<PAGE>
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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 September 30, 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 October 31, 1995, 18,745,285 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
Consolidated Statements of Income for the Three
Months Ended September 30, 1995 and 1994. . . . . . . . . . .1
Consolidated Statements of Income for the Nine
Months Ended September 30, 1995 and 1994. . . . . . . . . . 2
Consolidated Balance Sheets as of September 30,
1995 and December 31, 1994. . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1995 and 1994 . . . . . . . 4
Notes to Consolidated Financial Statements. . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 7
PART II--OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 10
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 10
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1995 1994
-------- --------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . $154,113 $142,937
-------- --------
Operating expenses:
Cost of sales . . . . . . . . . . . . . . 113,959 109,408
Marketing, general and administrative . . 11,174 9,184
Research and development. . . . . . . . . 2,655 1,786
-------- --------
127,788 120,378
-------- --------
Operating income. . . . . . . . . . . . . . 26,325 22,559
-------- --------
Interest expense. . . . . . . . . . . . . . (4,878) (12,819)
Interest income . . . . . . . . . . . . . . 680 666
Other, net . . . . . . . . . . . . . . . . 68 914
-------- --------
Income before income taxes. . . . . . . . . 22,195 11,320
Income tax expense. . . . . . . . . . . . . 8,235 4,506
OP -------- --------
Net income . . . . . . . . . . . . . . . . $ 13,960 $ 6,814
-------- --------
-------- --------
Weighted average shares outstanding . . . . 19,143 11,063
-------- --------
-------- --------
Net income per share . . . . . . . . . . . $ 0.73 $ 0.62
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
-------- --------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . $483,093 $386,153
-------- --------
Operating expenses:
Cost of sales . . . . . . . . . . . . . . 334,658 308,961
Marketing, general and administrative . . 32,493 25,971
Research and development. . . . . . . . . 6,916 4,936
-------- --------
374,067 339,868
-------- --------
Operating income . . . . . . . . . . . . . 109,026 46,285
-------- --------
Interest expense. . . . . . . . . . . . . . (19,492) (37,971)
Interest income . . . . . . . . . . . . . . 2,257 1,522
Other, net . . . . . . . . . . . . . . . . (66) 646
-------- --------
Income before income taxes. . . . . . . . . 91,725 10,482
Income tax expense. . . . . . . . . . . . . 34,384 4,329
-------- --------
Net income . . . . . . . . . . . . . . . . $ 57,341 $ 6,153
-------- --------
-------- --------
Weighted average shares outstanding . . . . 19,131 10,886
-------- --------
-------- --------
Net income per share . . . . . . . . . . . $ 3.00 $ 0.57
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . $ 44,411 $ 45,822
Deposit held in trust. . . . . . . . . - 8,000
Accounts receivable, net . . . . . . . 81,581 77,433
Inventories. . . . . . . . . . . . . . 64,753 62,726
Income taxes receivable. . . . . . . . - 1,647
Deferred income taxes. . . . . . . . . 5,389 8,625
Prepaid expenses and other . . . . . . 637 1,098
-------- --------
Total current assets . . . . . . . . 196,771 205,351
Property, plant and equipment, net . . 277,806 258,119
Intangible assets, net . . . . . . . . 12,404 16,062
Other noncurrent assets. . . . . . . . 24,605 27,422
-------- --------
$511,586 $506,954
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . $ 28,487 $ 38,019
Current portion of long-term debt. . . - 10,000
Accrued liabilities. . . . . . . . . . 13,373 9,488
Accrued interest . . . . . . . . . . . 6,854 1,894
Income taxes payable . . . . . . . . . 26,660 -
Employee benefits payable. . . . . . . 7,382 5,911
-------- --------
Total current liabilities. . . . . . 82,756 65,312
Long-term debt . . . . . . . . . . . . 175,000 265,000
Other noncurrent liabilities . . . . . 66,622 49,999
Deferred income taxes. . . . . . . . . 54,004 51,767
Stockholders' equity:
Common stock, par value $0.01 per share;
100 million shares authorized; 18.7
and 18.6 million shares issued and
outstanding, respectively. . . . . 187 186
Paid-in capital. . . . . . . . . . . 111,206 110,355
Retained earnings (deficit) . . . . 21,243 (36,098)
Foreign currency translation
adjustment . . . . . . . . . . . . 568 433
-------- --------
Total stockholders' equity . . . . . 133,204 74,876
-------- --------
$511,586 $506,954
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . $ 57,341 $ 6,153
-------- --------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization . . . . . 15,792 13,884
Amortization of debt issuance costs . . 2,626 -
Non-cash interest expense . . . . . . . - 16,208
Deferred income taxes . . . . . . . . . 5,473 (2,491)
Change in:
Accounts receivable . . . . . . . . . (4,147) (17,710)
Inventories . . . . . . . . . . . . . 3,463 (2,720)
Prepaid expenses and other . . . . . 461 435
Income taxes . . . . . . . . . . . . 28,794 10,277
Accounts payable . . . . . . . . . . (9,536) 568
Accrued interest . . . . . . . . . . 4,960 9,542
Employee benefits payable and
accrued liabilities . . . . . . . . 1,754 2,066
Decrease in other noncurrent lia-
bilities . . . . . . . . . . . . . . (3,877) (208)
Other . . . . . . . . . . . . . . . . 4,615 (444)
-------- --------
Total adjustments . . . . . . . . . . . . 50,378 29,407
-------- --------
Net cash provided by operating activities . 107,719 35,560
-------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . (33,595) (21,089)
-------- --------
Net cash used for investing activities. . . (33,595) (21,089)
-------- --------
Cash flows from financing activities:
Repayment of debt . . . . . . . . . . . . (100,000) -
Advance payment from customer, net
of repayments . . . . . . . . . . . . . 24,100 -
Proceeds from issuance of common
stock, net . . . . . . . . . . . . . . 365 958
Bank borrowings . . . . . . . . . . . . . - 7,000
-------- --------
Net cash provided by (used for) finan-
cing activities . . . . . . . . . . . . . (75,535) 7,958
-------- --------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . (1,411) 22,429
Cash and cash equivalents at beginning
of period . . . . . . . . . . . . . . . . 45,822 30,535
-------- --------
Cash and cash equivalents at end of
period. . . . . . . . . . . . . . . . . . $ 44,411 $ 52,964
-------- --------
-------- --------
Supplemental cash flow information:
Cash paid for interest . . . . . . . . . $ 13,614 $ 11,955
Cash paid for income taxes. . . . . . . . $ 1,736 $ 203
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 film, 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-Register 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 in 1995 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
The income tax expense is composed of (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Current:
Federal . . . . . . . . . $ 6,433 $ 4,683 $26,411 $ 6,632
State . . . . . . . . . . 231 48 2,500 188
Deferred income taxes. . . . 1,571 (225) 5,473 (2,491)
------- ------- ------- -------
$ 8,235 $ 4,506 $34,384 $ 4,329
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September December
30, 1995 31, 1994
-------- --------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . $ 22,692 $ 21,363
Work in progress. . . . . . . . . . . . 5,573 8,014
Finished goods . . . . . . . . . . . . 36,488 33,349
-------- --------
$ 64,753 $ 62,726
-------- --------
-------- --------
</TABLE>
5
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
The cost and accumulated depreciation of property, plant and equipment are as
follows (in thousands):
<TABLE>
<CAPTION>
September December
30, 1995 31, 1994
-------- --------
<S> <C> <C>
Property, plant and equipment . . . . . . $328,985 $295,251
Accumulated depreciation . . . . . . . . (51,179) (37,132)
-------- --------
$277,806 $258,119
-------- --------
-------- --------
</TABLE>
5. INTANGIBLE ASSETS
The cost and accumulated amortization of intangible assets are as follows (in
thousands):
<TABLE>
<CAPTION>
September December
30, 1995 31, 1994
-------- --------
<S> <C> <C>
Debt issuance costs . . . . . . . . . . . $ 9,735 $ 9,735
Accumulated amortization . . . . . . . . (2,742) (116)
-------- --------
6,993 9,619
-------- --------
Reorganization value in excess of amounts
allocable to identifiable assets . . . 4,298 4,298
Accumulated amortization . . . . . . . . (1,104) (904)
-------- --------
3,194 3,394
-------- --------
Other intangible assets . . . . . . . . . 5,544 5,544
Accumulated amortization . . . . . . . . (3,327) (2,495)
-------- --------
2,217 3,049
-------- --------
$ 12,404 $ 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 $21.1 million accrued in the September 30, 1995 balance sheet
is adequate for the total potential environmental liability with respect to
remediating known contamination. 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.
6
<PAGE>
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 certain
other lawsuits described in the aforementioned Note 20, except as described
in the Company's 1995 second quarter report on Form 10-Q and below in Part
II, Item 1.
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, and 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.
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 beginning in 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. This increase in
demand enabled the Company and the petrochemical and polymer industry in
general to increase selling prices significantly beginning in late 1993 through
the first half of 1995 even though feedstock costs were relatively stable.
During the third quarter of 1995 the petrochemical and polymer markets
experienced a decrease in demand and in selling prices consistent with the
slow down in economic growth in the United States. This trend is expected to
continue into the fourth quarter of 1995 at a slower pace. Export demand,
specifically for styrene monomer, was very weak in the third quarter. The
Chinese government shut down styrene imports, significantly reducing spot
prices for styrene around the world and impacting contract prices. In
addition, a general trend by disposable diaper manufacturers towards
thinner diaper backsheet materials have reduced the volume of product sold
into this market. A wide range of medical and packaging markets are being
developed by CT Film to replace the volume decrease in the diaper backsheet
market.
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 plastic film business. The prices
of feedstocks fluctuate widely based on the prices of natural gas and oil. 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 SEPTEMBER 30, 1995 COMPARED
TO THE THREE MONTHS ENDED SEPTEMBER 30, 1994
As discussed above, the petrochemical and polymer markets in which the
Company participates weakened in the third quarter of 1995 as compared to the
second quarter of 1995; however, they continued to be stronger than the third
quarter of 1994. Net sales increased $11.2 million (or 8%) from $142.9
million for the three months ended September 30, 1994 to $154.1 million for
the three months ended September 30, 1995 principally due to an increase in
average sales prices in the four largest product lines. Styrene sales
increased $4.7 million (or 19%) due to an increase in average sales prices of
5 cents per pound. Polypropylene sales increased $4.0 million (or 21%)
principally due to an increase in average sales prices of 7 cents per pound.
Polyethylene sales increased $2.7 million (or 7%) principally due to an
increase in average sales prices of 7 cents per pound, partially offset by a
volume decrease of 8 million pounds. Plastic film sales
7
<PAGE>
decreased $3.4 million (or 7%) principally due to a decrease in volumes of
8.3 million pounds, partially offset by an increase in average sales prices
of 10 cents per pound. APAO sales increased $1.1 million (or 23%)
principally due to a volume increase of 2.3 million pounds. Excess feedstock
sales increased $2.6 million (or 57%) in the third quarter of 1995 as
compared to the third quarter of 1994.
The Company's gross profit percentage increased from 23% for the three months
ended September 30, 1994 to 26% for the comparable period in 1995 principally
due to the increase in average sales prices discussed above, partially offset
by increases in prices of propylene for Rexene Products and polyethylene
resins for CT Film. An equipment malfunction in the olefin plant decreased
ethylene production in the third quarter. This outage did not have a
material effect on earnings.
Marketing, general and administrative expenses increased $2.0 million (or
22%) from $9.2 million for the third quarter of 1994 to $11.2 million for the
third quarter of 1995 principally due to higher employee benefits that are
related to the Company's improved operating performance. Research and
development expenses increased $.9 million (or 49%) partially due to new
product development at CT Film.
Due primarily to the factors described above, operating income increased $3.8
million (or 17%) for the three months ended September 30, 1995, as compared
to the corresponding period in 1994.
Interest expense decreased $7.9 million (or 62%) in the third quarter of 1995
as compared to the third 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 and the repayment of bank debt in the first half of 1995.
Other, net decreased $.8 million for the third quarter of 1995 as compared to
the third quarter of 1994, principally due to the receipt in 1994 of
approximately $1.0 million of insurance proceeds received in settlement of a
claim related to a prior lawsuit.
Income tax expense increased $3.7 million in the third quarter of 1995 as
compared to the same period in 1994 due to increased operating performance.
Due primarily to the factors described above, net income increased $7.1
million (or 105%) in the third quarter of 1995 as compared to the third
quarter of 1994.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1994
Net sales increased $96.9 million (or 25%) from $386.2 million for the nine
months ended September 30, 1994 to $483.1 million for the nine months ended
September 30, 1995 principally due to an increase in average sales prices in
the four largest product lines. Styrene sales increased $34.8 million (or
55%) principally due to an increase in average sales prices of 16 cents per
pound. Polyethylene sales increased $28.8 million (or 28%) principally due to
an increase in average sales prices of 14 cents per pound, partially offset
by a volume decrease of 18.3 million pounds. Polypropylene sales increased
$13.6 million (or 24%) principally due to an increase in average sales prices
of 8 cents per pound. Plastic film sales increased $10.1 million (or 8%)
principally due to an increase in average sales prices of 12 cents per pound,
offset by a volume decrease of 5.6 million pounds. APAO sales increased $3.1
million (or 21%) principally due to a volume increase of 6.7 million pounds.
Excess feedstock sales increased $6.0 million (or 68%) in the first nine
months of 1995 as compared to the first nine months of 1994.
8
<PAGE>
The Company's gross profit percentage increased from 20% for the nine months
ended September 30, 1994 to 31% for the same period in 1995 principally due
to the increase in average sales prices discussed above, partially offset by
increases in prices of propylene for Rexene Products and polyethylene resins
for CT Film.
Marketing, general and administrative expenses increased $6.5 million (or
25%) for the first nine months of 1995 as compared to the same period in 1994
principally due to higher employee benefits that are related to the Company's
improved operating performance. Research and development expenses increased
$2.0 million (or 40%) principally due to new product development at CT Film.
Due primarily to the factors described above, operating income increased
$62.7 million (or 136%) for the nine months ended September 30, 1995 as
compared to the corresponding period in 1994.
Interest expense decreased 18.5 million (or 49%) principally due to lower
long-term debt as a result of the completion of a recapitalization plan in
the fourth quarter of 1994 and the repayment of bank debt in the first half
of 1995.
Other, net decreased $.7 million for the nine months ended September 30, 1995
as compared to the nine months ended September 30, 1994, principally due to
the receipt in 1994 of approximately $1.0 million of insurance proceeds
received in settlement of a claim related to a prior lawsuit.
Income tax expense increased $30.1 million in the first nine months of 1995
as compared to the same period in 1994 due to increased operating performance.
Due primarily to the factors discussed above, net income increased $51.2
million for the first nine months of 1995 as compared to the corresponding
period in 1994.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1995, net cash provided by
operating activities increased $72.2 million as compared to the comparable
period in 1994, principally due to improved operating performance and an
increase in income taxes payable. The 1995 federal income tax liability will
be paid in March 1996.
In addition to cash generated from operations, the Company received a $25
million advance payment from a customer as a result of a multi-year agreement
to supply a portion of annual styrene production. Using cash generated from
operations, this advance payment and existing cash balances, the Company
repaid $100 million of debt in the first half of 1995.
In November 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"). In the first six months of 1995, the Company prepaid all of the
Term Loan. As a result, $1.8 million of previously capitalized financing
fees were charged to interest expense in the first half of 1995. 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 to make scheduled payments of interest 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.
9
<PAGE>
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. The Company
has approximately $21.1 million accrued in the September 30, 1995 balance
sheet as a preliminary estimate of its total potential environmental
liability of the Company with respect to remediating known contamination.
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. 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 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 has deposited $3.5 million in trust
to cover closure and post-closure costs and plugging and abandonment costs at
certain of the Odessa, Texas manufacturing facility's hazardous 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, management
believes it will be able to meet the regulatory requirements to have the
Texas National Resources Conservation Commission release, in 1996, the
funds in the trust.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ENVIRONMENTAL REGULATION
As reported in the Company's 1994 Annual Report on Form 10-K, the Company
operates its styrene plant and styrene loading facility under an air permit
issued by the Texas Natural Resources Conservation Commission ("TNRCC").
During the recent permit renewal process, two parties requested a public
hearing on the permit. The Hearings Examiner appointed to the case
recommended to the TNRCC that no hearing be granted. The TNRCC dismissed
the third party request for a hearing and approved the issuance of the permit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports Submitted on Form 8-K:
None
10
<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: November 3, 1995 By: /s/ Kevin W. McAleer
________________________________________
Kevin W. McAleer
Executive Vice President and
Chief Financial Officer
11
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