Texas Petrochemicals Inc F1Q09 (Qtr End 9/30/08) Earnings Call Transcript

Nov. 12, 2008 9:02 PM ETTexas Petrochemical Inc (TXPI)
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Texas Petrochemicals Inc. (TXPI) F1Q09 Earnings Call November 12, 2008 3:00 PM ET

Executives

Charlie Shaver - President & Chief Executive Officer

Ruth Dreessen - Executive Vice President & Chief Financial Officer

Bob Whitlow - Vice President of Finance

Analysts

[Randy Loffman] - Imperial Capital Bank

Seth Hamot - RRH Capital

Jed Nussbaum - Redwood Capital Group

Vladimir Jelisavcic - Longacre Management

Louis Kim - Pequot Capital

Operator

Good afternoon ladies and gentlemen. Thank you so much for standing by. Welcome to the Texas Petrochemicals first quarter 2009 earnings conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions) As a reminder, this conference is being recorded today on Wednesday November 12, 2008. I will now turn the conference over to Mr. Bob Whitlow, Vice President of Finance.

Bob Whitlow

Thank you operator and welcome to Texas Petrochemicals’ fiscal 2009 first quarter conference call. My name is Bob Whitlow, Vice President of Finance. With me today are Charlie Shaver, President and Chief Executive Officer; and Ruth Dreessen, Executive Vice President and Chief Financial Officer.

As usual, we are making this call available to investors and the media via webcast. An archive of the webcast will be available for replay on our website shortly after the call. Around 07:00am this morning, November 12 our earnings release went out and has been posted on the Internet on TPC’s Web site www.txpetrochem.com.

As you know, some of our comments today may include statements about our expectations for the future. Those expectations involve risks and uncertainties. We can’t guarantee the accuracy of any forecast or estimates and we don’t plan to update any forward-looking statements during the quarter. Please note that information reported on this call speaks only as of today November 12, 2008 and therefore you are advised that time sensitive information may no longer be accurate as the time of any replay.

In addition some of our comments may reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measures and other associated disclosures are contained in our earnings release on our website. Our earnings release and our annual reports are available on the internet at www.txpetrochem.com in the Investor Relations section.

I would now like to introduce Charlie Shaver.

Charlie Shaver

Yes, thanks Bob and thanks to all of you on the call. I’d like to welcome you as well to our Texas Petrochemicals 2009 first quarter call. As I’m sure you are aware, it’s been an extremely challenging start to our new fiscal year. Probably the headliner really was on top of two hurricanes, Gustav and Ike which have proven to be a continuing challenge for some of our customers and raw material suppliers, we’ve witnessed the global and financial liquidity crisis unfold and with that a steep decline in global energy prices and we’ll talk to some of that today on the call.

As you’ll note from our press release this morning, our financial results were impacted by both of the hurricanes, Gustav and Ike and from a financial perspective the first quarter, which is normally a good quarter for us, was above target for the first two months in the fiscal year; however in September almost all the refining and petrochemical operations in Southeast Texas and Western Louisiana were affected by these hurricanes.

From a manufacturing and operations standpoint, our plants survived the storm with really only minor damage. Furthermore we experienced no major safety or environmental issues, either during the shutdown or startup or even during the first quarter. With the exception of Port Neches, our plants were back up in an expedient manner and shipping to those customers that didn’t have major operations in the areas or hardest hit by the hurricanes.

Overall I’m very pleased with the execution of our hurricane preparation. As you can imagine, they are very detailed plants, they are laid out well in advance of a hurricane and certainly before they came onshore.

Like other operations in the refining and petrochemical industry, we start to prepare when a hurricane is far out in the Gulf and although we had very severe winds and high water with everything battened down and crews in place, we came through the storms relatively unscathed. All of our folks did an excellent job ensuring the safety, security of our facilities in working with our suppliers and customers.

Moving on now to the business results, the strong market conditions that were prevalent in our fourth quarter 2008, really continued right up until September when we were forced to take our plants down in preparation for these storms. Demands in both the C4 processing business as well as performance products was very strong and for the first two months of the quarter, total company revenues were very good with volumes running in excess of 90% of plan.

However, the loss of sales volumes in September due to the impact of the hurricanes really was impossible to overcome that late in the quarter. In spite of the significant impact of the two hurricanes, our total revenues were really quite favorable with first quarter up almost 12% versus previous year’s quarter and down only 2.7% from the fourth quarter last year.

In terms of the C4 processing business, the strong pricing trend that we experienced in the fourth quarter of last year had its impact in the first quarter, we saw roughly a 24% increase in average sales prices across the C4 businesses. We also experienced improvement in our ability to access crude C4 feedstock. If you’ll recall last quarter, the crude C4 marketplace was extremely tight due to economic conditions in the ethylene markets with high hydrocarbon prices and producers cracking lighter materials.

In the first quarter, these conditions improved with crude oil coming off of its high in early July, and it moved down precipitously during the quarter. In addition to our contract supply, we are also successful in acquiring feed-stocks from overseas as a means to supplement our position.

In C4 processing however, our September volumes were off by almost half of the month when compared to average volumes in the two previous months. Our real large volume businesses both butadiene and raffinates really took the hardest hits with the plant’s shut down.

The business segment also began to get hurt in the latter part of the month and certainly into this quarter with the steep drop in gasoline prices. Some of our businesses fared better due to the sheer logistical position of our customers manufacturing facilities and really this was the case in our performance products groups. Performance products which if you’ll remember have isobutylene, our polyisobutylenes or PIB, and our nonene and tetramer performed extremely well during the quarter.

In spite of the two hurricanes the business group’s financial performance was excellent. It actually was on plan. With favorable volumes and strong demand, higher pricing and a slowdown in raw material price increases, we experienced favorable margin expansion as well and as we moved through the quarter the high levels of feedstock pricing began to abate and our product pricing continued at favorable levels for most of those businesses.

As we outlined in our last call, one of the major milestones in performance products and a key component of our 2008 capital budget was the polyisobutylene expansion in our Houston facility.

As you’ve probably seen, we announced just a couple of weeks ago in a press release that we have now started up that plant and is successfully online. I’m even more pleased to report that the project came in not only on time but on budget as well and in this high capital cost environment we’re very pleased with that performance and the contractor who built the plant.

We are now anxious to bring the facility online and begin ramping it up over the next year. This portfolio of businesses has performed very well, and I think this project will really enhance the contributions, that performance product businesses make to our company’s bottom line. With the completion of the polyisobutylene expansion project, our 2009 capital expenditure program will ramp down significantly for the rest of the year.

In the first quarter, our capital expenditures amounted to do $7.8 million. When you look at maintenance capital, we’re now looking at a capital program in total this year in the $20 million to $30 million range and that includes the $20 million of maintenance CapEx for the facility.

At this point I’ll turn it over to Ruth to take everybody through the financials and then we’ll come back on to talk a little bit about our outlook for this quarter.

Ruth Dreessen

Thank you Charlie and good afternoon everyone. As you heard from Charlie, conducting business in the first quarter was quite challenging, due to both deterioration of economic conditions and the two hurricanes that hit the Gulf Coast region in September. As I review our results for the first quarter, please keep in mind that the impact of these events somewhat distorts comparisons to the prior year first quarter results.

The hurricanes forced us to shut down production at all three of our plants for periods ranging from one to two weeks in September and constrained our logistical capabilities, as well. Although we were able to bring our plants and shipping capabilities back online fairly quickly, our shipments for the remainder of the month were significantly constrained due to the fact that our Gulf Coast customers were not able to restart their plants and take product.

We estimate that the adverse effect of the hurricanes on our first quarter operating profit and adjusted EBITDA to be in the range of $10 million to $15 million which includes primarily the impact of lost sales volume and incremental costs incurred to shut the plants down, repair physical damage and to bring the plants back online.

Our first quarter results also reflect a lower of cost or market adjustments that reduce the carrying value of our inventory and our adjusted EBITDA by $9.4 million. The write down relates primarily to our fuel related products and reflects both high inventory values and the impact of substantial declines in gasoline prices over the latter part of September.

The inventory levels were due in part to disrupted operations caused by the hurricanes. The downward movement of gasoline prices had a detrimental impact on the valuation of our fuel related products as the raw material costs of these products are tied by contract formulas to gasoline prices in the period. Due to the materiality of the adjustment, we have shown it as a separate line item in the consolidated statement of operations.

In the first quarter, the company generated revenues of $543 million compared to core business revenues of $444 million in the first quarter last year and $558 million in the immediately preceding fourth quarter of fiscal 2008. The increase compared to the prior year quarter reflects significantly higher selling prices across the board that were sufficient to more than offset 26% lower sales volumes.

Sales volumes in the month of September, reflecting the impact of the hurricanes, were off 50% compared to September 2007. The decrease compared to the immediately preceding quarter also reflects higher selling prices, but not of sufficient magnitude to overcome a 21% drop in sales volume, which again reflects the impact of the September hurricanes. As a reminder, in the first quarter last year we were still reporting the MTBE product line results separately as non-core business and MTBE revenues in the first quarter last year were $43 million.

In spite of the significant decline in selling prices of fuel related products in September, overall average selling prices for the first quarter of both the C4 business and the performance products business were up substantially compared to both the prior year quarter and the immediately preceding quarter. The higher average selling prices for the quarter reflect both significantly higher gasoline prices for most of the quarter, as well as supply demand conditions for certain of our products in both businesses.

First quarter net income was $1.4 million or $0.08 per diluted share, compared to net income of $7 million or $0.39 per diluted share in the prior year quarter. The lower net income in the current year quarter reflects higher gross profit and lower G&A and interest expenses more than offset by higher operating and depreciation expenses and the $9.4 million lower of cost or market adjustment.

Despite the negative effects of the hurricanes and the LCM, core adjusted EBITDA was $18.5 million in the first quarter compared to core business adjusted EBITDA of $17.3 million in the prior year quarter. This increase reflects the impact of significantly higher selling prices and lower supply chain and G&A expenses that was mostly offset by significantly lower sales volumes, due primarily to the hurricanes, higher raw material, energy and operating expenses and the lower cost for market adjustment.

First quarter operating expenses included $2.6 million of costs directly related to the hurricanes. Again, let me remind you that MTBE was reported as non-core in the prior year quarter and MTBE adjusted EBITDA in last year’s quarter was $8.9 million.

Moving to the balance sheet, at September 30 we had cash on hand of $700,000 and outstanding borrowings under our revolving credit facility of $24 million. Our trade accounts receivable and payable balances were down significantly and our inventory balance was up from June 30 due primarily to the impact of the hurricanes. Even though our production and sales capabilities were impeded in September, we still received raw materials from suppliers outside the Gulf Coast region which in part drove the increase.

In terms of liquidity we have $140 million revolving credit facility. Availability under the revolving credit is subject to a borrowing base which is calculated as 85% of eligible accounts receivable and 65% of eligible inventory. The borrowing base exceeded the facility commitment, both during the first quarter and to the present, affording us ample availability to fund working capital.

Our overall financial position at September 30 reflects break-even cash flow for the quarter, consisting of inflows of $5 million from operating activities and $3 million from financing activities offset by CapEx of $8 million. The largest portion of our capital expenditures in the first quarter relate to the construction of our new polyisobutylene plant that started up in early October.

During the quarter we initiated our stock buy back program and repurchased approximately $3 million worth of stock. We will review stock buy back opportunities from time-to-time and make decisions based on our liquidity, cash flow, debt covenants and other considerations at the time.

With that I’d like to turn the call back over to Charlie.

Charlie Shaver

Thanks Ruth and let me make a couple of closing remarks and some comments as we are now almost halfway through the second quarter and then we’ll turn the call over to questions from the audience.

As we announced on our last call, the Board of Directors approved the share distribution that was related to the 610,000 shares that were allocated in the bankruptcy settlement. Those shares were distributed at the end of September; furthermore on September 24 as Ruth highlighted, we did announce that the board had approved the $25 million stock repurchase program and as Ruth mentioned as well, the company has initiated that buy back program.

We’ll continue to work to register our common stock with the SEC and that registration is still on track and is targeted for December of 2008, so here in just about another month. These are all the steps that the company’s Board of Directors have taken to improve liquidity and transparency for our shareholders and position us for the future.

As we look to the immediate future I think we really see a challenging year. As everyone on the call knows, we are seeing unprecedented changes occurring in the global economy and rapid erosion in demand, de-stocking and falling prices across all market sectors. Therefore we don’t really have a real clear picture of near term demands.

That being said, as we’ve started off in October and into early November, we’ve actually seen demand be okay in both markets. However, as we look and as we stay close to our suppliers and customers and as we approach the year end, we do expect to see a continued slow down in demand in the petrochemicals as customers work off inventories and as they close facilities and try to balance out with what they think demand to be as we head into 2009.

Again, I think we anticipate to see continued inventory corrections and dislocations across the globe, certainly given the global nature of most of our products. However we believe we’ve got a solid business model. We’ll continue to manage our liquidity and cash flow appropriately and will keep a close eye on all our expenses.

As we started this early as evidenced by our capital program, we’ve also been working hard to keep our inventories low and to manage our headcount and we really believe our size, flexibility and overall position in our markets will enable us to weather these what I really consider to be unparalleled and unprecedented times.

I guess with that, again we’ll turn it over and I’m sure you’ll have a series of questions for us.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from [Randy Loffman] - Imperial Capital Bank.

Randy Loffman - Imperial Capital Bank

A couple of questions I wanted to go through; first thing, just touching on the hurricane impact, I understand that $2.6 million of the $10 million to $15 million impact was related directly to repair costs. I was wondering if it’s fair to assume that the other remaining of that $10 million to $15 million is directly related to lost revenue and whether you could maybe try to quantify the actual loss revenue impact on the quarter due to the hurricanes.

Ruth Dreessen

I can try that Randy. Actually the $10 million to $15 million is everything, lost revenue and fixed cost and most of that is actually lost revenue.

Randy Loffman - Imperial Capital Bank

Okay, so then it’s fair to assume that roughly $10 million of EBITDA was lost from the lost revenue during the quarter?

Ruth Dreessen

Yes.

Charlie Shaver

Yes, that’s correct Randy and I think I put in the press release this morning that we would have contemplated the quarter to be around $30 million in EBITDA roughly. That’s kind of where we were tracking to as of the second week of September when we went down.

Randy Loffman - Imperial Capital Bank

So I guess in looking at the quarter, if you kind of backed out the impact of the hurricanes, it looks like it would have been an exceptional quarter, especially given that the fourth quarter tends to be your strongest quarter. I know that you experienced some nice increases in average selling prices, but I was just wondering if you could comment on the trend, especially on a sequential basis given that fourth quarter is typically a stronger quarter and it looks like minus the impact of the hurricanes, first quarter would have been even stronger.

Ruth Dreessen

Randy, I think you’re right. We were on track to have a very strong first quarter. I think it’s very hard to exactly pinpoint what we would have done, but if you think that basically a lot of the decline in the economy and a lot of decline in commodity prices did not occur until really the very end of September and October, we had very favorable conditions similar to our fourth quarter in most of our first quarter. So I think it’s possible that we would have had a quarter very similar.

Charlie Shaver

Yes, I think and as we mentioned as well we had also seen in that quarter not so much the ethylene producers going back to heavier feed slate, but we clearly were being more successful at bringing in some spot crude C4, because butadiene was also short in the marketplace we were able to find it, match it up with some customers and had actually brought the operating rates up a little more than we normally would have run in the first quarter.

I think we were feeling pretty good about things and well-positioned and I think that the demand certainly as we started back up in October, we ran most of that material off and the demand was still there even in early October.

Randy Loffman - Imperial Capital Bank

Okay. I guess also if you could maybe give us an idea how much of an impact the added contributions from Baytown and the Huntsman LOU relative to last year impacted the quarter, because I know that had gradually ramped over the quarter and over the past year and I’m wondering what kind of contributions those two projects gave you.

Ruth Dreessen

I think the delta from Baytown was about $3 million. The delta from LOU; well, we didn’t have actually LOU last quarter at all. I can’t give you a dollar number but it definitely contributed to the feedstock that we would have had if we hadn’t had the hurricane.

Randy Loffman - Imperial Capital Bank

So the Baytown was $3 million of increased EBITDA relative to 4Q.

Ruth Dreessen

Relative to last year.

Randy Loffman - Imperial Capital Bank

Then just finally and I’ll jump back in the queue, but I was just wondering, going back to the hurricanes, if you guys have any insurance related to business interruption and whether you can expect to receive any of these lost profits from any insurance.

Charlie Shaver

Yes Randy, this is Charlie. I’ll make a couple of comments on that and if we get any details Bob Whitlow is here as well, he’s really the guy heading that up.

We do have business interruption insurance. We have notified them of potential claim and we have both deductibles for wind storm as well property; however, we do believe that this has continued into this quarter.

As probably some of you on the call are aware, there are still two big suppliers of ours and two big customers who are down and will be down through the end of the year. Unfortunately over the Orange area, DuPont, Exxon Mobile, Invista and Firestone all suffered very significant damages in their plants. Two of those are large suppliers of ours and two of them are large customers.

So in addition to some of the losses we are talking about today, we also still see some challenges in the second quarter just from some supply we are not getting and those customers not being up and we consider that to be part of the issue to address on business interruption. I’d be hesitant to give you a number on what the claim is going to be just because we are working through all the pieces of it right now and it’s within reason and we feel pretty good about it, but you know how those things can kind of take a while to work through.

One other thing I will mention, we will end up having about another $3 million in fixed costs probably in the second and third quarter, as we repair some additional minor damage in the plants, really just insulation, things that aren’t keeping us from running. So when it’s all said and done this year, we’ll probably have about $5 million to $6 million in fixed costs just from again I consider minor damage, but by the time we get it all done and fixed, that’s probably what we are looking at and about half of that we’ve done up until now and we’ll schedule the rest in the next quarter or two.

Randy Loffman - Imperial Capital Bank

Okay and any idea on the timing of those claims and the insurance?

Charlie Shaver

The business interruption, I mean it really depends on a lot of factors. As you would guess, these carriers are working a lot of other claims in the area with peers in our industry. Some of them much, much larger than ours, but my experience on these having done a few of them and I think Bob’s in the same boat, it can be anywhere from 6 to 12 months by the time you get it all reconciled.

In our case, because we still have two suppliers down and two customers down, it’s still ongoing and that’s not insignificant for us as we go forward. So we are not even out of the woods yet and I don’t think until they come back up in January and that’s when they are scheduled to come up, we don’t really have any insider information there. That will continue on until they come back up and those are both two very important customers and two very important suppliers to us, but probably 6 to 12 months is probably what it takes to get it settled out.

Operator

(Operator Instructions) Your next question comes from Seth Hamot - RRH Capital.

Seth Hamot - RRH Capital

On the share count, what share count are we now using? Maybe you can just give me the share count today as opposed to what’s in the financial statement.

Ruth Dreessen

I’ll have to follow up with you separately on that.

Seth Hamot - RRH Capital

Well, how about this one, how many shares did you buy back in the quarter?

Charlie Shaver

It was $3 million and I think that’s issued at an average price of about I think it was 18, so $3 million divided by 18 would be the final. I think its 160,000 something shares maybe Seth.

Seth Hamot - RRH Capital

In terms of going forward, of the customers in general, what percent of your customers are down, just in general? I mean are we talking 25%, are we talking 50%, are we talking under 25?

Charlie Shaver

As far as customers down, I’d say it’s 5%. It’s the two large butadiene customers are the only ones that are down; that’s Invista and Firestone and that’s one of two plants that Invista has and it’s one of two plants Firestone has. I wouldn’t say they are running 50% of capacity because that’s not correct, but they’ve loaded up their other plants, but they’re clearly missing out on production right now.

Seth Hamot - RRH Capital

And you deliver to the other plants too?

Charlie Shaver

Yes.

Seth Hamot - RRH Capital

Okay, so in terms of, you might not see the full effect of 5% down. On a monthly basis we don’t know where it’s going to go.

Charlie Shaver

Yes, what we’re worried more about is the two suppliers that are down.

Seth Hamot - RRH Capital

I was going to get to that, so why don’t you tell me about that? How would you quantify that in a sense?

Charlie Shaver

I would say from a supply standpoint that would be about 10% of our supply.

Seth Hamot - RRH Capital

Now is there any alternatives to that or how we mitigated the 5% in the customers, is there any way to mitigate?

Charlie Shaver

No, not really. The only option would be you try to go by crude C4 from somewhere else in the world. First of all, there’s not a lot available; it’s interesting to know a lot of markets are dislocated and prices are falling in a lot of products; it’s not readily available to go buy the crude C4. The little bit we’ve looked at, but we’re being very careful on bringing in just because of these falling prices. We don’t want to get upside down on buying crude that by the time we got it here and unloaded and processed, that we might not get a desired margin on it.

Seth Hamot - RRH Capital

I noticed on the quarter-over-quarter that general administrative expenses fell slightly. Is that a correct read?

Ruth Dreessen

Yes.

Seth Hamot - RRH Capital

But year-over-year they fell significantly; is there something or some reason for that?

Ruth Dreessen

Yes, it basically has to do with our compensation plan and both on the cash based compensation and then we have cash based compensation that’s tied to the stock price, both of those were down.

Seth Hamot - RRH Capital

And I’m trying to get a handle on the lower cost to market. That’s a non-cash adjustment, right or when it moves through the P&L it ends up being a cash adjustment? I’m just trying to figure that out.

Ruth Dreessen

In the period, like for instance we took it as of September 30, it is a non-cash adjustment. However, to the extent that prices fall and they don’t recover and you actually do eventually sell the inventory at those lower prices, it becomes a cash impact in the following quarter.

Seth Hamot - RRH Capital

When you say in the following quarter is that like a LIFO layer, is this akin to a LIFO layer?

Ruth Dreessen

No. What it is, is you take a judgment at the end of the quarter as to what you think you’re going to sell the inventory at and if that judgment is correct you will eventually sell the inventory at that lower price.

Seth Hamot - RRH Capital

Okay, I understand that now. So just to make sure I got this, is it a fair statement that that is not a charge to EBITDA, and I’m not trying to get tricky here. It’s probably not a charge to EBITDA in this quarter but would it actually be a charge EBITDA in the next quarter and when you combine the two you’ve hit it already in your statements?

Ruth Dreessen

Yes. It’s not, it’s not a cash charge in this quarter, but as I said if there’s no change in market and you actually sell that inventory at those lower costs, you will take the real loss.

Seth Hamot - RRH Capital

Is there any possibility that given what we just stated here and let’s assume I understand what you’re stating, is there any possibility that with costs falling even more, you take an additional charge this quarter?

Ruth Dreessen

It’s possible; however, we have taken some steps to mitigate the risk. We have actually hedged some of that inventory and that doesn’t flow through the EBITDA because it’s not hedge accounting, but it is a gain that we have below the line, so to speak.

Seth Hamot - RRH Capital

Okay, so you don’t seem too concerned about it at the present state.

Ruth Dreessen

I don’t want to make you feel like its not possible but we have tried to mitigate the impact.

Charlie Shaver

I mean I think that you’ve got this situation where you lost $60 a barrel of oil in four weeks and with us just coming up out of the hurricane and the industry just coming up, we actually view this Seth to be part of our insurance issue as well, because a lot of this inventory is inventory we believe we would have sold in normal turns. Now that still all has to be worked out.

If most of you on the call remember we normally average a couple of turns a month and while we can get hit and rapidly fall in prices just because we may buy this week and turn it next week and there’s a small incremental hit to the margin, we normally don’t face large LCM adjustments, but with us coming up out of the hurricane and the industry just getting up, we could only sell some of this inventory so fast and so we are sitting on this.

Like Ruth said, there’s some offset here in the second quarter and it’s disappointing, but it certainly doesn’t reflect that we’ve got some step change now in the business or in the business model.

Seth Hamot - RRH Capital

I guess the final question is, I’m just trying to get a handle on this. These number of 10% supply down and 5% customers, even less than 5% customers down, on top of that we also have the new hot products, the high PIB, the facilities now coming up. I understand that you’re always conservative, but are we looking at demand equation here that is significantly reduced due to the global strife going on?

I’m not trying to put words in your mouth but it seems to me if I start to add up all the numbers I’m looking at a quarter that could be adequate if we were to say. It wouldn’t be unsurprisingly damaged by any of the external events like the hurricanes.

Charlie Shaver

I don’t really know. I think that we hear some scary numbers out of some of our customers about what they think about the rest of the quarter, but volumes through October were actually okay, but you’ve probably seen the past week a couple of big ethylene crackers have gone down for inventory control; polyethylene, polypropylene inventories are high; Lyndell shut down a cracker; Huntsman has shut down a cracker and some of those affect us, some of them don’t, but I was very cautious about it and our window is probably no better or worse than anybody’s.

I would be really worried that if auto production is as low as it is and everything else, we could end up with all of a sudden the tire guys in December deciding to really reduce inventories and we probably have no better visibility than you do on it. So we have not seen a crash, but we certainly hear a lot of data about one that might be coming.

It’s just more general in talking to the Firestones and Goodyears and everyone else in the world, and they are just genuinely concerned about what the end markets are going to have and what the demand is and we’ll tell you, we’re hearing anecdotally a lot of people talking about their budgeting for 10% to 15% fall off in early ’09 and whether all that really comes true or not, nobody really knows.

We are certainly not taking actions that would contemplate that going on for very long and we still feel pretty good about the long-term view on our butadiene demand balances and things like that, but it’s pretty unprecedented out there with some of the stuff you see going on.

I would probably just factor that in on a global basis, but we don’t see anything just specific to our sector where people pull the plugs on half their plants or anything like that, but in the past week alone you have seen a couple of people shutting down crackers for the rest of the year and they are doing that because derivative demand is really slowing.

Operator

Your next question comes from Jed Nussbaum - Redwood Capital Group.

Jed Nussbaum - Redwood Capital Group

My question was actually answered. Good work, guys.

Operator

(Operator Instructions) Your next question comes from Vladimir Jelisavcic - Longacre Management.

Vladimir Jelisavcic - Longacre Management

Just a couple of questions; what was your CapEx for the prior fiscal year ending June ‘08?

Ruth Dreessen

$88 million.

Charlie Shaver

Yes, we were right at about $88 million.

Vladimir Jelisavcic - Longacre Management

So you should be at a substantial lower demand on your cash flow as a result of lower CapEx spending in fiscal ‘09, right?

Charlie Shaver

Absolutely; the program is about $27 million for this year, of which we’ve already spent $8 million, with the majority of that being to finish the new PIB plant which is now done and so you’re kind of looking at about maybe $1 million, $1.5 million a month, which is just really maintenance capital, environmental health and safety, things like that.

Vladimir Jelisavcic - Longacre Management

And could you just elaborate on a comment you made earlier about going into the market and sourcing finished butadiene?

Charlie Shaver

Yes, I was actually talking about sourcing crude C4 in the previous quarter and we did acquire four, five parcels in that quarter that we brought over from a couple different locations and brought that into source to supplement butadiene.

Now what’s happened since then is after the hurricanes and with the meltdown going on in Asia, butadiene has gone balanced along globally. Again, I don’t think anybody thinks it will stay that way for very long, but it is right now; so spot butadiene prices right now in North America are below that of contract. So we are always very hesitant to go out and try to acquire any crude in a falling price environment like this.

Also, I would just tell you we’re just being on the cautious side right now not knowing what the overall demand might be in January or December. Once we get a little clearer picture in that, we’ll be a little more aggressive in going out and filling up our plants with spot crude C4.

We need to see where oil and gasoline are going to land, and what need to see what our customers think their demand in January is going to be for butadiene and really over the next 30 days we will figure that out. I think it’s very soft out there right now and they just don’t know; they just don’t know, is really the simple of it.

Vladimir Jelisavcic - Longacre Management

And just a last question, which underwriter are you using for your S-1 filing?

Ruth Dreessen

We are not using an underwriter. We are just doing a Form 10, which is a voluntary filing. There’s no offering associated with it. So we don’t need an underwriter.

Vladimir Jelisavcic - Longacre Management

So it’s just simply to enable your shares to be listed on a national exchange, right?

Ruth Dreessen

Well, at this stage, really all it is, is it’s registering with the SEC. That’s the first step and the next step would be to do an offering and be listed.

Vladimir Jelisavcic - Longacre Management

And then when do you anticipate filing regular 10-Qs?

Ruth Dreessen

It depends on when we get effective. We’re hoping to get effective early in the first quarter, so our first 10-Q would be as of March 31.

Operator

Your next question comes from Louis Kim - Pequot Capital.

Louis Kim - Pequot Capital

To your comment earlier where you said about the customers that are down about 5%, is that 5% representing your revenues or is that just 5% of your total customers?

Charlie Shaver

It’s actually 5% of our supply and product in the crude C4 business. I mean I have to get back to you Louis on this. I just don’t have those numbers in front of me, what that would work out to on a revenue basis, what percentage. It’s in the crude C4 business though, performance products.

Louis Kim - Pequot Capital

No, but you were referring to total number of customers when you said the 5%?

Charlie Shaver

No, the 5% was the total of our butadiene sales. About 10% of our total contract crude C4 supply.

Louis Kim - Pequot Capital

Okay and then going back to the insurance, other than the business interruption, do you guys also have insurance on the plant damages?

Charlie Shaver

Yes, we do. We have property and casualty; that will be right about where our deductible is, for those two facilities and so we will make sure they’re aware of it, but I don’t think we’ll end up tripping over the deductible on the property casualty side.

Louis Kim - Pequot Capital

And then could you Ruth just reconcile then your free cash flow for the quarter? If you did $18.5 million of the reported EBITDA, you had CapEx of 7.8%, and cash interest of about 4.1%, obviously you drew down on the revolver just under $3 million; what other kind of cash outflows were there, especially when the inventory adjustment was a non-cash charge?

Ruth Dreessen

What we did have was we had working capital that was up, we also had the stock buy back and we also had some turnaround activity.

Louis Kim - Pequot Capital

But the working cap based on the balance sheet that is provided in the press release, I get to a use of about $5.5 million in the quarter. So correct me if I’m wrong there and then as it relates to the buy back, is that not embedded in your other operating expense line item?

Ruth Dreessen

No.

Louis Kim - Pequot Capital

That’s separate? Where is that captured or is it not.

Ruth Dreessen

That doesn’t flow through the income statement.

Louis Kim - Pequot Capital

So it’s not on the P&L, it’s on the cash flow.

Ruth Dreessen

Right.

Louis Kim - Pequot Capital

And then what was the other item, you said?

Ruth Dreessen

We also had some turnaround activity which we amortized which would have our cash outlays exceed what would be in the income statement and then just working capital was up also.

Louis Kim - Pequot Capital

Am I accurate with the $5.5 million use estimate or was it more than that?

Ruth Dreessen

No, that’s accurate.

Operator

(Operator Instructions) And there are no further questions at this time. Please continue with any closing comments.

Charlie Shaver

Okay. This is Charlie. I’ll just wrap it up. Again, thanks everybody for your time and attention. We are fortunate enough to feel like we came through the quarter navigating some external events pretty quickly.

I think the big concern that we’ve articulated, and I’m sure all of you are dealing with as well in your own businesses, is just pretty unprecedented times and our goal is to stay very close to our suppliers and customers as we go through this, make sure we are watching our cash closely, making sure we’re watching our expenses and see how the next couple of months go in the period as we really can kind of sort out.

Again, we see a lot of disconnects in petrochemicals right now between pricing scenarios, markets and where trade flow is going to get. Every day probably seems to be a little better than the day before, but I think we are coming up on year end where a lot of people will be doing inventory de-stocking, and certainly in this decreasing price environment a lot of that is just going to go on for awhile.

I think, again, we have a good business model. We’re aligned with really blue chip set of suppliers and customers who are well positioned to ride through this, but I think we’ll have some challenging times over the next couple of months as we kind of learn the true state of our US and global economies.

So thanks again and as always if you have any follow up questions once you’ve had time to digest numbers, feel free to give Bob, Ruth or I a call. Thanks everyone.

Operator

Thank you. This does conclude the Texas Petrochemical first quarter 2009 earnings conference call. If you would like to listen to a replay of today’s conference, please dial 303-590-3000 and put the access code 11121921. Again please dial 303-590-3000 and put the access code 11121921. We would like to thank you very much for your participation. You may now disconnect. Have a very pleasant rest of your day

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