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| SCHI.OB > SEC Filings for SCHI.OB > Form 10-Q on 10-Nov-2009 | All Recent SEC Filings |
10-Nov-2009
Quarterly Report
2012. The restricted period was initially eight years. However, INEOS NOVA
unilaterally reduced the restricted period to five years on April 1, 2008.
We sold substantially all of our remaining styrene inventory during the first
quarter of 2008. The process of decommissioning our styrene facility was
completed by the end of 2008, and the associated costs incurred for 2008 was
$18.9 million. In July 2008, we announced a reduction in work force in order to
reduce our staffing to a level appropriate for our existing operations and site
development projects. As a result, we reduced our salaried work force by 19
people and our hourly work force by 15 people and recognized and paid
$1.4 million of severance costs in 2008. In addition, as a result of our work
force reduction, the accrual of defined benefits for all future services of a
significant number of employees was eliminated and we recorded a curtailment
loss of $1.2 million for our benefit plans in 2008.
We own the acetic acid and plasticizers manufacturing units located at our
Texas City facility. We lease a portion of our Texas City facility to Praxair,
who constructed a partial oxidation unit on that land. We also lease a portion
of our Texas City facility to S&L Cogeneration Company, a 50/50 joint venture
between us and Praxair Energy Resources, Inc., or Praxair Energy, who
constructed a cogeneration facility on that land. However, because our strategic
initiatives under consideration do not require utilization of the steam produced
by the cogeneration facility, we and Praxair Energy elected to terminate the
joint venture and have amended the joint venture agreement governing S&L
Cogeneration Company to extend its term until the later of November 30, 2009 or
upon completion of all final audits, and to address several matters related to
the sale of the cogeneration facility, the distribution of the joint venture's
assets and the termination and winding-up of its affairs. We lease space for our
principal offices located in Houston, Texas.
Recent Developments
On October 12, 2009, John R. Beaver, our Senior Vice President - Finance and
Chief Financial Officer announced his resignation from Sterling, effective as of
October 31, 2009. Ms. Carla Stucky, Vice President and Corporate Controller of
Sterling, will assume Mr. Beaver's responsibilities as our principal financial
officer beginning October 31, 2009 until we engage a new Chief Financial
Officer. Ms. Stucky has been our Corporate Controller since December 2007 and
has served as one of our Vice Presidents since September 2008. Prior to joining
us, Ms. Stucky served as Corporate Controller for Outsource Partners
International, Inc. from July 2006 through November 2007, as Director of Finance
for Hempel A/S from April 2005 to July 2006, as Assistant Controller for Nabors
Industries, Ltd., from April 2003 to March 2005, as Director of Reporting and
Corporate Accounting for Live Nation from May 1999 to March 2003, and as an
Audit Manager in the audit practice of PricewaterhouseCoopers prior to May 1999.
Under the Restated Certificate of Designations, Preferences, Rights and
Limitations of our Series A Convertible Preferred Stock, or our Preferred Stock,
the holders of our Preferred Stock have the exclusive right to remove and
replace members of our Board of Directors that were elected to our Board of
Directors by the holders of our Preferred Stock. On November 6, 2009, the
holders of our Preferred Stocked removed Mr. Byron J. Haney as a Director, which
also caused Mr. Haney's removal as a member and the Chairman of the Audit
Committee of our Board of Directors. Mr. Haney had served as a Director and as
Chairman of the Audit Committee of our Board of Directors since December 2002.
On November 6, 2009, the holders of our Preferred Stock elected Daniel Fishbane
to our Board of Directors, effective as of November 6, 2009, to fill the vacancy
resulting from Mr. Haney's removal.
Mr. Fishbane is a Senior Vice President and the Chief Financial Officer of
M.D. Sass Investors Services. Inc., or M.D. Sass, the sole owner of Resurgence
Asset Management, L.L.C., or Resurgence. Resurgence has beneficial ownership of
a substantial majority of the voting power of our equity securities due to its
investment and disposition authority over securities owned by its and its
affiliates' managed funds and accounts. Currently, Resurgence has beneficial
ownership of over 98% of our Preferred Stock and over 55% of our common stock,
representing ownership of over 85% of the total voting power of our equity. The
holders of our Preferred Stock are entitled to designate a number of our
directors roughly proportionate to their overall equity ownership, but in any
event not less than a majority of our directors as long as they hold in the
aggregate at least 35% of the total voting power of our equity.
Results of Operations
Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008
Revenues and income (loss) from continuing operations
Our revenues were $27.2 million for the third quarter of 2009, a 36% decrease
from the $42.4 million in revenues we recorded for the third quarter of 2008. We
had a net loss from continuing operations of $3.0 million for the third quarter
of 2009, compared to net income from continuing operations of $3.0 million in
the third quarter of 2008.
Revenues from our acetic acid operations were $20.9 million in the third
quarter of 2009, a 42% decrease from the $35.8 million in revenues we received
from these operations in the third quarter of 2008. This decrease in acetic acid
revenues in the third quarter of 2009 was primarily due to a $6.2 million
reduction in cost reimbursements from BP Chemicals as a result of lower
production and energy costs compared to the third quarter of 2008, a
$1.9 million reduction in revenue due to lower acetic acid contribution margin
and sales volumes and the inclusion of $6.5 million of revenues in the third
quarter of 2008 related to the settlement of a blend gas dispute with BP
Chemicals. Gross profit for our acetic acid operations was zero for the third
quarter of 2009 compared to a gross profit of $9.6 million for the third quarter
of 2008. This decrease in gross profit was primarily due to reduced revenue
resulting from lower acetic acid contribution margin and sales volumes discussed
above for the three-month period ended
September 30, 2009 compared to the same period in 2008, as well as the inclusion
of $6.5 million in revenues in the third quarter of 2008 related to the
settlement of the blend gas dispute with BP Chemicals. In addition, we incurred
$0.3 million of project start-up costs in 2009.
Revenues from our plasticizers operations were $6.0 million in the third
quarter of 2009, a 9% decrease from the $6.6 million in revenues we received
from these operations in the third quarter of 2008. Revenues for the third
quarter of 2009 were lower primarily due to decreased cost reimbursements of
$0.7 million from BASF as a result of lower energy costs in the third quarter of
2009 compared to the third quarter of 2008. Gross profit from our plasticizers
operations was $1.5 million for the third quarter of 2009 compared to
$0.4 million for the third quarter of 2008. This increase in gross profit for
the third quarter of 2009 was primarily due to favorable economic indices
applicable to various components of reimbursable costs under our Plasticizers
Production Agreement.
Other gross profit was $0.7 million for the third quarter of 2009 compared to
a loss of $0.9 million for the third quarter of 2008. This improvement was
primarily due to the reversal of the $1.0 million litigation reserve in the
third quarter of 2009.
Selling, general and administrative expenses
Our selling, general and administrative expenses were $2.9 million for the
third quarter of 2009 compared to $3.7 million for the third quarter of 2008.
This decrease was primarily due to a reduction in legal fees resulting from the
resolution of various lawsuits that were being litigated during the 2008 period.
The amounts stated above for the third quarter of 2009 and 2008 exclude
insurance reimbursements of $0.2 million and $0.7 million, respectively, which
are recorded in other income.
Impairment of long-lived assets
We recorded zero and $0.8 million for impairment of long-lived assets for the
third quarter of 2009 and 2008, respectively. The $0.8 million impairment in the
third quarter of 2008 was for the write-down of our turbo generator units as a
result of the decision to permanently discontinue use of those units.
Interest income
We recorded $0.1 million of interest income in the third quarter of 2009
compared to $1.0 million in the third quarter of 2008. This decrease was due to
lower interest earned on our cash investments in 2009 compared to 2008.
Other income
Our other income was $0.2 million for the third quarter of 2009 compared to
$1.5 million for the third quarter of 2008. This decrease in other income for
the third quarter of 2009 compared to the third quarter of 2008 was primarily
due to a decrease in reimbursements under our insurance policies for legal fees
as a result of the resolution of various lawsuits that were being litigated
during the 2008 period.
Benefit for income taxes
During the third quarter of 2009, we recorded a net tax benefit of
$1.3 million for income taxes from continuing operations, compared to a net tax
benefit of less than $0.1 million for income taxes from continuing operations
for the third quarter of 2008. The net tax benefit in the third quarter of 2009
was generated by utilizing income in discontinued operations to recognize a
portion of the benefit from losses generated in continuing operations. The net
tax benefit in the third quarter of 2008 was generated due to a refund of
alternative minimum tax. Our continuing operations effective tax rate was 31.1%
for the three-month period ended September 30, 2009 compared to an effective tax
rate of 3.4% for the period ended September 30, 2008. There was no change to the
valuation allowance of $52.0 million.
Income (loss) from discontinued operations, net of tax
During the third quarter of 2009, net income from discontinued operations,
net of tax was $1.8 million compared to a net loss from discontinued operations,
net of tax, of $1.8 million for the third quarter of 2008. The difference was
primarily due to the significant costs we incurred during the third quarter of
2008 to complete the decommissioning of our styrene facility.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
Revenues and loss from continuing operations
Our revenues were $85.5 million for the nine-month period ended September 30
2009, a 33% decrease from the $128.5 million in revenues we recorded for the
nine-month period ended September 30, 2008. We had a net loss from continuing
operations of $7.0 million in the first nine months of 2009, compared to a net
loss from continuing operations of $2.0 million in the first nine months of
2008.
Revenues from our acetic acid operations were $64.5 million for the
nine-month period ended September 30, 2009, a 38% decrease from the
$103.9 million in revenues we received from these operations for the nine-month
period ended September 30, 2008. This decrease in acetic acid revenues in the
first nine months of 2009 compared to the first nine months of 2008 was
primarily due to a $23.3 million reduction in cost reimbursements from BP
Chemicals due to lower energy costs and reduced production, which resulted from
the shutdown of our acetic acid unit in June 2009 for scheduled maintenance.
Additionally we had an $8.3 million reduction in revenue resulting from reduced
contribution margin and sales volumes for the first nine months of 2009 compared
to the first nine months of 2008 and revenues for the first nine months of 2008
included $6.5 million for the blend gas dispute with BP Chemicals. Gross profit
from our acetic acid operations was $4.5 million for the first nine months of
2009 compared to $23.1 million for the first nine months of 2008. The
$18.6 million decrease in gross profit was primarily due to $8.3 million of
reduced revenue resulting from reduced contribution margins and sales volumes
discussed above, a $6.5 million decrease related to the settlement of the blend
gas dispute in 2008 and increased project start-up costs and overhead expenses
in 2009 of $0.9 million and $0.8 million, respectively, compared to 2008.
Revenues from our plasticizers operations were approximately $20.2 million
for the nine months ended September 30, 2009, a 16% decrease from the
$24.1 million in revenues we received from these operations for the nine months
ended September 30, 2008. In the first nine months of 2009, our revenues were
lower primarily due to decreased cost reimbursements of $2.5 million resulting
from lower energy costs, which were offset by increased revenues of $2.7 million
due to reimbursement for the capital project to redesign our process wastewater
treatment system. Additionally, our revenues for the nine months ended
September 30, 2008 included $3.7 million in cost reimbursements related to the
closure of our phthalic anhydride, or PA, unit. Gross profit from our
plasticizers operations was $4.2 million for the first nine months of 2009
compared to $3.5 million for the first nine months of 2008. The increase in
gross profit for the first nine months of 2009 compared to the first nine months
of 2008 was primarily due to favorable economic indices applicable to various
components of reimbursable costs under our Plasticizers Production Agreement.
Other gross profit was approximately $0.3 million for the nine months ended
September 30, 2009 compared to a loss of $3.3 million for the nine months ended
September 30, 2008. This improvement was primarily a result of styrene residual
costs incurred in 2008 that were significantly reduced, with the remaining costs
being allocated to the acetic acid and plasticizers segments in 2009.
Additionally, we reversed the $1.0 million litigation reserve in the third
quarter of 2009.
Impairment of long-lived assets
We recorded zero and $7.4 million for impairment of long-lived assets for the
nine months ended September 30, 2009 and 2008, respectively. The $7.4 million
impairment in the first nine months 2008 was for the $6.6 million write-down of
PA assets to zero as a result of the shutdown of our PA unit, and a $0.8 million
write-down of our turbo generator units as a result of the decision to
permanently discontinue use of those units.
Interest and debt related expenses
We recorded $12.0 million and $13.1 million of interest and debt related
expenses for the nine months ended September 30, 2009 and 2008, respectively.
The reduction in interest and debt expense for the nine months ended
September 30, 2009 was primarily due to the penalty interest incurred on our
Secured Notes in 2008 of $0.3 million and a $0.2 million write-off of debt fees
resulting from the reduction of our commitment under our revolving credit
facility in the second quarter of 2008.
Interest income
We recorded $0.7 million of interest income for the first nine months of 2009
compared to $3.5 million in the first nine months of 2008. This decrease was due
to lower interest earned on our cash investments during the first nine months of
2009 compared to the same period in 2008.
Other income
Our other income was $2.9 million for the first nine months of 2009 compared
to $1.5 million for the first nine months of 2008. This increase in other income
was primarily due to the receipt of a $1.1 million previously disputed
contractual payment in 2009 and a $0.2 million increase in reimbursements of
legal fees related to various lawsuits during the first nine months of 2009
compared to the first nine months of 2008.
Benefit for income taxes
During the nine month periods ended September 30, 2009 and 2008, we recorded
net tax benefit of $2.5 million and less than $0.1million, respectively, for
income taxes from continuing operations. The net tax benefit in the nine-month
period ended September 30, 2009, was generated by utilizing income in
discontinued operations to recognize a portion of the benefit from losses
generated in continuing operations. The net tax benefit in the nine-month period
ended September 30, 2008, was generated due to a refund of alternative minimum
tax. Our continuing operations effective tax rate was 26.9% for the nine month
period ended September 30, 2009, compared to an effective tax rate of 3.4% for
the nine month period ended September 30, 2008. For the nine months ended
September 30, 2009, there was no change to our valuation allowance of
$52.0 million.
Income (loss) from discontinued operations, net of tax
During the first nine months of 2009, net income from discontinued
operations, net of tax, was $5.4 million compared to a net loss from
discontinued operations, net of tax, of $9.8 million for the first nine months
of 2008. The difference was primarily due to the significant costs we incurred
during the third quarter of 2008 to complete the decommissioning of our styrene
facility.
Liquidity and Capital Resources
On March 29, 2007, we completed a private offering of $150 million aggregate
principal amount of unregistered 101/4% Senior Secured Notes due 2015, or our
Secured Notes, pursuant to a Purchase Agreement among us, Sterling Chemicals
Energy, Inc., or Sterling Energy, one of our former wholly-owned subsidiaries,
and Jefferies & Company, Inc. and CIBC World Markets Corp., as initial
purchasers. In connection with that offering, we entered into an indenture,
dated March 29, 2007, among us, Sterling Energy, as guarantor, and U. S. Bank
National Association, as trustee and collateral agent. On May 6, 2008, Sterling
Energy was merged with and into us. Upon consummation of the merger, Sterling
Energy no longer had independent existence and, consequently, our Secured Notes
are no longer guaranteed by Sterling Energy. Pursuant to a registration rights
agreement among us, Sterling Energy and the initial purchasers, we agreed to
exchange our unregistered Secured Notes for a new issue of substantially
identical debt securities registered under the Securities Act, to cause the
registration statement for the exchange offer to become effective by
December 24, 2007, and to complete the exchange offer within 50 days of the
effective date of the registration statement. On August 30, 2007, we made an
initial filing of the exchange offer registration statement. However, the
registration statement was not declared effective by December 24, 2007, and, as
a result, the interest rate on our Secured Notes increased by 0.25% per annum on
each of December 25, 2007, March 24, 2008 and June 22, 2008. The registration
statement was declared effective on August 13, 2008, and the exchange offer was
closed on September 19, 2008. As a result, the interest rate on our Secured
Notes reverted back to the face amount of 101/4% per annum when the exchange
offer closed. The additional interest incurred from
December 25, 2007 through the closing of the exchange offer was approximately
$0.5 million and was paid on April 1 and October 1, 2008.
Our indenture contains affirmative and negative covenants and customary
events of default, including payment defaults, breaches of covenants and certain
events of bankruptcy, insolvency and reorganization. If an event of default
occurs and is continuing, other than an event of default triggered upon certain
bankruptcy events, the trustee under our indenture or the holders of at least
25% in principal amount of our outstanding Secured Notes may declare our Secured
Notes to be due and payable immediately. Upon an event of default, the trustee
may also take actions to foreclose on the collateral securing our outstanding
Secured Notes, subject to the terms of an intercreditor agreement dated
March 29, 2007, among us, Sterling Energy, the trustee and The CIT
Group/Business Credit, Inc, or CIT. Our indenture does not require us to
maintain any financial ratios or satisfy any financial maintenance tests. We are
currently in compliance with all of the covenants contained in our indenture.
Interest is due on our outstanding Secured Notes on April 1 and October 1 of
each year. Our outstanding Secured Notes, which mature on April 1, 2015, are
senior secured obligations and rank equally in right of payment with all of our
existing and future senior indebtedness. Subject to specified permitted liens,
our outstanding Secured Notes are secured (i) on a first priority basis by all
of our fixed assets and certain related assets, including, without limitation,
all property, plant and equipment and (ii) on a second priority basis by our
other assets, including, without limitation, accounts receivable, inventory,
capital stock of our domestic restricted subsidiaries, intellectual property,
deposit accounts and investment property.
On December 19, 2002, we entered into a Revolving Credit Agreement, or our
revolving credit facility, with CIT as administrative agent and a lender, and
certain other lenders. Under our revolving credit facility, we and Sterling
Energy were co-borrowers and were jointly and severally liable for any
indebtedness thereunder. After the merger of Sterling Energy with and into us,
Sterling Energy ceased to be a co-borrower under our revolving credit facility.
Our revolving credit facility is secured by first priority liens on all of our
accounts receivable, inventory and other specified assets. On March 29, 2007, we
amended and restated our revolving credit facility to, among other things,
extend the term of our revolving credit facility until March 29, 2012, reduce
the maximum commitment thereunder to $50 million, make certain changes to the
calculation of the borrowing base and lower the interest rates and fees charged
thereunder. Borrowings under our revolving credit facility bear interest, at our
option, at an annual rate of a base rate plus 0.0% to 0.50% or the LIBOR rate
plus 1.50% to 2.25%, depending on our borrowing availability at the time. We are
also required to pay an aggregate commitment fee of 0.375% per year (payable
monthly) on any unused portion of our revolving credit facility. Available
credit under our revolving credit facility is subject to a monthly borrowing
base of 70% of eligible accounts receivable plus 65% of eligible inventory. In
response to the expected continued lower levels of accounts receivable and
inventory, as well as our lesser need for a working capital facility, we reduced
our commitment under our revolving credit facility to $25 million on June 30,
2008. On November 7, 2008, we further amended our revolving credit facility to
substantially reduce restrictions, subject to minimum liquidity requirements, on
investment of cash and other assets, payment of cash dividends, repurchase of
debt and equity securities, modification of preferred stock terms, entry into
affiliated transactions, disposition of assets and engagement in certain
business activities. We paid the administrative agent an amendment fee plus
expenses totaling approximately $0.1 million in connection with this amendment.
On November 1, 2009, CIT's parent company, CIT Group Inc., and another CIT
Group subsidiary announced that they would proceed with a prepackaged plan of
reorganization. CIT and CIT Group's other operating subsidiaries are not
. . .
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