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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 March 31, 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)
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 Offices) (Zip Code)
(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 April 22, 1994, 10,500,867 shares of common stock, par value $0.01 per
share, of Rexene Corporation were outstanding.
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<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
Page
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1994 and 1993 . . . . . . . . . . . 1
Condensed Consolidated Balance Sheets as of March 31,
1994 and December 31, 1993 . . . . . . . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1994 and 1993 . . . . . . . . . . . 3
Notes to Condensed Consolidated Financial Statements . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . 6
PART II--OTHER INFORMATION
None
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
-------- --------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . $119,076 $109,274
Operating expenses:
Cost of sales. . . . . . . . . . . . . . . 99,404 95,864
Marketing, general and
administrative . . . . . . . . . . . . . 8,103 8,223
Research and development . . . . . . . . . 1,548 1,602
-------- --------
109,055 105,689
-------- --------
Operating income . . . . . . . . . . . . . . 10,021 3,585
Interest expense:
Cash . . . . . . . . . . . . . . . . . . . (6,064) (6,055)
Non-cash . . . . . . . . . . . . . . . . . (6,473) (6,130)
Interest income. . . . . . . . . . . . . . . 407 346
Other, net . . . . . . . . . . . . . . . . . (122) (20)
-------- --------
Loss before income taxes . . . . . . . . . . (2,231) (8,274)
Income tax benefit . . . . . . . . . . . . . 506 121
-------- --------
Net loss . . . . . . . . . . . . . . . . . . $ (1,725) $ (8,153)
-------- --------
-------- --------
Weighted average shares and equivalents
outstanding . . . . . . . . . . . . . . . . 10,697 10,587
-------- --------
-------- --------
Net loss per share . . . . . . . . . . . . . $ (.16) $ (.77)
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Unrestricted . . . . . . . . . . . . . . . $ 31,269 $ 28,288
Restricted . . . . . . . . . . . . . . . . 2,265 2,247
Accounts receivable, net . . . . . . . . . . 63,062 57,820
Inventories. . . . . . . . . . . . . . . . . 53,130 52,621
Income taxes receivable. . . . . . . . . . . 3,394 4,965
Prepaid expenses and other . . . . . . . . . 1,678 1,522
-------- --------
Total current assets . . . . . . . . . . . 154,798 147,463
Property, plant and equipment, net . . . . . 246,446 244,346
Reorganization value in excess of
amounts allocable to identifiable
assets, net. . . . . . . . . . . . . . . . 3,593 3,660
Intangible assets, net . . . . . . . . . . . 3,918 4,198
Other noncurrent assets. . . . . . . . . . . 30,994 30,369
-------- --------
$439,749 $430,036
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable . . . . . . . . . . . . . . $ 26,714 $ 27,386
Accrued liabilities. . . . . . . . . . . . . 6,466 8,116
Accrued interest . . . . . . . . . . . . . . 9,028 3,097
Employee benefits payable. . . . . . . . . . 3,511 3,754
-------- --------
Total current liabilities. . . . . . . . . 45,719 42,353
Bank borrowings. . . . . . . . . . . . . . . 4,500 2,000
Long-term debt . . . . . . . . . . . . . . . 282,250 279,764
Deferred income taxes. . . . . . . . . . . . 44,096 45,216
Other noncurrent liabilities . . . . . . . . 70,046 65,840
Stockholders' deficit:
Common stock, par value $.01 per share;
100 million shares authorized; 10.5
million shares issued and outstand-
ing. . . . . . . . . . . . . . . . . . . 105 105
Paid-in capital. . . . . . . . . . . . . . 26,529 26,529
Accumulated deficit. . . . . . . . . . . . (33,496) (31,771)
-------- --------
Total stockholders' deficit. . . . . . . . (6,862) (5,137)
-------- --------
$439,749 $430,036
-------- --------
-------- --------
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . $ (1,725) $ (8,153)
-------- --------
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization. . . . . . 4,558 4,291
Non-cash interest expense. . . . . . . . 6,473 6,130
Deferred income taxes. . . . . . . . . . (1,120) (1,444)
Change in:
Accounts receivable. . . . . . . . . . (5,242) (8,132)
Inventories. . . . . . . . . . . . . . (509) (463)
Prepaid expenses and other . . . . . . (156) (282)
Income taxes . . . . . . . . . . . . . 1,571 1,301
Accounts payable . . . . . . . . . . . (672) 1,981
Accrued interest . . . . . . . . . . . 5,931 5,951
Employee benefits payable and
accrued liabilities. . . . . . . . . (1,893) (1,222)
Increase (decrease) in other
noncurrent liabilities . . . . . . . . (186) 1,003
Other. . . . . . . . . . . . . . . . . . (220) (178)
-------- --------
Total adjustments. . . . . . . . . . . . . 8,535 8,936
-------- --------
Net cash provided by operating
activities . . . . . . . . . . . . . . . . 6,810 783
-------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . (6,311) (2,812)
-------- --------
Net cash used for investing activities . . . (6,311) (2,812)
-------- --------
Cash flows from financing activities:
Bank borrowings. . . . . . . . . . . . . . 2,500 --
-------- --------
Net cash provided by financing activities. . 2,500 --
-------- --------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . 2,999 (2,029)
Cash and cash equivalents at begin-
ning of period . . . . . . . . . . . . . . 30,535 34,202
-------- --------
Cash and cash equivalents at end of
period. . . . . . . . . . . . . . . . . . $ 33,534 $ 32,173
-------- --------
-------- --------
Supplemental cash flow information:
Cash paid for interest . . . . . . . . . . $ -- $ --
Cash paid for income taxes . . . . . . . . $ 70 $ --
</TABLE>
See notes to condensed consolidated financial statements.
3
<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.
2. INCOME TAXES
The income tax benefit is composed of (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
-------- --------
<S> <C> <C>
Current:
State. . . . . . . . . . . . . . . . . . . $ (68) $ (14)
Federal. . . . . . . . . . . . . . . . . . (546) (1,309)
Deferred income taxes. . . . . . . . . . . . 1,120 1,444
-------- --------
$ 506 $ 121
-------- --------
-------- --------
</TABLE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
Raw materials. . . . . . . . . . . . . . . . $ 14,244 $ 11,313
Work in progress . . . . . . . . . . . . . . 6,853 6,694
Finished goods . . . . . . . . . . . . . . . 32,033 34,614
-------- --------
$ 53,130 $ 52,621
-------- --------
-------- --------
</TABLE>
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>
March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
Property, plant and equipment. . . . . . . . $270,363 $264,052
Accumulated depreciation . . . . . . . . . . (23,917) (19,706)
-------- --------
$246,446 $244,346
-------- --------
-------- --------
Reorganization value in excess of amounts
allocable to identifiable assets . . . . . $ 4,298 $ 4,298
Accumulated amortization . . . . . . . . . . (705) (638)
-------- --------
$ 3,593 $ 3,660
-------- --------
-------- --------
Intangible assets. . . . . . . . . . . . . . $ 5,598 $ 5,598
Accumulated amortization . . . . . . . . . . (1,680) (1,400)
-------- --------
$ 3,918 $ 4,198
-------- --------
-------- --------
</TABLE>
4
<PAGE>
5. 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 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
million accrued in the March 31, 1994 balance sheet is adequate for the total
potential environmental liability with respect of 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 does not currently carry environmental
impairment liability insurance to protect it against such contingencies because
the Company has found such coverage available only at great cost and with broad
exclusions.
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.
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 condition.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1994 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1993
Net sales increased $9.8 million (or 9%) from $109.3 million for the three
months ended March 31, 1993 to $119.1 million for the three months ended March
31, 1994 principally due to higher sales volumes in all product lines. Plastic
film sales increased $3.9 million (or 11%) in the first quarter of 1994 as
compared to the first quarter of 1993 principally due to a volume increase of
4.8 million pounds (or 12%). Styrene sales increased $2.9 million (or 18%) in
the first quarter of 1994 as compared to the first quarter of 1993 due to a
volume increase of 13.9 million pounds (or 19%). Polypropylene sales increased
$1.4 million (or 9%) in the first quarter of 1994 as compared to the first
quarter of 1993 principally due to a price increase of 1.9 cents per pound (or
5%) and a volume increase of 1.6 million pounds (or 4%). Polyethylene sales
remained relatively stable as a volume increase of 6.9 million pounds (or 8%)
was entirely offset by a decrease in selling prices of 3.6 cents per pound (or
9%). Higher amorphous polyalphaolefins and excess propane sales also
contributed to the increase in sales in the first quarter of 1994 as compared to
the first quarter of 1993.
The Company's gross profit percentage increased from 12% for the three months
ended March 31, 1993 to 17% for the 1994 period principally due to the effect of
lower feedstock prices and resin prices for plastic film, partially offset by
lower polyethylene prices discussed above. In addition, increased production
volumes in the polyethylene plant, the styrene plant and the plastic film plants
resulted in lower unit conversion costs which contributed to the higher gross
profit percentage. Lower scrap production at the plastic film plants and better
production yields at the Odessa, Texas facility also contributed to the higher
gross profit percentage. Further, the Company negotiated a reduction of
$450,000 in royalties previously accrued.
Marketing, general and administrative expenses and research and development
expenses for the first quarter of 1994 were slightly below the first quarter of
1993.
Due primarily to the factors described above, operating income increased and net
loss decreased $6.4 million (180% and 79%, respectively) for the three months
ended March 31, 1994 as compared to the corresponding period in 1993.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1994, $6.8 million of cash was generated
from operations compared with $.8 million for the comparable period in 1993.
Operating cash flow increased in the first quarter of 1994 as compared to the
same period in 1993 due to higher operating income and a federal income tax
refund of approximately $1 million received for the carryback of 1992 operating
losses to 1990.
Management believes that the unrestricted cash balance of $31.3 million at March
31, 1994, together with cash flow generated from operations and the availability
of financing provided by a bank line of credit of $35 million, will be
sufficient to meet the Company's liquidity needs during 1994. The Company has
borrowed $4.5 million under the bank line of credit for financing construction
of the United Kingdom manufacturing facility. The restricted cash at March 31,
1994 of $2.3 million consists of amounts held in a reserve account under an
amended plan of reorganization for payment of prior disputed claims and
administrative expenses.
For each interest period ending on or prior to November 15, 1994, the Company
may exercise the pay-in-kind feature available under the terms of the
subordinated notes. On March 1, 1994, the Board of Directors decided to exercise
the pay-in-kind feature for the interest payment due on May 15, 1994, which will
result in the issuance of approximately $4.3 million of additional subordinated
notes. The Board of Directors will consider the advisability of exercising such
feature for the interest payment due on November 15, 1994.
As a result of the expiration of the pay-in-kind feature on November 15, 1994,
the Company's annual cash interest requirements will increase approximately $10
million, commencing with the semi-annual interest payment due on May 15, 1995.
In addition, the interest rates on the senior and subordinated notes increase
beginning in 1995 and 1996, respectively. The annual interest rate on the senior
notes is 9% through November 14, 1995. Thereafter, the annual interest rate
increases to 12% from November 15, 1995 through November 14, 1996 and 14%
thereafter. The annual interest rate on the subordinated notes is 10% through
November 14, 1996. Thereafter, the annual interest rate increases to 12% from
November 15, 1996 through November 14, 1997 and 14% thereafter.
6
<PAGE>
The Company's projected cash flow generated from operations and the availability
of financing provided by the bank line of credit are anticipated to be
sufficient to meet its operating and debt service requirements for the next few
years. Because of recent favorable trends in the economy and financing market,
the Company is exploring a restructuring of it current long-term debt to reduce
future cash interest costs.
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 million accrued in the March 31, 1994 balance sheet is
adequate for the total potential environmental liability 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
liabilities would not have a material adverse effect on the financial condition
of the Company. In addition, because government and environmental groups have
become increasingly concerned in recent years about environmental issues, 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 Resource Conservation and Recovery Act ("RCRA") and equivalent Texas
law, the Company has deposited $10.5 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, Texas manufacturing facility's hazardous waste management units.
This deposit is included in other noncurrent assets in the March 31, 1994
balance sheet. This amount deposited in trust does not cover the costs of
addressing existing contamination at the manufacturing facility in Odessa,
Texas. The Company does not believe that in the near future it will be able to
satisfy any of the alternative financial assurance methods under RCRA which
would allow funds to be released from the trust. To the extent any funds are
released, they would be considered for the purpose of determining the mandatory
redemption requirements for senior notes which may arise due to excess cash
flow.
PART II--OTHER INFORMATION
None
7
<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.
REXENE CORPORATION
Date: April 22, 1994 By: /s/ Kevin W. McAleer
---------------------------------------
Kevin W. McAleer
Executive Vice President and
Chief Financial Officer
8
