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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _______________
REGISTRATION NUMBER 333-11569
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TEXAS PETROCHEMICALS LP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-1778313
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
THREE RIVERWAY, SUITE 1500
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(713) 627-7474
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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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 requirement for the past 90 days. Yes X No
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TEXAS PETROCHEMICALS LP
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet as of September 30, 2000 and June 30, 2000 1
Consolidated Statement of Operations for the three months ended
September 30, 2000 and 1999 2
Consolidated Statement of Cash Flows for the three months ended
September 30, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS PETROCHEMICALS LP
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 4,835 $ 14,919
Accounts receivable -- trade 66,605 64,235
Inventories 35,064 35,957
Investment in land held for sale 1,068 1,068
Other current assets 11,852 11,631
--------- ---------
Total current assets 119,424 127,810
Property, plant and equipment, net 217,999 219,517
Investment in land held for sale 990 990
Investment in and advances to limited partnership 2,679 2,769
Goodwill, net 163,832 164,978
Other assets, net of accumulated amortization 8,231 7,835
--------- ---------
Total assets $ 513,155 $ 523,899
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdraft $ 6,063 $ 7,146
Accounts payable -- trade 69,917 71,775
Payable to parent 2,740 639
Accrued expenses 11,856 18,190
Current portion of cash bonus plan -- 213
Current portion of long-term debt 7,098 8,086
--------- ---------
Total current liabilities 97,674 106,049
Revolving line of credit 2,050 1,650
Long-term debt 268,831 275,665
Deferred income taxes 61,293 61,944
Commitments and contingencies (Note 3)
Partners' equity:
Limited partner 83,959 --
General partner 848 --
Common stock, $1 par value, 4,500,000 shares authorized
and 4,162,000 shares issued and outstanding at June 30, 2000 -- 4,162
Additional paid in capital -- 72,620
Accumulated earnings -- 3,809
Note receivable from ESOP (1,500) (2,000)
--------- ---------
Total partners' equity 83,307 78,591
--------- ---------
Total liabilities and partners' equity $ 513,155 $ 523,899
========= =========
See accompanying notes to consolidated financial statements.
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TEXAS PETROCHEMICALS LP
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
----------- -----------
Revenues $ 220,588 $ 154,002
Cost of goods sold 195,620 132,049
Non-cash ESOP compensation 155 130
Depreciation and amortization 6,122 5,864
----------- -----------
Gross profit 18,691 15,959
Selling, general and administrative expenses 2,636 1,989
----------- -----------
Income from operations 16,055 13,970
Interest expense 8,029 8,255
Other income (expense), net (287) 102
----------- -----------
Income before income taxes and cumulative effect of
accounting change 7,739 5,817
Provision for income taxes 3,268 2,857
Cumulative effect of accounting change
(net of $221 income tax benefit) 410 --
----------- -----------
Net income $ 4,061 $ 2,960
=========== ===========
Basic income per share $ 0.71
===========
Weighted average shares outstanding 4,162,000
===========
See accompanying notes to consolidated financial statements.
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TEXAS PETROCHEMICALS LP
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income $ 4,061 $ 2,960
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of fixed assets 4,976 4,668
Amortization of goodwill and other assets 1,146 1,193
Amortization of debt issuance costs and deferred premium 301 300
Earnings from limited partnership (60) (124)
Deferred income taxes (17) (442)
Non-cash ESOP compensation 155 130
Non-cash change in fair value of derivatives 995 --
Change in:
Accounts receivable (2,370) (7,822)
Inventories 893 (653)
Other assets (1,993) 79
Accounts payable (1,858) 11,692
Payable to parent 2,101 763
Accrued expenses (6,968) (5,363)
-------- --------
Net cash provided by operating activities 1,362 7,381
Cash flows from investing activities:
Capital expenditures (3,458) (876)
Distribution from limited partnership 150
-------- --------
Net cash used in investing activities (3,308) (876)
Cash flows from financing activities:
Change in bank overdraft (1,083) (874)
Net borrowings (repayments) under revolver 400 (2,000)
Payments on long-term debt (7,742) (1,910)
Payment of cash bonus plan (213) (1,949)
Debt issuance costs -- (152)
Reduction in note receivable from ESOP 500 500
-------- --------
Net cash used in financing activities (8,138) (6,385)
-------- --------
Net increase (decrease) in cash and cash equivalents (10,084) 120
Cash and cash equivalents, at beginning of period 14,919 103
-------- --------
Cash and cash equivalents, at end of period $ 4,835 $ 223
======== ========
See accompanying notes to consolidated financial statements.
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TEXAS PETROCHEMICALS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
NATURE OF OPERATIONS
Texas Petrochemicals LP, formerly Texas Petrochemicals Corporation,
referred to as the "Company" herein, is the third largest producer of butadiene,
the largest producer of butene-1, and the third largest producer of methyl
teritiary-butyle ether (MTBE) in North America. In addition, the Company is the
sole producer of diisobutylene and isobutylene concentrate in the United States
and the largest domestic merchant supplier of high purity isobutylene to the
chemical market. The Company's products include: (i) butadiene, primarily used
to produce synthetic rubber; (ii) MTBE, used as an oxygenate and octane enhancer
in gasoline; (iii) n-butylenes (butene-1 and butene-2), used in the manufacture
of plastic resins, fuel additives and synthetic alcohols; (iv) specialty
isobutylenes, primarily used in the production of specialty rubbers, lubricant
additives, detergents and coatings; and (v) polyisobutylenes, used in the
production of fuel and lube additives, adhesives, sealants and packaging.
Effective July 1, 2000 the Texas Petrochemicals Corporation converted its
legal form from a corporation to a limited partnership, Texas Petrochemicals LP,
pursuant to the conversion provisions of the Texas Business Corporation Act and
the Texas Revised Limited Partnership Act. TPC Holding Corp., the Company's
immediate parent prior to the conversion, retained a direct 1% ownership
interest in the partnership and became its sole general partner. Petrochemical
Partnership Holdings, Inc., a new wholly owned subsidiary of TPC Holding Corp.,
acquired the remaining 99% ownership interest and simultaneously became a
limited partner of the partnership. This change has no effect on the current
management of the Company or its existing operations. The Texas Business
Corporation Act provides that the effect of the conversion is that the Company
as a legal entity continues to exist, without interruption, but in the
organizational form of a Texas limited partnership rather than in the prior
organizational form of a Texas corporation.
The Company's principal feedstocks are crude butadiene, isobutane and
methanol. The Company purchases a significant portion of its crude butadiene
requirements at prices that are adjusted based on the Company's selling price of
butadiene as well as the cost of natural gas used to produce butadiene, thereby
providing the Company with a fixed profit margin on such sales. Methanol and
isobutane are purchased at prices linked to prevailing market prices.
GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, have been made which are necessary to
fairly present the financial position of the Company as of September 30, 2000
and the results of its operations and cash flows for the interim period ended
September 30, 2000. The results of the interim period should not be regarded as
necessarily indicative of results that may be expected for the entire year. The
financial information presented herein should be read in conjunction with the
audited financial statements and notes included in the Company's Form 10-K
thereto, for the year ended June 30, 2000. The June 30, 2000 balance sheet was
derived from audited financial statements but does not include all disclosures
required by generally accepted accounting principles. Certain amounts from prior
periods have been reclassified to conform to current period presentation.
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TEXAS PETROCHEMICALS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS OF DOLLARS)
INVENTORIES:
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ----------
Finished goods $ 19,783 $ 18,505
Raw materials 14,113 15,915
Chemicals and supplies 1,168 1,537
-------- --------
$ 35,064 $ 35,957
======== ========
OTHER CURRENT ASSETS:
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ----------
Catalyst inventory $ 7,105 $ 7,402
Deferred turnaround costs 1,845 452
Prepaid and other 2,902 3,777
-------- --------
$ 11,852 $ 11,631
======== ========
PROPERTY, PLANT AND EQUIPMENT:
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ----------
Chemical plants $ 296,671 $ 295,124
Construction in progress 11,047 9,233
Other 5,689 5,592
--------- ---------
313,407 309,949
Less accumulated depreciation, depletion
and amortization 95,408 90,432
--------- ---------
$ 217,999 $ 219,517
========= =========
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TEXAS PETROCHEMICALS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
ACCRUED EXPENSES:
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ----------
Accrued interest $ 7,239 $ 13,780
Property and sales taxes 2,973 2,218
State income taxes 163 --
Other 1,481 2,192
-------- --------
$ 11,856 $ 18,190
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LONG TERM DEBT:
SEPTEMBER 30, JUNE 30,
2000 2000
------------- ----------
Bank Credit Agreement:
Term A Loan $ 11,624 $ 14,402
Term B Loan 35,957 40,421
ESOP Loan 1,500 2,000
Revolving Credit Loans 2,050 1,650
Senior Subordinated Notes 225,000 225,000
Deferred premium on Senior Subordinated Notes 1,848 1,928
--------- ---------
277,979 285,401
Less current maturities 7,098 8,086
--------- ---------
Long-term debt $ 270,881 $ 277,315
========= =========
The Bank Credit Agreement provided for term loans in the amount of $130
million, an ESOP loan of $10 million, and a revolving credit facility of up to
$40 million. Quarterly principal and interest payments are made under the Bank
Credit Agreement. The final payments under the ESOP Loan, Term A Loan and Term B
Loan are due on June 30, 2001, December 31, 2002 and June 30, 2004,
respectively. The Revolving Credit Loan facility is currently scheduled to
expire on December 31, 2002. The debt under the Bank Credit Agreement bears
interest, at the option of the borrower, based on the LIBOR rate plus a margin
(1.50% and 3.00% for Term A and Term B, respectively at September 30, 2000) or
the greater of the prime rate and the federal funds rate plus 1/2% plus a margin
(.50% at September 30, 2000). Substantially all assets of the Company are
pledged as collateral under the Bank Credit Agreement. The Senior Subordinated
Notes are due 2006 and bear interest at 11 1/8% payable semiannually on January
1 and July 1. The Bank Credit Agreement and the Senior Subordinated Notes
include certain restrictive covenants, which include but are not limited to,
limitations on capital expenditures, indebtedness, investments and sales of
assets and subsidiary stock. Additionally, the Bank Credit Agreement requires
the Company to maintain certain financial ratios. During the quarter ended
September 30, 2000, in compliance with the excess cash flow provisions, the
Company made a prepayment of $5.7 million towards the term loans under the Bank
Credit Agreement.
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TEXAS PETROCHEMICALS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
3. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has purchase commitments incident to the ordinary conduct
of business. The prices of such purchase commitments are based on formulas,
which are determined from the prevailing market rate for such products. These
commitments generally have cancellation provisions given proper notification.
LITIGATION
Legal actions have been filed in several states for recovery for
alleged property damage and/or costs of remediation and replacement of water
supplies due to the presence of MTBE. As of this point in time, the Company has
not been named in any of these actions; however, no assurance can be given that
the Company will not be named in these or other future actions.
The Company is involved in various routine legal proceedings which are
incidental to the business. Management of the Company is vigorously defending
such matters and is of the opinion that their ultimate resolution will not have
a material impact on the Company.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state and local laws
and regulations administered by the U.S. Environmental Protection Agency, the
U.S. Coast Guard, the Army Corps of Engineers, the Texas Natural Resource
Conservation Commission, the Texas General Land Office, the Texas Department of
Health and various local regulatory agencies. The Company holds all required
permits and registrations necessary to comply substantially with all applicable
environmental laws and regulations, including permits and registrations for
wastewater discharges, solid and hazardous waste disposal and air emissions, and
management believes that the Company is in substantial compliance with all such
laws and regulations. While management does not expect the cost of compliance
with existing environmental laws will have a material adverse effect on the
Company's financial condition, results of operations or cash flows, there can be
no assurance that future legislation, regulation or judicial or administrative
decisions will not have such an effect.
Under federal and state environmental laws, companies may be liable for
remediation of contamination at on-site and off-site waste management and
disposal areas. Management believes that the Company is not likely to be
required to incur remediation costs related to its management, transportation
and disposal of solid and hazardous materials and wastes, or to its pipeline
operations.
The Company received a Notice of Violation ("NOV") on March 10, 2000
from the EPA relating to certain discrepancies alleged to have been found during
routine inspections conducted by EPA in 1995 and 1997. The NOV has not yet led
to the filing of a judicial complaint against the Company. The EPA, the
Department of Justice, and the Company are currently exploring the possibility
of an agreed upon settlement of issues. The anticipated settlement of such
issues is not expected to have a material adverse impact on the Company's
financial condition, results of operations or cash flow.
A bill (S.B. 2962) has been introduced in Congress to reduce the use of
MTBE nationwide within four (4) years of enactment of the bill, and to allow
states to opt out of the oxygenate requirement of the Clean Air Act ("CAA")
beginning in 2001. The Company is not able to predict whether such legislation
will be adopted, or, if adopted, the extent to which MTBE demand would be
reduced as a result; it is possible, however, that such reduction could be
material. Although the EPA continues to require oxygenates to be added to
gasoline in certain
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regions of the country either year-round or during the winter months, and MTBE
continues to be the leading oxygenate used, EPA has called for reduction in the
use of MTBE in gasoline. Any restriction on or prohibition of the use of MTBE
could have a material adverse effect on the Company's financial condition or
results of operations.
4. ACCOUNTING CHANGE
On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Certain
Hedging Activities" and SFAS No. 138, "Accounting for Derivative Instruments and
Certain Hedging Activity, an Amendment of SFAS 133". Accordingly, upon adoption
of these pronouncements the Company recorded all derivative instruments on the
balance sheet at their respective fair values with an offsetting entry as a
cumulative change in accounting principle net of tax. The cumulative effect on
earnings is a pre-tax charge of $0.6 million less a tax benefit of $0.2 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto of the Company
included elsewhere in this report.
OVERVIEW
The Company's revenues are derived primarily from merchant market sales
of butadiene, fuel products (MTBE, butene-2 and alkylate), specialty n-butylene
and isobutylenes (butene-1, isobutylene concentrate, high purity isobutylene,
diisobutylene and polyisobutylene). The Company's results of operations are
affected by a number of factors, including variations in market demand,
production volumes, and the pricing of its products and primary raw materials.
The Company believes that the pricing for its principal products is primarily
dependent on the balance between the global supply and North American demand for
each product, the cost structure of the various global producers (including
their cost of raw materials) and from time to time, other external factors, such
as the implementation of the Clean Air Act Amendments of 1990, which has
significantly increased the demand for MTBE. Historically, the Company has
successfully mitigated the cyclicality of the markets for certain of its end
products by entering into contracts with pricing which allows for a fixed profit
by linking prices directly or indirectly to raw material costs. In addition, the
Company has attempted to optimize the use of isobutylene, an intermediate
feedstock produced by the Company, to produce MTBE or higher margin specialty
products depending on prevailing market conditions.
MTBE ENVIRONMENTAL AND MARKET ISSUES
There is concern in a number of states that MTBE may enter drinking
water supplies as a result of leaks in underground gasoline storage tanks. As a
result of this concern, California enacted a law banning MTBE from gasoline as
of December 31, 2002. Seven other states (Arizona, Connecticut, Maine,
Minnesota, Nebraska, New York and South Dakota) have enacted similar laws,
providing for reduction or elimination of MTBE from gasoline. In addition, the
State of California has adopted a maximum contaminant level ("MCL") for MTBE in
drinking water supplies of 13 ppb. If MTBE is found at levels exceeding 13 ppb,
it is expected that the water would have to be treated to reduce MTBE
concentration to a level at or below 13 ppb. In addition, a bill (S.B. 2962) has
been introduced in Congress to eliminate the use of MTBE nationwide within four
(4) years of enactment of the bill, and to allow states to opt out of the
oxygenate requirement of the CAA beginning in 2001. The Company is not able to
predict whether such legislation will be adopted, or, if adopted, the extent to
which MTBE demand would be reduced as a result; it is possible, however, that
such reduction could be material. Various scientific bodies have evaluated MTBE
as a possible human carcinogen. To date, the International Agency on Research on
Cancer (IARC), the National Toxicology Program (NTP) and the California Cancer
Identification Committee (CIC) have found MTBE not to be classifiable as a
possible, probable or known human carcinogen. California EPA has designated MTBE
as a possible human carcinogen.
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Although the EPA continues to require oxygenates to be added to
gasoline in certain regions of the country either year-round or during the
winter months, and MTBE continues to be the leading oxygenate used, the EPA has
called for reduction in the use of MTBE in gasoline. Any restriction on or
prohibition of the use of MTBE could have a material adverse effect on the
Company's financial condition or results of operations.
REVENUES
The Company's revenues are a function of the volume of products sold by
the Company and the prices for such products. The following tables set forth the
Company's historical revenues and the percentages of historical revenues by
product group and volume of products sold, for the three months ended September
30, 2000 and 1999.
Revenues
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
2000 1999
---------------- ----------------
(DOLLARS IN MILLIONS)
Butadiene $ 44.3 20% $ 26.1 17%
Fuel Products(1) 129.7 59 98.3 64
Specialty n-Butylene and Isobutylenes(2) 42.0 19 26.2 17
Other(3) 4.6 2 3.4 2
------- ---- ------- ----
Total $ 220.6 100% $ 154.0 100%
======= ==== ======= ====
- ----------
(1) Includes revenue from sales of MTBE, butene-2 and alkylate
(2) Includes revenue from sales of butene-1, isobutylene concentrate,
high-purity isobutylene, diisobutylene and polyisobutylene.
(3) Includes utility revenues and revenues realized from the Company's
terminalling facilities.
Sales Volumes
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
2000 1999
------- ------
(MILLIONS OF POUNDS, EXCEPT WHERE NOTED)
Butadiene 217.2 206.9
Fuel Products(1) 110.5 127.3
Specialty n-Butylene and Isobutylenes 160.5 130.5
- ----------
(1) Volumes in millions of gallons. Includes 29.1 million and 32.3 million
gallons of finished MTBE purchased for resale for the three months ended
September 30, 2000 and 1999, respectively.
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RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of
operations.
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
2000 1999
---------------- ---------------
(DOLLARS IN MILLIONS)
Revenues $ 220.6 100% $ 154.0 100%
Cost of goods sold 195.6 89 132.0 86
Non-cash ESOP compensation 0.2 - 0.1 -
Depreciation and amortization 6.1 3 5.9 4
------- ----- ------- -----
Gross profit 18.7 8 16.0 10
Selling, general and administrative expenses 2.6 1 2.0 1
------- ----- ------- -----
Income from operations $ 16.1 7% $ 14.0 9%
======= ===== ======= =====
Three months ended September 30, 2000 compared to the three months ended
September 30, 1999
REVENUES
The Company's revenues increased by approximately 43%, or $66.6
million, to $220.6 million for the three months ended September 30, 2000 from
$154.0 million for the three months ended September 30, 1999. Butadiene sales
revenues increased due to higher sales prices and sales volumes than in the
prior year quarter. Butadiene sales prices were higher during the current period
because of strong demand and limited extraction capacity. Fuel products sales
revenues increased primarily as a result of higher MTBE sales prices and higher
butene-2 sales volumes as compared to the prior year quarter. MTBE prices are
higher as a result of increases in gasoline and crude oil prices. Butene-2 sales
volumes were higher during the current period attributable to increased
production rates. Specialty n-butylene and isobutylenes sale revenues increased
over the prior year quarter due to higher sales volumes and sales prices. Sales
volumes for isobutylene concentrate were lower in the prior year quarter due to
reduced customer demand largely attributable to temporary downtime at customer
facilities. Sales prices for specialty n-butylene and isobutylenes were higher
as a result of increases in feedstock costs.
GROSS PROFIT
Gross profit increased by approximately 17%, or $2.7 million, to $18.7
million for the three months ended September 30, 2000 from $16.0 million for the
three months ended September 30, 1999. Gross margin during this period decreased
to 8.5% from 10.4%. Gross profit during the current period increased principally
due to higher sales volumes of butadiene and higher margins on MTBE sales. MTBE
gross profit increased as a result of higher sales prices that were partially
offset by lower sales volumes resulting from a scheduled maintenance turnaround.
Gross profit from specialty n-butylene and isobutylenes was unchanged as higher
sales volumes offset the impact of higher raw material costs.
INCOME FROM OPERATIONS
Income from operations increased by approximately 15%, or $2.1 million,
to $16.1 million for the three months ended September 30, 2000 from $14.0
million for the three months ended September 30, 1999. Operating margin during
this period decreased to 7.3% from 9.1%. This increase in income from operations
was primarily due to the same factors contributing to the decrease in gross
profit described above. The selling, general and administrative costs increased
due to higher MTBE advocacy costs and consulting expenses.
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LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Three months ended September 30, 2000 compared to the three months ended
September 30, 1999
Net cash provided by operating activities was $1.4 million for the
three months ended September 30, 2000 compared to $7.4 million for the three
months ended September 30, 1999. The decrease of $6.0 million was primarily
attributable to changes in working capital. Net cash used in investing
activities was $3.3 million for the three months ended September 30, 2000
compared to $0.9 million for the three months ended September 30, 1999. The
increase of $2.4 million was attributable to higher capital expenditures. Net
cash used in financing activities was $8.1 million for the three months ended
September 30, 2000 compared to $6.4 million for the three months ended September
30, 1999. The increase of $1.8 million was attributable to repayments of
borrowing under the term loans of the Bank Credit Agreement.
LIQUIDITY
The Company's liquidity needs arise primarily from principal and
interest payments under the Bank Credit Agreement and the Subordinated Notes.
The Company's primary source of funds to meet debt service requirements is net
cash flow provided by operating activities. Operating cash flow is significantly
impacted by raw materials cost as well as the selling price and volume variances
of finished goods. The Company enters into supply contracts for certain of its
products in order to mitigate the impact of changing prices. Additionally, the
Company has a $40 million Revolving Credit Facility of which $2.1 million was
used at September 30, 2000, to provide funds for ongoing operations, working
capital and planned capital expenditures. The Company believes that the
availability of funds under the Revolving Credit Facility are sufficient to
cover any current liquidity needs which could arise as a result of negative
working capital. The Company's ability to borrow is limited by the terms of the
Bank Credit Agreement and the Subordinated Notes. The Bank Credit Agreement and
the Subordinated Notes include certain restrictive covenants, which include but
are not limited to, the maintenance of certain financial ratios and limitations
on capital expenditures, indebtedness, investments and sales of assets and
subsidiary stock. During the quarter ended September 30, 2000, in compliance
with the excess cash flow provisions, the Company made a prepayment of $ 5.7
million towards the term loans under the Bank Credit Agreement.
CAPITAL EXPENDITURES
The Company's capital expenditures relate principally to improving
production capacity and improving operating efficiencies. Capital expenditures
for three months ended September 30, 2000 were $3.5 million. The Company
expenses approximately $20 million annually for plant maintenance. These
maintenance costs are not treated as capital expenditures.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document may include forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. Although the
Company believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved. Important factors that could cause actual
results to differ materially from the Company's expectations are disclosed in
conjunction with the forward-looking statements included herein ("Cautionary
Disclosures"). Subsequent written oral forward-looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Disclosures.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant quantitative or qualitative changes
during the first fiscal quarter of 2001 in the Company's risk sensitive
instruments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments with respect to the Company's
legal proceedings previously reported in the Company's Form 10-K for the year
ended June 30, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
On September 18, 2000 the Company filed a Form 8-K describing
a change in its certified accountants.
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15
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.
TEXAS PETROCHEMICALS LP
(Registrant)
Dated: November 14, 2000 By: /s/ Carl S. Stutts
------------------------------------------
(Signature)
Carl S. Stutts
Executive Vice President,
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule