-going basis its estimates of potential environmental
liabilities. The Company does not currently carry environmental impairment
liability insurance to protect it against such contingencies because such
coverage is available only at great cost and with broad exclusions. As part of
its financial assurance requirements under the RCRA and equivalent Texas law,
the Company has deposited $10.6 million in trust to cover closure and
post-closure costs and liability for bodily injury and certain types of property
damage arising from sudden and non-sudden accidental occurrences at certain of
the Odessa Facility's hazardous waste management units.
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This deposit is included in other noncurrent assets in the September 30, 1994
balance sheet. This amount deposited in trust does not cover the costs of
addressing existing contamination at the Odessa Facility.
The Company's operating expenditures for environmental remediation and waste
disposal were approximately $6.4 million in 1993 and are expected to be
approximately $6.0 million in 1994. In 1993 the Company also expended
approximately $5.1 million relating to environmental capital expenditures. In
1994, the Company expects to spend approximately $3.2 million for
environmentally-related capital expenditures, which is lower than historical
levels due to timing of expenditures pertaining to several projects. Thereafter
for the foreseeable future, the Company expects to incur approximately $4.0 to
$5.0 million per year in capital spending to address the requirements of
Environmental Laws. Annual amounts could vary depending on a variety of factors,
such as the control measures or remedial technologies ultimately required and
the time allowed to meet such requirements.
PART II--OTHER INFORMATION
NONE
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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.
REXENE CORPORATION
Date: October 21, 1994 By: /s/ KEVIN W. MCALEER
--------------------------------------
Kevin W. McAleer
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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