ITEM 1. BUSINESS
Texas Petrochemicals LP, formerly Texas Petrochemicals Corporation, referred to as the "Company" herein, is the second largest producer of butadiene, the largest producer of butene-1, and the third largest producer of methyl teritiary-butyle ether (MTBE) in North America. In addition, the Company is the sole producer of diisobutylene and isobutylene concentrate in the United States and the largest domestic merchant supplier of high purity isobutylene to the chemical market. The Company's products include: (i) butadiene, primarily used to produce synthetic rubber; (ii) MTBE, used as an oxygenate and octane enhancer in gasoline; (iii) n-butylenes (butene-1 and butene-2), used in the manufacture of plastic resins, fuel additives and synthetic alcohols; and (iv) specialty isobutylenes, primarily used in the production of specialty rubbers, lubricant additives, detergents and coatings.
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. During fiscal 1997 the Company successfully gained access to the MTBE market on the East Coast of the United States through the negotiation of a terminalling and storage agreement with the Northville terminal in Linden, New Jersey.
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 Corporation 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 Corporation with Texas Petrochemicals Corporation becoming a 100% owned subsidiary of TPC Holding Corporation, which is a 100% owned subsidiary of Texas Petrochemical Holdings, Inc. (the "Parent"). The closely held Parent was formed by a group of investors.
Effective July 1, 2000 the Texas Petrochemicals Corporation converted its legal form from a corporation to a limited partnership, Texas Petrochemicals LP, pursuant to the conversion provisions of the Texas Business Corporation Act and the Texas Revised Limited Partnership Act. TPC Holding Corp., the Company's immediate parent prior to the conversion, retained a direct 1% ownership interest in the partnership and became its sole general partner. Petrochemical Partnership Holdings, Inc., a new wholly owned subsidiary of TPC Holding Corp., acquired the remaining 99% ownership interest and simultaneously became a limited partner of the partnership. This change has no effect on the current management of the Company or its existing operations. The Texas Business Corporation Act provides that the effect of the conversion is that the Company as a legal entity continues to exist, without interruption, but in the organizational form of a Texas limited partnership rather than in the prior organizational form of a Texas corporation.
The Company's principal executive offices are located at Three Riverway, Suite 1500, Houston, Texas 77056. The Company's telephone number is (713) 627-7474.
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 the second largest producer 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. 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 based on the Company's selling prices for butadiene, and account for the relatively stable profitability of 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, and has been one of the fastest growing petrochemicals, in terms of volume, over the past fifteen years. MTBE is produced by reacting methanol and isobutylene. 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 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 contaminated 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 or results of operations. See "MTBE Environmental and Market Issues" section 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 in 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.
During 2000 the Company completed the development and construction of a $12 million polyisobutylene plant. The plant processes 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. One of the Company's intermediate products, isobutylene, is used in the manufacture of MTBE and specialty isobutylenes.
COMPANY STRATEGY
The Company believes that it has become an industry leader in the production of the majority of its products by capitalizing on its production flexibility, its ability to add significant cost effective incremental capacity across its product lines, the marketing experience of its management team, its competitive cost position and its customer focus. The Company's strategy is to strengthen its established presence in its selected markets by focusing on the following factors:
REDUCE EXPOSURE TO CYCLICAL END-MARKETS The markets in which the Company competes are cyclical. The Company intends to mitigate the effects of this cyclicality while benefiting from potential upturns in industry profitability by optimizing the production of its sales under contracts allowing for a fixed profit or at prices linked directly or indirectly to raw material prices.
CAPITALIZE ON PRODUCTION FLEXIBILITY The Company has the ability to produce a number of its intermediate and finished products (i.e. crude butadiene, isobutylene and butene-1) by a variety of processes. The Company intends to capitalize on this ability by shifting production to the most economical process and production level based upon market conditions, thus ensuring a reliable source of supply for its customers.
UTILIZE INCREMENTAL CAPACITY The Company can increase its capacity to produce butadiene, isobutylene and its derivatives at significantly lower cost than that of new construction. The Company's ability to add incremental butadiene capacity and its relationships with several North American ethylene producers are expected to enable it to capture the benefit of increased U.S. crude butadiene supply.
RESPOND TO FAVORABLE INDUSTRY DYNAMICS The Company's production flexibility and its ability to add low-cost capacity are crucial to its capitalizing on market opportunities. The U.S. supply of crude butadiene is increasing in line with domestic ethylene production, although it is currently insufficient to meet U.S. demand. Industry operating rates are expected to remain at current high levels as the increase in domestic crude butadiene production is expected to replace imports with butadiene demand remaining strong in support of derivative businesses.
SUSTAIN CUSTOMER FOCUS The Company believes that producing quality products and providing quality service with dependable supply are key factors in its ability to compete in the market place for its products. Management believes that its focus on customer service has resulted in strong customer relationships and a high degree of customer loyalty. This is evidenced by the fact that approximately 60% of the Company's current customers have purchased products from the Company for more than ten years.
REDUCE EMPHASIS ON MTBE The future MTBE market in the United States is faced with significant uncertainty due to current proposed legislation (See "MTBE Environmental and Market Issues"). As a result of this uncertainty the Company has been evaluating and pursuing strategies to reduce its reliance on profitability from MTBE. The Company plans are to continue to expand in its existing core businesses and develop new products. There can be no assurance that such plans will be successful or sufficient to offset any potential future decline in MTBE profitability. MTBE sales represented 51% and 58% of total sales revenue in fiscal 1999 and 2000, respectively, while variable margin contribution from MTBE sales represented 28% and 42% of total variable margin in fiscal 1999 and 2000, respectively.
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. The majority of these contracts 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.
Certain of the Company's largest customers account for a significant percentage of the Company's sales of particular products. The Company had 2 customers, which represented 11% and 14% of sales during the year ended June 30, 2000, and 1999, and 13% and 15% of sales during the year ended June 30, 1998. Although the Company believes its relationships with its largest customers are good, the loss of a significant customer or a number of significant customers would have a material adverse effect on the Company's financial condition, results of operations and 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 position, results of operations and 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. Secondly, the Company's flexible production processes enable it to take advantage of increases in demand for its products at a lower cost than its competitors, thus allowing the Company to meet its customers' needs through the most economic processes. Also, the Company's flexible 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 approximately 21 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 enacted a law banning MTBE from gasoline as of December 31, 2002. Seven other states (Arizona, Connecticut, Maine, Minnesota, Nebraska, New York and South Dakota) have enacted similar laws, providing for reduction or elimination of MTBE from gasoline. In addition, the State of California has adopted a maximum contaminant level ("MCL") for MTBE in drinking water supplies of 13 ppb. If MTBE is found at levels exceeding 13 ppb, it is expected that the water would have to be treated to reduce MTBE concentration to a level at or below 13 ppb. In addition, a bill (S.B. 2962) has been introduced in Congress to eliminate the use of MTBE nationwide within four (4) years of enactment of the bill, and to allow states to opt out of the oxygenate requirement of the CAA beginning in 2001. The Company is not able to predict whether such legislation will be adopted, or, if adopted, the extent to which MTBE demand would be reduced as a result; it is possible, however, that such reduction could be material.
Various scientific bodies have evaluated MTBE as a possible human carcinogen. To date, the International Agency on Research on Cancer (IARC), the National Toxicology Program (NTP) and the California Cancer Identification Committee (CIC) have found MTBE not to be classifiable as a possible, probable or known human carcinogen. California EPA has designated MTBE as a possible human carcinogen.
Although the EPA continues to require oxygenates to be added to gasoline in certain regions of the country either year-round or during the winter months, and MTBE continues to be the leading oxygenate used, the EPA has called for reduction in the use of MTBE in gasoline. Any restriction on or prohibition of the use of MTBE could have a material adverse effect on the Company's financial condition or results of operations.
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 U.S. Environmental Protection Agency ("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.
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 Clean Air Act ("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 which 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, acrylonitrile 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. The Company expended $600,000 on wastewater collection and treatment systems over the past year to comply with the HON rule.
NOx emission control rules adopted in 1994 required compliance by November 15, 1999. The Company has installed predictive emission monitoring equipment for NOx emissions on stationary sources at its boiler house. The Company expended $1.1 million to comply with the NOx RACT Rules.
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 is expected to require significant reductions in emissions of ozone precursors, including volatile organic compounds and oxides of nitrogen in Harris County. The Company anticipates that 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. Since the SIP rules have not yet been finalized, the Company is unable at this time to predict the cost of modifying its facilities to comply with any additional requirements that the revised SIP may impose.
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. The Company expects to be required to commit to certain emission reductions in connection with the VERP. Since the Company voluntarily committed itself 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. 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. Failure to apply for and obtain a permit will result in emissions fees that will treble annually until a grandfathered facility applies for a permit. The TNRCC has recently 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 the Senate Bill 766 implementation are not anticipated to have a materially adverse impact on the Company or its operations.
Section 112 of the CAA requires prevention of accidental releases of certain listed extremely hazardous substances. The EPA's rules implementing portions of Section 112, which were signed by the EPA Administrator on May 24, 1996, required the Company to conduct a hazards assessment and to develop a risk management plan by June 1999. The Company completed the plan and filed it with the appropriate agencies in a timely manner.
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.
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 a third party, 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 has completed the first phase of its work on its stormwater discharge system and is currently evaluating potential improvements to the system. The Company has completed installation of noise barriers for certain equipment.
The Company received a Notice of Violation ("NOV") on March 10, 2000 from the EPA relating to certain discrepancies alleged to have been found during routine inspections conducted by EPA in 1995 and 1997. The NOV has not yet led to the filing of a judicial complaint against the Company. The EPA, the Department of Justice, and the Company are currently exploring the possibility of an agreed upon settlement of issues. The anticipated settlement of such issues is not expected to have a material adverse impact on the Company's financial condition, results of operations or cash 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 EPA has determined that butadiene is a probable human carcinogen. Effective February 1997, the Occupational Safety and Health Administration lowered the employee permissible exposure limit ("PEL") over an 8-hour time-weighted average for butadiene from 1000 parts per million ("ppm") to 1 ppm. The Company has conducted employee exposure monitoring and believes that it currently meets the PEL at most of its operations. For some operations, the Company anticipates employees will need to use respirators and that additional emission controls may be necessary. The Company does not expect that the current health concerns regarding butadiene will have a material adverse effect on the Company's financial condition or results of operations, although no assurance can be given that future studies will not result in more stringent regulation of butadiene.
EMPLOYEES
As of June 30, 2000, the Company had approximately 294 full-time employees, all of whom were salaried employees. In addition, the Company contracts with a third party to provide approximately 129 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 one lost time injury 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.
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 the facilities to be served by rail and by truck. 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 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 is has adequate facilities for the conduct of its current and planned operations.
ITEM 3.
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, although no assurances can be given, management believes that other than as disclosed, based on the nature of and its understanding of the facts and circumstances which give rise to such claims and litigation, and after considering appropriate reserves that have been established, that the ultimate resolution of such issues, individually and in the aggregate, will not have a material adverse effect on the Company's financial position or results of operation.
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.
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, 2000.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the Company set forth below for the four years ended June 30, 2000, the one month period ended June 30, 1996 and the twelve months ended May 31, 1996 should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements.
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(1) In January 1999, the estimated useful live 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.
(2) Net income (loss) for the twelve months ended may 31, 1996 includes a non-recurring charge for impairment of investment in land of $12.6 million, with an associated income tax benefit of $4.7 million
(3) Net loss for the year ended June 30, 1997 includes an extraordinary loss of $1.5 million for early extinguishment of debt.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
The Company's revenues are derived primarily from merchant market sales of butadiene, MTBE, n-butylenes (butene-1 and butene-2) and specialty isobutylenes (isobutylene concentrate, high purity isobutylene, and diisobutylene). 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 "Environmental Regulation" section for a further discussion of MTBE.
REVENUES
The Company's revenues are a function of the volume of products sold by the Company and the prices for such products. The following tables set forth the Company's historical revenues and the percentages of historical revenues by product and volume of products sold.
Revenues
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(1) Includes utility revenues and revenues realized from the Company's terminalling facilities.
Sales Volumes
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(1) Volumes in millions of gallons. Includes 17.8 million, and 98.5 million and 15.0 million gallons finished MTBE purchased for resale for the years ended June 30, 2000, 1999 and 1998, respectively.
RESULTS OF OPERATIONS
The following table sets forth an overview of the Company's results of operations.
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.
MTBE revenues increased by approximately 87%, or $200.2 million, to $429.5 million for the year ended June 30, 2000 from $229.3 million for the year ended June 30, 1999. The increase was due to higher sales prices and sales volumes. MTBE prices were significantly higher particularly during the last half of the fiscal year as a result of increases in gasoline and crude oil prices. In addition, during the last quarter of the fiscal year 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.
n-Butylenes revenues increased by approximately 70%, or $31.5 million to $76.7 million for the year ended June 30, 2000 from $45.2 million for the year ended June 30, 1999. N-Butylene sales revenue increased due to higher sales prices and sales volumes. B-2 sales volumes were significantly higher as these products were sold into the fuels market.
Speciality isobutylene revenues increased by approximately 43%, or $27.1 million to $89.8 million for the year ended June 30, 2000 from $62.7 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 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.
YEAR ENDED JUNE 30, 1999 COMPARED TO THE YEAR ENDED JUNE 30, 1998
Revenues
The Company's revenues decreased by approximately 13%, or $66.6 million, to $448.2 million for the year ended June 30, 1999 from $514.8 million for the year ended June 30, 1998. The decrease was primarily due to lower product sales prices, which was partially offset by higher sales volumes.
Butadiene revenues decreased by approximately 27%, or $36.8 million, to $98.2 million for the year ended June 30, 1999 from $135.0 million for the year ended June 30, 1998. The decrease was attributable to a decrease in sales prices. Excess supply and imports of butadiene into the U.S. market contributed to lower prices. Sales volumes remained stable over the prior year.
MTBE revenues decreased by approximately 3%, or $6.1 million, to $229.3 million for the year ended June 30, 1999 from $235.4 million for the year ended June 30, 1998. The decrease was due to lower sales prices, which was partially offset by higher sales volumes. MTBE prices were lower in the current year due to the lower unleaded gasoline and crude oil prices. Sales volumes increased over the prior year due to purchases of finished MTBE for resale.
n-Butylenes revenues decreased by approximately 18%, or $10.0 million, to $45.2 million for the year ended June 30, 1999 from $55.2 million for the year ended June 30, 1998. n-Butylene sales revenue decreased due to lower sales prices during most of the fiscal year. Sales volumes of butene-1 and butene-2 were relatively unchanged as compared to the prior year.
Specialty isobutylene revenues decreased by approximately 15%, or $11.0 million, to $62.7 million for the year ended June 30, 1999 from $73.7 million for the year ended June 30, 1998. The decrease was due to lower sales prices of all of the Company's specialty products and lower sales volumes of isobutylene concentrate. Isobutylene concentrate sales volumes were lower due to a planned turnaround by one of the company's customers during the first half of the fiscal year.
Gross Profit
Gross profit increased by approximately 5%, or $2.3 million, to $46.6 million for the year ended June 30, 1999 from $44.3 million for the year ended June 30, 1998. Gross margin during the period increased to 10.4% from 8.6%. The gross profit increase was primarily due to a change in accounting estimate, which reduced depreciation expense by $4.2 million during the current year. In January 1999, the depreciable lives of a certain plant assets were increased from 10 years to 15 years. With this adjustment excluded, gross margin would have decreased by $1.9 million over the prior year. The decrease is attributable to lower MTBE margins caused by a smaller spread between sales prices and raw materials. The decrease in MTBE margins was partially offset by improved margins in butadiene, specialty isobutylenes and reductions in operating costs.
Income from Operations
Income from operations increased by approximately 3%, or $1.3 million, to $38.7 million for the year ended June 30, 1999 from $37.4 million for the year ended June 30, 1998. Operating margin during this period increased to 8.6% from 7.3%. The increase in income from operations was primarily due to the same factors contributing the increase in gross profit described above, partially offset by an increase in selling, general and administrative expenses. This increase was associated with increased MTBE advocacy costs, software integration costs and business development activity in the current year.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
YEAR ENDED JUNE 30, 2000 COMPARED TO THE YEAR ENDED JUNE 30, 1999
Net cash provided by operating activities was $42.5 million for the year ended June 30, 2000 compared to $34.2 million for the year ended June 30, 1999. The increase of $ 8.3 million was primarily attributable to changes in working capital. Net cash used in investing activities was $18.4 million for the year ended June 30, 2000 compared to $ 12.9 million for the year ended June 30, 1999. The increase of $ 5.5 million was caused by higher capital expenditures during the current year. Net cash used in financing activities was $ 9.3 million for the year ended June 30, 2000 compared to $22.1 million for the year ended June 30, 1999. The decrease of $12.8 million is primarily due to lower repayments on the revolving line of credit during the current year.
YEAR ENDED JUNE 30, 1999 COMPARED TO THE YEAR ENDED JUNE 30, 1998
Net cash provided by operating activities was $34.2 million for the year ended June 30, 1999 compared to $34.9 million for the year ended June 30, 1998. The decrease of $0.7 million was primarily attributable to changes in working capital. Net cash used in investing activities was $12.9 million for the year ended June 30, 1999 compared to $11.2 million for the year ended June 30, 1998. The increase of $1.7 million was primarily attributable to an increase in capital expenditures during the current year. Net cash used in financing activities was $22.1 million for the year ended June 30, 1999 compared to $22.9 million for the year ended June 30, 1998. The decrease of $0.8 million was primarily attributable to the net change in bank overdraft and reduction in the outstanding revolving line of credit.
LIQUIDITY
In July 1996 the Company issued $175 million of 11 1/8% Senior Subordinated Notes due 2006 and borrowed $140 million under a Bank Credit Agreement. The Company used the combined proceeds to finance the Acquisition of the Company. The Company's liquidity needs arise primarily from principal and interest payments under the Bank Credit Agreement and the Subordinated Notes. The Company's primary source of funds to meet debt service requirements is net cash flow provided by operating activities. Operating cash flow is significantly impacted by raw materials cost as well as the selling price and volume variances of finished goods. The Company enters into supply contracts for certain of its products in order to mitigate the impact of changing prices. Additionally, the Company has a $40 million Revolving Credit Facility, of which $1.7 million was in use at June 30, 2000, to provide funds for ongoing operations, working capital and planned capital expenditures. The Company believes that the availability of funds under the Revolving Credit Facility are sufficient to cover any current liquidity needs which could arise as a result of negative working capital. The Company's ability to borrow under the Revolving Credit Facility is limited by the terms of the Bank Credit Agreement and the Subordinated Notes. The Bank Credit Agreement and the Subordinated Notes include certain restrictive covenants, which include but are not limited to, 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. Effective June 30, 1999 the Company obtained an
amendment to the Bank Credit Agreement to update the financial ratios relating to fixed charge coverage and debt to EBITDA for fiscal 2000.
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. During the year ended June 30, 2000, $9.6 million of this amount was paid to eligible participants and the remaining $0.2 million, which fully retires the debt, was paid in July 2000.
CAPITAL EXPENDITURES
The Company's capital expenditures for fiscal 2000 related principally to constructing a polyisobutylene plant at a cost of $12 million, improving operating efficiencies and maintaining environmental compliance. Capital expenditures for year ended June 30, 2000 were $18.8 million, compared to $14.4 million for the year ended June 30, 1999. The Company expenses approximately $20 million annually for plant maintenance. These maintenance costs are not treated as capital expenditures.
RECENTLY ISSUED 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 and 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. SFAS No. 133 and SFAS No. 138 are effective for all fiscal quarters of all fiscal years beginning after June 30, 2000; the Company adopted SFAS No. 133 and SFAS No. 138 on July 1, 2000. The Company has both interest-rate related derivative instruments to manage its exposure on its debt instruments, as well as commodity derivatives to manage its exposure to commodity price fluctuations. 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.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Part I, Items 1 and 2 of this document include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Important factors that could cause actual results to differ materially from the Company's expectations are disclosed in conjunction with the forward looking statements included herein ("Cautionary Disclosures"). Subsequent written 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE RISK
The Company maintains on 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 that are used as part of the Company interest rate risk-management strategy include interest-rate swaps and cap contracts.
In February 1998, the Company entered into a three-year agreement for $125 million of its Senior Subordinated Notes. The swap agreement effectively converts a portion of the 11 1/8% fixed rate Senior Subordinated Notes to a floating debt with a structured collar. Under the agreement the Company's interest rate is fixed at 10.8% while the six month LIBOR is set between 5.45% and 5.76%. If LIBOR rates are set above 6.75% the Company's interest rate is floating at current LIBOR plus 5.35%. If LIBOR rates are set below 5.25% the Company's interest rate is fixed at 10.8%. As of June 30, 2000 LIBOR rates were 7.01% resulting in an additional $0.9 million in annual interest expense.
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 effectively converts a portion of the Company's floating rate bank debt to a fixed rate of $6.75% plus a margin if the three month LIBOR rates are above 6.75%. The notional amount on the cap amortizes from $64 million to $32 million on a quarterly basis over three-year term. As of June 30, 2000 the notional amount of the cap is $47 million.
Reporting fair value of these derivative instruments as of June 30, 2000 would result in a loss of approximately $1.3 million.
At June 30, 2000 a hypothetical 1% increase in interest rates would result in a $0.6 million increase in annual interest expense.
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 future contracts and swaps to either purchase or sell raw materials or other products in the market. At June 30, 2000, the Company had open futures contracts to sell unleaded gas with notional volumes totaling 79,000 barrels. The Company also had open swap contracts with notional volumes totaling 150,000 barrels. All of these commodity contracts mature within three months. Reporting fair value of these derivative instruments at fiscal year-end 2000 would result in a gain of approximately $0.7 million.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF TEXAS PETROCHEMICALS CORPORATION*
* As of June 30, 2000, the Company's legal form was a corporation and operated under the name of Texas Petrochemicals Corporation. Effective 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.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors Texas Petrochemicals Corporation:
We have audited the accompanying consolidated balance sheets of Texas Petrochemicals Corporation and subsidiary (the "Company") as of June 30, 2000 and 1999, and the related consolidated statements of operations, stockholder's equity, and cash flows for each of the three 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 three 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
TEXAS PETROCHEMICALS CORPORATION
CONSOLIDATED BALANCE SHEET (IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
See accompanying notes to consolidated financial statements.
TEXAS PETROCHEMICALS CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSAND OF DOLLARS, EXCEPT SHARE AMOUNTS)
See accompanying notes to consolidated financial statements.
TEXAS PETROCHEMICALS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
See accompanying notes to consolidated financial statements.
TEXAS PETROCHEMICALS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
See accompanying notes to consolidated financial statements.
TEXAS PETROCHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
On July 1, 1996, Texas Olefins Company ("TOC"), Texas Petrochemicals Corporation 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 Corporation with Texas Petrochemicals Corporation (the "Company") becoming a 100% owned subsidiary of Texas Petrochemicals Holdings, Inc. (the "Parent"). In connection with the Acquisition, the Company issued $175 million of Senior Subordinated Notes due 2006 (the "Subordinated Notes") and borrowed $140 million under the Bank Credit Agreement.
Effective July 1, 2000 the Company 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. See discussion in Note 12.
The Company through its facility in Houston, Texas is the third largest producer of butadiene, the largest producer of butene-1, and the third largest producer of methyl tertiary-butyl ether ("MTBE") in North America. In addition, the Company is the sole producer of diisobutylene and isobutylene concentrate in the United States and is the largest domestic merchant supplier of high purity isobutylene to the chemical market. The Company's products include: (i) butadiene, primarily used to produce synthetic rubber; (ii) MTBE, used as an oxygenate and octane enhancer in gasoline; (iii) n-butylenes (butene-1 and butene-2), used in the manufacture of plastic resins, fuel additives and synthetic alcohols; (iv) specialty isobutylenes, primarily used in the production of specialty rubbers, lubricant additives, detergents and coatings; and (v) polyisobutylenes, used in the production of fuel and lube additives, adhesives, sealants and packaging.
The Company's principal feedstocks are crude butadiene, isobutane and methanol. The Company purchases a significant portion of its crude butadiene requirements at prices, 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 as of and for the three years ended June 30, 2000 include the accounts of Texas Petrochemicals Corporation and its wholly owned subsidiary, Texas Butylene Chemical Company, (collectively referred to as) the "Company". 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.
TEXAS PETROCHEMICALS CORPORATION
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 and Advances to 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 is amortized over 40 years using the straight-line method.
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 and catalysts, 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. 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.
Revenue Recognition
The Company recognizes revenue from sales of refined products in the period of delivery.
TEXAS PETROCHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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. The Company's Parent files a consolidated federal tax return for all of its subsidiaries. The Parent's tax allocation policy provides for the Company to calculate its own provision on a "separate return basis" and amounts payable and/or receivable are reflected in intercompany accounts.
Employee Stock Ownership Plan
The balance of the note receivable from the Employee Stock Ownership Plan (See Note 8), is reported as a contra account in the stockholder's equity section of the balance sheet. The Company has recognized as non-cash ESOP compensation, the increase in the fair value of the common stock as those shares are allocated to participant's accounts with the corresponding offset credited to additional paid in capital.
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.
Recently Issued 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 and 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. SFAS No. 133 and SFAS No. 138 are effective for all fiscal quarters of all fiscal years beginning after June 30, 2000; the Company adopted SFAS No. 133 and SFAS No. 138 on July 1, 2000. The Company has both interest-rate related derivative instruments to manage its exposure on its debt instruments, as well as commodity derivatives to manage its exposure to commodity price fluctuations. 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.
Reclassifications
Certain reclassifications have been made to previously issued financial statements to conform to the current presentation.
TEXAS PETROCHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. Detail of Certain Balance Sheet Accounts (in thousands of dollars)
INVENTORIES:
OTHER CURRENT ASSETS:
PROPERTY, PLANT AND EQUIPMENT:
ACCRUED EXPENSES:
TEXAS PETROCHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. LONG-TERM DEBT
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 ESOP Loan, Term A Loan and Term B Loan are due on June 30, 2001, December 31, 2002 and June 30, 2004, respectively. The Revolving Credit Loan facility is currently scheduled to expire on December 31, 2002. The debt under the Bank Credit Agreement bears interest, at the option of the borrower, based on the LIBOR rate plus a margin (1.75% 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, 2000). Substantially all assets of the Company are pledged as collateral under the Bank Credit Agreement. The Senior Subordinated Notes are due 2006 and bear interest at 11 1/8% payable semiannually on January 1 and July 1. The Bank Credit Agreement and the Senior Subordinated Notes include certain restrictive covenants, which include but are not limited to, limitations on capital expenditures, indebtedness, investments and sales of assets and subsidiary stock. Additionally, the Bank Credit Agreement requires the Company to maintain certain financial ratios. Effective June 30, 1999 the Company obtained an amendment to the Bank Credit Agreement to update the financial ratios relating to fixed charge coverage and debt to EBITDA for fiscal 2000.
The fair value of the Senior Subordinated Notes, based on quoted market prices, was approximately $191 million and $200 million as of June 30, 2000 and 1999, respectively. 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, 2000 and 1999.
In February 1998, the Company entered into a three-year swap agreement for $125 million of its Senior Subordinated Notes. The swap agreement effectively converts a portion of the 11 1/8% fixed rate Senior Subordinated Notes to a floating debt with a structured collar. Under the agreement the Company's interest rate is fixed at 10.8% while LIBOR is set between 5.45% and 6.75%. If LIBOR rates are set above 6.75% the Company's interest rate is floating at current LIBOR plus 5.35%. If LIBOR rates are set between 5.25% and 5.45% the Company's interest rate is floating at current LIBOR plus 5.35%. If LIBOR rates are set below 5.25% the Company's interest rate is fixed at 10.8%. As of June 30, 2000 LIBOR rates were 7.01% resulting in an additional $0.9 million in annual interest expense. 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 effectively converts 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%. The notional amount of the cap amortizes from $64 million to $32 million on a quarterly basis over the three-year term. As of June 30, 2000 the notional amount of the cap is $47 million.
TEXAS PETROCHEMICALS CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Upon adoption of SFAS No. 133 and SFAS No. 138 on July 1, 2000, the Company marked-to-market the fair value of these derivative instruments into earnings as the Company decided not to designate these derivatives as part of a hedge transaction under the requirements of SFAS No. 133 and 138. Accordingly, the Company recorded a $1.3 million loss as a cumulative-effect adjustment into earnings during the first quarter of fiscal 2001.
The aggregate scheduled maturities outstanding debt for the succeeding five years are as follows:
5. FEDERAL AND STATE INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities at June 30, 2000 and June 30, 1999 are as follows (in thousands of dollars):
The Company recognized a $2.1 million valuation allowance in current year earnings against the deferred tax benefit for the investment in land, which was not likely to be realized for the portion of the capital loss carryforward, which expires in fiscal year 2003.
TEXAS PETROCHEMICALS CORPORATION
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):
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:
6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest and income taxes are as follows (in thousands of dollars):
TEXAS PETROCHEMICALS CORPORATION
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 is reimbursed by customers at a fixed rate per mile, based on the distance the tank cars travel. Reimbursements were approximately $0.7 million, $0.5 million, $0.8 million, for the three years ended June 30, 2000, respectively.
Total rent expense was approximately $4.4 million, $4.6 million and $3.6 million, (net of reimbursements described above and including $0.9 million, $0.7 million and $.7 million for the rental of barges) for the three years ended June 30, 2000, respectively. Future minimum lease payments at June 30, 2000 are as follows (in thousands of dollars):
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.
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. Environmental Protection Agency, the U.S. Coast Guard, the Army Corps of Engineers, the Texas Natural Resource Conservation Commission, the Texas General Land Office, the Texas Department of Health and various local regulatory agencies. The Company holds all required permits and registrations necessary to
TEXAS PETROCHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
comply substantially with all applicable environmental laws and regulations, including permits and registrations for wastewater discharges, solid and hazardous waste disposal and air emissions, and management believes that the Company is in substantial compliance with all such laws and regulations. While management does not expect the cost of compliance with existing environmental laws will have a material adverse effect on the Company's financial condition, results of operations or cash flows, there can be no assurance that future legislation, regulation or judicial or administrative decisions will not have such an effect.
Under federal and state environmental laws, companies may be liable for remediation of contamination at on-site and off-site waste management and disposal areas. Management believes that the Company is not likely to be required to incur remediation costs related to its management, transportation and disposal of solid and hazardous materials and wastes, or to its pipeline operations.
The Company received a Notice of Violation ("NOV") on March 10, 2000 from the EPA relating to certain discrepancies alleged to have been found during routine inspections conducted by EPA in 1995 and 1997. The NOV has not yet led to the filing of a judicial complaint against the Company. The EPA, the Department of Justice, and the Company are currently exploring the possibility of an agreed upon settlement of issues. The anticipated settlement of such issues is not expected to have a material adverse impact on the Company's financial condition, results of operations or cash flow.
A bill (S.B. 2962) has been introduced in Congress to reduce the use of MTBE nationwide within four (4) years of enactment of the bill, and to allow states to opt out of the oxygenate requirement of the CAA beginning in 2001. The Company is not able to predict whether such legislation will be adopted, or, if adopted, the extent to which MTBE demand would be reduced as a result; it is possible, however, that such reduction could be material. Although the EPA continues to require oxygenates to be added to gasoline in certain regions of the country either year-round or during the winter months, and MTBE continues to be the leading oxygenate used, EPA has called for reduction in the use of MTBE in gasoline. Any restriction on or prohibition of the use of MTBE could have a material adverse effect on the Company's financial condition or results of operations.
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, $2.0 million and $2.1 million, for the three years ended June 30, 2000, 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
TEXAS PETROCHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
the Acquisition. The shares of Common Stock purchased by the ESOP were pledged as security for the ESOP Loan, and such shares will be released and allocated to ESOP participants' accounts as the ESOP Loan is 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 is reported as compensation expense. Principal and interest payments made for the three years ended June 30, 2000 amounted to $2.2 million, $2.4 million and $2.6 million, respectively. As of June 30, 2000, 80,000 shares have been allocated to employees.
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 is to be paid in sixteen quarterly installments which began in October 1996. During the year ended June 30, 2000 $9.6 million was paid to eligible participants and the remaining $.02 million, which fully retires the debt, was paid in July 2000.
9. RELATED PARTY TRANSACTIONS
In December 1999 the Company made 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, 2000. The loan carries an interest rate of 8%.
In June 1998 the Company issued $0.2 million to its Executive Vice President and Chief Financial Officer which has been paid in full as of June 30, 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 shareholder 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.
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, 2000 approximately 34%, 34% and 41%, respectively, of the Company's sales were to four customers. The Company had two customers, which represented 11% and 14% of sales during the year ended June 30, 2000 and 1999, and 13% and 15% of sales during the year ended June 30, 1998. 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 minimal.
TEXAS PETROCHEMICALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. FINANCIAL INSTRUMENTS
At June 30, 2000 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 instruments. At June 30, 2000, the Company had open futures contracts to sell unleaded gas with notional volumes totaling 79,000 barrels. The Company also had open swap contracts with notional volumes totaling 150,000 barrels. All of these commodity contracts mature within three months. Interest rate swaps, caps, collars and floors are classified as matched transactions. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment to interest expense. Gains and losses associated with commodity-related derivative instruments are recognized in earnings concurrently with the related hedged transaction. The fair value of derivative financial instruments are the amounts at which they could be settled based on estimates from dealers. As of June 30, 2000, reporting the estimated fair values of derivative financial instruments would result in a loss of approximately $1.3 million on the interest-rate instruments and a gain of approximately $0.7 million on the commodity instruments. See discussion of the impact of adopting SFAS No. 133 and SFAS No. 138, effective July 1, 2000, in Notes 2 and 4.
12. SUBSEQUENT EVENT
Effective July 1, 2000 the Texas Petrochemicals Corporation converted its legal form from a corporation to a limited partnership, Texas Petrochemicals LP, pursuant to the conversion provisions of the Texas Business Corporation Act and the Texas Revised Limited Partnership Act. TPC Holding Corp., the Company's immediate parent prior to the conversion, retained a direct 1% ownership interest in the partnership and became its sole general partner. Petrochemical Partnership Holdings, Inc., a new wholly owned subsidiary of TPC Holding Corp., acquired the remaining 99% ownership interest and simultaneously became a limited partner of the partnership. This change has no effect on the current management of the Company or its existing operations. The Texas Business Corporation Act provides that the effect of the conversion is that the Company as a legal entity continues to exist, without interruption, but in the organizational form of a Texas limited partnership rather than in the prior organizational form of a Texas corporation.
ITEM 9.
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 TPC Holding Corp., general partner of Texas Petrochemicals LP (formerly Texas Petrochemicals Corporation) recommended, and the Company's Board of Directors approved, the engagement of PricewaterhouseCoopers LLP to audit the consolidated financial statements of the Company for the fiscal year ending June 30, 2001. In connection with the audits of the Company's consolidated financial statements for the three years ended June 30, 2000, (i) the Company had no disagreements with Deloitte & Touche LLP ("D&T"), the Company' former auditors, on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of D&T, would have caused D&T 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.
PART III
ITEM 10.
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.
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. Huff has been President of the General Manager of WRH Partners, L.L.C., the General Partner of The Huff Alternative Income Fund, L.P. (the "Huff Fund") since 1994. He also has been President of one of the general managers of W.R. Huff Asset Management Co., L.L.C., an investment management firm, since 1984. Mr. Huff serves on the Board of Directors as the designee of the Huff Fund and also services on the Board of Directors of e.spire Communications, Inc.
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. Nordaker has been a Managing Director of Chase Securities 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 Chase Venture, an affiliate of Chase Securities.
Ms. Rheney has been a principal of The Sterling Group, Inc. since February 1992. She worked as an independent financial consultant from December 1990 to January 1992. Prior to that time, from June 1987 to November 1990, she was an associate at Sterling. 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, and as Chairman of the Board, President and CEO of AXIA Incorporated since 1998. Mr. Rosenthal 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 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 of 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. Mr. Howard has 30 years of experience in the chemicals industry.
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.
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, 2000.
SUMMARY COMPENSATION 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.
(2) Mr. Sebastian resigned from the Company in March 2000.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Texas Petrochemical Holdings, Inc. owns 100% of the outstanding shares of the Company's common stock.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
9. RELATED PARTY TRANSACTIONS
In December 1999 the Company made 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, 2000. The loan carries an interest rate of 8%.
In June 1998 the Company issued $0.2 million to its Executive Vice President and Chief Financial Officer which has been paid in full as of June 30, 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 shareholder of the Company. 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.
PART IV
ITEM 14.
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.
3.4 Agreement of Limited partnership of Texas Petrochemicals LP.
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.
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 Forms S-4 File No. 333-24589).
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).
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 10-K, 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.
10.17 Note Modification Agreement dated June 30, 2000 between Texas Petrochemicals LP.
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).
27 Financial Data Schedule
(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, 2000.
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 25, 2000.
TEXAS PETROCHEMICALS LP (Registrant)
By: -------------------------------------- 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 25, 2000.
INDEX TO EXHIBITS