<PAGE>
===============================================================================
UNITED STATES
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, 1995
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 19, 1995, 18,717,797 shares of common stock, par value $0.01 per
share, of Rexene Corporation were outstanding.
===============================================================================
<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, 1995 and 1994.................... 1
Condensed Consolidated Balance Sheets as of March 31,
1995 and December 31, 1994.................................... 2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1994.................... 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,
----------------------------
1995 1994
-------- --------
<S> <C> <C>
Net sales.............................. $169,528 $119,076
-------- --------
Operating expenses:
Cost of sales........................ 113,531 99,404
Marketing, general and
administrative..................... 10,732 8,103
Research and development............. 1,972 1,548
-------- --------
126,235 109,055
-------- --------
Operating income....................... 43,293 10,021
-------- --------
Interest expense....................... (7,286) (12,537)
Interest income........................ 757 407
Other, net............................. (18) (122)
-------- --------
Income (loss) before income taxes...... 36,746 (2,231)
Income tax expense (benefit)........... 13,897 (506)
-------- --------
Net income (loss)...................... $ 22,849 $ (1,725)
======== ========
Weighted average shares outstanding.... 19,104 10,501
======== ========
Net income (loss) per share............ $ 1.20 $ (0.16)
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................ $ 47,079 $ 45,822
Deposit held in trust.................... 8,000 8,000
Accounts receivable, net................. 80,369 77,433
Inventories.............................. 63,823 62,726
Income taxes receivable.................. - 1,647
Deferred income taxes.................... 7,507 8,625
Prepaid expenses and other............... 540 1,098
-------- --------
Total current assets................... 207,318 205,351
Property, plant and equipment, net....... 263,741 258,119
Intangible assets, net................... 14,950 16,062
Other noncurrent assets.................. 23,912 27,422
-------- --------
$509,921 $506,954
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable......................... $ 22,370 $ 38,019
Current portion of long-term debt........ - 10,000
Accrued liabilities...................... 8,564 9,488
Accrued interest......................... 8,119 1,894
Income taxes payable..................... 9,677 -
Employee benefits payable................ 4,822 5,911
-------- --------
Total current liabilities.............. 53,552 65,312
Long-term debt........................... 255,000 265,000
Other noncurrent liabilities............. 49,714 49,999
Deferred income taxes.................... 52,657 51,767
Stockholders' equity:
Common stock, par value $.01 per share;
100 million shares authorized; 18.7
and 18.6 million shares issued and
outstanding, respectively............ 187 186
Paid-in capital........................ 111,020 110,355
Accumulated deficit.................... (13,249) (36,098)
Foreign currency translation
adjustment........................... 1,040 433
-------- --------
Total stockholders' equity............. 98,998 74,876
-------- --------
$509,921 $506,954
======== ========
</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,
----------------------------
1995 1994
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................ $ 22,849 $(1,725)
-------- -------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 4,888 4,558
Amortization of debt issuance costs.. 768 -
Non-cash interest expense............ - 6,473
Deferred income taxes................ 2,008 (1,120)
Change in:
Accounts receivable.............. (2,905) (5,242)
Inventories...................... 4,436 (509)
Prepaid expenses and other....... 559 (156)
Income taxes..................... 11,714 1,571
Accounts payable................. (15,707) (672)
Accrued interest................. 6,225 5,931
Employee benefits payable and
accrued liabilities............ (2,015) (1,893)
Decrease in other noncurrent
liabilities........................ (285) (186)
Other................................ (2,066) (220)
-------- -------
Total adjustments...................... 7,620 8,535
-------- -------
Net cash provided by operating
activities............................. 30,469 6,810
-------- -------
Cash flows from investing activities:
Capital expenditures................... (9,488) (6,311)
-------- -------
Net cash used for investing activities... (9,488) (6,311)
-------- -------
Cash flows from financing activities:
Proceeds from issuance of common
stock, net........................... 276 -
Repayment of debt...................... (20,000) -
Bank borrowings........................ - 2,500
-------- -------
Net cash provided by (used for) financing
activities............................. (19,724) 2,500
-------- -------
Net increase in cash and cash
equivalents............................ 1,257 2,999
Cash and cash equivalents at beginning
of period.............................. 45,822 30,535
-------- -------
Cash and cash equivalents at end of
period................................ $ 47,079 $33,534
======== =======
Supplemental cash flow information:
Cash paid for interest................. $ 681 $ -
Cash paid for income taxes............. $ 196 $ 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 a wide variety of products
through its two operating divisions, Rexene Products Company division
("Rexene Products") and Consolidated Thermoplastics Company division ("CT
Film"). The products range from specialty products, such as plastic films,
to commodity petrochemicals, such as styrene. These products are used in a
wide variety of industrial and consumer-related applications. The Company's
principal products are plastic film, polyethylene, polypropylene and
REXTAC-Registered Trademark- amorphous polyalphaolefins ("APAO") resins and
styrene. 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 1994 Annual Report on
Form 10-K.
2. INCOME TAXES
Income tax expense (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1995 1994
----------- ------------
<S> <C> <C>
Current:
Federal............... $10,488 $ 546
State................. 1,401 68
Deferred income taxes... 2,008 (1,120)
------- -------
$13,897 $ (506)
======= =======
</TABLE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
Raw materials............ $23,755 $21,363
Work in progress......... 6,819 8,014
Finished goods........... 33,249 33,349
------- -------
$63,823 $62,726
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment are as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Property, plant and equipment... $305,267 $295,251
Less accumulated depreciation... (41,526) (37,132)
-------- --------
$263,741 $258,119
======== ========
</TABLE>
4
<PAGE>
5. INTANGIBLE ASSETS
The cost and accumulated amortization of intangible assets are as follows (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
<S> <C> <C>
Debt issuance costs......................... $ 9,735 $ 9,735
Less accumulated amortization............... (884) (116)
------- -------
8,851 9,619
------- -------
Reorganization value in excess of amounts
allocable to identifiable assets.......... 4,298 4,298
Less accumulated amortization............... (971) (904)
------- -------
3,327 3,394
------- -------
Other intangible assets..................... 5,544 5,544
Less accumulated amortization............... (2,772) (2,495)
------- -------
2,772 3,049
------- -------
$14,950 $16,062
======= =======
</TABLE>
6. 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 $22.6 million accrued in the March 31, 1995 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
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 1994 Annual
Report on Form 10-K. There have been no material changes to the lawsuits
described in the aforementioned Note 20.
Although there can be no assurance of the final resolution of such lawsuits,
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.
5
<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 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 cyclical
markets experienced increased levels of demand which have resulted in near
full capacity utilization and higher domestic and export prices. This
increase in demand has enabled the Company and the petrochemical industry in
general to increase selling prices significantly at a time when feedstock
prices have been relatively stable.
Principal raw materials purchased by the Company consist of ethane and
propane extracted from natural gas liquids, propylene and benzene (all four
of which are referred to as "feedstocks") 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 first quarter of 1995, feedstocks accounted for approximately 28%
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.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1994
Growth in the United States economy resulted in the strengthening of the
petrochemical and polymer markets during the three months ended March 31,
1995 as compared to the three months ended March 31, 1994. Net sales
increased $50.4 million (or 42%) from $119.1 million for the three months
ended March 31, 1994 to $169.5 million for the three months ended March 31,
1995 principally due to an increase in average selling prices in all product
lines. Styrene sales increased $18.3 million (or 97%) in the first quarter of
1995 as compared to the first quarter of 1994 principally due to an increase
in average sales prices of 21 cents per pound. Polyethylene sales increased
$13.5 million (or 42%) in the first quarter of 1995 as compared to the
comparable period in 1994 principally due to an increase in average sales
prices of 19 cents per pound, offset by a volume decrease of 7.9 million
pounds. Polyethylene volumes decreased in the first quarter of 1995 as
compared to the same period in 1994 principally due to the effects of
pre-buying in March 1994 in anticipation of an increase in average selling
prices and lower production volumes in the first quarter of 1995 as compared
to the first quarter of 1994. Polypropylene sales increased $6.3 million (or
35%) in the first quarter of 1995 as compared to the same period in 1994
principally due to a volume increase of 4.8 million pounds and an increase in
average sales prices of 9 cents per pound. Plastic film sales increased $7.0
million (or 18%) in the first quarter of 1995 as compared to the first
quarter of 1994 principally due to an increase in average sales prices of 12
cents per pound and a volume increase of 1.8 million pounds. APAO sales
increased $2.1 million (or 54%) in the first quarter of 1995 as compared to
the comparable period in 1994 principally due to a volume increase of 4.3
million pounds. Excess feedstock sales increased $2.0 million in the first
quarter of 1995 as compared to the same period in 1994.
The Company's gross profit percentage increased from 17% for the three months
ended March 31, 1994 to 33% for the 1995 period principally due to the
increase in average sales prices discussed above, partially offset by
increases in prices of propylene and benzene for Rexene Products and
polyethylene resins used for CT Film.
Marketing, general and administrative expenses increased $2.6 million (or
32%) in the first quarter of 1995 as compared to the first quarter of 1994
principally due to higher employee benefits that are related to the Company's
improved operating performance and due to costs associated with operations in
England. Research and development expenses increased $0.4 million (or 27%)
principally due to an increase in new product development.
Due primarily to the factors discussed above, operating income increased
$33.3 million (or 332%) for the three months ended March 31, 1995 as compared
to the corresponding period in 1994.
Interest expense decreased $5.3 million (or 42%) in the first quarter of 1995
as compared to the first quarter of 1994 principally due to lower long-term
debt as a result of the completion of a recapitalization plan in the fourth
quarter of 1994.
6
<PAGE>
Interest income increased $0.4 million (or 86%) in the first quarter of 1995
as compared to the first quarter of 1994 principally due to an increase in
cash and cash equivalents and an increase in the interest rates of
investments.
The income tax expense in the first quarter of 1995 reflects current income
taxes payable of $11.9 million and deferred income tax expense of $2.0
million. The income tax benefit of $0.5 million in the first quarter of 1994
reflects current income taxes payable of $0.6 million, offset by deferred
income tax benefits of $1.1 million.
Due primarily to the factors discussed above, the Company had net income of
$22.8 million in the first quarter of 1995 as compared to a net loss of $1.7
million in the first quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1995, net cash provided by operating
activities increased $23.7 million as compared to the comparable period in
1994. This increase was principally due to higher operating income,
partially offset by the effect of changes in working capital.
On November 29, 1994, the Company entered into (i) an Indenture under which
it borrowed $175 million, and (ii) a credit agreement (the "Credit
Agreement") under which the Company borrowed $100 million under a term loan
(the "Term Loan") and secured an $80 million revolving credit facility (the
"Revolver"). The Company is required to repay a portion of its borrowings
under its Term Loan each year so as to retire such indebtedness in its
entirety by December 31, 1999. On January 31, 1995 and April 17, 1995, the
Company prepaid the Term Loan by $20 million and $25 million, respectively.
These payments will be credited against required principal repayments under
the Term Loan as such required payments become due. Four required payments
of $2.5 million each are due in 1995; four additional payments of $3.75
million each are due at the end of each quarter in 1996; and quarterly
payments of $6.25 million are due at the end of each succeeding quarter until
the Term Loan is paid in full. The Company also has certain additional
annual mandatory repayments beginning in April 1996 equal to 50% of the
excess cash flow (as defined in the credit agreement for the Term Loan) of
the Company in the preceding year but subject to a maximum of $15.0 million
in 1996; $25.0 million, less any prior mandatory excess cash flow repayments,
in 1997; and $35.0 million, less any prior mandatory excess cash flow
repayments, in 1998. The Company's 11 3/4% Senior Notes (the "Senior Notes")
under the Indenture will mature on December 1, 2004. The Company believes
that, 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 Revolver, will be adequate for the
foreseeable future to make scheduled payments of principal and interest under
the 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.
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 $22.6 million accrued in the March 31, 1995 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 and equivalent Texas law, the Company had deposited $10.7
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
7
<PAGE>
waste management units. This amount deposited in trust does not cover the
costs of addressing existing contamination at the manufacturing facility in
Odessa, Texas. Based on the Company's improved economic condition, the
Company has met the regulatory financial assurance requirements to recover
approximately $8.0 million of the funds in the trust. These funds were
released by the Texas Natural Resource Conservation Commission in April 1995.
PART II--OTHER INFORMATION
None
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 21, 1995 By: /s/ KEVIN W. McALEER
---------------------------------
Kevin W. McAleer
Executive Vice President and
Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 47,079
<SECURITIES> 0
<RECEIVABLES> 80,369
<ALLOWANCES> (3,761)
<INVENTORY> 63,823
<CURRENT-ASSETS> 207,318
<PP&E> 305,267
<DEPRECIATION> (41,526)
<TOTAL-ASSETS> 509,921
<CURRENT-LIABILITIES> 53,552
<BONDS> 255,000
<COMMON> 187
0
0
<OTHER-SE> 98,811
<TOTAL-LIABILITY-AND-EQUITY> 509,921
<SALES> 169,528
<TOTAL-REVENUES> 169,528
<CGS> 113,531
<TOTAL-COSTS> 113,531
<OTHER-EXPENSES> 13,443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,286
<INCOME-PRETAX> 36,746
<INCOME-TAX> 13,897
<INCOME-CONTINUING> 22,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,849
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
