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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2001
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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COMMISSION FILE NUMBER 333-37811
TEXAS PETROCHEMICAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OR 12(g) OF THE ACT:
NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The number of shares of common stock of the registrant outstanding as
of September 26, 2001 is 529,445.
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TEXAS PETROCHEMICAL HOLDINGS, INC.
TABLE OF CONTENTS
<Table>
<Caption>
Page
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PART I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risks 14
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements With Accountants on Accounting 42
and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 43
Item 11. Executive Compensation 45
Item 12. Security Ownership of Certain Beneficial Owners and Management 46
Item 13. Certain Relationships and Related Transactions 47
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 47
Signatures 49
</Table>
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PART I
ITEM 1. BUSINESS
Texas Petrochemical Holdings, Inc. and its wholly owned subsidiary
Texas Petrochemicals LP, formerly Texas Petrochemicals Corporation,
(collectively referred to as the "Company") is one of the largest producers of
butadiene, the largest producer of butene-1, and the third largest producer of
methyl tertiary-butyl 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) alkylate, used as a gasoline blend component; (iv)
n-butylenes (butene-1 and butene-2), used in the manufacture of plastic resins,
fuel additives and synthetic alcohols; (v) specialty isobutylenes, primarily
used in the production of specialty rubbers, lubricant additives, detergents and
coatings; and (vi) polyisobutylenes, used in the production of fuel and lube
additives, adhesives, sealants and packaging.
The Company's manufacturing facility, located approximately one mile
from the Houston Ship Channel provides convenient access to other Gulf Coast
petrochemical producers and is connected to several of its customers and raw
material suppliers through an extensive pipeline network. In addition, the
Company's facility is serviced by rail, tank truck and barge.
The Company was founded in 1968, at which time the Company was
principally engaged in the installation of crude butadiene processing
facilities. In 1984, Mr. Dave C. Swalm acquired from Tenneco, Inc. the assets
(principally comprised of the Houston facility) of Petro-Tex Chemical
Corporation ("Petro-Tex") the prior owner of the Company's manufacturing
facility.
On July 1, 1996 Texas Olefins Company ("TOC"), Texas Petrochemicals LP
and a raw material supply contract of Clarkston Corporation (collectively
referred to as the "Predecessor") were acquired for approximately $371 million
in a series of transactions (the "Acquisition"). After the transactions, TOC was
merged with and into Texas Petrochemicals LP with Texas Petrochemicals LP
becoming a 100% owned subsidiary of TPC Holding Corporation, which is a 100%
owned subsidiary of Texas Petrochemical Holdings, Inc. Texas Petrochemicals
Holdings, Inc. was formed by a group of privately held investors.
On July 1, 2000 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., Texas
Petrochemicals LP'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 Texas
Petrochemicals LP, formerly Texas Petrochemicals Corporation, 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 executive offices are located at Three
Riverway, Suite 1500, Houston, Texas 77056. The Company's telephone number is
(713) 627-7474.
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PRODUCTS
Butadiene is the most widely used feedstock for synthetic rubber
products and is also used in the manufacture of engineered plastics, nylon
fibers and other products. The Company sells butadiene to a stable customer
base. As one of the largest producers of butadiene in North America, the Company
believes that many of its customers place significant value on its ability to
provide a reliable domestic supply of butadiene and as a result have entered
into long-term sales contracts with the Company.
The Company extracts butadiene from crude butadiene, which is generated
from the production of ethylene and is comprised of a number of valuable
components, including butadiene, isobutylene, n-butylenes, isobutane and
n-butane. Many U.S. ethylene producers rely on third parties such as the Company
to process their crude butadiene streams, as the crude butadiene volumes they
produce are not sufficient to justify the construction of on-site butadiene
recovery facilities. During 2001, the Company completed modifications that
increased its butadiene extraction capacity by 300 million pounds per year to a
total annual capacity of 1.2 billion pounds. Included in the project were
changes that expanded the Company's logistical capabilities to support the
increased throughput. The Company is the largest non-integrated crude butadiene
processor in North America and as a result of its strategic importance to
ethylene producers, the Company has been able to secure long-term supply
contracts covering the majority of its crude butadiene requirements. Such
contracts provide for a fixed profit margin based on the Company's selling
prices for butadiene, and add a measure of stability to the Company's butadiene
operations.
MTBE is a motor gasoline blending stock, which reduces carbon monoxide
and volatile organic compound emissions and enhances the octane content of
gasoline. MTBE is produced by reacting methanol and isobutylene. MTBE use and
demand is seasonal based on the demand for motor fuels and driving patterns. The
Company's ability to produce isobutylene by three alternative methods enables it
to produce MTBE by the most economical process available to the Company. The
U.S. Clean Air Act ("CAA") of 1990 requires the use of an "oxygenate" in
gasoline sold in certain regions that are not in compliance with air quality
standards. MTBE is the predominate oxygenate used in gasoline. However, as a
result of incidents in which MTBE from gasoline has been found in drinking
water, the federal government and certain state governments are considering
actions that could reduce or even eventually eliminate the use of MTBE in
gasoline. There can be no assurance that these activities will not impact the
Company's market for MTBE. A significant reduction in the demand for MTBE could
have a material adverse effect on the Company's financial condition and results
of operations. See "MTBE Environmental and Market Issues" for a further
discussion of MTBE.
The Company is the leading producer of chemical grade butene-1 and
specialty isobutylenes in North America. In recent years, the Company has
increased its sales of these products by increasing its market share in
polyolefin applications and the development of new end-use applications.
Butene-1 is used as a comonomer in the production of high-density polyethylene
("HDPE") and linear low-density polyethylene ("LLDPE"). Both HDPE and LLDPE are
raw materials for the production of trash bags, film wrap, pipe and plastic
containers. Butene-1 is also used to produce butylene oxide, a key component of
detergent additive packages used in many gasoline formulations.
High purity isobutylene is used in the production of butyl rubber,
which is used to produce tires, and in specialty chemical applications such as
the production of resins, antioxidants, paints and coatings, synthetic lubricant
oils and rubber chemicals. The Company is currently the largest domestic
merchant supplier of high purity isobutylene to the chemical market. Isobutylene
concentrate is similar to high purity isobutylene in composition, although its
purity is 88% isobutylene compared to 99.9% in high purity isobutylene. The
Company markets isobutylene concentrate for use in the lubricant additives
business as well as for use in the production of butyl rubber. The Company is
the sole U.S. producer of isobutylene concentrate. Diisobutylene is used
primarily as an intermediate in the manufacturing of alkylphenols for the
surfactant and phenolic resins markets. Other uses include the production of
tackifier and ink resins, dispersants and lubricant oil additives, and rubber
and processing chemicals. The Company is the sole U.S. producer of
diisobutylene.
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During 2000 the Company completed the development and construction of a
$12 million polyisobutylene plant. The plant produces various grades of
polyisobutylenes, which are used to produce a broad range of chemicals including
industrial specialties, lubricants and fuel dispersant additives.
The Company's principal feedstocks are crude butadiene, isobutane and
methanol. The Company's sources of isobutane and methanol are readily available
from several suppliers. The inability of any one of these suppliers to continue
as a source of raw materials would not have a material impact on the Company's
ability to continue normal operations. The Company's crude butadiene supply is
purchased generally under contract terms from several major ethylene producers.
The loss of any one of the Company's largest crude butadiene suppliers would
have a material impact on the Company's ability to continue normal operations.
One of the Company's intermediate products, isobutylene, is used in the
manufacture of MTBE and specialty isobutylenes.
OTHER OPERATIONS
The Company operates a cogeneration power plant that supplies
electricity and process steam to the facility's chemical processing operations.
Excess capacity of this power plant, as well as steam and boiler feed water are
currently sold to neighboring facilities under contracts at a price equal to the
cost of fuel plus a fixed profit. In addition, the Company generates revenues
from its terminals in Baytown, Texas and Lake Charles, Louisiana and from
chemical by-product sales to third parties.
CONTRACTS
The Company enters into three general types of contracts in connection
with its production processes: feedstock supply contracts, product sales
contracts and, to a lesser extent, toll manufacturing agreements. These
contracts typically have terms of two to three years and provide for successive
one-year renewals unless either party objects to such renewal in a timely
manner. The Company also purchases and sells products on a spot basis.
Certain of the Company's largest customers account for a significant
percentage of the Company's sales of particular products. The Goodyear Tire and
Rubber Company represented 11% of sales during the years ended June 30, 2001 and
1999. Although the Company believes its relationship with Goodyear Tire and
Rubber Company is good, the loss of this customer would have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
COMPETITION
The petrochemicals businesses in which the Company operates are highly
competitive. Many of the Company's competitors, particularly in the
petrochemicals industry, are larger and have greater financial resources than
the Company. Among the Company's competitors are some of the world's largest
chemical companies and major integrated petroleum companies that have their own
raw material resources. In addition, a significant portion of the Company's
business is based upon widely available technology. Accordingly, barriers to
entry, apart from capital availability, may be low in the commodity product
section of the Company's business, and the entrance of new competitors into the
industry may reduce the Company's ability to capture improving profit margins in
circumstances where overcapacity in the industry is diminishing. Further,
petroleum-rich countries have recently become more significant participants in
the petrochemical industry and may continue to expand their role in this
industry in the future. Any of these developments would have a negative impact
on the Company's financial condition, results of operations or cash flows.
Given the nature of the markets in which it competes, the Company
believes it has two primary competitive advantages over its competitors. First,
the Company's position as the most significant merchant crude butadiene
processor in the world has allowed it to secure supply arrangements for crude
butadiene that provide for a fixed profit based on the Company's selling prices
for the finished product. The Company believes that this partially limits its
exposure to fluctuations in raw materials prices. Second, the Company's flexible
production processes enable it to optimize production output to meet variations
in customer demand. Also, the Company's flexible
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production processes enable the Company to conduct maintenance work on its plant
equipment with minimal loss of production.
PATENTS AND LICENSES
The Company presently owns, controls or holds right to 11 patents and
seeks patent protection for its proprietary processes where feasible to do so.
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's Governor, Gray Davis, issued an Executive
Order banning MTBE from gasoline as of December 31, 2002. Currently, the
effective date of the ban is being reconsidered by California because of
concerns about the availability and cost of alternatives to MTBE. Several other
states have enacted laws providing for reduction or elimination of MTBE from
gasoline. In addition certain States have established maximum contaminant levels
("MCLs") for MTBE in drinking water supplies ranging from 10 to 17 ppb. The U.S.
Environmental Protection Agency ("EPA") has not yet established an MCL, but has
an advisory of 20-40 ppb, based on aesthetics. If MTBE is found at levels
exceeding the MCLs, the water will have to be treated to reduce MTBE
concentration to a level at or below the applicable MCL.
There continues to be action in Congress to impact the use of MTBE in
gasoline. The most prevalent legislative proposals would ban MTBE, eliminate the
oxygen requirement of the CAA or require the use of ethanol as a
gasoline-blending component. The Company is not able to predict whether such
legislation will be adopted. If adopted, however, such legislation would be
expected to materially reduce MTBE demand and have an adverse material effect on
the Company's results of operations.
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.
ENVIRONMENTAL REGULATION
The Company's policy is to be in compliance with all applicable
environmental laws. The Company is also committed to Responsible Care(R), a
chemical industry initiative to enhance the industry's responsible management of
chemicals. The Company's operations are subject to federal, state, and local
laws and regulations administered by the EPA, the U.S. Coast Guard, the Army
Corps of Engineers, the Texas Natural Resource Conservation Commission
("TNRCC"), 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 and stormwater discharges, solid and hazardous waste disposal and air
emissions, and management believes that the Company is in substantial compliance
with the laws and regulations that materially affect its operations. While
management does not expect that compliance with existing environmental laws will
have a material adverse effect on the Company's financial condition or results
of operations, 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 material remediation costs related to its management,
transportation and disposal of solid and hazardous materials and wastes, or to
its pipeline operations. If the Company were to be required to incur such costs,
however, management believes that such costs would not have a material adverse
effect on the Company's results of operations.
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The day-to-day operations of the Company are subject to extensive
regulation under the Resource Conservation and Recovery Act ("RCRA"), the
Federal Clean Water Act, the CAA and similar requirements of state law. In
particular, under the CAA, the EPA and the TNRCC have promulgated, or are
required to promulgate, numerous regulations that affect or will affect the
operations of the Company. The most significant of these are the so-called
Hazardous Organics National Emission Standard for Hazardous Air Pollutants or
HON Rule, the requirements of Title V of the CAA and rules relating to the
control of emissions of nitrogen oxides to reduce ozone levels in greater
Houston's ozone non-attainment area.
The HON Rule requires controls on emissions of certain listed hazardous
air pollutants ("HAPs"). Butadiene, methanol, dimethylformamide, benzene,
styrene, and MTBE, which are manufactured, used and/or processed by the Company,
have been identified as HAPs for purposes of regulation under the CAA. Areas of
concern in the Company's operations for HAP emissions include equipment leaks,
process vents, product storage, transfer operations and emissions from
wastewater streams.
Nitrogen Oxide ("NOx") emission control rules adopted in 1994 required
compliance by November 15, 1999. The Company has installed predictive emission
monitoring systems ("PEMS") for NOx emissions on stationary sources at its
boiler house.
The Company's Houston facility is located in Harris County, Texas,
which has been designated as a severe non-attainment area for ozone under the
CAA. Accordingly, the State of Texas is in the process of developing a revised
State Implementation Plan ("SIP") which will require significant reductions in
emissions of ozone precursors, including volatile organic compounds and oxides
of nitrogen from the plants in Harris County. The revised SIP will require
certain additional emission reductions from the Company's facilities. Such
reductions will require the Company to modify existing controls, install
additional controls for air emissions, or install new equipment. The current
rules would require most area plants, including the Company's Houston plant, to
reduce emissions of NOx by approximately 90%. However, a negotiated plan agreed
to by TNRCC and the affected plants would reduce the amount of the required
reductions to 75%, if certain scientific data supports such reduction. Approval
by EPA of the SIP is anticipated to occur by late 2002. The Company is unable at
this time to predict the cost of modifying its facilities to comply with the
requirements of the SIP.
The Company has elected to participate in the Voluntary Emissions
Reduction Program ("VERP") sponsored by the TNRCC under which the Company will
voluntarily obtain permits for certain air emission sources that had
historically been "grandfathered" from certain permit requirements. A VERP
application was submitted to the TNRCC in 2000. The VERP permit that will be
issued will likely require the Company to commit to certain emission reductions.
Subsequent to the Company's voluntary commitment to this permitting effort in
1998, the Texas Legislature enacted Senate Bill 766 which provides incentives
for grandfathered emissions sources to apply for a voluntary emissions reduction
permit instead of remaining grandfathered. In particular, grandfathered sources
are invited to apply for a permit prior to September 1, 2001. As a result of
legislation adopted by the Texas Legislature in 2001, facilities that do not
file for a VERP by September 1, 2001 will be subject to a mandatory permit
program. The permits provided for under Senate Bill 766 are expected to
establish less stringent emissions controls than would be required under permits
for new emissions sources. The TNRCC has promulgated rules to implement the
requirements of Senate Bill 766. The Company is pursuing available options with
respect to its grandfathered emissions sources that allow the Company to meet
applicable air emissions requirements in a cost-effective manner. Measures
likely to be required as part of Senate Bill 766 implementation are not
anticipated to have a materially adverse impact on the Company or its
operations.
Regulations under Title V of the CAA require a facility-wide inventory
of emissions, sources and the air pollution control requirements applicable to
those sources. The Company filed its Title V application with the TNRCC in July
2000. In connection with the Title V program, the Company may be required to
upgrade its on-going monitoring program once it has received its operating
permit. It is also possible that the Company may be required to make
modifications to some of its equipment in order to comply with requirements
identified through the facility-wide Title V permit process. These anticipated
commitments are not expected to have a material adverse impact on the Company's
operations.
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The Company has an active program to manage asbestos-containing
material at its Houston facility in accordance with federal, state and local
environmental, health and safety regulations. The Company does not believe that,
when properly managed, these materials pose a hazard to the health of Company
employees or to the environment. There is no requirement to remove these
materials, provided they are properly managed. As the plant is reconfigured or
additions are made, asbestos-containing materials are appropriately handled by a
certified contractor.
The wastewater treatment system for the Houston facility is 75 percent
owned by the Company and 25 percent owned by the owner of an adjacent facility.
The treatment system is operated by the Company. The state discharge permit is
held jointly by the Company and a third party. The Company believes that the
system has sufficient capacity for the Company's projected needs.
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 led to the filing
of a judicial complaint against the Company. The Company vigorously disputed the
factual and legal basis of the NOV and settlement negotiations were initiated.
The EPA, the Department of Justice, and the Company are currently finalizing a
settlement that will entail a civil penalty and the installation of vapor
controls on three organic liquid storage vessels on or before October 1, 2002.
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 flows.
The terminals in Baytown and Lake Charles are subject to many of the
same or similar environmental laws and regulations as are applicable at the
Houston facility. Management believes that the terminals are in substantial
compliance with these requirements and that no significant expenditures will be
required at these facilities to allow them to continue to comply with such laws
and regulations.
The Company is participating with a number of other companies in a
voluntary program (the "HPV Program") with EPA for assessing the safety of the
Company's products. Testing is currently scheduled for butadiene and testing on
other products is expected in the future. The final reports are anticipated by
the end of 2002.
EMPLOYEES
As of June 30, 2001 the Company had approximately 316 full-time
employees, all of whom were salaried employees. In addition, the Company
contracts with a third party to provide approximately 126 contract employees to
perform routine maintenance on and around its Houston facility. The Company
believes its relationship with its employees is satisfactory.
SAFETY RECORD
The Company maintains one of the best worker's compensation records in
Texas, equivalent to most clerical operations. Over the last five years, the
Company only experienced two lost time injuries at the Houston Plant Site. The
Company believes this record is accomplished through extensive classroom and
on-the-job training as well as the efforts of its highly trained, 75-member
volunteer emergency response team.
ITEM 2. PROPERTIES
The Company's plant is located on a 257-acre tract approximately one
mile from the Houston Ship Channel and near one of the chemical industry's
largest domestic processing facilities. Approximately 230 acres is owned by the
Company, and 25% of the remaining 27 acres is owned by a third party. The
Company leases from the Port of Houston two ship docks, which accommodate barge
and ocean-going vessels, and has facilities that accommodate rail and truck
service. In addition, the facility is connected by pipeline to customers and
suppliers of raw materials, directly and through other major pipelines in the
immediate area as well as in Texas City, and with salt dome storage facilities
of other companies located at both Mont Belvieu and Pierce Junction, Texas. The
Company's
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facility also has a laboratory for sampling and testing. The Company owns and
operates a storage and terminal facility at Baytown, Texas, leases storage and
terminal facilities in Lake Charles, Louisiana and Linden, New Jersey, and
leases tank storage capacity in Bayonne, New Jersey. The Company also leases
office space in Three Riverway Plaza, Houston, Texas as its principal executive
offices. The Company believes that it has adequate facilities for the conduct of
its current and planned operations.
ITEM 3. LEGAL PROCEEDINGS
In addition to the matters disclosed under "Environmental Regulation,"
the Company is a party to various claims and litigation arising in the ordinary
course of its business. Management recognizes the uncertainties of litigation
and the possibility that one or more adverse rulings could materially impact
operating results. However, based on management's understanding of the current
facts and circumstances of such claims and litigation, the ultimate resolution
of such matters is not expected to have a material adverse effect on the
Company's financial position or results of operations.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of the fiscal year ended June 30, 2001.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the Company set forth below for the
five years ended June 30, 2001 should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements, including the related notes.
<Table>
<Caption>
YEAR ENDED JUNE 30,
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1997(1) 1998 1999(2) 2000 2001(3)
---------- ---------- ---------- ---------- ----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues $ 490.2 $ 514.8 $ 448.2 $ 744.7 $ 858.7
Income from operations 18.3 37.3 38.7 68.0 41.1
Interest expense 39.4 40.5 39.4 39.8 38.8
Net income (loss) (15.5) (4.5) (2.2) 12.1 1.3
Basic income (loss) per common share:
Before extraordinary loss and
accounting change $ (32.04) $ (9.86) $ (6.99) $ 23.62 $ .30
Extraordinary loss (3.33) -- -- -- --
Accounting change -- -- -- -- (1.34)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (35.37) $ (9.86) $ (6.99) $ 23.62 $ (1.04)
========== ========== ========== ========== ==========
Diluted income (loss) per common share:
Before extraordinary loss and
accounting change $ (32.04) $ (9.86) $ (6.99) $ 21.99 $ 0.29
Extraordinary loss (3.33) -- -- -- --
Accounting change -- -- -- -- (1.28)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (35.37) $ (9.86) $ (6.99) $ 21.99 $ (0.99)
========== ========== ========== ========== ==========
BALANCE SHEET DATA (AT PERIOD END):
Total assets $ 521.5 $ 497.2 $ 482.8 $ 524.1 $ 509.2
Long-term debt 351.9 349.8 337.9 336.0 329.8
</Table>
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(1) Net loss for the year ended June 30, 1997 includes an extraordinary loss of
$1.5 million for early extinguishment of debt.
(2) In January 1999, the estimated useful lives of certain plant assets were
increased from 10 to 15 years. This change was accounted for as a change in
accounting estimate and resulted in $4.2 million decrease in depreciation
expense.
(3) Net income for the year ended June 30, 2001 includes a cumulative effect of
accounting change of $(0.4) million related to the implementation of SFAS No.
133 and 138, Accounting for Derivative Instruments and Certain Hedging
Activities.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This discussion should be read in conjunction with the information
contained in the Consolidated Financial Statements and related notes.
OVERVIEW
The Company's revenues are derived primarily from merchant market sales
of butadiene, MTBE, alkylate, n-butylenes (butene-1 and butene-2) and specialty
isobutylenes (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 over the past 10 years. 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
product produced by the Company, to produce MTBE or higher margin specialty
products depending on prevailing market conditions. See "MTBE Environmental and
Market Issues" for a further discussion of MTBE.
REVENUES
The following tables set forth the Company's historical revenues and
the percentages of historical revenues by product and volume of products sold.
Revenues
<Table>
<Caption>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------
1999 2000 2001
----------------------- ----------------------- -----------------------
(DOLLARS IN MILLIONS)
Butadiene $ 98.2 22% $ 134.2 18% $ 167.9 20%
Fuel Products (1) 234.4 52 451.9 61 507.6 59
Specialty Products (2) 102.8 23 144.1 19 163.3 19
Other(3) 12.8 3 14.5 2 19.9 2
---------- ---------- ---------- ---------- ---------- ----------
Total $ 448.2 100% $ 744.7 100% $ 858.7 100%
========== ========== ========== ========== ========== ==========
</Table>
----------
(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.
9
12
Sales Volumes
<Table>
<Caption>
YEAR ENDED JUNE 30,
------------------------------------
1999 2000 2001
---------- ---------- ----------
(MILLIONS OF POUNDS, EXCEPT WHERE NOTED)
Butadiene 821.1 844.6 785.6
Fuel Products(1) 388.7 487.7 438.1
Specialty Products 587.4 642.0 601.6
</Table>
----------
(1) Volumes in millions of gallons. Includes 376.9 million, 449.9 million and
358.2 million gallons of MTBE sales and 98.5 million, and 125.1 million and
110.0 million finished MTBE purchased for resale for the three years ended
June 30, 2001.
RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of
operations.
<Table>
<Caption>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
1999 2000 2001
------------------- ------------------- -------------------
(DOLLARS IN MILLIONS)
Revenues $ 448.2 100% $ 744.7 100% $ 858.7 100%
Cost of goods sold 374.4 84 643.2 87 782.0 91
Non-cash ESOP compensation 0.4 -- 0.6 -- 1.0 --
Depreciation and amortization 26.8 6 23.8 3 24.6 3
-------- -------- -------- -------- -------- --------
Gross profit 46.6 10 77.1 10 51.1 6
Selling, general and administrative 7.9 2 9.1 1 10.0 1
-------- -------- -------- -------- -------- --------
Income from operations $ 38.7 8% $ 68.0 9% $ 41.1 5%
======== ======== ======== ======== ======== ========
</Table>
YEAR ENDED JUNE 30, 2001 COMPARED TO THE YEAR ENDED JUNE 30, 2000
Revenues
The Company's revenues increased by approximately 15%, or $114.0
million, to $858.7 million for the year ended June 30, 2001 from $744.7 million
for the year ended June 30, 2000. The increase was due to higher product sales
prices.
Butadiene revenues increased by approximately 25%, or $33.7 million,
to $167.9 million for the year ended June 30, 2001 from $134.2 million for the
year ended June 30, 2000. The increase was attributable to higher sales prices,
which were partly offset by lower sales volumes. Higher sales prices were
experienced during the current year as a result of increased hydrocarbon values.
Sales volumes were down in the second half of the year due to limited
availability of crude butadiene and reduced demand from customers.
Fuel products revenues increased by approximately 12%, or $55.7
million, to $507.6 million for the year ended June 30, 2001 from $451.9 million
for the year ended June 30, 2000. The increase was caused by higher MTBE sales
prices, higher butene-2 sales volumes and the introduction of alkylate sales.
MTBE prices were higher during the current year as a result of increases in
gasoline and crude oil prices. Butene-2 sales volumes increased due to higher
production rates.
Specialty product revenues increased by approximately 13%, or $19.2
million to $163.3 million for the year ended June 30, 2001 from $144.1 million
for the year ended June 30, 2000. The increase was principally due to higher
isobutylene concentrate sales prices caused by increased raw material and energy
costs. Sales volumes of specialty products remained relatively unchanged.
10
13
Gross Profit
Gross profit decreased by approximately 34%, or $26.0 million to
$51.1 million for the year ended June 30, 2001 from $77.1 million for the year
ended June 30, 2000. Gross margin during the current period declined by 4.5%.
Gross profit decreased during the current year because of lower butadiene sales
volumes and lower margin contributed from certain specialty isobutylene
products. High raw material and energy costs attributed to the lower margin
contributed from certain specialty products. MTBE and specialty products
production volumes and margin contribution were negatively impacted by
operational outages that were experienced during the fourth quarter of the
current year. These outages resulted from two separate events involving a plant
fire and flooding from Tropical Storm Allison. The Company estimates the impact
of these operational outages at $13.0 million for fiscal year 2001. As a result
of continued operational outages sustained from these events and negative
inventory adjustments the Company anticipates an additional $10.0 million
financial impact during the first quarter of fiscal 2002.
Income from Operations
Income from operations decreased by approximately 40%, or $26.9
million, to $41.1 million for the year ended June 30, 2001 from $68.0 million
for the year ended June 30, 2000. Operating margin during this period decreased
to 4.8% from 9.1%. The decrease in income from operations was primarily caused
by the same factors contributing to the decrease in gross profit described
above. The increase in selling, general and administrative costs was principally
due to higher MTBE advocacy and consulting costs, and an increase in employee
headcount.
YEAR ENDED JUNE 30, 2000 COMPARED TO THE YEAR ENDED JUNE 30, 1999
Revenues
The Company's revenues increased by approximately 66%, or $296.5
million, to $744.7 million for the year ended June 30, 2000 from $448.2 million
for the year ended June 30, 1999. The increase was due to higher product sales
prices and sales volumes.
Butadiene revenues increased by approximately 37%, or $36.0 million,
to $134.2 million for the year ended June 30, 2000 from $98.2 million for the
year ended June 30, 1999. The increase was attributable to higher sales prices
and slightly higher sales volumes. A shortage of butadiene supply in the U.S.
market contributed to higher sales prices.
Fuel products revenues increased by approximately 93%, or $217.5
million, to $451.9 million for the year ended June 30, 2000 from $234.4 million
for the year ended June 30, 1999. The increase was due principally to higher
MTBE sales prices and higher MTBE sales volumes. MTBE prices were significantly
higher particularly during the last half of the fiscal year 2000 as a result of
increases in gasoline and crude oil prices. In addition, during the last quarter
of the fiscal year 2000 MTBE prices rose dramatically as a result of new
Reformulated Gas (RFG II) requirements. MTBE sales volumes were higher due to
increased production rates resulting from operational efficiencies and no
scheduled turnarounds for catalyst change. In addition, revenues increased
because butene-2 sales volumes were sold into the fuels market.
Specialty products revenues increased by approximately 40%, or $41.3
million to $144.1 million for the year ended June 30, 2000 from $102.8 million
for the year ended June 30, 1999. The increase was due to higher sales volumes
and sales prices. Sales volumes were higher due to increased customer demand and
a new export business. Sales prices increased due to higher isobutylene values
during the year.
Gross Profit
Gross profit increased by approximately 65%, or $30.5 million to
$77.1 million for the year ended June 30, 2000 from $46.6 million for the year
ended June 30, 1999. Gross margin during the period remained steady at
11
14
10.4%. Gross profit increased during the current fiscal year due to higher sales
volumes of all product groups and higher margins on butadiene and MTBE sales.
Butadiene margins improved over prior year period due to improved spot business,
processing efficiencies from new control room instrumentation and positive
inventory impacts from higher butadiene sale prices. MTBE margins improved over
the prior year period due to higher production rates and a larger spread of
sales prices over raw material costs. Gross profit from specialty isobutylenes
was unchanged as higher sales volumes offset the impact of higher raw material
costs. Gross profit also increased due to lower depreciation and amortization
charges during the current period.
Income from Operations
Income from operations increased by approximately 76%, or $29.3
million, to $68.0 million for the year ended June 30, 2000 from $38.7 million
for the year ended June 30, 1999. Operating margin during this period increased
to 9.1% from 8.6%. The increase in income from operations was primarily due to
the same factors contributing to the increase in gross profit described above.
The increase in selling, general and administrative costs was primarily due to
higher MTBE advocacy and consulting costs.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
YEAR ENDED JUNE 30, 2001 COMPARED TO THE YEAR ENDED JUNE 30, 2000
Net cash provided by operating activities was $30.4 million for the
year ended June 30, 2001 compared to $43.0 million for the year ended June 30,
2000. The decrease of $12.6 million was primarily attributable to lower net
income during the current year. Net cash used in investing activities was $13.2
million for the year ended June 30, 2001 compared to $18.8 million for the year
ended June 30, 2000. The decrease of $5.6 million is caused by lower capital
expenditures during the current year. Net cash used in financing activities was
$12.7 million for the year ended June 30, 2001 compared to $9.4 million for
the year ended June 30, 2000. The increase of $3.3 million is due primarily to
a $5.7 million prepayment made during the current year towards the term loans
under the Bank Credit Agreement.
YEAR ENDED JUNE 30, 2000 COMPARED TO THE YEAR ENDED JUNE 30, 1999
Net cash provided by operating activities was $43.0 million for the
year ended June 30, 2000 compared to $35.2 million for the year ended June 30,
1999. The increase of $7.8 million was primarily attributable to increased net
income. Net cash used in investing activities was $18.8 million for the year
ended June 30, 2000 compared to $13.9 million for the year ended June 30, 1999.
The increase of $4.9 million was caused by higher capital expenditures during
the current year. Net cash used in financing activities was $9.4 million for
the year ended June 30, 2000 compared to $22.1 million for the year ended June
30, 1999. The decrease of $12.7 million is primarily due to lower repayments on
the revolving line of credit during the current year.
LIQUIDITY
In July 1996 the Company issued $175 million of 11 1/8% Senior
Subordinated Notes due 2006, $57.7 million of 13 1/2% Discount Notes due 2007
and borrowed $140 million under a Bank Credit Agreement. The Company used the
combined proceeds to finance the Acquisition of Texas Petrochemicals LP. The
Company's liquidity needs arise primarily from principal and interest payments
under the Bank Credit Agreement and the Subordinated Notes. Additionally
beginning January 2002, a semiannual cash interest payment of $3.9 million is
required under the Discount Notes, which are held directly by Texas
Petrochemical Holdings, Inc. As a stand-alone entity Texas Petrochemical
Holdings, Inc. does not maintain operations that generate cash flow to meet
these interest payments. Texas Petrochemicals LP maintains substantially all
operating cash flow for the Company. Texas Petrochemicals LP's ability to fund
interest on the Discount Notes is limited by the terms of the Senior
Subordinated Notes. On August 10, 2001 Texas Petrochemicals LP funded a cash
payment of $9.3 million to
12
15
Texas Petrochemical Holdings, Inc. to be held for future scheduled interest
payments on the Discount Notes. There can be no assurance that Texas
Petrochemicals LP will be able to continue to fund cash payments to Texas
Petrochemicals Holding, Inc. to meet additional future interest requirements.
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 $40.0 million Revolving Credit Facility, of
which $2.0 million was in use at June 30, 2001, 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 is
sufficient to cover any current liquidity needs which could arise as a result of
negative working capital. The Company's ability to borrow under the Revolving
Credit Facility is limited by the terms of the Bank Credit Agreement, the
Discount Notes and the Subordinated Notes. The Bank Credit Agreement, the
Discount Notes and the 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. 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. During March 2001, the Company obtained an amendment to the Bank
Credit Agreement relating to certain financial ratios and capital expenditure
limitations.
CASH BONUS PLAN
In connection with the Acquisition, the Predecessor established a $35
million Cash Bonus Plan covering substantially all employees of the Predecessor
(or certain affiliates of the Predecessor) and covering certain third-party
contractors who had contributed to the past success of the Predecessor. For the
three years ended June 30, 2001, $0.2 million, $9.6 million and $7.8 million of
this amount was paid to eligible participants. In July 2000 the debt was paid
in full.
CAPITAL EXPENDITURES
The Company's capital expenditures for fiscal 2001 related principally
to the completion of an incremental capacity expansion for butadiene and
improving plant operating efficiencies. Capital expenditures for year ended June
30, 2001 were $14.0 million, compared to $18.8 million for the year ended June
30, 2000. The Company expenses approximately $20.0 million annually for plant
maintenance. These maintenance costs are not treated as capital expenditures.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998 the Financial Accounting Standard Board (FASB) issued
Statement of Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Certain Hedging Activities." In June 2000 the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment of SFAS 133." SFAS No. 133 as amended by SFAS No. 138
requires that all derivative instruments be recorded on the balance sheet at
their respective fair values. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether the derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company adopted SFAS No. 133
and SFAS No. 138 on July 1, 2000. Upon adoption of SFAS No. 133 and 138 the
Company's management decided not to designate any of its derivative instruments
as part of hedge transactions. Accordingly, during the first quarter of fiscal
2001 the Company recorded a net-of-tax cumulative-effect loss of $0.4 million
into earnings to recognize at fair value all derivative instruments.
In December 1999 the U.S. Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial
Statements", which summarizes the SEC's views in applying generally accepted
accounting principles to revenue recognition. The bulletin was effective for the
Company's fourth quarter of 2001. The company has determined that SAB 101's
revenue recognition guidelines are consistent
13
16
with the Company's existing revenue recognition policies; therefore, SAB 101 did
not have an impact on the Company's consolidated financial statements.
In May 2000 the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board (FASB) reached a consensus with respect to EITF Issue
00-10, "Accounting for Shipping and Handling Fees and Costs." EITF 00-10
recognizes the inconsistencies in practice of the recording of shipping and
handling costs incurred by most companies that sell goods. The issue was
effective for the Company's fourth quarter of 2001. The adoption of this issue
did not have an impact on the Company's consolidated financial statements.
In July 2001 the FASB issued Statement of Financial Accounting Standard
(SFAS) No. 142, "Goodwill and Other Intangible Assets." Under this standard
goodwill will no longer be amortized but will be tested for impairment as set
forth in the statement. The Company plans to early adopt this statement for
fiscal year beginning July 2001. The Company's management does not anticipate an
impairment of goodwill upon adoption of this statement. Amortization of goodwill
for the prior two fiscal years totaled $4.6 million and $4.6 million,
respectively.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This filing includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are identified as any
statement that does not relate strictly to historical or current facts. They use
words such as "anticipate," "believe," "intend," "plan," "projection,"
"forecast," "strategy," "position," "continue," "estimate," "expect," "may,"
"will," or the negative of those terms or other variations of them or by
comparable terminology. In particular, statements expressed or implied,
concerning future operating results or the ability to generate sales, income or
cash flow are forward-looking statements. Forward-looking statements are not
guarantees of performance. They involve risks, uncertainties and assumptions.
The future results of our operations may differ materially from those expressed
in these forward-looking statements. Many of the factors that will determine
these results are beyond our ability to control or predict. Specific factors
that could cause actual results to differ from those in the forward-looking
statements include but are not limited to those factors disclosed in conjunction
with the forward looking statements included herein ("Cautionary Disclosures").
Subsequent written or 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
COMMODITY PRICES
The Company manages its exposure to commodity price fluctuations by
entering into contracts on raw material purchases and product sales with third
parties. In addition, the Company periodically enters into
14
17
commodity price swap agreements and future contracts to reduce price risk by
either purchasing or selling raw materials or other products in the market. At
June 30, 2001, the Company had outstanding natural gas swap contracts with
notional volumes totaling 1.3 mmbtus and other raw material swap agreements with
notional volumes totaling 0.1 million barrels. The fair value of these
outstanding derivative instruments at June 30, 2001 was recorded in current year
earnings as a $1.2 million loss. Assuming a hypothetical 10% unfavorable change
in the price of natural gas from that in effect at year end would result in an
additional $0.5 million loss.
INTEREST RATE RISK
The Company maintains an overall interest rate risk-management strategy
that incorporates the use of derivative instruments to minimize its exposure to
changes in the fair value of its fixed rate debt and to volatility in LIBOR
rates associated with its floating rate debt. The derivative instruments are
used as part of the Company interest rate risk-management strategy that include
interest rate swaps and cap contracts. As of June 30, 2001 the Company settled
all of its outstanding interest rate swaps and caps, which resulted in $0.2
million of reduced interest expense for the current year.
15
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Report of Independent Auditors 17
Financial Statements
Consolidated Balance Sheet 19
Consolidated Statement of Operations 20
Consolidated Statement of Stockholders' Equity 21
Consolidated Statement of Cash Flows 22
Notes to Consolidated Financial Statements 23
</Table>
16
19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Texas Petrochemical Holdings, Inc.:
In our opinion, the accompanying consolidated balance sheet as of June 30, 2001
and the related consolidated statement of operations, stockholders' equity and
cash flows present fairly, in all material respects, the financial position of
Texas Petrochemical Holdings, Inc. and its subsidiaries (collectively, "the
Company") at June 30, 2001, and the results of their operations and their cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, in the year
ended June 30, 2001, the Company changed its method of accounting for derivative
instruments and certain hedging activities.
PricewaterhouseCoopers LLP
Houston, Texas
August 23, 2001
17
20
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Texas Petrochemical Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of Texas
Petrochemical Holdings, Inc. and subsidiary (the "Company") as of June 30, 2000
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended June 30, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 2000 and
1999 and the results of its operations and its cash flows for each of the two
years in the period ended June 30, 2000, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Houston, Texas
August 4, 2000
18
21
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
JUNE 30,
----------------------------
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 19,407 $ 14,929
Accounts receivable - trade 54,479 64,235
Inventories 35,574 35,957
Investments in land held for sale -- 1,068
Other current assets 12,295 10,946
------------ ------------
Total current assets 121,755 127,135
Property, plant and equipment, net 213,475 219,517
Investment in land held for sale 990 990
Investment in and advances to limited partnership 2,652 2,769
Goodwill, net of accumulated amortization of $24,091 and $19,508 160,395 164,978
Other assets, net 9,913 8,691
------------ ------------
Total assets $ 509,180 $ 524,080
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 5,829 $ 7,146
Accounts payable - trade 67,171 71,775
Accrued expenses 16,819 18,829
Current portion of cash bonus plan liability -- 213
Current portion of long-term debt 6,196 8,086
------------ ------------
Total current liabilities 96,015 106,049
Revolving line of credit 2,000 1,650
Long-term debt 321,593 326,255
Deferred income taxes 50,098 55,005
Commitments and contingencies (Note 7)
Common stock held by the ESOP 15,300 13,100
Less: Unearned compensation -- (2,620)
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000 voting and 100,000 non-voting
and 529,445 voting shares issued and outstanding at June 30, 2001
and 2,000, respectively 5 5
Additional paid in capital 38,361 37,408
Treasury stock, at cost, 1,450 shares and 2000 shares at June 30, 2001
and June 30, 2000, respectively (188) (257)
Accumulated deficit (14,004) (12,515)
------------ ------------
Total stockholders' equity 24,174 24,641
------------ ------------
Total liabilities and stockholders' equity $ 509,180 $ 524,080
============ ============
</Table>
See accompanying notes to consolidated financial statements.
19
22
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
YEAR ENDED JUNE 30,
-------------------------------------
2001 2000 1999
---------- ---------- ----------
Revenues $ 858,718 $ 744,725 $ 448,155
Cost of goods sold 782,004 643,195 374,401
Non-cash ESOP compensation 950 570 407
Depreciation and amortization 24,598 23,800 26,784
---------- ---------- ----------
Gross profit 51,166 77,160 46,563
Selling, general and administrative expenses 10,036 9,153 7,927
---------- ---------- ----------
Income from operations 41,130 68,007 38,636
Interest expense 38,779 39,773 39,444
Other income (expense)
Non-cash change in fair value of derivatives (561) -- --
Loss on disposal of assets (327) (44)
Other, net 564 (38) 1,320
---------- ---------- ----------
(324) (38) 1,276
---------- ---------- ----------
Income before income taxes and
cumulative effect of accounting change 2,027 28,196 468
Provision for income taxes 286 16,060 2,641
Cumulative effect of accounting change
(net of $221 income tax benefit) (410) -- --
---------- ---------- ----------
Net income (loss) $ 1,331 $ 12,136 $ (2,173)
========== ========== ==========
Basic income (loss) per common share:
Income (loss) before cumulative
effect of accounting change $ .30 $ 23.62 $ (6.99)
Cumulative effect of accounting change (1.34) 23.62 (6.99)
---------- ---------- ----------
Income (loss) per share $ (1.04) $ 23.62 $ (6.99)
Weighted average shares outstanding-basic 519,445 498,945 478,045
========== ========== ==========
Diluted income (loss) per common share:
Income (loss) before cumulative
effect of accounting change $ .29 $ 21.99 $ (6.99)
Cumulative effect of accounting change (1.28) 21.99 (6.99)
---------- ---------- ----------
Income (loss) per share $ (0.99) $ 21.99 $ (6.99)
Weighted average shares outstanding - diluted 543,553 535,908 478,045
========== ========== ==========
</Table>
See accompanying notes to consolidated financial statements.
20
23
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNT)
<Table>
<Caption>
ADDITIONAL
COMMON STOCK PAID IN ACCUMULATED TREASURY
SHARES VALUE CAPITAL DEFICIT STOCK TOTAL
Balance, June 30, 1998 527,778 $ 5 $ 36,264 $ (19,998) $ -- $ 16,271
Net loss (2,173) (2,173)
Issuance of common stock 667 67 67
Non-cash ESOP compensation 407 407
Revaluation of ESOP shares to
independently appraised market value (1,560) (1,560)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1999 528,445 5 36,738 (23,731) -- 13,012
----------- ----------- ----------- ----------- ----------- -----------
Net income 12,136 12,136
Issuance of common stock 1,000 100 100
Non-cash ESOP compensation 570 570
Treasury stock (257) (257)
Revaluation of ESOP shares to
independently appraised market value (920) (920)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 529,445 5 37,408 (12,515) (257) 24,641
----------- ----------- ----------- ----------- ----------- -----------
Net income 1,331 1,331
Non-cash ESOP compensation 950 950
Treasury stock 3 69 72
Revaluation of ESOP shares to
independently appraised market value (2,820) (2,820)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2001 529,445 $ 5 $ 38,361 $ (14,004) $ (188) $ 24,174
=========== =========== =========== =========== =========== ===========
</Table>
See accompanying notes to consolidated financial statements.
21
24
TEXAS PETROCHEMICAL HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<Table>
<Caption>
YEAR ENDED JUNE 30,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 1,331 $ 12,136 $ (2,173)
Adjustments to reconcile net income (loss)
to cash flows from operating activities:
Depreciation of fixed assets 20,015 18,985 21,924
Amortization of intangibles 4,583 4,815 4,860
Amortization of debt issue costs and deferred premium 8,315 7,422 6,650
Deferred income taxes (2,380) 1,726 (3,363)
Earnings from limited partnership (558) (324) (775)
Loss on sale of asset 327 -- --
Non-cash ESOP compensation 950 570 407
Non-cash fair value of derivatives 1,192 -- --
Change in:
Accounts receivable 9,756 (24,015) 5,078
Inventories 383 (15,984) (2,763)
Other assets (5,089) 4,928 (4,097)
Accounts payable, accrued and other (9,140) 32,397 8,420
Distribution received from partnership 675 375 990
------------ ------------ ------------
Net cash provided by operating activities 30,360 43,031 35,158
Cash flows from investing activities:
Capital expenditures (13,973) (18,796) (14,413)
Proceeds from asset sales 741 -- 477
------------ ------------ ------------
Net cash used in investing activities (13,232) (18,796) (13,936)
Cash flows from financing activities:
Bank overdraft (1,317) 6,272 874
Net borrowings (repayments) on revolving line of credit 350 (350) (10,000)
Payments on long-term debt (13,295) (7,465) (6,979)
Cash bonus plan payments (213) (9,557) (7,807)
Debt issuance and organizational costs (247) (152) (163)
Reduction in note receivable from ESOP 2,000 2,000 2,000
Issued common stock -- 100
Issued (Purchased) treasury stock 72 (257) --
------------ ------------ ------------
Net cash used in financing activities (12,650) (9,409) (22,075)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 4,478 14,826 (853)
Cash and cash equivalents, beginning 14,929 103 956
------------ ------------ ------------
Cash and cash equivalents, ending $ 19,407 $ 14,929 $ 103
============ ============ ============
</Table>
See accompanying notes to consolidated financial statements.
22
25
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
On July 1, 2000 the Texas Petrochemicals LP converted its legal form
from a corporation to a limited partnership pursuant to the conversion
provisions of the Texas Business Corporation Act and the Texas Revised Limited
Partnership Act. TPC Holding Corp., the Texas Petrochemicals LP 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 Texas Petrochemicals LP 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. As a result of the above equity restructuring there was no
change in the carrying values of the Company's assets and liabilities.
The Company through its facility in Houston, Texas is one of the
largest producers of butadiene, the largest producer of butene-1, and the third
largest producer of methyl tertiary-butyl ether ("MTBE") in North America. 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) alkylate, used as a
gasoline blend component; (iv) n-butylenes (butene-1 and butene-2), used in the
manufacture of plastic resins, fuel additives and synthetic alcohols; (v)
specialty isobutylenes, primarily used in the production of specialty rubbers,
lubricant additives, detergents and coatings; and (vi) 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, which 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.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Texas
Petrochemical Holdings. Inc. and its wholly owned subsidiary, TPC Holding Corp.
Intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the date of purchase to be cash equivalents.
23
26
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Inventories
Inventories consist of raw materials, finished goods and chemicals used
in processing and are valued at the lower of average cost or market.
The Company may enter into product exchange agreements with suppliers
whereby certain inventories are exchanged for raw materials. These exchanges are
recorded at the lower of cost or market. Any resulting gains or losses from the
utilization of these exchanges are reflected in cost of chemical products sold.
Balances related to quantities due to or payable by the Company are included in
inventory.
Investment in Limited Partnership
The Company and Hollywood Marine, Inc. formed a limited partnership,
Hollywood/Texas Petrochemicals, Ltd., to operate four barges capable of
transporting chemicals. The Company is a 50% limited partner in the limited
partnership. The Company accounts for this investment under the equity method
and records its portion of the limited partnership's net income as other income
in the accompanying statement of operations. Summarized financial information of
the partnership has not been presented because the Company's investment in and
its proportionate share of the partnership's operations are not material.
Long-Lived Assets
Property, plant and equipment are recorded at cost. Turnaround costs
for major units of the manufacturing facilities are capitalized and amortized
over the life of the turnaround. Maintenance and repairs are charged to expense
as incurred while significant improvements are capitalized. Upon retirement or
sale of an asset, the asset and the related accumulated depreciation are removed
from the accounts and any resulting gain or loss is reflected in operations.
Depreciation of property, plant and equipment is computed using the
straight-line method over their estimated useful lives ranging from 3 to 31
years. In January 1999, the estimated useful lives of certain plant assets were
increased from 10 years to 15 years based on engineering analysis. This change
was accounted for as a change in accounting estimate and resulted in a $4.2
million decrease in depreciation expense for fiscal year 1999.
Goodwill represents the excess of purchase price paid over the value
assigned to the net tangible and identifiable intangible assets of a business
acquired. Goodwill has been amortized over 40 years using the straight-line
method. However, effective July 2001, the Company plans to early adopt SFAS No.
142, "Goodwill and Other Intangible Assets" and goodwill will no longer be
amortized. Instead goodwill will be tested for impairment.
Debt issue costs relating to the Company's long-term debt are amortized
to interest expense over the scheduled maturity of debt utilizing the effective
interest method. Other assets include patents, which are amortized using the
straight-line method over their useful lives ranging from 2 to 7 years.
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable, in accordance with SFAS No. 121 "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." If the
undiscounted future cash flows of such assets are less than the carrying amount,
the carrying amount is reduced to fair value and an impairment loss is
recognized. Assets held for sale are carried at the lower of cost or fair value
less cost to sell.
24
27
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Revenue Recognition
The Company recognizes revenue from sales of refined products in the
period of delivery.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires that deferred taxes be provided at
enacted tax rates on temporary differences between the carrying amounts of
assets and liabilities for financial and tax reporting purposes.
Income per Share
Basic income (loss) per share for three years ended June 30, 2001 has
been computed using a weighted average shares outstanding of 519,445, 498,945
and 478,045, respectively. The weighted average shares outstanding used in the
computation of basic income (loss) per share are net of 20,000 and 40,000 shares
held by Employee Stock Ownership Plant that were not allocated to employees as
of June 30, 2000 and 1999, respectively. For the years ended June 30, 2001, 2000
and 1999, income (loss) used in calculating basic and diluted income (loss) per
share has been reduced by $1,870,000, $350,000 and $1,170,000, respectively
which reflects the increase in the market value of the 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. For the years ended June 30, 2001 and 2000, the weighted average shares
outstanding for the diluted income per share calculation includes all ESOP
shares outstanding and the effect of stock options. The effect of unallocated
ESOP shares and stock options was not dilutive for fiscal years 1999 for
purposes of calculating diluted income (loss) per share.
Employee Stock Ownership Plan
The fair value of common stock held by the Employee Stock Ownership
Plan (See Note 8), as well as prior year's unearned compensation related to
unallocated shares are separately presented on the balance sheet between
liabilities and stockholders' equity in a manner similar to redeemable preferred
stock as employees have option to put the shares to the Company. The Company has
recognized as non-cash ESOP compensation, the increase in the fair value of the
common stock for those shares allocated to participant's accounts with the
corresponding offset credited to additional paid in capital.
Financial Derivative Instruments
Outstanding financial derivative instruments are recorded on the
balance sheet at their fair value. Changes in the fair value of financial
derivative instruments are recognized immediately in earnings as these
instruments are not designated as part of hedged transactions.
25
28
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to previously issued financial
statements to conform to the current presentation.
Recently Issued Accounting Pronouncements
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Certain Hedging Activities." In June 2000 the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment of SFAS 133." SFAS No. 133 as amended by SFAS No. 138
requires that all derivative instruments be recorded on the balance sheet at
their respective fair values. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether the derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Company adopted SFAS No. 133
and SFAS No. 138 on July 1, 2000. Upon adoption of SFAS No. 133 and 138 the
Company's management decided not to designate any of its derivative instruments
as part of hedge transactions. Accordingly, during the first quarter of fiscal
2001 the Company recorded a net-of-tax cumulative-effect loss of $0.4 million
into earnings to recognize at fair value all derivative instruments.
In December 1999 the U.S. SEC issued SAB 101, "Revenue Recognition in
Financial Statements," which summarizes the SEC's views in applying generally
accepted accounting principles to revenue recognition. The bulletin was
effective for the Company's fourth quarter of 2001. The company has determined
that SAB 101's revenue recognition guidelines are consistent with the Company's
existing revenue recognition policies; therefore, SAB 101 did not have an impact
on the Company's consolidated financial statements.
In May 2000 the EITF of the FASB reached a consensus with respect to
EITF Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF
00-10 recognizes the inconsistencies in practice of the recording of shipping
and handling costs incurred by most companies that sell goods. The issue was
effective for the Company's fourth quarter of 2001. The adoption of this issue
did not have an impact on the Company's consolidated financial statements.
In July 2001 the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." Under this standard goodwill will no longer be amortized but
will be tested for impairment as set forth in the statement. The Company plans
to early adopt this statement for fiscal year beginning July 2001. The Company's
management does not anticipate an impairment of goodwill upon adoption of this
statement. Amortization of goodwill for the prior two fiscal years totaled $4.6
million and $4.6 million, respectively.
26
29
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS (IN THOUSANDS OF DOLLARS)
INVENTORIES:
<Table>
<Caption>
JUNE 30,
-------------------------------
2001 2000
------------ ------------
Finished goods $ 13,583 $ 18,505
Raw materials 20,497 15,915
Chemicals and supplies 1,494 1,537
------------ ------------
$ 35,574 $ 35,957
============ ============
</Table>
OTHER CURRENT ASSETS:
<Table>
<Caption>
JUNE 30,
-------------------------------
2001 2000
------------ ------------
Catalyst inventory $ 5,389 $ 7,402
Other receivables 4,929 --
Prepaid and other 1,977 3,544
------------ ------------
$ 12,295 $ 10,946
============ ============
</Table>
PROPERTY, PLANT AND EQUIPMENT:
<Table>
<Caption>
JUNE 30,
-------------------------------
2001 2000
------------ ------------
Chemical plant $ 300,379 $ 295,124
Construction in progress 17,704 9,233
Other 5,839 5,592
------------ ------------
323,922 309,949
Less accumulated depreciation 110,447 90,432
------------ ------------
$ 213,475 $ 219,517
============ ============
</Table>
ACCRUED EXPENSES:
<Table>
<Caption>
JUNE 30,
-------------------------------
2001 2000
------------ ------------
Accrued interest $ 12,439 $ 13,780
Property and sales taxes 2,320 2,218
Federal income tax 213 639
Other 1,847 2,192
------------ ------------
$ 16,819 $ 18,829
============ ============
</Table>
27
30
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. LONG-TERM DEBT
<Table>
<Caption>
JUNE 30,
---------------------
2001 2000
-------- --------
Bank Credit Agreement:
Term A Loan $ 8,237 $ 14,402
Term B Loan 35,295 40,421
ESOP Loan -- 2,000
Revolving Credit Loans 2,000 1,650
Senior Subordinated Notes 225,000 225,000
Discount Notes 57,650 50,590
Deferred premium on Senior Subordinated Notes 1,607 1,928
-------- --------
329,789 335,991
Less current maturities 6,196 8,086
-------- --------
Long-term debt $323,593 $327,905
======== ========
</Table>
The Bank Credit Agreement originally 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 Term A Loan
and Term B Loan are due on December 31, 2002 and June 30, 2004, respectively.
The final payment under the ESOP Loan was made on June 30, 2001. 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 (2% and 3% at June 30, 2001 and
1.75% and 3% at June 30, 2000) or the greater of the prime rate and the federal
funds rate plus 1/2% plus a margin (.75% at June 30, 2001 and June 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 Discount Notes are
due 2007 and bear interest at 13 1/2% payable semiannually on January 1 and July
1 beginning 2002. The Bank Credit Agreement, the Discount Notes 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. 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. In March 2001, the Company obtained an amendment to the Bank Credit
Agreement related to certain financial ratios and capital expenditure
limitations.
The fair value of the Senior Subordinated Notes, based on quoted market
prices, was approximately $200 million and $191 million as of June 30, 2001 and
2000, respectively. There is currently not an active market for the Discount
Notes, therefore, the Company estimated that the fair value based on current
interest rates available for the Company and similar debt instruments, was
approximately $40 million and $35 million as of June 30, 2001 and 2000. The
long-term debt under the Bank Credit Agreement carries a floating interest rate,
therefore, the Company estimates that the carrying amount of such debt was not
materially different from its fair value as of June 30, 2001 and 2000.
In February 1998 the Company entered into a three-year swap agreement
for $125 million of its Senior Subordinated Notes. The swap agreement
effectively converted a portion of the 11 1/8% fixed rate Senior Subordinated
Notes to a floating debt with a structured collar. In addition, in June 1998 the
Company entered into a three-year interest rate cap for $64 million of its
senior debt under the Bank Credit Agreement. The cap
28
31
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
effectively converted a portion of the Company's floating rate bank debt to a
fixed rate of 6.75% plus the margin if LIBOR rates are set above 6.75%. During
the current fiscal year both of the preceding interest rate swap agreements were
settled, which resulted in $0.2 million of reduced interest expense for the
current year.
The aggregate scheduled maturities outstanding debt for the succeeding
five years are as follows:
<Table>
<Caption>
FISCAL YEAR
-----------
2002 $ 6,196
2003 17,277
2004 22,059
2005 --
2006 225,000
</Table>
5. FEDERAL AND STATE INCOME TAXES
Significant components of the Company's deferred tax assets and
liabilities at June 30, 2001 and June 30, 2000 are as follows (in thousands of
dollars):
<Table>
<Caption>
JUNE 30,
----------------------
2001 2000
-------- --------
Deferred tax asset (liability) - current:
Cash bonus plan $ -- 74
Turnaround costs (1,029) (159)
Other (742) (816)
-------- --------
Total current $ (1,771) $ (901)
======== ========
Deferred tax asset (liability) - noncurrent:
Capital loss carryforward $ 3,986 $ 3,872
Investment in land 701 701
Interest 9,319 6,939
Property, plant and equipment (61,829) (64,275)
Other (203) (170)
-------- --------
(48,026) (52,933)
Valuation allowance (2,072) (2,072)
-------- --------
Total noncurrent $(50,098) $(55,005)
======== ========
</Table>
The Company recognized a $2.1 million valuation allowance in fiscal
year 2000 for uncertainties in realizing the benefits of a portion of the
capital loss carryforward, which expires by fiscal year 2003. The Company
expects to utilize the remaining portion of the capital loss carryforward that
expires in fiscal year 2004.
29
32
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The current deferred tax asset (liability) is included in other current assets
in the accompanying balance sheet. The provision for federal and state income
taxes is comprised of the following (in thousand of dollars):
<Table>
<Caption>
YEAR ENDED JUNE 30,
------------------------------------
2001 2000 1999
-------- -------- --------
Current:
Federal $ 6,112 $ 12,309 $ 5,296
State (1,796) 2,025 708
-------- -------- --------
4,316 14,334 6,004
-------- -------- --------
Deferred:
Federal (4,030) 1,726 (3,363)
State -- -- --
-------- -------- --------
(4,030) 1,726 (3,363)
-------- -------- --------
Total provision
for income taxes $ 286 $ 16,060 $ 2,641
======== ======== ========
</Table>
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income before income taxes.
The reasons for this difference are as follows:
<Table>
<Caption>
YEAR ENDED JUNE 30,
----------------------------------
2001 2000 1999
------- ------- -------
Statutory federal income tax rate 35% 35% 35%
Computed "expected" federal income tax $ 709 $ 9,869 $ 164
Increase in tax resulting from:
State income taxes, net of
federal benefit 1,316 460
Valuation allowance 2,072
Income tax refund receivable (2,324)
Other, net (35) 1,000 413
Amortization of goodwill and other 1,936 1,803 1,604
------- ------- -------
Provision for income taxes $ 286 $16,060 $ 2,641
======= ======= =======
</Table>
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows (in thousands of
dollars):
<Table>
<Caption>
YEAR ENDED JUNE 30,
-------------------------------
2001 2000 1999
------- ------- -------
Interest $40,120 $32,479 $34,641
Income taxes 491 16,407 6,897
</Table>
30
33
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases tank cars under noncancelable operating leases.
Under the terms of the lease agreements, the Company was reimbursed by customers
at a fixed rate per mile, based on the distance the tank cars travel.
Reimbursements were approximately $0.3 million, $0.7 million and $0.5 million
for the three years ended June 30, 2001.
Total rent expense was approximately $5.5 million, $4.4 million and
$4.6 million, net of reimbursements described above, for the three years ended
June 30, 2001, respectively. Future minimum lease payments under noncancelable
operating leases consist of the following at June 30, 2001 (in thousands of
dollars):
<Table>
<Caption>
FISCAL YEAR
-----------
2002 $ 6,002
2003 4,723
2004 3,160
2005 2,644
2006 1,500
---------
Total minimum lease payments $ 18,029
=========
</Table>
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
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 adverse impact on the Company's financial position, results of
operations or cash flows.
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 led to the filing
of a judicial complaint against the Company. The Company vigorously disputed the
factual and legal basis of the NOV and settlement negotiations were initiated.
The EPA, the Department of Justice, and the Company are currently finalizing a
settlement that will entail a civil penalty and the installation of vapor
controls on three organic liquid storage vessels on or before October 1, 2002.
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 flows.
31
34
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state and local laws
and regulations administered by the U.S. EPA, the U.S. Coast Guard, the Army
Corps of Engineers, the TNRCC, 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 material remediation costs related to its management,
transportation and disposal of solid and hazardous materials and wastes, or to
its pipeline operations.
There continues to be action in Congress to impact the use of MTBE in
gasoline. The most prevalent legislative proposals would ban MTBE, eliminate the
oxygen requirement of the CAA and require the use of ethanol as a
gasoline-blending component. The Company is not able to predict whether such
legislation will be adopted. If adopted, however, such legislation would be
expected to materially reduce MTBE demand and the Company's financial results.
8. EMPLOYEE BENEFITS
PROFIT SHARING PLAN
The Company has a profit sharing plan that covers all full-time
employees that have completed 90 days or more of service. Employees can
contribute up to 10% of their base compensation to a tax-deferred fund. The
Company matches at the rate of $.25 per one dollar contributed by the employee
up to 6% of the employee's base compensation. The Company's expense to match
employee contributions was approximately $0.2 million for each of the
proceeding three years, respectively. Additionally, the Company made additional
discretionary contributions to the plan, which amounted to approximately $2.3
million, $2.3 million and $2.0 million, for the three years ended June 30,
2001, respectively. The Company's contributions vest with the employee at a rate
of 20% per year.
EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the Acquisition, the Parent established an Employee
Stock Ownership Plan (the "ESOP"), covering substantially all full-time
employees of the Company. The ESOP borrowed $10 million under the Bank Credit
Agreement to purchase 100,000 shares of the Parent's Common Stock at the closing
of the Acquisition. The shares of Common Stock purchased by the ESOP were
pledged as security for the ESOP Loan, and such
32
35
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
shares were released and allocated to ESOP participants' accounts as the ESOP
Loan was discharged. For employees whose employment commenced prior to October
1, 1996 and who have attained 21 years, participation begins as of the
Acquisition date or the date of commencement of the participant's employment. A
participant's ESOP account vests at the rate of 20% per year. The Company's
contributions to the ESOP, which are used to retire principal and pay interest
on the loan was reported as compensation expense. Principal and interest
payments made for the three years ended June 30, 2001 amounted to $2.1 million,
$2.2 million and $2.4 million, respectively. As of June 30, 2001 the ESOP Loan
was paid in full and all 100,000 shares were allocated to employees.
STOCK OPTION PLAN
In October 1996, the Company approved to the Stock Option Plan (the
"Plan") to reserve up to 27,778 shares of Common Stock to certain officers,
directors and key employees of the Company. In April 1998 the Company amended
the Plan to reserve up to an additional 42,000 shares of Common Stock under the
plan. The term of the options issued under the Plan cannot exceed ten years from
the date of grant. The options issued to date vest ratably over a three-year
period from the date of grant and are exercisable at $100 per share for those
options granted prior to June 30, 1998 and $126 per share for those shares
granted in fiscal 2000 and $131 or $153 per share for those shares granted in
fiscal 2001.
<Table>
<Caption>
NUMBER OF
SHARES
---------
Balance, June 30, 1998 38,278
Granted --
Exercised (667)
Canceled (5,333)
-------
Balance, June 1999 32,278
-------
Granted 26,522
Exercised (1,000)
Canceled (5,500)
-------
Balance, June 30, 2000 52,300
-------
Granted 13,400
Exercised --
Canceled (500)
-------
Balance, June 30, 2001 65,200
=======
</Table>
The Company applies APB 25 and related interpretations in accounting
for the Plan. There has been no compensation cost recognized by the Company
associated with the Plan as the exercise price of the options at the dates of
measurement were equivalent to the estimated fair value of the common stock on
that date. Had compensation cost for the Plan been determined based on the
method consistent with SFAS No. 123, the Company's net income (loss) and net
income (loss) per share for the three years ended June 30, 2001 would have not
been materially different on a pro forma basis.
33
36
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
CASH BONUS PLAN LIABILITY
In connection with the Acquisition, the Predecessor established the
$35 million Cash Bonus Plan covering substantially all employees of the
Predecessor (or certain affiliates of the Predecessor) and covering the
employees of certain third-party contractors who had contributed to the past
success of the Predecessor. All participants of the plan as of July 2, 1996 were
distributed 10% of the cash bonus in August 1996, and the remaining amount was
paid in sixteen quarterly installments, which began in October 1996. In July
2000 the remaining $0.2 million was paid, which fully retired the debt.
9. RELATED PARTY TRANSACTIONS
In March 2001 the Company renegotiated a loan to its Director of
Research in the amount of $0.2 million of which $0.2 million remained
outstanding as of June 30, 2001. The loan carries an interest rate of 8%.
In June 1998 the Company issued a loan of $0.2 million to its
Executive Vice President and Chief Financial Officer which was paid in full
during fiscal year 2000. The proceeds from the loan were utilized to purchase
outstanding shares of the Parent's common stock at fair market value. The loan
carried an interest rate of 7%.
During fiscal 1999 the Company made payments totaling $0.3 million to
a consulting firm whose majority shareholder is also an outside director and
security holder of the Company. No such expenditures were made in fiscal year
2001 and 2000. The Chairman of the Company receives annual compensation of $0.2
million for consulting services provided to the Company and reimbursements of
approximately $25,000 per year for office expenses.
10. CONCENTRATION OF CREDIT RISK
The Company sells its products primarily to chemical and petroleum
based companies in North America. For the three years ended June 30, 2001
approximately 38%, 34% and 34%, respectively, of the Company's sales were to
four customers. The Company had one customer who represented 11% of sales during
the years ended June 30, 2001 and 1999 and another company who represented 14%
of sales during the years ended June 30, 2000 and 1999. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral for accounts receivable. The Company's credit losses have been
minimal.
The Company maintains its cash deposits and short-term investments with
a major bank and a financial services company which at certain times exceed the
federally insured limits. Management assesses the financial condition of these
institutions and believes that any possible credit loss is remote.
11. FINANCIAL INSTRUMENTS
At June 30, 2001 the Company estimated that the carrying value and fair
value of its financial instruments, other than long-term debt (See Note 4), were
approximately equal due to the short-term nature of the instruments. Such
instruments include cash and cash equivalents, accounts receivable and accounts
payable.
The Company enters into certain derivative financial instruments as
part of its interest rate risk management and commodity price risk management.
See Note 4 for a discussion of interest rate derivative financial
34
37
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
instruments. At June 30, 2001 the Company had natural gas swap contracts
outstanding with notional volumes totaling 1.3 mmbtus and other outstanding
commodity swap contracts with notional volumes totaling 0.1 million barrels. All
of these commodity contracts mature within twelve months. The differential has
been paid or received as interest rates change is accrued and recognized as an
adjustment to interest expense. The fair value of financial derivative
instruments are the amounts at which they could be settled based on estimates
from dealers. As of June 30, 2001 reporting the estimated fair values of the
outstanding commodity derivative instruments resulted in a loss of approximately
$1.2 million. All interest rate derivative instruments were settled during the
current year.
35
38
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. 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:
Texas Petrochemical Holdings, Inc.
Supplemental Combining Balance Sheet
June 30, 2001
(in thousands)
<Table>
<Caption>
Parent Guarantor Non-Guarantors Eliminations Total
ASSETS
Current assets:
Cash and cash equivalents $ $ $ 19,407 $ $ 19,407
Accounts receivable - trade 54,479 54,479
Inventories 35,574 35,574
Other current assets (192) 12,487 12,295
--------- --------- --------- --------- ---------
Total current assets (192) 121,947 121,755
Property, plant and equipment, net 213,475 213,475
Investments in land held for sale 990 990
Investment in and advances to limited partnership 2,652 2,652
Goodwill, net 160,395 160,395
Other assets, net of accumulated amortization 349 9,564 9,913
Consolidated subsidiaries 87,648 87,648 -- (175,296) --
--------- --------- --------- --------- ---------
Total assets $ 87,805 $ 87,648 $ 509,023 $(175,296) $ 509,180
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ $ $ 5,829 $ $ 5,829
Accounts payable - trade 67,171 67,171
Payable to Parent 213 (213)
Accrued expenses 16,606 213 16,819
Current portion of long-term debt 6,196 6,196
--------- --------- --------- --------- ---------
Total current liabilities 96,015 96,015
Revolving line of credit 2,000 2,000
Long-term debt 57,650 263,943 321,593
Deferred income taxes (9,319) 59,417 50,098
Common stock held by the ESOP 15,300 15,300
Less: unearned compensation
Stockholders' equity:
Partners' Equity 87,648 (87,648)
Common Stock 5 5
Additional paid in capital 38,361 75,805 (75,805) 38,361
Accumulated deficit (14,004) 11,843 (11,843) (14,004)
Treasury stock (188) (188)
--------- --------- --------- --------- ---------
Total stockholders' equity 24,174 87,648 87,648 (175,296) 24,174
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 87,805 $ 87,648 $ 509,023 $(175,296) $ 509,180
========= ========= ========= ========= =========
</Table>
36
39
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Balance Sheet
June 30, 2000
(in thousands)
<Table>
<Caption>
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) 11,179 (10) 10,946
--------- --------- --------- --------- ---------
Total current assets (223) 10 127,358 (10) 127,135
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 8,287 8,691
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
========= ========= ========= ========= =========
</Table>
37
40
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Year Ended June 30, 2001
(in thousands)
<Table>
<Caption>
Parent Guarantor Non-Guarantors Eliminations Total
Revenues $ $ $ 858,718 $ $ 858,718
Cost of goods sold 782,004 782,004
Non-cash ESOP compensation 950 950
Depreciation and amortization 24,598 24,598
--------- ---------
Gross profit 51,166 51,166
Selling, general and administrative expenses 35 10,001 10,036
--------- --------- --------- --------- ---------
Income (loss) from operations (35) 41,165 41,130
Interest expense 7,115 31,664 38,779
Other income (324) (324)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (7,150) 9,177 2,027
and accounting change
Provision (benefit) for income taxes (2,374) 2,660 286
Accounting change (410) (410)
Equity in net income of subsidiaries 6,107 6,107 12,214
--------- --------- --------- --------- ---------
Net income (loss) $ 1,331 $ 6,107 $ 6,107 $ 12,214 $ 1,331
========= ========= ========= ========= =========
</Table>
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Year Ended June 30, 2000
(in thousands)
<Table>
<Caption>
Parent Guarantor Non-Guarantors Eliminations Total
Revenues $ -- $ -- $ 744,725 $ -- $ 744,725
Cost of goods sold 643,195 643,195
Non-cash compensation 570 570
Depreciation and amortization 23,800 23,800
--------- ---------
Gross profit 77,160 77,160
Selling, general and administrative expenses 14 9,139 9,153
--------- --------- --------- --------- ---------
Income (loss) from operations (14) 68,021 68,007
Interest expense 6,249 33,524 39,773
Other income (expense) (38) (38)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (6,263) 34,459 28,196
Provision (benefit) for income taxes (1,896) 17,956 16,060
Equity in net income loss of subsidiaries 16,503 16,503 (33,006) --
--------- --------- --------- --------- ---------
Net income (loss) $ 12,136 $ 16,503 $ 16,503 $ (33,006) $ 12,136
========= ========= ========= ========= =========
</Table>
Texas Petrochemical Holdings, Inc.
Supplemental Consolidating Statement of Income
Year Ended June 30, 1999
(in thousands)
<Table>
<Caption>
Parent Guarantor Non-Guarantors Eliminations Total
Revenues $ -- $ -- $ 448,155 $ -- $ 448,155
Cost of goods sold 374,401 374,401
Non-cash ESOP compensation 407 407
Depreciation and amortization 26,784 26,784
--------- ---------
Gross profit 46,563 46,563
Selling, general and administrative expenses 11 7,916 7,927
--------- --------- --------- --------- ---------
Income (loss) from operations (11) 38,647 38,636
Interest expense 5,491 33,953 39,444
Other income 1,276 1,276
--------- --------- --------- --------- ---------
Income (loss) before income taxes (5,502) 5,970 468
Provision (benefit) for income taxes (1,897) 4,538 2,641
Equity in net loss of subsidiaries 1,432 1,432 (2,864) --
--------- --------- --------- --------- ---------
Net income (loss) $ (2,173) $ 1,432 $ 1,432 $ (2,864) $ (2,173)
========= ========= ========= ========= =========
</Table>
38
41
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Year Ended June 30, 2001
(in thousands)
<Table>
<Caption>
Parent Guarantor Non-Guarantors Eliminations Total
Cash flows from operating activities:
Net income (loss) $ 1,331 $ 6,107 $ 6,107 $(12,214) $ 1,331
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 20,015 20,015
Amortization of goodwill and other assets 4,583 4,583
Amortization of debt issue costs 7,108 1,207 8,315
Earnings from limited partnership (558) (558)
Deferred income taxes (724) (1,656) (2,380)
Loss on sale of asset 327 327
Non-cash ESOP compensation 950 950
Non-cash fair value of derivatives 1,192 1,192
Change in:
Accounts receivable 9,756 9,756
Inventories 383 383
Other assets (35) (5,054) (5,089)
Accounts payable, accrued and other (1,655) (7,485) (9,140)
Distribution from limited partnership 675 675
-------- -------- -------- -------- --------
Net cash provided by operating activities 6,025 6,107 30,442 (12,214) 30,360
Cash flows from investing activities:
Capital expenditures (13,973) (13,973)
Proceeds from the sale of assets 741 741
-------- -------- -------- -------- --------
Net cash used in investing activities (13,232) (13,232)
Cash flows from financing activities:
Change in bank overdraft (1,317) (1,317)
Net borrowings (repayments) under revolver 350 350
Payments on long-term debt (13,295) (13,295)
Payment of cash bonus plan (213) (213)
Debt issuance costs (247) (247)
Reduction in note receivable from ESOP 2,000 2,000
Issued treasury stock 72 72
-------- -------- -------- -------- --------
Net cash used in financing activities 72 (12,722) (12,650)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents 6,097 6,107 4,488 12,214 4,478
Cash and cash equivalents, at beginning of period 10 14,919 14,929
-------- -------- -------- -------- --------
Cash and cash equivalents, at end of period $ 6,097 $ 6,117 $ 19,407 $ 12,214 $ 19,407
======== ======== ======== ======== ========
</Table>
39
42
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Year Ended June 30, 2000
(in thousands)
<Table>
<Caption>
Parent Guarantor Non-Guarantors Eliminations Total
Cash flows from operating activities:
Net income (loss) $ 12,136 $ 16,503 $ 16,503 $(33,006) $ 12,136
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 18,985 18,985
Amortization of goodwill and other assets 4,815 4,815
Amortization of debt issue costs 6,249 1,173 7,422
Earnings from limited partnership (324) (324)
Deferred income taxes (1,902) 3,628 1,726
Non-cash ESOP compensation 570 570
Change in:
Accounts receivable (24,015) (24,015)
Inventories (15,984) (15,984)
Other assets 187 4,741 4,928
Accounts payable, accrued and other 10 32,397 (10) 32,397
Distribution from limited partnership 375 375
-------- -------- -------- -------- --------
Net cash provided by operating activities 16,670 16,513 42,864 (33,016) 43,031
Cash flows from investing activities:
Capital expenditures (18,796) (18,796)
-------- -------- -------- -------- --------
Net cash used in investing activities (18,796) (18,796)
Cash flows from financing activities:
Change in bank overdraft 6,272 6,272
Net repayments under revolver (350) (350)
Payments on long-term debt (7,465) (7,465)
Payment of cash bonus plan (9,557) (9,557)
Debt issuance costs (152) (152)
Issued common stock 100 100
Purchased treasury stock (257) (257)
Reduction in note receivable from ESOP 2,000 2,000
-------- -------- -------- -------- --------
Net cash used in financing activities (157) (9,252) (9,409)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents 16,513 16,513 14,816 (33,016) 14,826
Cash and cash equivalents, at beginning of period 103 103
-------- -------- -------- -------- --------
Cash and cash equivalents, at end of period $ 16,513 $ 16,513 $ 14,919 $(33,016) $ 14,929
======== ======== ======== ======== ========
</Table>
40
43
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Texas Petrochemical Holdings, Inc.
Supplemental Combining Statement of Cash Flows
Year Ended June 30, 1999
(in thousands)
<Table>
<Caption>
Parent Guarantor Non-Guarantors Eliminations Total
Cash flows from operating activities:
Net income (loss) $ (2,173) $ 1,432 $ 1,432 $ (2,864) $ (2,173)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of fixed assets 21,924 21,924
Amortization of goodwill and other assets 4,860 4,860
Amortization of debt issue costs 5,491 1,159 6,650
Earnings from limited partnership (775) (775)
Deferred income taxes (1,903) (1,460) (3,363)
Non-cash ESOP compensation 407 407
Change in:
Accounts receivable 5,078 5,078
Inventories (2,763) (2,763)
Other assets 86 (4,183) (4,097)
Accounts payable, accrued and other (69) 8,489 8,420
Distribution from limited partnership 990 990
-------- -------- -------- -------- --------
Net cash provided by operating activities 1,432 1,432 35,158 (2,864) 35,158
Cash flows from investing activities:
Capital expenditures (14,413) (14,413)
Proceeds from the sale of non-plant assets 477 477
-------- -------- -------- -------- --------
Net cash used in investing activities (13,936) (13,936)
Cash flows from financing activities:
Change in bank overdraft 874 874
Net repayments under revolver (10,000) (10,000)
Payments on long-term debt (6,979) (6,979)
Payment of cash bonus plan (7,807) (7,807)
Debt issuance costs (163) (163)
Reduction in note receivable from ESOP 2,000 2,000
-------- -------- -------- -------- --------
Net cash used in financing activities (22,075) (22,075)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,432 1,432 (853) (2,864) (853)
Cash and cash equivalents, at beginning of period 956 956
-------- -------- -------- -------- --------
Cash and cash equivalents, at end of period $ 1,432 $ 1,432 $ 103 $ (2,864) $ 103
======== ======== ======== ======== ========
</Table>
41
44
TEXAS PETROCHEMICAL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 13, 2000 the Audit Committee of the Board of Directors of
the Company recommended and approved and the Company's Board of Directors
approved, the engagement of PricewaterhouseCoopers LLP ("PwC") to audit the
consolidated financial statements of the Company for the fiscal year ending June
30, 2001. Accordingly, the engagement of Deloitte & Touche LLP ("D&T") as the
Company's auditors was discontinued. D&T's reports on the Company's consolidated
financial statements for the two years ended June 30, 2000 did not contain an
adverse opinion or disclaimer of opinion, and were not qualified or modified as
to uncertainty, audit scope or accounting principles. In connection with the
audits of the Company's consolidated financial statements for the two years
ended June 30, 2000, and during the subsequent interim period preceding such
dismissal, (i) the Company had no disagreements with D&T on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, (ii) D&T did not advise the company of any "reportable
events" as defined in Item 304(a)(1)(v) of Regulation S-K under the Securities
Exchange Act of 1934, and (iii) the Company did not consult with D&T on any
accounting, auditing or financial reporting matters.
In connection with the audits of the Company's consolidated financial
statements for the year ended June 30, 2001, (i) the Company had no
disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of PricewaterhouseCoopers,
LLP, would have caused PricewaterhouseCoopers, LLP to make reference to the
matter in their reports; and (ii) there were no "reportable events" as defined
in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of
1934.
42
45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
directors and executive officers of the Company. Each director is elected for a
one-year term or until such person's successor is duly elected and qualified.
<Table>
<Caption>
Years of
service with the
Company
Name Age Position or its predecessors
---- --- -------- -------------------
Hunter W. Henry Jr. 73 Director 3
William A. McMinn 71 Director and Chairman 17
Steve A. Nordaker 54 Director 4
Susan O. Rheney 42 Director 5
Gary L. Rosenthal 52 Director 3
John T. Shelton 70 Director 17
Guy E. Sutherland 65 Director 2
B. W. Waycaster 62 Director, President and Chief Executive Officer 9
Carl S. Stutts 54 Executive Vice President, Chief Financial Officer 3
Stephen R. Wright 53 Sr. Vice President, Secretary and General Counsel 5
William F. Howard 58 Sr. Vice President Operations 25
</Table>
Mr. Henry has held various manufacturing and management positions in
the Dow Chemical Company, including Vice President - Business Operations for
Latin America, Vice President - Manufacturing Dow Badische, General Manager -
Michigan Division, President - Dow Brazil, President - Dow USA and Executive
Vice President of Dow Chemical Company (1982 - 1988). Mr. Henry was on Dow's
board from 1979 to 1993 and has served on the Executive, Compensation, Health
and Safety Committees and as Chairman of the Finance and Investment Policy
Committee. Mr. Henry also served as Chairman of the Board of Dowell
Schlumberger, 1985 - 1988.
Mr. McMinn has been Chairman of the Board of the Company since 1996. He
was Corporate Vice President and Manager of the Industrial Chemical Group of FMC
Corporation, a manufacturer of machinery and chemical products, from 1973
through 1985. He became President and Chief Executive Officer of Cain Chemical
Inc., a producer of petrochemicals, in 1987 and served in that capacity until
its acquisition by Occidental Petroleum in May 1988. He became Chairman of the
Board of Directors of Arcadian Corporation in August 1990 and served in that
capacity until it was sold in April 1997. Mr. McMinn currently services on the
board of Lexicon Genetics. Inc.
Mr. Nordaker has been a Managing Director of J.P. Morgan Securities
Inc. or predecessor merged entities since August 1995. From 1982 to 1995, he was
a Group Manager at Texas Commerce Bank National Association and, in addition,
served in several capacities at Texas Commerce Bank in the Energy Group,
including Section Manager and Division Manager. From May 1977 to March 1982, Mr.
Nordaker was a Manager of Projects for The Frantz Company, an engineering
consulting firm servicing the oil refinery and petrochemical industry. Prior
thereto, he was a chemical engineer with Universal Oil Products. Mr. Nordaker
serves on the Board of Directors as the Designee of J.P. Morgan Partners, an
affiliate of J.P. Morgan Securities.
43
46
Ms. Rheney is an independent investor. Ms. Rheney was a principal of
The Sterling Group, Inc., an investment banking firm specializing in leveraged
buyouts from 1992 to 2000. Ms. Rheney is also a director of American Plumbing &
Mechanical, Inc.
Mr. Rosenthal has served as President of Heaney Rosenthal, Inc. which
focuses on investment, acquisition and advice to various businesses since 1994.
Mr. Rosenthal currently serves as a director for Oil States International, Inc.,
Dresser Inc., and Jackson Products Company, Inc. and previously served as
Chairman of the Board (1990-1994) and CEO (1994) of Wheatley TXT Corp.
Mr. Shelton previously served as Vice Chairman of the Board, Executive
Vice President and Chief Operations Officer of the Company from 1983 to 1996.
Prior thereto, Mr. Shelton held various positions in the chemicals industry
including Vice President - Manufacturing of Oxirane Corporation and Manager -
Manufacturing/Engineering of Atlantic Richfield Company.
Mr. Sutherland has held various management positions in Phillips
Petroleum Company including President, Phillips Driscopipe, President, Applied
Automation, Vice President, Chemicals and Senior Vice President Phillips
Chemical Company. Mr. Sutherland was employed by Phillips for 41 years and spent
time on Wall Street for the Company as well as in Washington, DC where he was on
loan to the government as part of the Presidents Executive Exchange Program. He
was Chairman of the NPRA Petrochemical Committee and on the Executive Committee
of the NPRA and was active in CMA. He currently serves on the Board of
WeststarBank, member Arvest Group, the Advisory Board of ChemConnect, Inc. and
as Managing Member of Sutherland-Wheeler Farm LLC.
Mr. Waycaster has been President and Chief Executive Officer of the
Company since 1992. Prior thereto, Mr. Waycaster spent 27 years with The Dow
Chemical Company and was serving as Vice President of the Hydrocarbons and
Resources when he left to join the Company. Mr. Waycaster is a Board member of
the American Chemistry Council, National Petrochemical and Refiners Association,
and serves on the Advisory Board of ChemConnect, Inc.
Mr. Stutts joined the Company in April 1998 as CFO, Vice President of
Finance and Corporate Development, and in March 2000 was promoted to Executive
Vice President. Previously, he was a general partner of Columbine Venture Funds,
an institutional venture capital fund focusing on investments in early stage
companies. From 1971 to 1988 he held various management positions in Tenneco,
Inc. and its subsidiary companies. He is on the Board and the Compensation
Committee of Bolder Technologies Corp.
Mr. Wright joined the Company in August 1996 as Vice President and
General Counsel. From January 1996 until he joined the Company, Mr. Wright was
engaged in the private practice of law, either as a sole practitioner or of
counsel to Andrews & Kurth, L.L.P. For over five years prior thereto, Mr. Wright
was the Vice President and General Counsel or the Senior Vice President and
General Counsel of Destec Energy, Inc. In July 1999, he was named Senior Vice
President for Law and Administration.
Mr. Howard has been Vice President Operations of the Company since July
1999, and he was promoted to Senior Vice President Operations in March 2000. He
joined the Company in 1976 and has held various positions in Manufacturing and
Maintenance. Prior to 1976, Mr. Howard was with Exxon Chemical Company. Mr.
Howard has 30 years of experience in the chemicals industry.
44
47
COMPENSATION OF DIRECTORS
Directors of the Company who are not employees of the Company receive
an annual retainer of $15,000 and a fee of $500 for each meeting of the Board or
any committee thereof that they attend. Directors who are also employees of the
Company do not receive Director compensation.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the total value of compensation received
by the Chief Executive Officer and the four most highly compensated executive
officers, other than the Chief Executive Officer, who served as executive
officers of the Company for the three years ended June 30, 2001.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
Name and Principal Position Year(1) Salary Bonus
--------------------------- ------- ------ -----
B. W. Waycaster, President and
Chief Executive Officer 2001 $ 420,000 $ 588,325
2000 300,000 575,436
1999 300,000 459,156
Carl S. Stutts, Executive Vice President,
Chief Financial Officer 2001 $ 228,000 $ 319,683
2000 175,000 335,671
1999 175,000 267,841
Stephen R. Wright, Senior Vice
President, Secretary and
General Counsel 2001 $ 192,000 $ 283,683
2000 180,000 345,272
1999 180,000 275,494
William F. Howard, Senior Vice President
Operations 2001 $ 174,000 $ 253,976
2000 150,000 223,762
</Table>
----------
(1) None of the executive officers has received perquisites, the value of which
exceeded the lesser of $50,000 or 10% of the salary and bonus of such
executive officer.
The following table sets forth the number and dollar value of exercised
and unexercised options held by each of the named executive officers at June 30,
2001.
<Table>
<Caption>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Options at June 30, 2001 June 30, 2001
Exercisable Not Exercisable Exercisable Not Exercisable
----------- --------------- ----------- ---------------
B.W. Waycaster 6,452 11,048 $341,956 $585,544
William F. Howard 1,667 4,033 88,351 213,749
Carl S. Stutts 5,000 1,000 265,000 53,000
Stephen R. Wright 2,567 3,133 136,051 166,049
</Table>
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of September 1, 2001, the number and
percentage of the outstanding shares of Common Stock beneficially owned by (a)
each person known by the Company to beneficially own more than 5% of such stock,
(b) each director of the Company, (c) each of the Named Executive Officers of
the Company, and (d) all directors and executive officers of the Company as a
group.
<Table>
<Caption>
Name and Address of Beneficial Owner Of Common Stock Common Stock
------------------------------------ --------------- ------------
Hunter W. Henry Jr. -- --
1148 Thousand Oaks
San Marcos, TX 78666
William F. Howard
1309 Town Circle
Baytown, TX 77520 4,667 (6) 0.9%
William A. McMinn 15,000 (1) 2.8%
Eight Greenway Plaza, Suite 702
Houston, TX 77046
Steve A. Nordaker -- --
600 Travis, 20th Floor
Houston, TX 77002
Susan O. Rheney 5,000 0.9%
Eight Greenway Plaza, Suite 702
Houston, TX 77046
Gary L. Rosenthal 1,450 (2) 0.3%
600 Travis, Suite 6110
Houston, TX 77002
John T. Shelton 10,000 1.9%
3 Inwood Oaks
Houston, TX 77024
Carl S. Stutts 7,500 (3) 1.4%
3801 Swartmore Street
Houston, TX 77056
Guy E. Sutherland -- --
1821 S.E. Glynnwood Dr.
Bartlesville, OK 74006-6121
Bill W. Waycaster 46,452 (4) 8.8%
Three Riverway, Suite 1500
Houston, TX 77056
Stephen R. Wright 4,217 (5) 0.8%
Three Riverway, Suite 1500
Houston, TX 77056
All directors and Named Executive
Officers as a group (11 persons) 116,257 21.9%
TPC Holding Corp. ESOP 169,000 31.9%
Capital Southwest Corporation 30,000 5.7%
12900 Preston Road, Suite 700
Dallas, TX 75230
Chase Venture Capital Associates, L.P. 60,000 11.3%
380 Madison Avenue
New York, NY 10017
The Huff Alternative Income Fund, L.P. 57,778 10.9%
67 Park Place
Morristown, NJ 07960
</Table>
(1) Includes 5,000 shares subject to options exercisable as of June 30, 2001.
(2) Does not include 2,000 shares held in Trust for Mr. Rosenthal's
descendants. Mr. Rosenthal disclaims beneficial ownership of the shares.
(3) Includes 5,000 shares subject to options exercisable as of June 30, 2001.
(4) Includes 6,452 shares subject to options exercisable as of June 30, 2001.
(5) Includes 2,567 shares subject to options exercisable as of June 30, 2001.
(6) Includes 1,667 shares subject to options exercisable as of June 30, 2001.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATED PARTY TRANSACTIONS
In March 2001 the Company renegotiated a loan to its Director of
Research in the amount of $0.2 million of which $0.2 million remained
outstanding as of June 30, 2001. The loan carries an interest rate of 8%.
In June 1998 the Company issued a loan of $0.2 million to its
Executive Vice President and Chief Financial Officer which was paid in full
during fiscal year 2000. The proceeds from the loan were utilized to purchase
outstanding shares of the Parent's common stock at fair market value. The loan
carried an interest rate of 7%.
During fiscal 1999 the Company made payments totaling $0.3 million to
a consulting firm whose majority shareholder is also an outside director and
security of the Company. No such expenditures were made in fiscal 2000. The
Chairman of the Company receives annual compensation of $0.2 million for
consulting services provided to the Company and reimbursements of approximately
$25,000 per year for office expenses.
In August 2001, the TPC Holding Corp. Employee Stock Ownership Trust
(the "Trust") purchased 69,000 shares of common stock of Texas Petrochemical
Holdings, Inc. from existing shareholders in exchange for cash and seller
financing. The cash portion of the offer to selling shareholders was funded by a
loan made by Texas Petrochemicals LP to the Trust. The loan of $2.5 million is
to be financed over a 10 year period at a 6% interest rate.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 of Form S-4, File
No. 333-11569).
3.2 Bylaws of the Company (incorporated by reference to Exhibit
3.2 of Form S-4, File No. 333-11569).
3.3 Certificate of Limited partnership of Texas Petrochemicals LP
(incorporated by reference to Exhibit 3.3 of Form 10Q, File
No. 333-11569).
3.4 Agreement of Limited partnership of Texas Petrochemicals LP
(incorporated by reference to Exhibit 3.4 of Form 10Q, File
No. 333-11569).
4.1 Indenture dated as of July 1, 1996 by and between the Company
and Fleet National Bank, as Trustee, with respect to the
11 1/8% Senior Subordinated Notes due 2006, including the form
of the Note (incorporated by reference to Exhibit 4.1 of Form
S-4, File No. 333-11569).
4.2 Indenture dated as of March 1, 1997 by and between the Company
and Fleet National Bank, as Trustee, with respect to the
11 1/8% Series B Senior Subordinated Notes due 2006, including
the form of Note (incorporated by reference to Exhibit 4.2 of
Form S-4, File No. 333-24589).
4.3 First Supplemental Indenture dated June 28, 2000 amending and
supplementing Senior Discount Notes due 2007 (incorporated by
reference to Exhibit 4.3 of Form 10K, File No. 333-11569.
5.1 Opinion of Bracewell & Patterson as to the validity of the
11 1/8% Senior Subordinated Notes die 2006 and the validity of
the 11 1/8% Series B Senior Subordinated Notes due 2006
(incorporated by reference to Exhibit 5.1 of Form S-4, File
No. 333-11569).
10.1 Holdings' 1996 Stock Option Plan (incorporated by reference to
Exhibit 10.1 of Form S-4, File No. 333-11569).
10.2 TPC Employee Stock Ownership Plan (incorporated by reference
to Exhibit 10.2 of Form S-4, File No. 333-11569).
10.3 TPC Employee Stock Ownership Plan Trust Agreement
(incorporated by reference to Exhibit 10.3 of Form S-4, File
No. 333-11569).
10.4 TPC Cash Bonus Plan (incorporated by reference to Exhibit 10.4
of Form S-4, File No. 333-11569).
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50
10.5 Security Agreement by and between Boatmen's Trust Company of
Texas and the Company (incorporated by reference to Exhibit
10.5 of Form S-4, File No. 333-11569).
10.6 TPC Profit Sharing Plan (incorporated by reference to Exhibit
10.6 of Form S-4, File No. 333-11569).
10.7 Lease for Calcasieu Parish, Louisiana (incorporated by
reference to Exhibit 10.7 of Form S-4, File No. 333-11569).
10.8 Credit Agreement dated as of July 1, 1996 among the Company,
Texas Commerce Bank, National Association, ABN AMRO North
America, Inc., and The Bank of Nova Scotia (incorporated by
reference to Exhibit 10.8 of Form S-4, File No. 333-11569).
10.9 Security Agreement date as of July 1, 1996 by and between the
Company and Texas Commerce Bank, National Association
(incorporated by reference to Exhibit 10.9 of Form S-4, File
No. 333-11569).
10.10 Pledge Agreement date as of July 1, 1996 by and between the
Company and Texas Commerce Bank, National Association
(incorporated by reference to Exhibit 10.10 of Form S-4, File
No. 333-11569).
10.11 Letter Agreement dated May 6, 1996 by and among The Sterling
Group, Inc., Texas Petrochemical Holdings, Inc., TPC Holding,
and the Company (incorporated by reference 10.11 of Form S-4,
File No. 333-11569).
10.12 Form of Indemnity Agreement between the Company and each of
its officers and directors (incorporated by reference to
Exhibit 10.12 of Form S-4, File No. 333-11569).
10.13 Form of Tax Sharing Agreement among Texas Petrochemical
Holdings, Inc., TPC Holding, the Company and Texas Butylene
Chemical Corporation (incorporated by reference to Exhibit
10.13 of Form S-4, File No. 333-11569).
10.14 Employment Agreement with Bill W. Waycaster (incorporated by
reference to Exhibit 10.14 of Form S-4, File No. 333-11569).
10.15 Amendment to Credit Agreement dated as of June 30, 1999 by and
among the Company, Chase Bank of Texas, National Association,
ABN AMRO North America, Inc., the Bank of Nova Scotia and
other financial institutions listed on the signature pages
attached. (incorporated by reference to Exhibit 10.15 of Form
10K, File No. 333-11569).
10.16 Amended and Restated Credit Agreement among TPC Holding Corp.,
Texas Petrochemicals LP, Chase Bank of Texas-National
Association, ABN AMRO North America, Inc. and The Bank of Nova
Scotia (incorporated by reference to Exhibit 10.16 of Form
10K, File No. 333-11569).
10.17 Note Modification Agreement dated June 30, 2000 between Texas
Petrochemicals LP (incorporated by reference to Exhibit 10.17
of Form 10Q, File No. 333-11569).
10.18 First Amendment to Amended and Restated Credit Agreement
(incorporated by reference to Exhibit 10.18 of Form 10Q, File
No. 333-11569).
21 Subsidiaries of the Company (incorporated to Exhibit 21 of
Form S-4, File No. 333-11569).
25.1 Statement of Eligibility and Qualification on Form T-1 of
Fleet National Bank as Trustee under the Indenture dated as of
July 1, 1996 (incorporated by reference to Exhibit 25.1 of
Form S-4, File No. 333-11569).
25.2 Statement of Eligibility and Qualification on Form T-1 of
Fleet National Bank as Trustee under the Indenture dated as of
March 1, 1997 (incorporated by reference to Exhibit 25.2 of
Form S-4, File No. 333-24589).
(b) Financial Statement Schedules
Not applicable
(c) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
June 30, 2001.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, September 26, 2001.
TEXAS PETROCHEMICAL HOLDINGS, INC.
(Registrant)
By: /s/ B.W. Waycaster
-------------------------------------
B.W. Waycaster
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
to be signed below by the following persons on behalf of the registrant in the
indicated capacities on September 26, 2001.
<Table>
/s/ WILLIAM A. McMINN Chairman
-----------------------------------
William A. McMinn
/s/ B.W. WAYCASTER Director, President and Chief Executive Officer
-----------------------------------
B.W. Waycaster
/s/ HUNTER W. HENRY JR. Director
-----------------------------------
Hunter W. Henry Jr.
/s/ STEVE A. NORDAKER Director
-----------------------------------
Steve A. Nordaker
/s/ SUSAN O. RHENEY Director
-----------------------------------
Susan O. Rheney
/s/ GARY L. ROSENTHAL Director
-----------------------------------
Gary L. Rosenthal
/s/ JOHN T. SHELTON Director
-----------------------------------
John T. Shelton
/s/ GUY E. SUTHERLAND Director
-----------------------------------
Guy E. Sutherland
/s/ CARL S. STUTTS Executive Vice President,
----------------------------------- Chief Financial Officer
Carl S. Stutts
</Table>
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