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8-K - FORM 8-K - TPC Group LLCd449165d8k.htm
EX-99.2 - PRESS RELEASE - TPC Group LLCd449165dex992.htm

Exhibit 99.1

Excerpts from Preliminary Offering Memorandum

Dated December 4, 2012

As used herein, unless the context otherwise requires or indicates, (i) the terms “company,” “us,” “we,” and “our” refer to TPC Group Inc. (“TPCGI”) and its subsidiaries, (ii) the term “TPCGLLC” refers to TPC Group LLC, a Texas limited liability company and the principal subsidiary of TPCGI, (iii) the term the “Sponsors” refers to funds affiliated with First Reserve Management, L.P. and SK Capital Partners and (iv) the term “Transactions” refers to the merger, the financing transactions, the tender offer (the “Offer”) and consent solicitation with respect to the Existing Notes (as defined below) and the payment of fees and expenses in connection therewith as set forth under “Unaudited Pro Forma Financial Data.” The transaction in which Sawgrass Merger Sub Inc. will merge with and into TPCGI, with TPCGI continuing as the surviving corporation as an indirect wholly owned subsidiary of Sawgrass Holdings LP, is referred to as the “Merger.”

The inclusion of the information presented below should not be viewed as a determination that such information is material.

RECONCILIATION OF EBITDA AND ADJUSTED EBITDA

EBITDA and Adjusted EBITDA are not measures computed in accordance with GAAP. A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of operations, balance sheets, or statements of cash flows (or equivalent statements); or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented.

EBITDA and Adjusted EBITDA are presented and discussed because management believes they enhance understanding by investors and lenders of the Company’s financial performance. As a complement to financial measures provided in accordance with GAAP, management believes that EBITDA and Adjusted EBITDA assist investors and lenders who follow the practice of some investment analysts who adjust GAAP financial measures to exclude items that may obscure underlying performance outlook and trends and distort comparability. In addition, management believes that a presentation of EBITDA and Adjusted EBITDA enhances overall understanding of our performance by providing a level of disclosure that helps investors understand how management plans, measures and evaluates our financial performance and allocates capital. Since EBITDA and Adjusted EBITDA are not measures computed in accordance with GAAP, they are not intended to be presented herein as substitutes to operating income or net income as indicators of the Company’s financial performance.

We calculate EBITDA as earnings before interest, taxes, depreciation and amortization and we calculate Adjusted EBITDA as EBITDA, adjusted to remove or add back certain items, including the impact of butadiene price changes. These items are identified below in the reconciliation of EBITDA and Adjusted EBITDA to net income (loss), the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA. Our calculation of EBITDA and Adjusted EBITDA may be different from the calculation used by other companies; therefore, they may not be comparable to other companies. In addition, our definition of Adjusted EBITDA included herein differs from our definition of Adjusted EBITDA that we have historically presented in our public filings with the SEC.


The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) for the periods specified below.

 

     Pro Forma     Historical  
     Last 12
Months
Ended
September 30,
    Nine
Months
Ended September 30,
    Calendar
Year
Ended
December 31
    Six
Months
Ended
December  31,
     Fiscal
Year
Ended
June 30,
 
     2012     2012      2011     2011     2010     2010      2010     2009  
           (Unaudited)           (Unaudited)                     

Net Income (Loss)

   $ (9,340   $ 28,643       $ 55,087      $ 36,695      $ 30,528      $ 12,065       $ 30,541      $ (22,778

Income tax expense (benefit)

     (7,332     14,167         29,827        18,877        15,796        5,242         18,792        (11,653

Interest expense, net

     63,617        25,240         25,657        33,894        18,923        11,411         15,007        16,816   

Depreciation and amortization

     40,542        30,403         30,338        40,477        39,414        19,762         39,769        41,899   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

EBITDA

     87,487        98,453         140,909        129,943        104,661        48,480         104,109        24,284   

Impairment of assets

     —          —           —          —          —          —           —          5,987   

Non-cash stock-based compensation

     3,202        2,499         1,143        1,846        1,256        700         1,186        6,311   

Transaction and structuring expenses (a)

     5,505        5,505         —          —          —          —           —          —     

Unrealized (gain) loss on derivatives (b)

     —          —           —          —          (2,092     —           (3,464     3,710   

Impact of butadiene price changes (c)

     36,843        1,056         (40,038     (4,251     (11,945     3,354         (30,131     42,139   

Write-offs (d)

     —          —           2,161        2,161        2,959        2,959         —          —     

Severance and relocation costs (e)

     —          —           2,080        2,080        2,459        1,788         671        —     

Supplier outages (f)

     8,700        8,700         —          —          —          —           —          —     

Non-recurring items (g)

     2,600        2,600         —          —          1,509        376         2,747        (4,694

Other (h)

     4,680        3,166         5,365        6,880        5,072        2,357         5,154        3,948   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

   $ 149,017      $ 121,979       $ 111,620      $ 138,659      $ 103,879      $ 60,014       $ 80,272      $ 81,685   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(a) Represents fees and structuring costs payable to affiliates of certain of the Sponsors in connection with the closing of the Transactions.
(b) Represents interest rate swaps that we were required to have in place pursuant to our prior term loan agreement and certain commodity swaps.
(c) Represents the impact of monthly butadiene price changes due to timing differences between the purchase of crude C4 in one period and the sale of finished butadiene in a later period.
(d) Represents write-offs related to (i) our obsolete diisobutylene and spare parts inventory and (ii) deferred debt issuance costs.
(e) Represents certain severance costs and relocation expenses related to the departure of certain of our executive personnel.
(f) Represents estimated impact from supplier plant shut downs, other than in the ordinary course of business.
(g) Represents items affecting net income related to: (i) a deduction for non-recurring current period recoveries due to unauthorized activities by certain of our personnel in 2009; (ii) certain one-time operational excellence consulting costs; (iii) multi-year pricing dispute settlements with certain of our suppliers or customers; (iv) legal settlements from non-recurring events and (v) one-time SEC registration expenses relating to the registration of TPCGLLC’S 8.25% Senior Secured Notes due 2017 (the “Existing Notes”).
(h) Represents other adjustments to reflect the corresponding definition in the indenture governing the notes, consisting of (i) earnings, net of dividends received, from our 50% limited partnership interest in Hollywood/Texas Petrochemicals LP that we formed with Kirby Inland Marine, Inc. to operate four barges capable of transporting chemicals and (ii) costs related to the refurbishment of our equipment that we amortize over time.


UNAUDITED PRO FORMA FINANCIAL DATA

The following unaudited pro forma condensed consolidated financial statements have been developed by applying pro forma adjustments to our historical audited consolidated financial statements and unaudited condensed consolidated financial statements. The unaudited pro forma condensed consolidated statements of operations give pro forma effect to the consummation of the Transactions as if they had occurred on January 1, 2011, and the unaudited pro forma condensed consolidated balance sheet gives pro forma effect to the consummation of the Transactions as if they had occurred on September 30, 2012. The unaudited pro forma condensed consolidated financial data for the last 12 months ended September 30, 2012 have been derived by adding the unaudited pro forma condensed consolidated financial data from our pro forma condensed consolidated financial statements for calendar 2011 to the unaudited pro forma condensed consolidated financial data from our pro forma condensed consolidated financial statements for the nine months ended September 30, 2012 and then subtracting the unaudited pro forma condensed consolidated financial data from our pro forma condensed consolidated financial statements for the nine months ended September 30, 2011. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with these unaudited pro forma condensed consolidated financial statements.

The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. The unaudited pro forma condensed consolidated financial data is presented for informational purposes only. The unaudited pro forma condensed consolidated financial data does not purport to represent what our results of operations or financial condition would have been had the Transactions actually occurred on the dates indicated, nor do they purport to project our results of operations or financial condition for any future period or as of any future date.

The Merger will be accounted for using purchase accounting. We have not allocated the excess purchase price in conjunction with the purchase price allocation process in connection with the Transactions. The final purchase price allocation is dependent on, among other things, the finalization of asset and liability valuations. As of the date of this offering memorandum, we have not completed the valuation studies necessary to finalize the estimates of the fair values of the assets we have acquired and liabilities we have assumed and the related allocation of purchase price. We have not allocated the total estimated purchase price to the assets acquired and liabilities assumed. A determination of these fair values will reflect our consideration of a final valuation prepared by third-party appraisers. This final valuation will be based on the actual net tangible and identifiable intangible assets that existed as of the closing date of the Merger.

Any adjustment could result in a change to the unaudited pro forma condensed consolidated financial statements, including a change to goodwill and a change to the amortization of tangible and identifiable intangible assets. In addition, the actual adjustments to our consolidated financial statements upon the closing of the Transactions will depend on a number of factors, including additional information available and our net assets on the closing date of the Transactions. Therefore, the actual adjustments will differ from the pro forma adjustments, and the differences may be material.


Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2012

(in thousands)

 

     Historical      Adjustments     Pro Forma  
ASSETS        

Current assets:

       

Cash and cash equivalents

     165,408         (45,218 ) a      120,190   

Trade accounts receivable

     156,019         —          156,019   

Inventories

     94,391         —          94,391   

Other current assets

     23,268         —          23,268   
  

 

 

    

 

 

   

 

 

 

Total current assets

     439,086         (45,218     393,868   

Property, plant and equipment, net

     503,272         —          503,272   

Unallocated purchase price

     —           399,491   b      399,491   

Investment in limited partnership

     2,767         —          2,767   

Intangible assets, net

     5,877         —          5,877   

Other assets, net

     34,911         18,620   c      53,531   
  

 

 

    

 

 

   

 

 

 

Total assets

     985,913         372,893        1,358,806   
  

 

 

    

 

 

   

 

 

 
LIABILITIES AND EQUITY        

Current liabilities:

       

Accounts payable

     154,618         —          154,618   

Accrued liabilities

     33,621         (14,638 ) a      18,983   
  

 

 

    

 

 

   

 

 

 

Total current liabilities

     188,239         (14,638     173,601   

Long-term Debt

     348,248         306,752   a,d      655,000   

Revolver – Old

     —           —          —     

Revolver – New

     —           —          —     

Deferred income taxes

     129,420         —          129,420   
  

 

 

    

 

 

   

 

 

 

Total liabilities

     665,907         292,114        958,021   
  

 

 

    

 

 

   

 

 

 

Commitments and contingencies

       

Stockholders’ equity

     320,006         80,779   e      400,785   
  

 

 

    

 

 

   

 

 

 

Total liabilities and equity

     985,913         372,893        1,358,806   
  

 

 

    

 

 

   

 

 

 


Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet

 

(a) The following table reflects the estimated sources and uses of cash for the Transactions as if they had occurred as of September 30, 2012. The actual amounts of sources and uses of cash are expected to be different as of the actual closing of the Transactions (in thousands):

 

Sources

  

New ABL Facility (1)

   $ —     

Equity Contribution (2)

     454,567   

New Notes (3)

     655,000   
  

 

 

 

Total sources

   $ 1,109,567   

Uses

  

Merger consideration (4)

   $ 719,497   

Retirement of existing debt (5)

     364,638   

Fees and expenses (6)

     70,650   
  

 

 

 

Total uses

   $ 1,154,785   
  

 

 

 

Net cash outflow

   $ (45,218
  

 

 

 

 

  (1) Our new senior secured asset-based revolving facility (the “New ABL Facility”) will provide for aggregate borrowings of up to $250.0 million, subject to availability under a borrowing base. As of September 30, 2012, on a pro forma basis after giving effect to the Transactions, our availability under our New ABL Facility would have been approximately $250.0 million (subject to a borrowing base) and we would have had no letters of credit outstanding on September 30, 2012.
  (2) Represents approximately $454.6 million to be invested by the Sponsors. This does not include any management investment or rollover of equity which may occur. The amount to be invested by management has not yet been determined but it is not expected to be in excess of 1%. The amount of the cash equity to be contributed by the Sponsors is expected to be adjusted based upon the amount invested by management.
  (3) Represents the principal amount of the new notes and excludes any offering discount.
  (4) The holders of outstanding shares of common stock will receive $45.00 in cash per share in connection with the Transactions. The merger consideration amount has not been reduced for management participation and rollover equity which may occur, as discussed in note (2).
  (5) Includes $364.6 million for the tender and retirement of the Existing Notes (including approximately $14.6 million of accrued and unpaid interest) for which the Offer has been commenced. The pro forma retirement amount is based on the assumption that all of the Existing Notes are tendered in the Offer prior to the consent payment date. As of November 29, 2012, TPCGLLC had received valid tenders and related consents in respect of approximately $349.9 million aggregate principal amount of the Existing Notes, representing 99.97% of the outstanding Existing Notes. On November 29, 2012, TPCGLLC announced that it intends to call for redemption the remaining Existing Notes not purchased in the Offer at a redemption price of 103% plus accrued and unpaid interest to the redemption date, with such redemption being conditioned upon the consummation of the Merger.
  (6) Includes a tender premium of $40.0 million related to the Existing Notes and $30.7 million of estimated financing fees. This also includes our estimates of other fees and expenses expected to be paid in connection with the Transactions.

 

(b) The unaudited pro forma condensed financial statements reflect an unallocated purchase price relating to the Merger. An appraisal will be performed to assist management in determining the fair value of assets acquired and liabilities assumed, including the fair value of property, plant and equipment and identifiable intangible assets. The unallocated purchase price adjustment is provided in the table below (in thousands):

 

Purchase price of TPC Group, Inc. common stock

   $ 719,497   

Less: TPC historical equity at September 30, 2012

     (320,006
  

 

 

 

Unallocated purchase price adjustment

   $ 399,491   
  

 

 

 


(c) Represents the pro forma adjustments to other assets as follows (in thousands):

 

Write off deferred financing costs associated with Existing Senior Notes and the Existing ABL Facility

   $ (7,230

Deferred financing costs related to the Transactions

     20,519   

Deferred financing costs on the New ABL Facility

     5,331   
  

 

 

 

Pro forma other assets adjustments

   $ 18,620   
  

 

 

 

 

(d) Represents the pro forma adjustments to long-term debt as follows (in thousands):

 

New Notes

   $ 655,000   

Existing Senior Notes at carrying value

     (348,248
  

 

 

 

Pro forma increase in long-term debt

     306,752   
  

 

 

 

 

(e) Represents the pro forma adjustments to shareholders’ equity as follows (in thousands):

 

Historical shareholders’ equity elimination

   $ (320,006

Equity Contribution

     454,567   

Transaction fees, net of amount capitalized

     (4,800

Repayment premium on Existing Senior Notes

     (40,000

Repayment premium to write up Existing Senior Notes from carrying value to par value

     (1,752

Write off of existing deferred financing charges

     (7,230
  

 

 

 

Pro-forma adjustment to shareholders’ equity

   $ 80,779   
  

 

 

 


Unaudited Pro Forma Condensed Consolidated Statement of Operations for the

Year Ended December 31, 2011

(in thousands)

 

     Historical     Adjustments     Pro Forma  

Revenue

     2,758,515        —          2,758,515   

Cost of sales (excludes items listed below)

     2,454,212        —          2,454,212   

Operating expenses

     143,327        —          143,327   

General and administrative expenses

     32,550        —          32,550   

Depreciation and amortization

     40,477        —     a      40,477   
  

 

 

   

 

 

   

 

 

 

Income from operations

     87,949        —          87,949   
  

 

 

   

 

 

   

 

 

 

Other (income) expense:

      

Interest expense

     34,072        29,759   b      63,831   

Interest income

     (178     —          (178

Other, net

     (1,517     —          (1,517
  

 

 

   

 

 

   

 

 

 

Income before income taxes

     55,572        (29,759     25,813   
  

 

 

   

 

 

   

 

 

 

Income tax expense

     18,877        (10,416 ) c      8,461   
  

 

 

   

 

 

   

 

 

 

Net income

     36,695        (19,343     17,352   
  

 

 

   

 

 

   

 

 

 

Unaudited Pro Forma Condensed Consolidated Statement of Operations for the

Nine Months Ended September 30, 2012

(in thousands)

 

     Historical     Adjustments     Pro Forma  

Revenue

     1,806,781        —          1,806,781   

Cost of sales (excludes items listed below)

     1,570,839        —          1,570,839   

Operating expenses

     111,153        —          111,153   

General and administrative expenses

     27,072        —          27,072   

Depreciation and amortization

     30,403        —     a      30,403   
  

 

 

   

 

 

   

 

 

 

Income from operations

     67,314        —          67,314   
  

 

 

   

 

 

   

 

 

 

Other (income) expense:

      

Interest expense

     25,410        22,463   b      47,873   

Interest income

     (170     —          (170

Other, net

     (736     —          (736
  

 

 

   

 

 

   

 

 

 

Income before income taxes

     42,810        (22,463     20,347   
  

 

 

   

 

 

   

 

 

 

Income tax expense

     14,167        (7,862 ) c      6,305   
  

 

 

   

 

 

   

 

 

 

Net income

     28,643        (14,601     14,042   
  

 

 

   

 

 

   

 

 

 


Unaudited Pro Forma Condensed Consolidated Statement of Operations for the

Last 12 Months Ended September 30, 2012

(in thousands)

 

     Historical     Adjustments     Pro Forma  

Revenue

     2,381,532        —          2,381,532   

Cost of sales (excludes items listed below)

     2,113,727        —          2,113,727   

Operating expenses

     144,637        —          144,637   

General and administrative expenses

     36,641        —          36,641   

Depreciation and amortization

     40,542        —     a      40,542   
  

 

 

   

 

 

   

 

 

 

Income from operations

     45,985        —          45,985   
  

 

 

   

 

 

   

 

 

 

Other (income) expense:

      

Interest expense

     33,690        30,141   b      63,831   

Interest income

     (214     —          (214

Other, net

     (960     —          (960
  

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     13,469        (30,141     (16,672
  

 

 

   

 

 

   

 

 

 

Income tax expense

     3,217        (10,549 ) c      (7,332
  

 

 

   

 

 

   

 

 

 

Net income (loss)

     10,252        (19,592     (9,340
  

 

 

   

 

 

   

 

 

 


Notes to Unaudited Pro Forma Condensed Consolidated Statements of Operations

 

(a) The Merger will be accounted for using purchase accounting. As of the date of this offering memorandum, we have not completed the valuation studies necessary to finalize the estimates of the fair values of the assets we have acquired and liabilities we have assumed and the related allocation of purchase price. We have not allocated the total estimated purchase price to the assets acquired and liabilities assumed. A determination of these fair values will reflect our consideration of a final valuation prepared by third-party appraisers. This final valuation will be based on the actual net tangible and identifiable assets that existed as of the closing date of the Merger. Any adjustment could result in a change to the unaudited pro forma condensed consolidated financial statements, including a change to goodwill and a change to the amortization of tangible and identifiable intangible assets. Therefore, the actual adjustments will differ from the pro forma adjustments, and the differences may be material.
(b) Represents adjustments to our pro forma interest expense resulting from our new capital structure. Pro forma interest expense includes interest on the new notes at an assumed rate of approximately 9%. A 0.125% change in the weighted average interest rate on our total pro forma indebtedness would change our pro forma annual cash interest expenses by approximately $820,000. Also represents amortization of deferred financing fees on our Existing Notes and the New ABL Facility.
(c) Represents the income tax effects of the pro forma adjustments calculated at a 35% marginal income tax rate.