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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 DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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REGISTRATION NUMBER 333-37811
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TEXAS PETROCHEMICAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0504002
(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)
----------
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
--- ---
The number of shares of common stock of the registrant outstanding as of
February 14, 2001 is 529,445.
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TEXAS PETROCHEMICAL HOLDINGS, INC.
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet as of December 31, 2000 and June 30, 2000 1
Consolidated Statement of Operations for the three and six months ended
December 31, 2000 and 1999 2
Consolidated Statement of Cash Flows for the six months ended
December 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
DECEMBER 31, JUNE 30,
2000 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 108 $ 14,929
Accounts receivable - trade 78,865 64,235
Inventories 42,809 35,957
Investment in land held for sale 1,068 1,068
Other current assets 13,708 11,398
------------ ------------
Total current assets 136,558 127,587
Property, plant and equipment, net 216,352 219,517
Investments in land held for sale 990 990
Investment in and advances to limited partnership 2,732 2,769
Goodwill, net 162,686 164,978
Other assets, net of accumulated amortization 8,296 8,239
------------ ------------
Total assets $ 527,614 $ 524,080
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdraft $ 7,477 $ 7,146
Accounts payable - trade 69,587 71,775
Accrued expenses 19,197 18,829
Current portion of cash bonus plan -- 213
Current portion of long-term debt 6,798 8,086
------------ ------------
Total current liabilities 103,059 106,049
Revolving line of credit 15,000 1,650
Long-term debt 321,206 326,255
Deferred income taxes 52,862 55,005
Commitments and contingencies (Note 3)
Common Stock held by the ESOP 15,300 13,100
Less: unearned compensation (1,530) (2,620)
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 voting and
100,000 shares non-voting authorized, 529,445 voting
shares issued and outstanding 5 5
Additional paid in capital 37,831 37,408
Treasury Stock (188) (257)
Accumulated deficit (15,931) (12,515)
------------ ------------
Total stockholder's equity 21,717 24,641
------------ ------------
Total liabilities and stockholder's equity $ 527,614 $ 524,080
============ ============
See accompanying notes to consolidated financial statements.
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TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Revenues $ 202,710 $ 185,976 $ 423,298 $ 339,978
Cost of goods sold 189,192 161,749 384,812 293,798
Non-cash ESOP compensation 265 130 420 260
Depreciation and amortization 6,134 5,950 12,256 11,813
---------- ---------- ---------- ----------
Gross profit 7,119 18,147 25,810 34,107
Selling, general and administrative expenses 2,403 2,432 5,049 4,422
---------- ---------- ---------- ----------
Income from operations 4,716 15,715 20,761 29,685
Interest expense 9,598 9,544 19,348 19,311
Other income (expense):
Non-cash change in fair value of derivatives 216 -- (148) --
Other, net 178 (179) 255 (77)
---------- ---------- ---------- ----------
394 (179) 107 (77)
Income (loss) before income taxes (4,488) 5,992 1,520 10,297
and cumulative effect of accounting change
Provision (benefit) for income taxes (458) 2,974 2,236 5,310
---------- ---------- ---------- ----------
Cumulative effect of accounting
change (net of $221 income tax benefit) (410)
Net income (loss) $ (4,030) $ 3,018 $ (1,126) $ 4,987
========== ========== ========== ==========
Basic income (loss) per share
Income before cumulative effect of $ (11.41) $ 6.09 $ (5.02) $ 10.12
accounting change
Cumulative effect of accounting change -- -- (.80) --
---------- ---------- ---------- ----------
Income (loss) per share $ (11.41) 6.09 $ (5.82) 10.12
Weighted average shares outstanding - basic 516,945 495,278 514,445 492,778
========== ========== ========== ==========
Diluted income per share
Income before cumulative effect of $ (11.41) $ 6.01 $ (5.02) $ 9.99
accounting change
Cumulative effect of accounting change -- -- (.80) --
---------- ---------- ---------- ----------
Income (loss) per share $ (11.41) $ 6.01 $ (5.82) $ 9.99
Weighted average shares outstanding - diluted 516,945 501,939 514,445 499,439
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
--------------------------
2000 1999
---------- ----------
Cash flows from operating activities:
Net income (loss) $ (1,126) $ 4,987
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation of fixed assets 9,965 9,411
Amortization of goodwill and other assets 2,292 2,400
Amortization of debt issue costs and deferred premium 4,016 3,624
Earnings from limited partnership (288) (230)
Deferred income taxes (573) (1,753)
Non-cash ESOP compensation 420 260
Non-cash change in fair value of derivatives 780 --
Change in:
Accounts receivable (14,630) (10,969)
Inventories (6,852) (10,974)
Other assets (3,909) 3,580
Accounts payable (2,188) 14,059
Accrued expenses (1,202) (138)
Distribution from limited partnership 325 150
---------- ----------
Net cash provided (used) by operating activities (12,970) 14,407
Cash flows from investing activities:
Capital expenditures (6,800) (5,844)
---------- ----------
Net cash used in investing activities (6,800) (5,844)
Cash flows from financing activities:
Change in bank overdraft 331 3,455
Net borrowings (repayments) under revolver 13,350 (2,000)
Payments on long-term debt (9,591) (3,819)
Payment of cash bonus plan (213) (3,834)
Debt issuance costs -- (152)
Issuance of treasury stock 72 --
Reduction in note receivable from ESOP 1,000 1,000
---------- ----------
Net cash provided (used) by financing activities 4,949 (5,350)
---------- ----------
Net increase (decrease) in cash and cash equivalents (14,821) 3,213
Cash and cash equivalents, at beginning of period 14,929 103
---------- ----------
Cash and cash equivalents, at end of period $ 108 $ 3,316
========== ==========
See accompanying notes to consolidated financial statements.
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TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
NATURE OF OPERATIONS
The consolidated financial statements include the accounts of Texas
Petrochemical Holdings, Inc. and its wholly owned subsidiary, TPC Holding Corp.,
collectively referred to as (the "Company"). The Company through its facility in
Houston, Texas is the third largest producer of butadiene, the largest producer
of butene-1, and the third largest producer of methyl tertiary-butyl ether
("MTBE"), in North America, in terms of production capacity. In addition, the
Company is the sole producer of diisobutylene and isobutylene concentrate in the
United States and is 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.
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 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 10Q 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 December 31, 2000 and
the results of its operations and cash flows for the interim period ended
December 31, 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 PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
EARNINGS PER SHARE
The basic and diluted weighted average shares outstanding used in the
computation of earnings (loss) per share are net of 10,000 and 30,000 shares
held by the Employee Stock Ownership Plan that are not allocated to employees as
of December 31, 2000 and 1999, respectively. For the three and six months ended
December 31, 2000, earnings (loss) used in calculating the basic and diluted
earnings (loss) per share has been reduced by $1,870,000 which reflects the
increase in the market value of shares allocated to employees, to the extent
that such increase has not already been recognized as compensation expense in
the current period or as appreciation in value in prior periods. The effect of
unallocated ESOP shares and stock options was antidilutive for the three and six
months ended December 31, 2000 and therefore was excluded from the diluted
earnings (loss) per share calculation.
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS OF DOLLARS)
INVENTORIES:
DECEMBER 31, JUNE 30,
2000 2000
------------ ------------
Finished goods $ 24,537 $ 18,505
Raw materials 17,006 15,915
Chemicals and supplies 1,266 1,537
------------ ------------
$ 42,809 $ 35,957
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OTHER CURRENT ASSETS:
DECEMBER 31, JUNE 30,
2000 2000
------------ ------------
Catalyst Inventory $ 7,374 $ 7,402
Deferred turnaround costs 3,580 452
Prepaid and other 2,754 3,544
------------ ------------
$ 13,708 $ 11,398
============ ============
PROPERTY, PLANT AND EQUIPMENT:
DECEMBER 31, JUNE 30,
2000 2000
------------ ------------
Chemical plants $ 296,662 $ 295,124
Construction in progress 14,373 9,233
Other 5,714 5,592
------------ ------------
316,749 309,949
Less accumulated depreciation, depletion
and amortization 100,397 90,432
------------ ------------
$ 216,352 $ 219,517
============ ============
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TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
ACCRUED EXPENSES:
DECEMBER 31, JUNE 30,
2000 2000
------------ ------------
Accrued interest $ 13,481 $ 13,780
Property and sales taxes 3,802 2,218
Federal and state taxes -- 639
Other 1,914 2,192
------------ ------------
$ 19,197 $ 18,829
============ ============
LONG TERM DEBT:
DECEMBER 31, JUNE 30,
2000 2000
------------ ------------
Bank Credit Agreement:
Term A Loan $ 10,495 $ 14,402
Term B Loan 35,736 40,421
ESOP Loan 1,000 2,000
Revolving Credit Loans 15,000 1,650
Senior Subordinated Notes 225,000 225,000
Discount Notes 54,005 50,590
Deferred premium on Senior Subordinated Notes 1,768 1,928
------------ ------------
343,004 335,991
Less current maturities 6,798 8,086
------------ ------------
Long-term debt $ 336,206 $ 327,905
============ ============
The Bank Credit Agreement provides 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
(1.5% and 3.0% for Term A and Term B, respectively at December 31, 2000) or the
greater of the prime rate and the federal funds rate plus 1/2% plus a margin
(.5% at December 31, 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 Discount Notes are due 2007 and bear interest at 13 1/2% payable
semiannually on January 1 and July 1 beginning in 2002. The Bank Credit
Agreement, the Senior Subordinated Notes and the Discount 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. In September 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 Facility.
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TEXAS PETROCHEMICAL HOLDINGS, INC.
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.
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TEXAS PETROCHEMICALS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
A bill 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
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 transactions covered by the
SFAS 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.
5. SUPPLEMENTAL GUARANTOR INFORMATION
TPC Holding Corp. a wholly owned subsidiary of Texas Petrochemical
Holdings, Inc. has fully and unconditionally guaranteed, on a joint and several
basis, Texas Petrochemical Holdings, Inc's. obligations relative to the Discount
Notes due 2007 in an Event of Default. TPC Holding Corp. conducts its operations
through its subsidiaries and is dependent upon distribution from these
subsidiaries as its source of cash flow. Management has determined that
separate, full financial statements of TPC Holding Corp. ("Guarantor") would not
be material to investors and such financial statements are not provided.
Supplemental combining financial information of Texas Petrochemical Holdings,
Inc. is presented below:
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TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Balance Sheet
December 31, 2000
(in thousands)
Parent Guarantor Non-Guarantors Eliminations Total
ASSETS
Current assets:
Cash and cash equivalents $ $ 2 $ 106 $ $ 108
Accounts receivable - trade 78,865 78,865
Inventories 42,809 42,809
Investment in land held for sale 1,068 1,068
Other current assets (170) (10) 13,708 180 13,708
---------- ---------- ---------- ---------- ----------
Total current assets (170) (8) 136,556 136,558
Property, plant and equipment, net 216,352 216,352
Investments in land held for sale 990 990
Investment in and advances to limited partnership 2,732 2,732
Goodwill, net 162,686 162,686
Other assets, net of accumulated amortization 377 8,099 (180) 8,296
Consolidated subsidiaries 81,770 81,769 (163,539) --
---------- ---------- ---------- ---------- ----------
Total assets $ 81,977 $ 81,761 $ 527,415 $ (163,539) $ 527,614
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ $ $ 7,477 $ $ 7,477
Accounts payable - trade 69,587 69,587
Accrued expenses 19,197 19,197
Current portion of long-term debt 6,798 6,798
---------- ---------- ---------- ---------- ----------
Total current liabilities 103,059 103,059
Revolving line of credit 15,000 15,000
Long-term debt 54,005 267,201 321,206
Deferred income taxes (7,515) 60,377 52,862
Common stock held by the ESOP 15,300 15,300
Less: unearned compensation (1,530) (1,530)
Stockholders' equity:
Partners' equity 82,778 (82,778)
Common Stock 5 5
Additional paid in capital 37,831 75,805 (75,805) 37,831
Treasury stock (188) (188)
Accumulated deficit (15,931) 5,956 (5,956) (15,931)
Note receivable from ESOP (1,000) 1,000 --
---------- ---------- ---------- ---------- ----------
Total stockholders' equity 21,717 81,761 81,778 163,539 21,717
---------- ---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 81,977 $ 81,761 $ 527,415 $ 163,539 $ 527,614
========== ========== ========== ========== ==========
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TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Balance Sheet
June 30, 2000
(in thousands)
Parent Guarantor Non-Guarantors Eliminations Total
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 10 $ 14,919 $ -- $ 14,929
Accounts receivable:
Trade 64,235 64,235
Inventories 35,957 35,957
Investments in land held for sale 1,068 1,068
Other current assets (223) 11,631 (10) 11,398
---------- ---------- ---------- ---------- ----------
Total current assets (223) 10 127,810 (10) 127,587
Property, plant and equipment, net 219,517 219,517
Investments in land held for sale 990 990
Investment in and advances to limited partnership 2,769 2,769
Goodwill, net 164,978 164,978
Other assets, net of accumulated amortization 404 7,835 8,239
Consolidated subsidiaries 78,591 78,591 (157,182) --
---------- ---------- ---------- ---------- ----------
Total assets $ 78,772 $ 78,601 $ 523,899 $ (157,192) $ 524,080
========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ $ -- $ 7,146 $ -- $ 7,146
Accounts payable - trade 71,775 71,775
Payable to affiliate 10 639 (649) --
Accrued expenses 18,190 639 18,829
Current portion of cash bonus plan 213 213
Current portion of long-term debt 8,086 8,086
---------- ---------- ---------- ---------- ----------
Total current liabilities 10 106,049 (10) 106,049
Revolving line of credit 1,650 1,650
Long-term debt 50,590 275,665 326,255
Cash bonus plan --
Deferred income taxes (6,939) 61,944 55,005
Common stock held by the ESOP 13,100 13,100
Less: unearned compensation (2,620) (2,620)
Stockholders' equity:
Common Stock 5 4,162 (4,162) 5
Additional paid in capital 37,408 74,782 72,620 (147,402) 37,408
Treasury stock (257) (257)
Accumulated deficit (12,515) 3,809 3,809 (7,618) (12,515)
Note receivable from ESOP (2,000) 2,000
---------- ---------- ---------- ---------- ----------
Total stockholders' equity 24,641 78,591 78,591 (157,182) 24,641
---------- ---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 78,772 $ 78,601 $ 523,899 $ (157,192) $ 524,080
========== ========== ========== ========== ==========
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TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Income
Six Months Ended December 31, 2000
(in thousands)
Parent Guarantor Non-Guarantors Eliminations Total
Revenues $ $ $ 423,298 $ $ 423,298
Cost of goods sold 384,812 384,812
Non-cash ESOP compensation 420 420
Depreciation and amortization 12,256 12,256
---------- ----------
Gross profit 25,810 25,810
Selling, general and administrative expenses 16 8 5,024 5,049
---------- ---------- ---------- ---------- ----------
Income (loss) from operations (16) (8) 20,786 20,761
Interest expense 3,442 15,906 19,348
Other income (expense):
Other, net 107 107
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (3,458) (8) 4,987 1,520
and cumulative effect of
accounting change
Provision (benefit) for income taxes (573) 2,810 2,236
Equity in net income of subsidiaries 1,759 1,767 (3,526)
Cumulative effect of accounting change,
(net of tax of $221 income tax benefit) (410) (410)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (1,126) $ 1,759 $ 1,767 $ $ (1,126)
========== ========== ========== ========== ==========
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Income
Six Months Ended December 31, 1999
(in thousands)
Parent Guarantor Non-Guarantors Eliminations Total
Revenues $ $ $ 339,978 $ $ 339,978
Cost of goods sold 293,798 293,798
Non-cash ESOP compensation 260 260
Depreciation and amortization 11,813 11,813
---------- ----------
Gross profit 34,107 34,107
Selling, general and administrative expenses (2) 4,420 4,422
---------- ---------- ---------- ---------- ----------
Income (loss) from operations (2) 29,687 29,685
Interest expense 3,024 16,287 19,311
Other income (expense) (77) (77)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (3,026) 13,323 10,297
Provision (benefit) for income taxes (1,047) 6,357 5,310
Equity in net income of subsidiaries 6,966 6,966 (13,932)
---------- ---------- ---------- ---------- ----------
Net income $ 4,987 $ 6,966 $ 6,966 $ (13,932) $ 4,987
========== ========== ========== ========== ==========
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TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Six Months Ended December 31, 2000
(in thousands)
Parent Guarantor Non-Guarantors Eliminations Total
Cash flows from operating activities:
Net income (loss) $ (1,126) $ 1,759 $ 1,767 $ (3,526) $ (1,126)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 9,965 9,965
Amortization of goodwill and other assets 2,292 2,292
Amortization of debt issue costs 3,415 601 4,016
Loss on disposal of non-plant assets (288)
Earnings from limited partnership (288) (573)
Deferred income taxes 56 (629) 420
Non-cash ESOP compensation 420
Non-cash change in fair value of derivative 780 780
Change in:
Accounts receivable (14,630) (14,630)
Inventories (6,852) (6,852)
Other assets 912 (4,821) (3,909)
Accounts payable, accrueds and other (1,570) (1,820) (3,390)
Distribution from limited partnership 325 325
---------- ---------- ---------- ---------- ----------
Net cash provided (used) by 1,687 1,759 (12,890) (12,970)
operating activities
Cash flows from investing activities:
Capital expenditures (6,800) (6,800)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities (6,800) (6,800)
Cash flows from financing activities:
Change in bank overdraft 331 331
Net repayments under revolver 13,350 13,350
Payments on long-term debt (9,591) (9,591)
Payment of cash bonus plan (213) (213)
Issuance of treasury stock 72 72
Reduction in note receivable from ESOP 1,000 1,000
---------- ---------- ---------- ---------- ----------
Net cash provided (used) by
financing activities 72 (4,877) 4,949
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 1,759 1,759 (14,813) (14,821)
Cash and cash equivalents, at beginning of period 10 14,919 14,929
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, at end of period $ 1,759 $ 1,769 $ 106 $ 3,526 $ 108
========== ========== ========== ========== ==========
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TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Six Months Ended December 31, 1999
(in thousands)
Parent Guarantor Non-Guarantors Eliminations Total
Cash flows from operating activities:
Net income (loss) $ 4,987 $ 6,966 $ 6,966 $ (13,932) $ 4,987
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 9,411 9,411
Amortization of goodwill and other assets 2,400 2,400
Amortization of debt issue costs 3,024 600 3,624
Earnings from limited partnership (230) (230)
Deferred income taxes (1,047) (706) (1,753)
Non-cash ESOP compensation 260 260
Change in:
Accounts receivable (10,969) (10,969)
Inventories (10,974) (10,974)
Other assets 3,580 3,580
Accounts payable, accrueds and other 2 13,919 13,921
Distribution from limited partnership 150 150
---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities 6,966 6,966 14,407 (13,932) 14,407
Cash flows from investing activities:
Capital expenditures (5,844) (5,844)
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities (5,844) (5,844)
Cash flows from financing activities:
Change in bank overdraft 3,455 3,455
Net repayments under revolver (2,000) (2,000)
Payments on long-term debt (3,819) (3,819)
Payment of cash bonus plan (3,834) (3,834)
Debt issuance costs (152) (152)
Reduction in note receivable from ESOP 1,000 1,000
---------- ---------- ---------- ---------- ----------
Net cash used in financing activities (5,350) (5,350)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 6,966 6,966 3,213 (13,932) 3,213
Cash and cash equivalents, at beginning of period 103 103
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, at end of period $ 6,966 $ 6,966 $ 3,316 $ (13,932) $ 3,316
========== ========== ========== ========== ==========
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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 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.
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.
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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 and six months ended
December 31, 2000 and 1999, respectively.
Revenues
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------------------------- ---------------------------------------------
2000 1999 2000 1999
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN MILLIONS)
Butadiene $ 44.6 22% $ 31.9 17% $ 88.9 21% $ 58.1 17%
Fuel Products(1) 112.4 55 115.1 62 242.1 57 213.3 63
Specialty Products(2) 40.4 20 35.4 19 82.4 19 61.6 18
Other(3) 5.3 3 3.6 2 9.9 3 7.0 2
-------- -------- -------- -------- -------- -------- -------- --------
Total $ 202.7 100% $ 186.0 100% $ 423.3 100% $ 340.0 100%
======== ======== ======== ======== ======== ======== ======== ========
- ----------
(1) Includes revenues from sales of MTBE, butene-2 and alkylate.
(2) Includes revenues 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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
(MILLIONS OF POUNDS, EXCEPT WHERE NOTED)
Butadiene 196.8 221.8 414.0 428.7
Fuel Products(1) 111.3 139.4 221.8 266.8
Specialty Products 147.6 161.5 308.0 292.0
- ----------
(1) Volumes in millions of gallons. Includes 88.3 millions, 133.6 million,
183.1 million and 250.4 million gallons of MTBE sales, of which 39.3
million, 47.1 million, 68.4 million and 79.3 million gallons were of
finished MTBE purchased for resale for the three and six months ended
December 31, 2000 and 1999.
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18
RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of
operations.
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------- -------------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
(DOLLARS IN MILLIONS)
Revenues $202.7 100% $186.0 100% $423.3 100% $340.0 100%
Cost of goods sold 189.2 93 161.8 87 384.8 91 293.8 86
Non-cash ESOP compensation .3 -- 0.1 -- .4 -- 0.3 --
Depreciation and amortization 6.1 3 6.0 3 12.3 3 11.8 4
------ ------ ------ ------ ------ ------ ------ ------
Gross profit 7.1 4 18.1 10 25.8 6 34.1 10
Selling, general and administrative 2.4 1 2.4 1 5.0 1 4.4 1
------ ------ ------ ------ ------ ------ ------ ------
Income from operations $ 4.7 2% $ 15.7 9% $ 20.8 5% $ 29.7 9%
====== ====== ====== ====== ====== ====== ====== ======
Three months ended December 31, 2000 compared to the three months ended December
31, 1999
REVENUES
The Company's revenues increased by approximately 9%, or $16.7 million,
to $202.7 million for the three months ended December 31, 2000 from $186.0
million for the three months ended December 31, 1999. Butadiene sales revenues
increased during the current quarter due to higher sales prices. Butadiene sales
prices have increased significantly compared to the prior year due to higher
hydrocarbon values and limited domestic supply. Sales revenues for fuel products
decreased slightly from the prior year quarter primarily as a result of lower
MTBE sales volumes. MTBE sales volumes declined due to lower production volumes
as a result of a planned maintenance turnaround that was extended due to
unfavorable economics. Specialty isobutylenes sale revenues increased over the
prior year quarter due to higher sales prices. Sales prices for specialty
n-butylene and isobutylenes were higher as a result of increases in raw material
costs.
GROSS PROFIT
Gross profit decreased by approximately 61%, or $11.0 million, to $7.1
million for the three months ended December 31, 2000 from $18.1 million for the
three months ended December 31, 1999. Gross margin during this quarter decreased
to 4% from 10%. Lower butadiene sales volumes and lower product margins on MTBE
and specialty isobutylenes contributed to reduced profits. Margins were
negatively impacted by higher energy and raw material costs.
INCOME FROM OPERATIONS
Income from operations decreased by approximately 70%, or $11 million,
to $4.7 million for the three months ended December 31, 2000 from $15.7 million
for the three months ended December 31, 1999. Operating margin during this
period decreased to 2% from 9%. This decrease in income from operations was
primarily due to the same factors contributing to the decrease in gross profit
described above. Selling, general and administrative costs remained unchanged
over prior year.
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19
Six months ended December 31, 2000 compared to the six months ended December 31,
1999
REVENUES
The Company's revenues increased by approximately 25%, or $83.3
million, to $423.3 million for the six months ended December 31, 2000 from
$340.0 million for the six months ended December 31, 1999. Butadiene sales
revenues increased during the current period due to higher sales prices.
Butadiene sales prices have increased significantly compared to the prior year
due to higher hydrocarbon values and limited domestic supply. Sales revenues for
fuel products increased compared to prior year period due to higher butene-2
sales volumes, the introduction of alkylate sales and higher average MTBE sales
prices which offset lower sales volumes. Butene-2 sales volumes increased due to
higher production rates. MTBE sales prices increased as a result of higher
gasoline and crude oil prices. Sales revenues for speciality products increased
34% during the current period due to higher sales prices and higher speciality
isobutylene sales volumes. Sales prices increased as a result of higher raw
material costs, while sales volumes were higher due to an increase in customer
demand.
GROSS PROFIT
Gross profit decreased by approximately 24%, or $8.3 million, to $25.8
million for the six months ended December 31, 2000 from $34.1 million for the
six months ended December 31, 1999. Gross margin during this period decreased to
6% from 10%. Lower butadiene sales volumes and lower product margins on MTBE and
specialty isobutylenes contributed to reduced profits. Margins were negatively
impacted by higher energy and raw material costs.
INCOME FROM OPERATIONS
Income from operations decreased by approximately 30%, or $8.9 million,
to $20.8 million for the six months ended December 31, 2000 from $29.7 million
for the six months ended December 30, 1998. Operating margin during this period
decreased to 5% from 9%. This decrease 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
consulting expenses and MTBE advocacy costs.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Six months ended December 31, 2000 compared to the six months ended December 31,
1999
Net cash used in operating activities was $13.0 million for the six
months ended December 31, 2000 compared to $14.4 million net cash provided for
the six months ended December 31, 1999. The decrease of $27.4 million was
primarily attributable to reduced net income and changes in working capital. Net
cash used in investing activities was $6.8 million for the six months ended
December 31, 2000 compared to $5.8 million for the six months ended December 31,
1999. The increase of $1.0 million was attributable to higher capital
expenditures. Net cash provided by financing activities was $4.9 million for the
six months ended December 31, 2000 compared to $5.4 million net cash used for
the six months ended December 31 1999. The increase of $10.3 million net cash
provided was attributable to net borrowings under the revolver credit facility.
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20
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 $25 million was
available at December 31, 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. In September 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 six months ended December 31, 2000 were $6.8 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant quantitative or qualitative changes
during the second fiscal quarter of 2001 in the Company's risk sensitive
instruments.
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21
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) Reports on Form 8-K
There were no reports on Form 8-K filed during the three
months ended December 31, 2000.
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22
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 PETROCHEMICAL HOLDINGS, INC.
(Registrant)
Dated: February 14, 2001 By: Carl S. Stutts
-------------------------------------
(Signature)
Carl S. Stutts
Executive Vice President,
Chief Financial Officer
20