TPC Group Reports Fourth Quarter and Full Year 2011 Financial Results

• Fourth quarter net loss of $18 million and full year net income of $37 million
• Fourth quarter Adjusted EBITDA was negative $11 million (excluding $36 million negative impact of butadiene price decline, was positive $25 million, which was up 11% compared to prior year quarter on the same basis)
• Fourth quarter free cash flow of $25 million; full year free cash flow of $37 million
• Full year 2011 Adjusted EBITDA was $130 million versus $108 million in 2010

HOUSTON, March 8, 2012 (GLOBE NEWSWIRE) -- TPC Group Inc. (Nasdaq:TPCG), a leading fee-based processor and service provider of value-added products derived from niche petrochemical raw materials, such as C4 hydrocarbons, today announced its 2011 fourth quarter and full year results.

The Company's fourth quarter 2011 revenues were $575 million, an increase of 18% versus the prior year quarter of $486 million. The increase in revenue was driven by 29% higher average selling prices, which reflected higher commodity prices across our product line portfolio, partially offset by the impact of 8% lower sales volume. The lower sales volume reflected the softening in demand in the fourth quarter as our customers adjusted their inventory levels in response to global economic uncertainty and declines in end-use demand.

Gross profit (defined herein as revenues less cost of sales) for the quarter was $31.9 million versus $59.2 million in the fourth quarter of 2010. The $27.3 million decline was driven by a $32 million increase in the 2011 quarter in the negative impact of timing differences between purchases of crude C4 and sales of finished butadiene which resulted from the substantial decline in the contract price of butadiene over the course of the quarter. C4 Processing segment gross profit of $11.3 was down $28.8 million from the prior year quarter, primarily reflecting the impact of the butadiene price decline and lower sales volume. Performance Products segment gross profit was better by $1.5 million due to better margins and sales mix, which was partially offset by the impact of lower volumes due to customer inventory destocking in the fourth quarter. The fourth quarter was favorably impacted by a number of management actions to mitigate the impact of the softening market conditions and resulting supply and demand imbalance that drove down the price of butadiene, as well as our continuously improving fee-based business model.

Our butadiene margins, which represent the value of the aggregation, processing and logistics services we provide to our customers, will be positively or negatively impacted in a given period if the contract price of butadiene increases or decreases between the period in which we buy crude C4 feedstock and the period in which we sell the finished butadiene. Purchases and sales are based on contract price levels in any given month. In an environment of stable butadiene prices, our margins represent our fees and are independent of the absolute level of butadiene pricing. During the fourth quarter of 2011, as a result of the supply and demand imbalance resulting from softer demand, North American market contract prices of butadiene declined 42%, from $1.71 per pound in September to $0.98 in December, whereas in the prior year quarter, butadiene pricing declined 8%, from $0.93 per pound to $0.86. The negative impacts of these downward trends in the current and prior year quarters were $36 million and $4 million, respectively, which resulted in the $32 million difference when comparing the two quarters.

In spite of the negative impact of softer market conditions in the fourth quarter, full year 2011 gross profit was up 14%, from $268.1 million in 2010 to $304.3 million. The year-over-year increase was driven by a 24% improvement for the C4 Processing segment, which primarily reflected margin expansion from the increasing value of the services we provide for our customers and suppliers, and favorable market conditions for our fuel component products, partially offset by a reduction in the favorable impact of butadiene pricing of $8 million (positive impacts on 2011 and 2010 of $4 million and $12 million, respectively). Gross profit for the Performance Products segment was down 7% compared to 2010 largely due to customer inventory destocking in response to a slowing global economic outlook, which began in the latter part of the third quarter.

Provided in the table below, for each period presented, are the percentage increase (decrease) in the butadiene contract price and corresponding positive (negative) impact on our gross profit (dollars in millions):

Net loss for the quarter was $18.4 million, or $1.18 per diluted share, compared to net loss of $0.7 million, or $0.04 per diluted share, in the prior year quarter. The lower net income for the current year quarter primarily reflected lower gross profit of $27.3 million, driven by the negative impact of butadiene pricing discussed above, partially offset by higher income tax benefit of $9.3 million.  

Net income for the year ended December 31, 2011 was $36.7 million or $2.28 per diluted share, compared to net income of $30.5 million or $1.68 per diluted share for the previous year. The primary components of the year over year increase in net income were higher gross profit of $36.2 million, partially offset by higher operating and general and administrative expenses and a $12.0 million increase in interest expense due to the 8¼% Senior Secured Notes issued in October 2010. 

Adjusted EBITDA for the fourth quarter of 2011 was negative $11.0 million compared to $18.7 million for the prior year quarter. The decrease of $29.7 million reflected lower C4 Processing Adjusted EBITDA of $28.7 million, primarily due to the butadiene price impact discussed previously, and higher corporate expenses of $3.2 million, partially offset by an improvement of $2.1 million for the Performance Products segment. Adjusted EBITDA for the years ended December 31, 2011 and 2010 was $130.0 million and $107.6 million, respectively.  (Adjusted EBITDA is a non-GAAP financial measure, and a reconciliation of Adjusted EBITDA to Net Income (Loss), the most closely related GAAP measure, is provided in the attached financial tables).

Commenting on the Company's results, Mike McDonnell, President and CEO, stated, "I'm pleased with our underlying results in the fourth quarter. As we had anticipated, we were challenged by a significant unfavorable impact from declines in end-market demand, inventory destocking on the part of our customers, and the decline in the contract price of butadiene.  Despite these difficult market conditions, our fourth quarter results generated $25 million of free cash flow and confirmed the stability of our margins and cash flows resulting from our fee-based business model. If we exclude from our reported Adjusted EBITDA the negative impact of the decline in contract butadiene price, which significantly distorts the quarter-to-quarter trends for our business, the underlying Adjusted EBITDA was $25 million for the current quarter. These underlying results for the quarter demonstrate the real performance of the business as well as the terrific job done by our employees in mitigating much of the impact of the market slowdown and the temporary but significant imbalance between supply and demand for butadiene in the fourth quarter.

For the full year, we generated Adjusted EBITDA of $130.0 million versus $107.6 million in the prior year. These strong results were driven by our strategies to expand service fees and contractual margins in our service-based C4 Processing segment, achieve targeted volume growth in our Performance Products segment and drive operational efficiencies. 

We believe our performance for both the quarter and for the year continues to confirm the resilience and underlying stability of our contractual, fee-based business model and the long-term value of our unique, strategically located infrastructure, critical products and services, and attractive end-use markets."   

Business Segments

Results of Operations, C4 Processing Segment
(in millions, unaudited)

• Higher revenue was driven by higher selling prices across the entire product portfolio, partially offset by lower volume that reflected the weaker market conditions in the quarter.  The higher selling prices reflected higher commodity market indices to which a substantial portion of our selling prices are linked (i.e. published contract price of butadiene and price of unleaded regular gasoline). 
• The decrease in both gross profit and Adjusted EBITDA reflected the negative impact of the 42% decline in price of butadiene over the course of the quarter and lower sales volume.

Results of Operations, Performance Products Segment
(in millions, unaudited)

• Higher revenue reflected higher selling prices across the entire product portfolio, partially offset by lower sales volumes due to customer destocking and softer market conditions in the current year quarter. The higher selling prices followed the higher commodity prices to which a substantial portion of our selling prices are linked (i.e. butane, isobutane and propylene). 
• The gross profit and Adjusted EBITDA improvement reflected margin improvement across most of the product lines, which more than offset the impact of the lower volumes. Fourth quarter 2011 margins were positively impacted by better customer mix and a favorable impact from the contractual lag between falling feedstock costs and product selling prices.

Liquidity and Capital Resources

The Company ended the quarter with $107.6 million in cash and no borrowings under the Revolving Credit Facility. Net cash flow from operating activities for the quarter was $44.2 million and capital expenditures were $19.1 million, resulting in free cash flow of $25.1 million. Net cash provided by operating activities was driven by a significant reduction in trade working capital (trade receivables, inventory and trade payables), partially offset by the net loss. The lower investment in trade working capital primarily reflected lower trade receivables and inventories, partially offset by lower trade payables. The reduction in trade receivables reflected the impact of the downward trend in butadiene pricing over the course of the quarter. Overall days outstanding for receivables and payables at December 31, 2011 were consistent with days outstanding at the end of the prior year and each quarter during 2011. However, year-end inventory was at its lowest level of the year in terms of both quantities and average unit cost. During 2011, the Company purchased 634,791 shares of its common stock at a cost of $16.1 million, or $25.34 per share, as part of the $30 million authorized share repurchase program. (Free Cash Flow is a non-GAAP financial measure, and a reconciliation of Free Cash Flow to Cash Flows from Operating Activities, the most closely related GAAP measure, is provided in the attached financial tables).

Outlook for 2012

Commenting on the Company's outlook for 2012, Mr. McDonnell stated, "After the abrupt softening in demand for butadiene in the fourth quarter, we are now seeing signs that the markets are coming back into balance. Demand in our core markets, including synthetic rubber, nylon, polyethylene and fuel and lube additives, has stabilized and is expected to improve modestly on a sequential basis from the fourth quarter. At the same time, we anticipate further tightness in crude C4 and butadiene supply due to the unusually large number of ethylene crackers that are planned to be down in the first half of the year. As a consequence, butadiene prices have risen 49% between December and March. 

"Looking to the future, we continue to develop the longer term growth and profit performance of the Company through our strategic growth projects. We continue to move forward with our preliminary engineering study to produce up to 600 million pounds of on-purpose butadiene by restarting one of our two idled dehydrogenation units and utilizing our proprietary OXO-D^TM process technology. We are also moving ahead with detailed engineering to restart our other idled dehydrogenation unit to produce isobutylene as a feedstock for our performance products and fuels products businesses. We anticipate that these projects will capitalize on attractive market fundamentals, projected long term shortages in butadiene, idled production assets, and the expected strength of natural gas liquids economics. Of course, we will also remain sharply focused on our strategies to expand service fees and contractual margins in our service-based C4 Processing segment, achieve targeted volume growth in our Performance Products segment and drive operational efficiencies."

Conference Call

In conjunction with this release, the Company has scheduled a conference call for Friday, March 9, 2012 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). Interested parties may listen to the live conference call over the Internet by logging on to http://investors.tpcgrp.com/ or via phone by dialing (877) 415-4081 or internationally at (708) 290-1135. A telephone replay of the call will be available until March 23, 2012, and may be accessed via phone by dialing (855) 859-2056, and conference ID number, 56074952. Also, an archive of the webcast will be available shortly after the call on the Company's website at www.tpcgrp.com.

About TPC Group

TPC Group Inc. is a leading producer of value-added products derived from niche petrochemical raw materials, such as C4 hydrocarbons, and provider of critical infrastructure and logistics services along the Gulf Coast region. The Company sells its products into a wide range of performance, specialty and intermediate markets, including synthetic rubber, fuels, lubricant additives, plastics and surfactants. Headquartered in Houston, Texas, and with an operating history of over 68 years, the Company has manufacturing facilities in the industrial corridor adjacent to the Houston Ship Channel, Port Neches and Baytown, Texas and operates a product terminal in Lake Charles, Louisiana. For more information, visit the Company's website at http://www.tpcgrp.com.

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Cautionary Information Regarding Forward-Looking Statements

Certain statements in this news release, including our guidance estimates, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include assumptions, expectations, predictions, intentions or beliefs about future events, particularly statements that may relate to future operating results, future market and industry conditions, future commodity pricing and supply trends, stability of future margins, cash flows and profits, existing and expected competition, financing sources and availability, potential returns of capital to stockholders, the effects of seasonality and plans related to strategic alternatives or future expansion activities and capital expenditures. Although TPC Group believes that such statements are based on reasonable assumptions, no assurance can be given that such statements will prove to have been correct. A number of factors could cause actual results to vary materially from those expressed or implied in any forward-looking statements, including risks and uncertainties such as volatility in the petrochemicals industry, commodity pricing, seasonality, limitations on the Company's access to capital, the effects of competition, leverage and debt service, general economic conditions, litigation and governmental investigations, and extensive environmental, health and safety laws and regulations. More information about the risks and uncertainties relating to TPC Group and the forward-looking statements are found in the Company's SEC filings, including the Annual Report on Form 10-K, which are available free of charge on the SEC's website at http://www.sec.gov. TPC Group expressly disclaims any obligation to update any forward-looking statements, including our guidance estimates, contained in this news release to reflect events or circumstances that may arise after the date of this release, except as otherwise required by applicable law. There can be no assurance that any guidance estimates included in this news release can or will be achieved.