<PAGE> 1
================================================================================
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, 1996
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)
(972) 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 25, 1996, 18,806,034 shares of common stock, par value $0.01 per
share, of Rexene Corporation were outstanding.
================================================================================
<PAGE> 2
REXENE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1995 . . . . 3
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . 5
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . $ 150,456 $ 154,113 $ 436,605 $ 483,093
---------- ----------- ---------- ---------
Operating expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . 118,830 113,959 349,348 334,658
Marketing, general and administrative . . . . . . . . 11,202 11,174 32,985 32,493
Research and development . . . . . . . . . . . . . . 2,151 2,655 6,325 6,916
---------- ----------- ---------- ---------
132,183 127,788 388,658 374,067
---------- ----------- ---------- ---------
Operating income . . . . . . . . . . . . . . . . . . . 18,273 26,325 47,947 109,026
---------- ----------- ---------- ---------
Interest expense . . . . . . . . . . . . . . . . . . . (3,706) (4,878) (12,256) (19,492)
Interest income . . . . . . . . . . . . . . . . . . . . 382 680 1,502 2,257
Other, net . . . . . . . . . . . . . . . . . . . . . . (830) 68 (826) ( 66)
----------- ----------- ----------- ---------
Income before income taxes . . . . . . . . . . . . . . 14,119 22,195 36,367 91,725
Income tax expense . . . . . . . . . . . . . . . . . . 5,516 8,235 13,802 34,384
---------- ----------- ---------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 8,603 $ 13,960 $ 22,565 $ 57,341
========== =========== ========== =========
Weighted average shares outstanding . . . . . . . . . . 19,185 19,143 19,163 19,131
========== =========== ========== =========
Net income per share . . . . . . . . . . . . . . . . . $ 0.45 $ 0.73 $ 1.18 $ 3.00
========== =========== ========== =========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,740 $ 47,258
Deposit held in trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3,547
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,367 73,520
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,594 62,257
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,111 5,663
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 338 531
--------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,150 192,776
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 347,018 291,675
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,275 11,811
Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,839 24,329
--------- ----------
$ 551,282 $ 520,591
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,895 $ 29,768
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,284 14,319
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,854 1,714
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,618 30,778
Employee benefits payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,375 7,781
--------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,026 84,360
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,000 175,000
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,949 67,107
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,585 53,973
Stockholders' equity:
Preferred stock, par value $.01 per share; 1 million shares authorized; none issued
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Common stock, par value $.01 per share; 100 million shares authorized; 18.8 and
18.7 million shares issued and outstanding, respectively . . . . . . . . . . . 188 187
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,476 111,247
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,906 28,595
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . 152 122
--------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,722 140,151
--------- ----------
$ 551,282 $ 520,591
========= ==========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
REXENE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
-------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,565 $ 57,341
-------- ----------
Adjustments to reconcile net income to net cash provided by (used for) operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,353 15,792
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 5,473
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . 936 2,626
Change in:
Deposit held in trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,547 -
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,812) (4,147)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,324) 3,463
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 461
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,160) 28,794
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,123 (9,536)
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,140 4,960
Employee benefits payable and accrued liabilities . . . . . . . . . . . . . . . . . . (2,453) 1,754
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,542 (3,877)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (746) 4,615
-------- ----------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,499) 50,378
-------- ----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . 12,066 107,719
-------- ----------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (71,431) (33,595)
Purchase of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,833) -
-------- ----------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . (73,264) (33,595)
-------- -------
Cash flows from financing activities:
Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 -
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,598) -
Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (100,000)
Advance payment (repayment) from customer , net . . . . . . . . . . . . . . . . . . . . (2,700) 24,100
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,252) -
Proceeds from issuance of common stock, net . . . . . . . . . . . . . . . . . . . . . . 230 365
-------- ----------
Net cash provided by (used for) financing activities . . . . . . . . . . . . . . . . . . 20,680 (75,535)
-------- ----------
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . (40,518) (1,411)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . 47,258 45,822
-------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . $ 6,740 $ 44,411
======== ==========
Supplemental cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,075 $ 13,614
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,086 $ 1,736
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 6
REXENE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
Rexene Corporation manufactures and markets a wide variety of products through
two operating divisions, Rexene Products Company division ("Rexene Products")
and Consolidated Thermoplastics Company division ("CT Film"). The products
range from value added specialty products, such as customized 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, Rextac(R)
amorphous polyalphaolefin ("Rextac") 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 1995 Annual Report on Form 10-K.
2. INCOME TAXES
Income tax expense consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Current:
Federal . . . . . . . . . .. . . . . . . $ 4,823 $ 6,433 $ 11,742 $26,411
State . . . . . . . . . .. . . . . . . 808 231 1,899 2,500
Deferred . . . . . . . . . .. . . . . . . (115) 1,571 161 5,473
-------- ------- -------- -------
$ 5,516 $ 8,235 $ 13,802 $34,384
======= ======= ======== =======
</TABLE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September December
30, 1996 31, 1995
--------- --------
<S> <C> <C>
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,964 $20,144
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . 8,627 5,356
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . 34,003 36,757
------- -------
$69,594 $62,257
======= =======
</TABLE>
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, 1996 31, 1995
--------- --------
<S> <C> <C>
Property, plant and equipment . . . . . . . . . . . . . . . . . . . 419,028 $347,527
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . (72,010) (55,852)
-------- --------
$347,018 $291,675
======== ========
</TABLE>
4
<PAGE> 7
5. INTANGIBLE ASSETS
The cost and accumulated amortization of intangible assets are as follows (in
thousands):
<TABLE>
<CAPTION>
September December
30, 1996 31, 1995
--------- --------
<S> <C> <C>
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,333 $ 9,735
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,927) (2,991)
-------- --------
10,406 6,744
-------- --------
Reorganization value in excess of amounts allocable to identifiable assets . . . . 4,298 4,298
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,370) (1,171)
-------- --------
2,928 3,127
-------- --------
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,377 5,544
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,436) (3,604)
-------- --------
2,941 1,940
-------- --------
$ 16,275 $ 11,811
======== ========
</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 facility permitting 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
investigate and 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 its investigation and analysis, management believes
that the approximately $19.5 million accrued in the September 30, 1996 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 fully assessed or that the amounts that might be required to
investigate and remediate such sites will not be significant to the Company.
The Company continually reviews its estimates of potential environmental
liabilities.
The Company is a party to various litigation arising in the ordinary course of
business and to certain other litigation which are set forth in Note 18 to the
Consolidated Financial Statements included in the Company's 1995 Annual Report
on Form 10-K. There have been no material changes to the litigation described
in the aforementioned Note 18, except as described in Part II below.
Although there can be no assurance of the final resolution of such litigation,
the Company believes that, based upon its current knowledge of the facts of
each case, it has meritorious defenses to the various claims made and intends
to defend each lawsuit 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, results of operations or cash flows.
5
<PAGE> 8
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) polymer 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.
A significant improvement in domestic economic growth occurred between the
second half of 1994 and the second quarter of 1995 which resulted in greater
market demand, increased capacity utilization and higher domestic and export
prices. This increase in demand enabled the Company and the industry in
general to increase selling prices significantly during this period even
though feedstock costs were relatively stable. During the second half of 1995
through the first quarter of 1996, the domestic petrochemical and polymer
markets experienced a decrease in demand and selling prices due to several
factors, including inventory reductions by customers, the slowdown in economic
growth in the United States and a decrease in exports, particularly to the
Chinese market. In addition, prices for these products were influenced by
industry capacity additions in 1995. Beginning in the second quarter of 1996,
demand and selling prices for polymers stabilized and selling prices for
polyethylene and polypropylene polymers and plastic film increased since that
time. The Company's average selling price for styrene and Rextac(R) polymers
have remained relatively stable since the first quarter of 1996.
Principal raw materials purchased by the Company consist of ethane and propane
extracted from natural gas liquids ("NGL"), 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. Low industry inventory levels
of crude oil, natural gas and NGL feedstocks and unexpected supply disruptions
caused feedstock prices to increase substantially during the first nine months
of 1996. Feedstocks accounted for 29% of the Company's cost of sales for the
first nine months of 1996. As a result, the Company's ability to pass on
increases in feedstock costs to customers has a significant impact on operating
results. Currently, the feedstock supplies available in Odessa, Texas are
adequate for the Company's processing requirements.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1995
The Company's overall sales and profitability were lower in the third quarter
of 1996 as compared to the third quarter of 1995. As discussed above, the
petrochemical and polymer markets in which the Company participates were
stronger in the third quarter of 1995 as compared to the third quarter of 1996.
Net sales decreased $3.7 million (or 2%) from the third quarter of 1995 to the
third quarter of 1996 principally due to lower average sales prices in all
major product lines except polyethylene. Plastic film sales decreased $2.5
million (or 6%) principally due to a decrease in average sales price of 5
cents per pound. Styrene sales decreased $8.8 million (or 29%) principally due
to a decrease in average sales price of 9 cents per pound and a decrease in
sales volumes of 6.3 million pounds principally due to scheduled maintenance
work which shut down operations for approximately two weeks. Polyethylene
sales increased $0.6 million (or 2%) principally due to a increase in sales
volumes of 1.2 million pounds. Polypropylene sales decreased $0.9 million (or
4%) principally due to a decrease in the average sales price of 1 cent per
pound and a decrease in sales volume of 0.9 million pounds. Rextac(R) polymer
sales increased $2.0 million (or 36%) principally due to an increase in sales
volume of 4.1 million pounds. Other sales increased $5.8 million principally
due to an increase in excess feedstock sales.
The Company's gross profit percentage decreased from 26% for the three months
ended September 30, 1995 to 21% for the three months ended September 30, 1996
principally due to higher feedstock prices for ethane, propane, and benzene and
a decrease
6
<PAGE> 9
in sales prices discussed above. Marketing, general and administrative
expenses and research and development expenses decreased slightly for the third
quarter of 1996 as compared to the third quarter of 1995.
Due primarily to the factors discussed above, operating income decreased $8.1
million (or 31%) for the three months ended September 30, 1996 as compared to
the corresponding period in 1995. Net interest expense decreased $0.9 million
(or 21%) in the third quarter of 1996 as compared to the third quarter of 1995
principally due to increased capitalized interest on capital improvements
offset by interest on bank borrowings in the third quarter of 1996. For the
third quarter of 1996, other non-operating expenses included costs of $0.5
million related to the Company's response to an unsolicited takeover attempt.
Income tax expense decreased $2.7 million (or 33%) in the third quarter of 1996
as compared to the third quarter of 1995 principally due to the decrease in
operating income discussed above. Due primarily to the factors discussed
above, the Company's net income decreased $5.4 million (or 38%) in the third
quarter of 1996 as compared to the third quarter of 1995.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
The Company's overall sales and profitability were lower in the first nine
months of 1996 as compared to the first nine months of 1995. As discussed
above, the petrochemical and polymer markets in which the Company participates
were stronger in the first nine months of 1995 as compared to the first nine
months of 1996. Net sales decreased $46.5 million (or 10%) from the first nine
months of 1995 to the first nine months of 1996 principally due to lower
average sales prices in all major product lines, partially offset by increases
in sales volumes in all product lines except plastic film. Plastic film sales
decreased $20.9 million (or 15%) principally due to a decrease in average
sales price of 5 cents per pound and a decrease in sales volumes of 13.0
million pounds as a result of changing technology in the disposable diaper
industry. Styrene sales decreased $29.1 million (or 30%) principally due to a
decrease in average sales price of 15 cents per pound, partially offset by an
increase in sales volumes of 16.8 million pounds. Polyethylene sales decreased
$11.7 million (or 9%) principally due to a decrease in average sales price of
8 cents per pound, partially offset by an increase in sales volumes of 18.3
million pounds. Polypropylene sales decreased $2.5 million (or 4%) principally
due to a decrease in average sales price of 3 cents per pound, partially offset
by an increase in sales volumes of 1.7 million pounds. Rextac(R) polymer sales
increased $2.7 million (or 15%) principally due to an increase in sales volumes
of 5.5 million pounds. Other sales increased $15.1 million principally due to
an increase in excess feedstock sales.
The Company's gross profit percentage decreased from 31% for the nine months
ended September 30, 1995 to 20% for the nine months ended September 30, 1996
principally due to higher feedstock prices for ethane, propane, and benzene and
a decrease in sales prices discussed above. Marketing, general and
administrative expenses and research and development expenses remained
relatively stable for the first nine months of 1995 as compared to the first
nine months of 1996.
Due primarily to the factors discussed above, operating income decreased $61.1
million (or 56%) for the nine months ended September 30, 1996 as compared to
the corresponding period in 1995. Net interest expense decreased $6.5 million
(or 38%) in the first nine months of 1996 as compared to the first nine months
of 1995 principally due to the repayment of bank debt in the first half of 1995
and increased capitalized interest on capital improvements offset by interest
on bank borrowings in the third quarter of 1996. For the first nine months of
1996, other non-operating expenses included costs of $0.5 million related to
the Company's response to an unsolicited takeover attempt. Income tax expense
decreased $20.6 million (or 60%) in the first nine months of 1996 as compared
to the first nine months of 1995 principally due to the decrease in operating
income discussed above. Due primarily to the factors discussed above, the
Company's net income decreased $34.8 million (or 61%) in the first nine months
of 1996 as compared to the first nine months of 1995.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1996, net cash provided by operating
activities decreased $95.7 million as compared to the comparable period in
1995. This decrease was principally due to the payment in March 1996 of the
Company's 1995 federal income taxes of approximately $30 million, 1996 federal
income tax payments of $12.1 million and due to lower operating income
discussed above.
7
<PAGE> 10
The Amended Credit Agreement, executed in April 1996, provides a new line of
credit to provide funds to finance portions of the Company's capital
expenditure program and working capital requirements. The Company's capital
expenditure program includes the construction of a flexible polyolefin polymer
plant, the modernization and expansion of its olefins plant and the
construction of a new linear low density polyethylene plant. As of October 25,
1996, the outstanding balance under the Amended Credit Agreement was $40
million.
On August 5, 1996, the Company executed an agreement with a bank for a $10
million uncommitted, unsecured line of credit (the "Unsecured Note") for day to
day cash flow needs. As of October 25, 1996, there was no outstanding balance.
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 the proceeds from the Amended Credit
Agreement, will be adequate to make scheduled payments of interest on the 11
3/4% Senior Notes due 2004, the Amended Credit Agreement and the Unsecured
Note, 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, including but not limited to,
the demand for the Company's products, raw material costs and other factors.
A number of potential environmental liabilities exist which relate to certain
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 investigate and remediate such sites or comply with pending or
proposed environmental regulations can be accurately estimated. The Company has
approximately $19.5 million accrued in the September 30, 1996 balance sheet as
an estimate of its total potential environmental liability with respect to
investigating and remediating known and assessed 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 investigate and remediate such potential sites would not have a
material adverse effect on the financial position, results of operations or
cash flows 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 the
Company has found such coverage is available only at great cost and with broad
exclusions.
The discussions in this report contain both historical information and
forward-looking statements. The forward-looking statements involve risks and
uncertainties that could affect the Company's future operations, markets,
products, services, prices and profitability. These risks and uncertainties
include, but are not limited to, the demand for the Company's products,
economic conditions, customer inventory levels, competitive pricing pressures,
feedstock costs, changes in industry production capacities and operating rates,
competitive technology positions, and the failure of the Company to improve
operational efficiencies or develop and successfully market new products as
anticipated or complete construction projects on schedule.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Phillips Block Copolymer Litigation
As previously reported in Item 3 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, in March 1984, Phillips Petroleum Company
("Phillips") filed a lawsuit against the Company in the United States District
Court for the Northern District of Illinois, Eastern Division, seeking
injunctive relief, an unspecified amount of compensatory and treble damages.
The complaint alleged that the Company's copolymer process for polypropylene
infringed Phillip's two "block" copolymer patents, the last of which expired in
1994. This action has been transferred to the United States District Court for
the Southern District of Texas, Houston Division. Discovery proceedings in
this case have been completed. The Company has filed a motion for summary
judgment. Phillips also filed a motion for partial summary judgment. Pursuant
to an agreement
8
<PAGE> 11
among the parties, the court appointed a special master who conducted a hearing
on these motions and thereafter recommended to the court that the Company's
motion be granted and Phillip's motion be denied. Thereafter, Phillips filed
motions to disqualify the special master, to reject the recommendation of the
special master and to enter partial summary judgment for Phillips. The court
has entered an order denying Phillips' motion to disqualify the special master.
A hearing on these summary judgment motions was held on October 21, 1996 but no
ruling has been made. In the Company's bankruptcy proceeding in 1992, Phillips
filed a proof of claim seeking in excess of $108 million based upon allegations
in this litigation. The Company objected to the claim and elected to leave the
legal, equitable and contractual rights of Phillips unaltered, thereby allowing
this litigation to proceed without regard to the bankruptcy proceeding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports Submitted on Form 8-K:
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
Registrant
Date: October 25, 1996 By: /s/ Geff Perera
-----------------------------------
Geff Perera
Executive Vice President and
Chief Financial Officer
9
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,740
<SECURITIES> 0
<RECEIVABLES> 86,102
<ALLOWANCES> 3,735
<INVENTORY> 69,594
<CURRENT-ASSETS> 163,150
<PP&E> 419,028
<DEPRECIATION> 72,010
<TOTAL-ASSETS> 551,282
<CURRENT-LIABILITIES> 67,026
<BONDS> 205,000
0
0
<COMMON> 188
<OTHER-SE> 160,534
<TOTAL-LIABILITY-AND-EQUITY> 551,282
<SALES> 436,605
<TOTAL-REVENUES> 436,605
<CGS> 349,348
<TOTAL-COSTS> 349,348
<OTHER-EXPENSES> 38,634
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,256
<INCOME-PRETAX> 36,367
<INCOME-TAX> 13,802
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,565
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
