Form 10-Q

10-Q 1 d331464d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

LOGO

TPC Group Inc.

TPC Group LLC

(Exact name of registrant as specified in its charter)


Entity	Commission File Number	State of Incorporation	I.R.S. Employer Identification No.
TPC Group Inc.	001-34727	Delaware	20-0863618
TPC Group LLC	333-173804	Texas	74-1778313

5151 San Felipe, Suite 800

Houston, Texas 77056

(Address of principal executive offices, including zip code)

(713) 627-7474

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


TPC Group Inc.		Yes x No ¨

TPC Group LLC		Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


TPC Group Inc.		Yes x No ¨

TPC Group LLC		Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Entity	Large accelerated filer	Accelerated filer	Non-accelerated filer (Do not check if a smaller reporting company)	Smaller reporting company
TPC Group Inc.	¨	x	¨	¨
TPC Group LLC	¨	¨	x	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


TPC Group Inc.		Yes ¨ No x

TPC Group LLC		Yes ¨ No x

The number of shares outstanding of TPC Group Inc.’s sole class of common stock, as of April 27, 2012 was 15,653,216. TPC Group LLC is a wholly owned subsidiary of TPC Group Inc.

This combined Form 10-Q is separately filed by TPC Group Inc. and TPC Group LLC. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to a registrant other than itself.

TPC Group LLC, a wholly owned subsidiary of TPC Group Inc., meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format contemplated by paragraphs (b) and (c) of General Instruction H(2) of Form 10-Q.

TPC GROUP INC. AND TPC GROUP LLC

TABLE OF CONTENTS


Item	Page

PART I. FINANCIAL INFORMATION

Item 1 – Financial Statements

TPC Group Inc. and TPC Group LLC – unaudited Condensed Consolidated Financial Statements		4

Notes to the unaudited Condensed Consolidated Financial Statements		8

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		27

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		38

Item 4 – Controls and Procedures		38

PART II. OTHER INFORMATION

Item 1– Legal Proceedings		39

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		39

Item 6 – Exhibits		40

Signatures		41

EXPLANATORY NOTE

This report includes the combined filing of TPC Group Inc. (“TPCGI”) and TPC Group LLC (“TPCGLLC”), which is the principal subsidiary of TPCGI. TPCGLLC provided 100% of TPCGI’s total consolidated revenue for all periods presented and nearly 100% of TPCGI’s total consolidated noncash asset base as of March 31, 2012 and December 31, 2011. Unless the context indicates otherwise, throughout this report, the terms “the Company”, “we”, “us”, “our” and “ours” are used to refer to both TPCGI and TPCGLLC and their direct and indirect subsidiaries. Discussions or areas of this report that apply specifically to TPCGI or TPCGLLC are clearly noted in such section.

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

Certain statements made in this Form 10-Q that are not historical facts are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. These statements include assumptions, expectations, predictions, intentions or beliefs about future events, particularly statements that may relate to future operating results, 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 we believe 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, many of which are outside our control, 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, 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 the Company and the forward-looking statements are found in TPCGI’s and TPCGLLC’s combined Annual Report on Form 10-K for the year ended December 31, 2011, which is available free of charge on the SEC’s website at http://www.sec.gov. All forward-looking statements attributable to us are expressly qualified in their entirety by the cautionary statements herein. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this report.

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements - TPC Group Inc. (“TPCGI”) and TPC Group LLC (“TPCGLLC”)

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	TPCGI						TPCGLLC
	March 31, 2012			December 31, 2011			March 31, 2012		December 31, 2011
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	109,358		$	107,572		$	25,514	$	23,862
Trade accounts receivable		247,752			210,810			247,752		210,810
Due from parent		—			—			840		849
Inventories		133,481			79,334			133,481		79,334
Other current assets		31,656			32,157			31,656		32,157

Total current assets		522,247			429,873			439,243		347,012
Property, plant and equipment, net		495,419			495,780			495,419		495,780
Investment in limited partnership		2,671			2,571			2,671		2,571
Intangible assets, net		5,898			5,909			5,898		5,909
Other assets, net		34,975			35,567			34,975		35,567

Total assets	$	1,061,210		$	969,700		$	978,206	$	886,839

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	239,100		$	170,084		$	239,064	$	170,047
Accrued liabilities		37,439			33,824			37,394		33,789

Total current liabilities		276,539			203,908			276,458		203,836
Long-term debt		348,109			348,042			348,109		348,042
Deferred income taxes		129,381			129,381			129,381		129,381

Total liabilities		754,029			681,331			753,948		681,259

Commitments and contingencies

Stockholders’ and members’ equity:
Common stock, $0.01 par value, 25,000,000 authorized, 15,830,561 and 15,815,070 shares issued and 15,653,216 and 15,637,725 shares outstanding at March 31, 2012 and December 31, 2011, respectively		158			158
Additional paid-in capital		172,537			171,679
Accumulated earnings		138,528			120,574
Accumulated other comprehensive loss		(723	)		(723	)
Treasury stock at cost, 177,345 shares		(3,319	)		(3,319	)

Stockholders’ equity		307,181			288,369

Members’ equity								224,258		205,580

Total liabilities and equity	$	1,061,210		$	969,700		$	978,206	$	886,839

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited, in thousands, except per share amounts)


	TPCGI Three Months Ended March 31,						TPCGLLC Three Months Ended March 31,
	2012			2011			2012			2011
Revenue	$	606,114		$	555,591		$	606,114		$	555,591
Cost of sales (excludes items listed below)		517,040			475,945			517,040			475,945
Operating expenses		35,723			37,496			35,723			37,496
General and administrative expenses		8,366			7,097			8,366			7,097
Depreciation and amortization		10,249			10,018			10,249			10,018

Income from operations		34,736			25,035			34,736			25,035
Other (income) expense:
Interest expense		8,140			8,419			8,140			8,419
Interest income		(57	)		(42	)		(13	)		(33	)
Other, net		(262	)		(438	)		(307	)		(438	)

Income before income taxes		26,915			17,096			26,916			17,087
Income tax expense		8,961			5,687			8,961			5,642

Net income	$	17,954		$	11,409		$	17,955		$	11,445

Comprehensive income	$	17,954		$	11,409		$	17,955		$	11,445

Earnings per share:
Basic	$	1.15		$	0.70

Diluted	$	1.14		$	0.70

Weighted average shares outstanding:
Basic		15,648			16,202
Diluted		15,754			16,296

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Unaudited, in thousands)


	TPCGI																		TPCGLLC
										Accumulated
					Additional					Other			Treasury			Total
	Common Stock				Paid-in			Accumulated		Comprehensive			Stock			Stockholders’			Members’
	Shares		Amount		Capital			Earnings		Income			at Cost			Equity			Equity
Balances - December 31, 2011		15,638	$	158	$	171,679		$	120,574	$	(723	)	$	(3,319	)	$	288,369		$	205,580
Net income		—		—		—			17,954		—			—			17,954			17,955
Exercise of stock options		6		—		149			—		—			—			149			—
Vesting of restricted stock		9		—		—			—		—			—			—			—
Shares withheld from vested restricted shares		—		—		(14	)		—		—			—			(14	)		—
Stock compensation expense		—		—		723			—		—			—			723			723

Balances - March 31, 2012		15,653	$	158	$	172,537		$	138,528	$	(723	)	$	(3,319	)	$	307,181		$	224,258

The accompanying notes are an integral part of this condensed consolidated financial statement.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	TPCGI						TPCGLLC
	Three Months Ended March 31,						Three Months Ended March 31,
	2012			2011			2012			2011
Cash provided by (used in) operating activities	$	11,515		$	(19,754	)	$	11,530		$	(18,035	)

Cash used in investing activites		(9,878	)		(8,031	)		(9,878	)		(8,031	)

Cash flows from financing activities:
Net proceeds from Revolving Credit Facility borrowings		—			11,000			—			11,000
Exercise of stock options		149			471			—			—
Purchase of common stock		—			(7,802	)		—			—
Capital distributions to parent		—			—			—			(68,606	)

Cash provided by (used in) financing activities		149			3,669			—			(57,606	)

Increase (decrease) in cash and cash equivalents		1,786			(24,116	)		1,652			(83,672	)
Cash and cash equivalents, beginning of period		107,572			85,594			23,862			83,858

Cash and cash equivalents, end of period	$	109,358		$	61,478		$	25,514		$	186

The accompanying notes are an integral part of these condensed consolidated financial statements.

TPC Group Inc. and TPC Group LLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A – BASIS OF PRESENTATION

Organization

The accompanying unaudited condensed consolidated financial statements of TPCGI include the accounts of TPCGI, a Delaware corporation, and its direct and indirect subsidiaries, including its direct wholly owned subsidiaries, Texas Petrochemicals Netherlands B.V. and TPCGLLC, a Texas limited liability company. The accompanying unaudited condensed consolidated financial statements of TPCGLLC include the accounts of TPCGLLC and its direct wholly owned subsidiaries, Texas Butylene Chemical Corporation, Texas Olefins Domestic International Sales Corporation, Port Neches Fuels LLC, and TP Capital Corp. Unless the context indicates otherwise, throughout this report, the terms “the Company”, “we”, “us”, “our” and “ours” are used to refer to both TPCGI and TPCGLLC and their direct and indirect subsidiaries. Discussions or areas of this report that apply specifically to TPCGI or TPCGLLC are clearly noted in such section.

Principles of Consolidation

The unaudited condensed consolidated financial statements of TPCGI include the accounts of TPCGI and its direct and indirect subsidiaries, after the elimination of all significant intercompany accounts and transactions. The unaudited condensed consolidated financial statements of TPCGLLC include the accounts of TPCGLLC and its subsidiaries, after the elimination of all significant intercompany accounts and transactions. Our investment in Hollywood/Texas Petrochemicals LP is accounted for under the equity method. The unaudited condensed consolidated financial statements presented have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Interim Financial Statements

The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions prescribed by the Securities and Exchange Commission (“SEC”) for interim financial reporting and do not include all disclosures required by US GAAP. Our December 31, 2011 Condensed Consolidated Balance Sheet data was derived from audited financial statements.

The unaudited condensed consolidated financial statements contained in this report include all material adjustments of a normal and recurring nature that, in the opinion of management, are necessary for a fair statement of the results for the interim periods. The results of operations for the interim periods presented in this Form 10-Q are not necessarily indicative of the results to be expected for a full year or any other interim period.

The interim condensed consolidated financial statements should be read together with the audited consolidated financial statements and related notes thereto included in TPCGI’s and TPCGLLC’s combined Annual Report on Form 10-K for the year ended December 31, 2011.

NOTE B – DESCRIPTION OF BUSINESS

We have three principal processing facilities, all of which we own, located in Houston, Texas, Port Neches, Texas and Baytown, Texas. The Houston and Port Neches facilities, which process crude C4 into butadiene and related products, are strategically located near most of the significant petrochemicals consumers in Texas and Louisiana. Our Baytown facility primarily produces nonene and tetramer. All three locations provide convenient access to other Gulf Coast petrochemicals producers and are connected to several of our customers and raw materials suppliers through an extensive pipeline network. In addition, our Houston and Port Neches facilities are serviced by rail, tank truck, barge and ocean-going vessel.

The products in our C4 Processing segment include butadiene, primarily used to produce synthetic rubber that is mainly used in tires and other automotive products; butene-1, primarily used in the manufacture of plastic resins and synthetic alcohols; raffinates, primarily used in the manufacturing of alkylate, a component of premium unleaded gasoline; and methyl tertiary butyl ether (“MTBE”), primarily used as a gasoline blending stock. The products in our Performance Products segment include high purity isobutylenes (“HPIB”), primarily used in the production of synthetic rubber, lubricant additives, surfactants and coatings; conventional polyisobutylene (“PIB”) and highly reactive polyisobutylene (“HR-PIB”), primarily used in the production of fuel and lubricant additives, caulks, adhesives, sealants and packaging; diisobutylene (“DIB”), primarily used in the manufacture of surfactants, plasticizers and resins; and nonene and tetramer, primarily used in the production of plasticizers, surfactants and lubricant additives. We sell our products primarily to chemical and petroleum based companies in North America.

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our principal raw material feedstocks are crude C4, crude isobutylene and propylene. The pricing under our supply contracts and sales contracts is usually linked to a commodity price index, such as indices based on the price of unleaded regular gasoline, butane, isobutane or propylene, or to the price at which we sell the finished product. Our supply and sales contracts, which link pricing to commodity price indices, are considered normal purchase and sales contracts under applicable accounting guidance and are therefore not considered to be derivative instruments. This determination has been made based on the following criteria: (a) the supply and sales contracts conform to normal industry pricing and quantity terms; (b) the underlying price indices are considered clearly and closely related to the product being purchased or sold since they are directly relevant to the market value of the product being purchased or sold; (c) the contracts are settled via physical delivery; (d) the magnitude of the price adjustments based on the changes in the underlying commodity price indices are proportionate to the impact on the fair value of the asset being purchased or sold; and (e) these contracts have been documented as normal supply and sales contracts.

NOTE C – DETAIL AND DISCUSSION OF CERTAIN CONSOLIDATED BALANCE SHEET CAPTIONS

Consolidated cash and cash equivalents at March 31, 2012 was $109.4 million, consisting of TPCGI cash of $83.9 million and TPCGLLC cash of $25.5 million. At March 31, 2012, our only interest-bearing account had a cash balance lower than the Federal Deposit Insurance Corporation (“FDIC”) insured limit of $250,000 for interest bearing accounts. As of March 31, 2012 we had $94.9 million of our cash and cash equivalents invested in short term money market investments (subject to $250,000 FDIC insurance coverage limit) in a major U.S. bank and $14.5 million in depository accounts in banks. We believe that the likelihood of any loss of cash and cash equivalents is remote and that we are not exposed to any significant credit risk on cash and cash equivalents.

TPCGLLC’s due from parent amounts were eliminated in the condensed consolidated financial statements of TPCGI.

Inventories, as of the dates presented, were as follows (in thousands):


	March 31, 2012		December 31, 2011
Finished goods	$	75,441	$	48,757
Raw materials and chemical supplies		58,040		30,577

	$	133,481	$	79,334

Other current assets, as of the dates presented, were as follows (in thousands):


	TPCGI
	March 31, 2012		December 31, 2011
Prepaid expense and other	$	4,067	$	4,592
Federal income tax receivable		12,387		12,387
Repair parts inventory		9,631		9,607
Deferred taxes, net		5,571		5,571

	$	31,656	$	32,157

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Property, plant and equipment, as of the dates presented, were as follows (in thousands):


	March 31, 2012		December 31, 2011
Land and land improvements	$	41,803	$	41,803
Plant and equipment		622,060		600,918
Construction in progress		44,553		56,668
Other		21,111		20,261

		729,527		719,650
Less accumulated depreciation		234,108		223,870

	$	495,419	$	495,780

For the three months ended March 31, 2012 and 2011 depreciation and amortization expense was $10.2 million and $10.0 million, respectively.

Amounts attributable to our investment in Hollywood/Texas Petrochemicals LP for the three months ended March 31, 2012 were as follows (in thousands):


Balance December 31, 2011	$	2,571
Equity in Earnings		300
Distribution		(200	)

Balance March 31, 2012	$	2,671

Intangible Assets

Changes in the carrying amount of our intangible assets, for the three months ended March 31, 2012 were as follows (in thousands):


	Intangible assets		Accumulated amortization			Carrying value
Balance at December 31, 2011	$	6,220	$	(311	)	$	5,909
Amortization		—		(11	)		(11	)

Balance at March 31, 2012	$	6,220	$	(322	)	$	5,898

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The gross carrying amounts and accumulated amortization of intangible assets, as of the dates presented, were as follows (in thousands):


	Gross carrying value		Accumulated amortization			Net carrying value
December 31, 2011
Technology license	$	5,499	$	—		$	5,499
Patents		721		(311	)		410

	$	6,220	$	(311	)	$	5,909


	Gross carrying value		Accumulated amortization			Net carrying value
March 31, 2012
Technology license	$	5,499	$	—		$	5,499
Patents		721		(322	)		399

	$	6,220	$	(322	)	$	5,898

Other assets, as of the dates presented, were as follows (in thousands):


	March 31, 2012		December 31, 2011
Debt issuance cost	$	8,781	$	9,556
Deferred turnaround cost		11,814		11,376
Other deferred costs		14,380		14,635

	$	34,975	$	35,567

Accrued liabilities, as of the dates presented, were as follows (in thousands):


	TPCGI				TPCGLLC
	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
Accrued payroll and benefits	$	6,697	$	9,824	$	6,697	$	9,824
Accrued freight		2,925		3,942		2,925		3,942
Accrued interest		14,642		7,869		14,642		7,869
Federal and state income tax		9,919		953		9,919		953
Property and sales tax		2,329		7,458		2,329		7,458
Deferred revenue		—		2,973		—		2,973
Other		927		805		882		770

	$	37,439	$	33,824	$	37,394	$	33,789

The difference at March 31, 2012 and December 31, 2011 between TPCGI’s and TPCGLLC’s accrued liabilities consisted of Delaware franchise tax payable.

The increase in accrued federal and state income tax reflected the federal and state income tax provisions for the three months ended March 31, 2012.

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE D – ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

No accounting pronouncements were adopted during the three months ended March 31, 2012.

NOTE E – DEBT

Outstanding debt as of the dates presented, was as follows (in thousands):


	March 31, 2012			December 31, 2011
8¹/4% Senior Secured Notes	$	350,000		$	350,000
Unamortized discount on Notes		(1,891	)		(1,958	)

Total long-term debt	$	348,109		$	348,042

Our financing arrangements consist of the 8¹/4% Senior Secured Notes (the “Notes”) and the $175 million revolving credit facility (the “Revolving Credit Facility”).

At March 31, 2012, we had total long-term debt of $348.1 million and the ability to access the full $175.0 million of availability under the Revolving Credit Facility while still maintaining compliance with the covenants contained therein and in the indenture governing the Notes. Debt outstanding consisted entirely of the non-current amount due on the Notes. As of March 31, 2012, we were in compliance with all covenants set forth in the indenture governing the Notes and in the agreement governing the Revolving Credit Facility.

8¹/4% Senior Secured Notes

The Notes are due October 1, 2017 and interest is paid semi-annually in arrears on April 1 and October 1 of each year. At March 31, 2012, the Notes had a carrying value of $348.1 million and a fair value of approximately $367.5 million.

Revolving Credit Facility

The $175 million Revolving Credit Facility matures on April 29, 2014. Availability under the Revolving Credit Facility is limited to the borrowing base, comprised of 85% of eligible accounts receivable and 65% of eligible inventory, as redetermined monthly.

NOTE F – FAIR VALUE

Within the framework for measuring fair value, Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard defines the three levels of inputs used to measure fair value as follows:

•

Level 1: Inputs are unadjusted quoted prices for identical assets or liabilities in active markets, which primarily consist of financial instruments traded on exchange or futures markets.

•

Level 2: Inputs are other than quoted prices in active markets (included in Level 1), which are directly or indirectly observable as of the financial reporting date, including derivative instruments transacted primarily in over-the-counter markets.

•

Level 3: Unobservable inputs, which include inputs derived through extrapolation or interpolation that cannot be corroborated by observable market data.

As of March 31, 2012 and December 31, 2011, we had no outstanding assets or liabilities measured at fair value on a recurring basis.

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE G – DISTRIBUTIONS TO PARENT - TPCGLLC


Distribution Date	Amount
December 30, 2010	$	61.4
March 4, 2011		5.0
March 14, 2011		63.6

	$	130.0

No distributions were made by TPCGLLC to TPCGI in the three months ended March 31, 2012.

NOTE H – PURCHASE OF SHARES - TPCGI

On March 3, 2011, TPCGI announced that its Board of Directors approved a stock repurchase program for up to $30.0 million of TPCGI’s common stock. Purchases of common stock under the program have been and will be executed periodically in the open market or in privately negotiated transactions in accordance with applicable securities laws. The stock repurchase program does not obligate TPCGI to repurchase any dollar amount or number of shares of common stock, does not have an expiration date and may be limited or terminated at any time by TPCGI’s Board of Directors without prior notice. During the first quarter of 2011, TPCGI purchased 282,532 shares under the program in the open market at an average of $27.59 per share, for a total of $7.8 million. There were no purchases under the program during the first quarter of 2012. Total shares purchased through March 31, 2012, under the $30 million program are 634,791 shares at an average of $25.33 per share, for a total of $16.1 million. As of March 31, 2012, the remaining amount available for stock purchases under the program was $13.9 million. Subsequent to March 31, 2012 and through the filing date of this Form 10-Q, there have been no additional shares purchased. The shares purchased were immediately retired and any additional shares to be purchased under the program will be retired immediately. Any future purchases will depend on many factors, including the market price of the shares, our business and financial position and general economic and market conditions.

NOTE I – EARNINGS PER SHARE - TPCGI

Basic income per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted income per share reflects potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company, subject to anti-dilution limitations.

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Basic and diluted earnings per share were computed for the periods presented as follows (in thousands, except per share amounts):


	Three Months Ended March 31,
	2012		2011
Basic earnings per share:
Net income available to common shareholders	$	17,954	$	11,409

Average common shares outstanding		15,648		16,202

Basic earnings per share	$	1.15	$	0.70

Diluted earnings per share:
Net income available to common shareholders	$	17,954	$	11,409

Average common shares outstanding		15,648		16,202
Add: common stock equivalents:
Stock options and restricted stock		106		94

Diluted average common shares outstanding		15,754		16,296

Diluted earnings per share	$	1.14	$	0.70

Anti-dilutive stock options not included in the treasury stock method		—		—

Average grant price of stock options not included in the treasury stock method	$	—	$	—

NOTE J – INCOME TAXES

The effective income tax rate for TPCGI for the three months ended March 31, 2012 and 2011 was 33.3%. TPCGLLC’s effective income tax rates for the three months ended March 31, 2012 and 2011 were 33.3% and 33.0%, respectively. The effective rates for the three months ended March 31, 2012 and 2011 were based on the projected effective rates for the years ending December 31, 2012 and 2011, respectively, which reflected the federal statutory tax rate of 35%, adjusted for the impact of projected permanent differences and state income taxes.

NOTE K – COMMITMENTS AND CONTINGENCIES

Legal Matters

From time to time, we are party to routine litigation incidental to the normal course of our business, consisting primarily of claims for personal injury or exposure to our chemical products or feedstocks, and environmental matters. We intend to defend these actions vigorously and believe, based on currently available information, that adverse results or judgments from such actions, if any, will not be material to our financial condition, results of operations or cash flows. We record reserves for contingencies when information available indicates that a loss is probable and the amount of the loss is reasonably estimable. Management’s judgment may prove materially inaccurate, and such judgment is subject to the uncertainty of litigation. Many of the personal injury or product exposure lawsuits to which we are a party are covered by insurance and are being defended by our insurance carriers. To the extent that we are named in any legal proceedings relating to the assets acquired from Huntsman Petrochemical Corporation and Huntsman Fuels, LP (collectively, “Huntsman”) on June 27, 2006 where the alleged events giving rise to the proceeding occurred prior to our ownership of the assets, we should be indemnified in such proceedings by Huntsman, subject to specified terms and limitations contained in the Purchase and Sales Agreement with Huntsman.

Our contractual arrangements with our customers and suppliers are typically very complicated and can include, for example, complex index based pricing formulas that determine the price for our feedstocks or finished products. Due to the complicated nature of our contractual arrangements, we can, from time to time, be involved in disputes with our customers and suppliers regarding the interpretation of these contracts, including the index-based pricing formulas. These disputes occur in the normal course of our business, seldom result in actual formal litigation, and are typically resolved in the context of the broader commercial relationship that we have with the customer or supplier. As described above, we record reserves for contingencies when information available indicates that a loss is probable and the amount of the loss is reasonably estimable. Management’s judgment may prove materially inaccurate, and such judgment is subject to the uncertainty of the dispute resolution or litigation process. As of March 31, 2012, we had not recognized any reserves related to unresolved disputes with customers and suppliers as there were no outstanding disputes.

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Environmental and Safety Matters

We are subject to extensive federal, state, local and foreign environmental laws, regulations, rules and ordinances. These include, for example:

•

the federal Resource Conservation and Recovery Act (“RCRA”) and comparable state laws that impose requirements for the generation, handling, transportation, treatment, storage, disposal and cleanup of waste from our facilities;

•

the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) also known as “Superfund,” and comparable state laws that regulate the cleanup of hazardous substances that may have been released at properties currently or previously owned or operated by us or locations to which we have sent waste for disposal;

•

the federal Clean Water Act (“CWA”) and analogous state laws and regulations that impose detailed permit requirements and strict controls on discharges of waste water from our facilities; and

•

the federal Clean Air Act (“CAA”) and comparable state laws and regulations that impose obligations related to air emissions, including federal and state laws and regulations that recently took effect or are currently under development to address greenhouse gas (“GHG”) emissions.

In the ordinary course of business, we undertake frequent environmental inspections and monitoring and are subject to investigations by governmental enforcement authorities. In addition, our production facilities require a number of environmental permits and authorizations that are subject to renewal, modification and, in certain circumstances, revocation. Actual or alleged violations of environmental laws or permit requirements or the discovery of releases of hazardous substances at or from our facilities could result in restrictions or prohibitions on plant operations, significant remedial expenditures, substantial civil or criminal sanctions, as well as, under some environmental laws, the assessment of strict and/or joint and several liabilities. Moreover, changes in environmental regulations or the terms of our environmental permits could inhibit or interrupt our operations, or require us to modify our facilities or operations. Accordingly, environmental or regulatory matters may cause us to incur significant unanticipated losses, costs or liabilities.

We are committed to maintaining compliance with applicable environmental, health, safety (including process safety) and security (“EHS&S”) legal requirements, and we have developed policies and management systems intended to identify the various EHS&S legal requirements applicable to our operations and facilities. We endeavor to enhance and assure compliance with applicable requirements, ensure the safety of our employees, contractors, community neighbors and customers, and minimize the generation of wastes, the emission of air contaminants and the discharge of pollutants. These EHS&S management systems also serve to foster efficiency and improvement and to reduce operating risks.

The following is a summary of some of the existing laws, rules and regulations to which our business operations are subject.

Waste Management. The federal RCRA and comparable state statutes, laws and regulations regulate the generation, handling, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous solid wastes. In the course of our operations, we generate industrial wastes that are regulated as hazardous wastes.

Comprehensive Environmental Response, Compensation, and Liability Act. The federal CERCLA and comparable state statutes, laws and regulations impose joint and several liability, without regard to fault or legality of conduct, on classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the current and past owner or operator of the site where the release occurred, and anyone who disposed or arranged for the disposal of a hazardous substance released at the site. Under CERCLA and comparable statutes, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources, and for the costs of certain environmental studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.

Although we believe that we have utilized operating and waste disposal practices that were standard in the industry at the time, hazardous substances, wastes or hydrocarbons may have been released on or under the properties owned or operated by us, or on or under other locations, including off-site locations, where such substances have been taken for disposal. These properties and the substances disposed or released on them may be subject to CERCLA, RCRA, and analogous state laws. Under such laws, we could be liable for damages and could be required to remove previously disposed substances and wastes, or remediate contaminated property to prevent future contamination.

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

To the extent that liabilities arise from operations or events relating to our Port Neches facility that occurred prior to our ownership of the facility, we will generally be entitled to be indemnified by Huntsman for eight years after the June 2006 closing, subject to the terms and limitations of the indemnity provisions contained in the Purchase and Sale Agreement with Huntsman. We can provide no assurance, however, that all of such matters will be covered by the indemnity, that the indemnifying party will honor its obligations, or that the existing indemnities will be sufficient to cover the liabilities for such matters.

Water Discharges. The federal CWA and comparable state statutes, laws, and regulations impose restrictions and strict controls with respect to the discharge of pollutants in waste water and storm water, including spills and leaks of oil and other substances, into regulated waters. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the United States Environmental Protection Agency (the “EPA”) or an analogous state agency. Spill prevention, control and countermeasure requirements may require appropriate containment berms and similar structures to help prevent the contamination of regulated waters in the event of a petroleum hydrocarbon tank spill, rupture or leak. Regulatory agencies can also impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations.

Air Emissions. The federal CAA and comparable state statutes, laws and regulations regulate emissions of various air pollutants or contaminants through air emissions permitting programs and the imposition of other requirements. Such laws and regulations may require a facility to obtain pre-approval for the construction or modification of projects or facilities expected to emit air contaminants or result in the increase of existing emissions of air contaminants, and to obtain and strictly comply with air permits containing various emissions limitations and operational requirements, including the utilization of specific emission control technologies to limit emissions of particular pollutants. In addition, the EPA and state regulatory agencies have developed, and continue to develop, stringent regulations governing emissions of air contaminants at specified sources. Regulatory agencies can also impose administrative, civil and criminal penalties for non-compliance with air permits or other legal requirements regarding air emissions. Depending on the state-specific statutory authority, individual states may be able to impose air emissions limitations that are more stringent than the federal standards imposed by the EPA.

Permits and related compliance obligations under the CAA, as well as changes to state implementation plans for controlling air emissions in regional non-attainment areas, including the Houston-Galveston-Brazoria ozone non-attainment area, may require our operations to incur future capital expenditures in connection with the addition or modification of existing air emission control equipment and strategies. For example, as part of our efforts to comply with rule changes related to the emissions of nitrogen oxides (“NOx”) from our facilities, we installed two new, low-NOx boilers at each of our Houston and Port Neches facilities in fiscal 2006 through 2008, for a total capital investment of approximately $40 million. Failure to comply with these emission control requirements could subject us to monetary penalties, injunctions, conditions or restrictions on operations and enforcement actions. Our facilities may also be required to incur certain material capital expenditures in the future for air pollution control equipment in connection with obtaining and maintaining operating permits and approvals for air emissions.

In 2011, the EPA adopted new rules establishing new Maximum Achievable Control Technology (MACT) requirements for industrial boilers that are major sources of air pollutants, as well as new rules regulating emissions of air pollutants from commercial and industrial solid waste incineration (CISWI) units. The EPA also adopted new rules regarding how it defines “solid waste” for purposes of determining whether the combustion of certain materials, such as a waste gas stream at an industrial plant, is regulated under the MACT standard or as a CISWI unit. While the EPA has announced that it is reconsidering certain portions of these 2011 rules, the new rules could establish new control requirements for our operations and affect our operating costs.

Legislative and regulatory measures to address concerns that emissions of carbon dioxide, methane and other certain gases—commonly referred to as GHGs, may be contributing to warming of the Earth’s atmosphere are in various phases of discussions or implementation at the international, national, regional and state levels. The petrochemical industry is a direct source of certain GHG emissions, namely carbon dioxide, and future restrictions on such emissions could impact our future operations. In the United States, federal legislation imposing restrictions on GHG is under consideration. In addition, the EPA has promulgated a series of rulemakings and other actions intended to result in the regulation of GHGs as pollutants under the CAA. In April 2010, the EPA promulgated final motor vehicle GHG emission standards, which apply to vehicle model years 2012-2016. The EPA has taken the position that the motor vehicle GHG emission standards triggered CAA permitting requirements for certain affected stationary sources of GHG emissions beginning on January 2, 2011. In May 2010, the EPA finalized the Prevention of Significant Deterioration and Title V GHG Tailoring Rule, which phased in federal new source review and Title V permitting requirements for certain affected stationary sources of GHG emissions, beginning on January 2, 2011. For sources located in Texas, EPA has taken over the role of Prevention of Significant

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Deterioration permitting authority for GHGs under the terms of a Federal Implementation Plan (FIP). The addition of a separate, federal permitting authority for Texas sources alters the customary process for acquiring Prevention of Significant Deterioration permits in Texas and adds uncertainty to the permitting process. These EPA rulemakings could affect our operations and ability to obtain air permits for new or modified facilities.

Furthermore, in 2010, EPA regulations became effective that require monitoring and reporting of GHG emissions on an annual basis, including extensive GHG monitoring and reporting requirements. Following a six-month extension issued by the EPA, the first emissions reports required under the new rule were due on or before September 30, 2011 and we timely submitted such reports accordingly. Although this new rule does not control GHG emission levels from any facilities, it will cause us to incur monitoring and reporting costs.

Lastly, third party lawsuits have been filed against the EPA seeking to require individual companies to reduce GHG emissions from their operations or to recover damages allegedly resulting from those emissions. These and other lawsuits relating to GHG emissions may result in decisions by state and federal courts or regulatory agencies that could impact our operations and ability to obtain certifications and permits to construct future projects.

Passage of climate change legislation or other federal or state legislative or regulatory initiatives that regulate or restrict GHG emissions in areas in which we conduct business could adversely affect the demand for our products, and depending on the particular program adopted, could increase the costs of our operations, including costs to operate and maintain our facilities, to install new emission controls on our facilities, to acquire allowances to authorize our GHG emissions, to pay any taxes related to our GHG emissions and/or to administer and manage a GHG emissions program. At this time, it is not possible to accurately estimate how laws or regulations addressing GHG emissions would impact our business, but we do not believe that the impact on us will be any more burdensome to us than to any other similarly situated companies.

Our business also could be negatively affected by physical changes in weather patterns. A loss of coastline in the vicinity of our facilities, which are located near the Gulf of Mexico, or an increase in severe weather patterns, could result in damages to or loss of our physical assets and/or a disruption of our supply and distribution channels. Changes of this nature could have a material adverse impact on our business. At this time, it is not possible to accurately project the effects of any such indirect impacts.

In addition to potential direct impacts on us, climate change legislation or regulation and/or physical changes or changes in weather patterns could affect entities that provide goods and services to us and indirectly have an adverse effect on our business as a result of increases in costs or availability of such goods and services. At this time it is not possible to accurately project the effects of any such indirect impacts.

In addition to the requirements imposed upon us by law, we also enter into other agreements from time to time with state and local environmental agencies either to avoid the risks of potential regulatory action against us or to implement improvements that exceed current legal requirements. To that end, in January 2009, we signed an Agreed Corrective Action Order (“ACAO”) with the Texas Commission on Environmental Quality (“TCEQ”) that will require us to reduce our emissions of butadiene and other volatile organic compounds at our Houston facility:

•

The ACAO was approved by the TCEQ Commissioners in April 2009 following a public agenda hearing. The ACAO obligates us to undertake a five-year, $20 million incremental spending program on projects designed to enhance environmental performance that would not normally have been done as part of routine maintenance at our Houston facility. We expect to implement the required measures and incur the incremental spending through a combination of (a) increases in our annual maintenance and capital expenditures throughout the five-year period and (b) additional expenditures in connection with our regularly scheduled turnarounds (typically occurring every three to four years). We expect to fund the incremental expenditures from our operations and/or from borrowings under the Revolving Credit Facility and do not expect the expenditures to have a material impact on our operations or liquidity. As of November 2011, our expenditures on enhanced environmental performance projects in satisfaction of our obligation under the ACAO totaled approximately $7.8 million. We are currently in negotiation with the TCEQ for inclusion of additional project spending towards the obligation. In the ACAO, we also commit to reduce emissions of volatile organic compounds from discrete emissions events at our Houston facility on a rolling twelve-month basis by more than thirty-five percent of annual pre-ACAO levels. We are currently in compliance with all requirements in the ACAO.

Chemical Product Safety Regulation. The products we make are subject to laws and regulations governing chemical product safety, including the federal Toxic Substances Control Act (“TSCA”) and chemical product safety laws in jurisdictions outside the United States where our products are distributed. The goal of TSCA is to prevent unreasonable risks of injury to health or the

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

environment associated with the manufacture, processing, distribution in commerce, use or disposal of chemical substances. Under TSCA, the EPA has established reporting, record-keeping, testing and control-related requirements for new and existing chemicals with which we must comply. In September 2009, the EPA initiated a comprehensive approach to enhance the management of chemicals under TSCA and announced principles for strengthening U.S. chemical management laws. Changes in chemicals management regulations or laws could impose additional regulatory burdens and costs on us and others in the industry. In December 2006, the European Union adopted a new regulatory framework concerning the Registration, Evaluation and Authorization of Chemicals (known as REACH), which became effective on June 1, 2007. One of its main objectives is the protection of human health and the environment. REACH requires manufacturers and importers to gather information on the properties of their substances that meet certain volume or toxicological criteria and register the information in a central database to be maintained by the European Chemical Agency in Finland. REACH also contains a mechanism for the progressive substitution of the most dangerous chemicals when suitable alternatives have been identified. We met the deadline of December 1, 2008 for the pre-registration of those chemicals manufactured in, or imported into, the European Economic Area in quantities of one metric ton or more that were not otherwise exempted. Complete registrations containing extensive data on the characteristics of the chemicals will be required in three phases, depending on production usage or tonnage imported per year, and the toxicological criteria of the chemicals. The first registrations were required in 2010; subsequent registrations are due in 2013 and 2018. We registered five chemicals in 2010 to meet our initial obligations under REACH. The toxicological criteria considered for registration determinations are carcinogenicity, mutagenicity, reproductive toxicity (category 1 and 2), and aquatic toxicity. Beginning June 1, 2011, companies were required to notify the European Chemicals Agency of products containing above 0.1 percent of substances of very high concern on the candidate list for authorization. None of our products contain substances of very high concern on the candidate list for authorization, and therefore we were not required to report for this deadline. By June 1, 2013, the European Commission will review whether substances with endocrine disruptive properties should be authorized if safer alternatives exist. By June 1, 2019, the European Commission will determine whether to extend the duty to warn from substances of very high concern to those that could be dangerous or unpleasant. We do not expect that the costs to comply with current chemical product safety requirements or REACH will be material to our financial condition, results of operations or cash flows. It is possible that other regions in which we operate could follow the European Union approach and adopt more stringent chemical product safety requirements.

Health and Safety Regulation. We are subject to the requirements of the federal Occupational Safety and Health Act and comparable state statutes, laws and regulations. These laws and the implementing regulations strictly govern the protection of the health and safety of employees. Failure to comply with these requirements could subject us to monetary penalties, injunction and enforcement actions. The Occupational Safety and Health Administration’s (“OSHA”) hazard communication standard, the EPA’s community right-to-know regulations under Title III of CERCLA and similar state laws require that we organize and/or disclose information about hazardous materials used or produced in our operations.

Our operations are also subject to standards designed to ensure the safety of our processes, including OSHA’s Process Safety Management standard. The Process Safety Management standard imposes requirements on regulated entities relating to the management of hazards associated with highly hazardous chemicals. Such requirements include conducting process hazard analyses for processes involving highly hazardous chemicals, developing detailed written operating procedures, including procedures for managing change, and evaluating the mechanical integrity of critical equipment. As a result of a process safety audit of our Houston plant conducted by OSHA’s local office under its process safety Regional Emphasis Program, we entered into a compliance agreement on October 6, 2007 with OSHA, which agreement required us to implement certain corrective actions on a three-year timetable through June 2010. We met all of the abatement and corrective action requirements in compliance with the deadlines in the compliance agreement. In addition, we expect to incur capital expenditures in the future as part of our ongoing baseline capital expenditure program to address the findings of the ongoing process hazard assessments, including expenditures to upgrade equipment and instrumentation at our Houston and Port Neches plants.

Security Regulation. We are subject to the requirements of the United States Department of Homeland Security’s Chemical Facility Anti-Terrorism Standard (CFATS) at our Baytown facility and the Marine Transportation Security Act (“MTSA”) at our Houston, Port Neches, and Lake Charles facilities. These requirements establish minimum standards for security at chemical facilities and marine-based chemical facilities, respectively. For our facilities at Houston and Lake Charles that were subject to the requirements of the MTSA, we are implementing modifications through Federal Emergency Management Agency (FEMA) federal grant programs that cover various percentages of the upgrades ranging from 50 to 100 percent. The Port Neches facility has applied for funding for similar facility improvements and approval is pending. For the Baytown facility, the site security plan is under review by the Department of Homeland Security.

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE L – DEFINED BENEFIT PENSION PLAN

For the periods presented, periodic pension expense consisted of the following components (in thousands):


	Three Months Ended March 31,
	2012			2011
Components of net periodic pension cost:
Service cost	$	248		$	270
Interest cost		74			67
Expected return on assets		(95	)		(79	)
Amortization of actuarial loss		11			—

	$	238		$	258

NOTE M – SEGMENT INFORMATION

We manage our business as two operating segments based on the products we offer and the markets we serve. Our organizational structure is designed to most effectively manage our business segments and service the needs of our customers. Our operating segments are the C4 Processing business and the Performance Products business.

In the C4 Processing segment, we process the crude C4 stream into several higher value components, namely butadiene, butene-1, raffinates and MTBE. In our Performance Products segment, we produce high purity isobutylene and process isobutylene to produce higher value derivative products, such as polyisobutylene and diisobutylene. We also process propylene into nonene, tetramer, and other associated by-products.

We produce steam and electricity for our own use at our Houston facility and we sell a portion of our steam production as well as excess electricity. The revenues and expenses related to sale of steam and electricity are not significant and are included in the C4 Processing segment.

The primary products produced in our C4 Processing segment and their primary uses are as follows:

Butadiene—primarily used to produce synthetic rubber that is mainly used in tires and other automotive products;

Butene-1—primarily used in the manufacture of plastic resins and synthetic alcohols;

Raffinates—primarily used in the manufacturing of alkylate, a component of premium unleaded gasoline; and

Methyl Tertiary Butyl Ether (“MTBE”)—primarily used as a gasoline blending stock.

The primary products produced in our Performance Products segment and their primary uses are as follows:

High purity isobutylene (“HPIB”)—primarily used in the production of synthetic rubber, lubricant additives, surfactants and coatings;

Conventional polyisobutylenes (“PIB”) and highly reactive polyisobutylenes (“HR-PIB”)—primarily used in the production of fuel and lubricant additives, caulks, adhesives, sealants and packaging;

Diisobutylene—primarily used in the manufacture of surfactants, plasticizers and resins; and

Nonene and tetramer—primarily used in the production of plasticizers, surfactants, and lubricant additives.

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Reportable Segments

The following table provides unaudited revenues, cost of sales, operating expenses and depreciation and amortization by reportable segment for the periods presented (amounts in thousands). The amount of revenues, cost of sales, operating expenses and depreciation and amortization are the same for both TPCGI and TPCGLLC.

Financial results by operating segment for the periods presented were as follows (in thousands):


	Three Months Ended March 31,
	2012		2011
Revenues:
C4 Processing	$	500,881	$	434,320
Performance Products		105,233		121,271

	$	606,114	$	555,591

Cost of sales (1):
C4 Processing	$	431,462	$	376,320
Performance Products		85,578		99,625

	$	517,040	$	475,945

Operating expenses (1):
C4 Processing	$	25,510	$	27,428
Performance Products		10,213		10,068

	$	35,723	$	37,496

Depreciation and amortization:
C4 Processing	$	4,564	$	4,561
Performance Products		2,588		2,577
Corporate		353		378
Unallocated		2,744		2,502

	$	10,249	$	10,018

Operating segment earnings
C4 Processing	$	39,345	$	26,011
Performance Products		6,854		9,001

	$	46,199	$	35,012

(1)	Does not include depreciation and amortization expense.

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Reconciliation of operating segment earnings to net income

We define operating segment earnings as revenues less cost of sales, operating expenses and segment depreciation and amortization. Depreciation and amortization on certain assets cannot be reasonably allocated among the segments and are shown separately. The following table provides a reconciliation of operating segment earnings to net income for the periods presented (in thousands):


	Three Months Ended March 31,
	2012			2011
Operating segment earnings	$	46,199		$	35,012
Unallocated and corporate depreciation and amortization		(3,097	)		(2,880	)
General and administrative expenses		(8,366	)		(7,097	)
Unallocated interest and other, net		(7,821	)		(7,939	)
Unallocated income tax expense		(8,961	)		(5,687	)

Net income	$	17,954		$	11,409

Segment Assets

Assets by segment are shown below (in thousands). Assets allocated to the operating segments consist primarily of trade accounts receivable, inventories, property, plant and equipment, and intangible assets. Corporate assets primarily include cash, investment in limited partnership and other assets. Unallocated assets consist of plant assets at our Houston facility that benefit both operating segments, but are not part of a specific production unit or process.


	TPCGI				TPCGLLC
	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011
C4 Processing	$	561,117	$	477,515	$	561,117	$	477,515
Performance Products		210,350		204,060		210,350		204,060
Corporate		157,425		152,402		74,421		69,541
Unallocated		132,318		135,723		132,318		135,723

	$	1,061,210	$	969,700	$	978,206	$	886,839

The difference in the corporate assets of TPCGI and TPCGLLC consists nearly 100% of cash.

Intersegment Sales

Inter-segment product transfers from the C4 Processing segment to the Performance Products segment are not significant and, as such, are not reported as inter-segment revenues.

Geographic Areas

We do not conduct operations or have long-lived assets in countries other than the United States.

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE N – SUBSEQUENT EVENTS

We evaluated subsequent events through the date the financial statements were issued and determined that there were no events which should be disclosed or recognized in the financial statements.

NOTE O – SUPPLEMENTAL GUARANTOR INFORMATION

Under the Indenture governing the Notes, the Notes are fully and unconditionally and jointly and severally guaranteed (the “Guarantees”) initially by all of TPCGLLC’s material domestic subsidiaries. Each of the subsidiary guarantors is 100% owned by TPCGLLC, and there are no subsidiaries of TPCGLLC other than the subsidiary guarantors. TPCGLLC is a wholly owned subsidiary of TPCGI. TPCGLLC provided 100% of TPCGI’s total consolidated revenue for the three months ended March 31, 2012 and 2011 and nearly 100% of TPCGI’s total consolidated noncash asset base as of March 31, 2012 and December 31, 2011. TPCGI and its only other direct wholly owned subsidiary, Texas Petrochemicals Netherlands B.V., are neither issuers nor guarantors of the Notes. Condensed consolidating financial information with respect to the guarantors is presented below. There are no significant restrictions on the ability of TPCGLLC or any subsidiary guarantor to obtain funds from its subsidiaries by dividend or loan.

The following tables set forth condensed consolidating balance sheets as of March 31, 2012 and December 31, 2011, and condensed consolidating statements of operations and statements of cash flows for three months ended March 31, 2012 and 2011. The accompanying consolidating financial information includes the accounts of TPCGI and TPCGLLC (the “Issuer”), and the combined accounts of all guarantor subsidiaries. In the opinion of management, separate complete financial statements of guarantor subsidiaries would not provide additional information that would be material for investors to evaluate the sufficiency of the Guarantees.

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEETS

March 31, 2012

(In thousands)


	TPCGLLC		Guarantor Subsidiaries			Eliminations			TPCGLLC Consolidated		TPCGI			Eliminations			TPCGI Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	25,513	$	1		$	—		$	25,514	$	83,844		$	—		$	109,358
Trade accounts receivable		247,752		—			—			247,752		—			—			247,752
Due from parent		1,214		(374	)		—			840		(840	)		—			—
Inventories		133,481		—			—			133,481		—			—			133,481
Other current assets		31,656		—			—			31,656		—			—			31,656

Total current assets		439,616		(373	)		—			439,243		83,004			—			522,247
Property, plant and equipment, net		494,071		1,348			—			495,419		—			—			495,419
Investment in limited partnership		2,671		—			—			2,671		—			—			2,671
Intangible assets, net		5,898		—			—			5,898		—			—			5,898
Investment in subsidiaries		950		—			(950	)		—		224,258			(224,258	)		—
Other assets		34,975		—			—			34,975		—			—			34,975

Total assets	$	978,181	$	975		$	(950	)	$	978,206	$	307,262		$	(224,258	)	$	1,061,210

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	239,064	$	—		$	—		$	239,064	$	36		$	—		$	239,100
Accrued liabilities		37,369		25			—			37,394		45			—			37,439

Total current liabilities		276,433		25			—			276,458		81			—			276,539
Long-term debt		348,109		—			—			348,109		—			—			348,109
Deferred income taxes		129,381		—			—			129,381		—			—			129,381

Total liabilities		753,923		25			—			753,948		81			—			754,029

Commitments and contingencies
Equity		224,258		950			(950	)		224,258		307,181			(224,258	)		307,181

Total liabilities and equity	$	978,181	$	975		$	(950	)	$	978,206	$	307,262		$	(224,258	)	$	1,061,210

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEETS

December 31, 2011

(In thousands)


	TPCGLLC		Guarantor Subsidiaries		Eliminations			TPCGLLC Consolidated		TPCGI			Eliminations			TPCGI Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	23,861	$	1	$	—		$	23,862	$	83,710		$	—		$	107,572
Trade accounts receivable		210,810		—		—			210,810		—			—			210,810
Due from parent		792		57		—			849		(849	)		—			—
Inventories		79,334		—		—			79,334		—			—			79,334
Other current assets		32,157		—		—			32,157		—			—			32,157

Total current assets		346,954		58		—			347,012		82,861			—			429,873
Property, plant and equipment, net		494,878		902		—			495,780		—			—			495,780
Investment in limited partnership		2,571		—		—			2,571		—			—			2,571
Intangible assets, net		5,909		—		—			5,909		—			—			5,909
Investment in subsidiaries		960		—		(960	)		—		205,580			(205,580	)		—
Other assets		35,567		—		—			35,567		—			—			35,567

Total assets	$	886,839	$	960	$	(960	)	$	886,839	$	288,441		$	(205,580	)	$	969,700

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	170,047	$	—	$	—		$	170,047	$	37		$	—		$	170,084
Accrued liabilities		33,789		—		—			33,789		35			—			33,824

Total current liabilities		203,836		—		—			203,836		72			—			203,908
Long-term debt		348,042		—		—			348,042		—			—			348,042
Deferred income taxes		129,381		—		—			129,381		—			—			129,381

Total liabilities		681,259		—		—			681,259		72			—			681,331

Commitments and contingencies
Equity		205,580		960		(960	)		205,580		288,369			(205,580	)		288,369

Total liabilities and equity	$	886,839	$	960	$	(960	)	$	886,839	$	288,441		$	(205,580	)	$	969,700

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2012

(In thousands)


	TPCGLLC			Guarantor Subsidiaries			Eliminations			TPCGLLC Consolidated			TPCGI			Eliminations			TPCGI Consolidated
Revenue	$	606,071		$	43		$	—		$	606,114		$	—		$	—		$	606,114
Cost of sales (excludes items listed below)		517,040			—			—			517,040			—			—			517,040
Operating expenses		35,698			25			—			35,723			—			—			35,723
General and administrative expenses		8,366			—			—			8,366			—			—			8,366
Depreciation and amortization		10,220			29			—			10,249			—			—			10,249

Income (loss) from operations		34,747			(11	)		—			34,736			—			—			34,736
Other (income) expense:
Interest expense, net		8,127			—			—			8,127			(44	)		—			8,083
Net loss (income) in consolidated subsidiaries		11			—			(11	)		—			(17,955	)		17,955			—
Other, net		(307	)		—			—			(307	)		45			—			(262	)

Income (loss) before income taxes		26,916			(11	)		11			26,916			17,954			(17,955	)		26,915
Income tax expense		8,961			—			—			8,961			—			—			8,961

Net income (loss)	$	17,955		$	(11	)	$	11		$	17,955		$	17,954		$	(17,955	)	$	17,954

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2011

(In thousands)


	TPCGLLC			Guarantor Subsidiaries			Eliminations			TPCGLLC Consolidated			TPCGI			Eliminations			TPCGI Consolidated
Revenue	$	555,576		$	15		$	—		$	555,591		$	—		$	—		$	555,591
Cost of sales (excludes items listed below)		475,945			—			—			475,945			—			—			475,945
Operating expenses		37,488			8			—			37,496			—			—			37,496
General and administrative expenses		7,097			—			—			7,097			—			—			7,097
Depreciation and amortization		9,999			19			—			10,018			—			—			10,018

Income (loss) from operations		25,047			(12	)		—			25,035			—			—			25,035
Other (income) expense:
Interest expense, net		8,386			—			—			8,386			(9	)		—			8,377
Net loss (income) in consolidated subsidiaries		12			—			(12	)		—			(11,445	)		11,445			—
Other, net		(438	)		—			—			(438	)		—			—			(438	)

Income (loss) before income taxes		17,087			(12	)		12			17,087			11,454			(11,445	)		17,096
Income tax expense		5,642			—			—			5,642			45			—			5,687

Net income (loss)	$	11,445		$	(12	)	$	12		$	11,445		$	11,409		$	(11,445	)	$	11,409

TPC Group Inc. and TPC Group LLC – (Continued)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2012

(In thousands)


	TPCGLLC			Guarantor Subsidiaries		Eliminations		TPCGLLC Consolidated			TPCGI			Eliminations		TPCGI Consolidated
Cash provided by (used in) operating activities	$	11,530		$	—	$	—	$	11,530		$	(15	)	$	—	$	11,515

Cash used in investing activities		(9,878	)		—		—		(9,878	)		—			—		(9,878	)

Cash flows from financing activities:
Exercise of stock options		—			—		—		—			149			—		149

Cash provided by financing activities		—			—		—		—			149			—		149

Increase in cash and cash equivalents		1,652			—		—		1,652			134			—		1,786
Cash and cash equivalents, beginning of period		23,861			1		—		23,862			83,710			—		107,572

Cash and cash equivalents, end of period	$	25,513		$	1	$	—	$	25,514		$	83,844		$	—	$	109,358

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2011

(In thousands)


	TPCGLLC			Guarantor Subsidiaries		Eliminations		TPCGLLC Consolidated			TPCGI			Eliminations		TPCGI Consolidated
Cash used in operating activities	$	(18,035	)	$	—	$	—	$	(18,035	)	$	(1,719	)	$	—	$	(19,754	)

Cash used in investing activities		(8,031	)		—		—		(8,031	)		—			—		(8,031	)

Cash flows from financing activities:
Net proceeds from Revolving Credit Facility borrowings		11,000			—		—		11,000			—			—		11,000
Exercise of stock options		—			—		—		—			471			—		471
Repurchase of common stock		—			—		—		—			(7,802	)		—		(7,802	)
Capital distributions of parent		(68,606	)		—		—		(68,606	)		68,606			—		—

Cash (used in) provided by financing activities		(57,606	)		—		—		(57,606	)		61,275			—		3,669

(Decrease) increase in cash and cash equivalents		(83,672	)		—		—		(83,672	)		59,556			—		(24,116	)
Cash and cash equivalents, beginning of period		83,857			1		—		83,858			1,736			—		85,594

Cash and cash equivalents, end of period	$	185		$	1	$	—	$	186		$	61,292		$	—	$	61,478

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes of TPC Group Inc. (“TPCGI”) and TPC Group LLC (“TPCGLLC”) included in this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and related notes included in TPCGI and TPCGLLC’s combined Annual Report on Form 10-K for the year ended December 31, 2011.

Explanatory Note – TPCGI and TPCGLLC

TPCGLLC is the principal wholly owned subsidiary of TPCGI. TPCGLLC provided 100% of TPCGI’s total consolidated revenue for all periods presented and nearly 100% of TPCGI’s total consolidated noncash asset base as of March 31, 2012 and December 31, 2011. Unless the context indicates otherwise, throughout the following discussion and analysis of our financial condition and results of operations, the terms “the Company”, “we”, “us”, “our” and “ours” are used to refer to both TPCGI and TPCGLLC and their direct and indirect subsidiaries. Any discussions or areas in this report that apply specifically to TPCGI or TPCGLLC are clearly noted as such.

Overview

We manage our business and conduct our activities in two operating segments, our C4 Processing segment and our Performance Products segment. These two operating segments are our reporting segments. In the C4 Processing segment, we process the crude C4 stream into several higher value components, namely butadiene, butene-1, raffinates and MTBE. In our Performance Products segment, we produce high purity isobutylene and we process isobutylene to produce higher value derivative products, such as polyisobutylene and diisobutylene. We also process propylene into nonene, tetramer and associated by-products as a part of our Performance Products segment. We produce steam and electricity for our own use at our Houston facility, and we sell a portion of our steam production as well as excess electricity, which are reported as part of our C4 Processing segment.

The primary drivers of our businesses are general economic and industrial growth. Our results are impacted by the effects of economic upturns or downturns on our customers and our suppliers, as well as on our own costs to produce, sell and deliver our products. Our customers generally use our products in their own production processes; therefore, if our customers curtail production of their products, our results could be materially affected. In particular, our feedstock costs and product prices are susceptible to volatility in pricing and availability of crude oil, natural gas and oil-related products such as unleaded regular gasoline. Prices for these products tend to be volatile as well as cyclical, as a result of global and local economic factors, worldwide political events, weather patterns and the economics of oil and natural gas exploration and production, among other things.

Material Industry Trends

We receive most of our crude C4 from steam crackers, which are designed to process naphtha and natural gas liquids (NGLs) as feedstocks for ethylene production. Crude C4 is a byproduct of the ethylene production process, and the volume of crude C4 produced by the process is driven by both the volume of ethylene produced and the composition of the steam cracker feedstock. Some major ethylene producers have the flexibility to shift from light feedstocks, such as NGLs, to heavier feedstocks, such as naphtha, or vice versa depending on the economics of the feedstock. When ethylene producers process heavier feedstock, greater volumes of crude C4 are produced. However, when light feedstocks are inexpensive relative to heavy feedstocks, the producers may choose to process those light feedstocks instead, a process referred to as “light cracking,” which results in lower volumes of crude C4 production. Throughout 2011 and the first quarter of 2012, NGL prices remained attractive relative to naphtha; consequently, light cracking was prevalent and crude C4 supply was reduced over the same period, which had a negative impact on our C4 Processing segment production and sales volumes. We anticipate that the relatively high cost of crude oil compared to the cost of natural gas that we have seen over the past four to five years will continue, especially in light of the abundance of shale natural gas being discovered and developed in the U.S., and will drive continuation of light cracking well into the future. In addition to the impact of light cracking, crude C4 supply in the first quarter of 2012 was further reduced by an abnormally high concentration of planned steam cracker maintenance outages, a condition which we expect to persist through the second quarter of 2012.

The favorable market conditions for our products that existed throughout 2010 and through the first nine months of 2011 weakened significantly during the fourth quarter of 2011 as a result of weakening global economic conditions. The deterioration in market conditions for our products during the fourth quarter of 2011 was driven by global economic uncertainty, related in part to the European debt crisis, and a substantial reduction in customer orders as customers reduced their inventory levels in response to a more curtailed short-term economic outlook and lower end-use demand for their products. During the first quarter of 2012, butadiene demand strengthened sequentially in relation to the significant softening in demand in the fourth quarter of 2011, while supply conditions tightened, due in large part to supply shortages resulting from the abnormally high concentration of ethylene plant maintenance outages that limited crude C4 availability. In addition to the negative impact on butadiene production and sales volumes during the first quarter of 2012, the ethylene plant outages also significantly limited production and sales volumes across the entire C4 Processing segment portfolio as well as one product line within the Performance Products segment.

Outlook

We anticipate the current feedstock restrictions to continue through the end of the second quarter of 2012 as a result of the abnormally high number of planned ethylene plant outages. While end use demand has improved from the fourth quarter of 2011, we are still experiencing weak demand relative to the prior year in several of our core markets, including synthetic rubber. We see the potential for butadiene prices to ease in the near term as the ethylene plant outages come to an end and feedstock supplies recover.

We continue to develop the longer term growth and profit performance of the Company through our strategic growth projects to produce on-purpose butadiene for our strategic customers and to produce isobutylene as a feedstock for our performance products and fuel products businesses. We believe that these projects capitalize on attractive market fundamentals, projected long term shortages in butadiene, idled production assets, and the expected supply of cost-advantaged butane from natural gas liquids.

TPCGI and TPCGLLC Results of Operations

The following table provides unaudited sales volumes, revenues, cost of sales, operating expenses and TPCGI EBITDA (defined below) by reportable segment (amounts in thousands) for the three months ended March 31, 2012 and 2011. The table also provides a reconciliation of TPCGI EBITDA to TPCGI Net Income, the U.S. GAAP measure most directly comparable to EBITDA. Sales volumes, revenues, cost of sales, and operating expenses are the same for both TPCGI and TPCGLLC. Please refer to this information, as well as our unaudited condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q, when reading our discussion and analysis of results of operations below. Revenues, cost of sales, operating expenses and EBITDA in the table below are derived from our unaudited Condensed Consolidated Statements of Operations and Comprehensive Income. There are no significant differences in miscellaneous corporate expenses between TPCGLLC and TPCGI, discussed in note 4 to the table below.

EBITDA is not a measure computed in accordance with generally accepted accounting principles in the United States (“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 is presented and discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations because management believes it enhances 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 assists 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 a presentation of EBITDA on a segment and consolidated basis enhances overall understanding of our performance by providing a higher degree of transparency for such items and providing a level of disclosure that helps investors understand how management plans, measures and evaluates our financial performance and allocates capital. Since EBITDA is not a measure computed in accordance with GAAP, it is not intended to be presented herein as a substitute to operating income or net income as indicators of the Company’s financial performance. EBITDA is the primary performance measurement used by our senior management and TPCGI’s Board of Directors to evaluate financial results and to allocate capital resources between our business segments.

We calculate EBITDA as earnings before interest, taxes, depreciation and amortization. In certain periods, we have reported EBITDA adjusted to remove or add back items that management believed distorted comparability between periods (Adjusted EBITDA). As shown below in the reconciliation of TPCGI EBITDA to TPCGI Net Income, the GAAP measure most directly comparable to EBITDA, there were no such adjustments to EBITDA for any of the periods presented. However, there may be adjustments to EBITDA in future periods for items we believe distort comparability and such items will be clearly presented and explained.


	Three Months Ended March 31,
	2012			2011
Sales volumes (lbs) (1):
C4 Processing		504,436			581,209
Performance Products		129,328			169,528

		633,764			750,737

Revenues:
C4 Processing	$	500,881		$	434,320
Performance Products		105,233			121,271

	$	606,114		$	555,591

Cost of sales (2):
C4 Processing	$	431,462		$	376,320
Performance Products		85,578			99,625

	$	517,040		$	475,945

Operating expenses (2):
C4 Processing	$	25,510		$	27,428
Performance Products		10,213			10,068

	$	35,723		$	37,496

TPCGI EBITDA (3):
C4 Processing (4)	$	43,908		$	30,572
Performance Products (4)		9,443			11,578
Corporate (4)		(8,104	)		(6,659	)

	$	45,247		$	35,491

(1)	Sales volumes represent product sales volumes only and do not include volumes of products delivered under tolling or similar arrangements, in which we do not purchase the raw materials, but process raw materials for another party for a specified fee.

(2)	Does not include depreciation and amortization expense.

(3)	See above for a discussion of EBITDA and see below for reconciliations of TPCGI EBITDA to TPCGI Net Income for the periods presented. Net Income is the most directly comparable GAAP measure reported in the Condensed Consolidated Statements of Operations and Comprehensive Income.

(4)	EBITDA for the C4 Processing and Performance Products operating segments was the same for TPCGI and TPCGLLC for all periods presented. Total TPCGI EBITDA differs slightly from total TPCGLLC EBITDA due to minor differences in miscellaneous corporate expenses.

The following table provides a reconciliation of TPCGI EBITDA to TPCGI Net Income (in thousands) for the three months ended March 31, 2012 and 2011. Net Income is the most directly comparable GAAP measure reported in the Condensed Consolidated Statements of Operations and Comprehensive Income.


	Three Months Ended March 31,
	2012		2011
TPCGI Net Income	$	17,954	$	11,409
Income tax expense		8,961		5,687
Interest expense, net		8,083		8,377
Depreciation and amortization		10,249		10,018

TPCGI EBITDA	$	45,247	$	35,491

Contractual linkages of raw material costs and selling prices of finished products to commodity indices

The cost of our raw material feedstock purchases is usually determined by application of index-based formulas contained in many of our raw material supply contracts. Through these index-based formulas our raw material costs are linked to commodity market indices (such as indices based on the price of unleaded regular gasoline, butane, isobutane or propylene) or to the selling price of the related finished product. The selling prices for our finished products are also typically determined from index-based formulas contained in many of our sales contracts and, in most cases, the indices used to determine finished product selling prices are the same indices used to determine the cost of the corresponding raw material feedstock. The linkage between the costs of our raw material feedstocks and the selling prices of our finished products to the same indices mitigates, to varying degrees, our exposure to volatility in our material margin percentage (which we define as the difference between average revenue per pound and average raw material cost per pound as a percentage of average revenue per pound).

Butadiene Price Impact

As discussed above, a substantial portion of our product selling prices and raw material costs are linked to the same commodity indices and this linkage mitigates, to varying degrees, our exposure to volatility in our profit margins. However, the stabilizing effect of using matching indices is lessened when we do not purchase the feedstock and sell the finished product in the same period. Regarding butadiene (our largest individual product line based on both sales volume and earnings), the linkage between our raw material cost and finished product selling price is the published contract price for butadiene. As a result of the timing between the purchase of crude C4 in one period and sale of finished butadiene in a later period, unit margins will expand as butadiene pricing trends upward and will contract as butadiene pricing trends downward. For example, we may purchase crude C4 at pricing based on the January butadiene index but sell the finished butadiene at pricing based on the February butadiene index. If the butadiene index for January and February are the same, we would expect to realize substantially the same unit margins regardless of the absolute value of the index. However, if the index increases between January and February, we would realize a temporary margin expansion until pricing stabilizes; and conversely, if the index decreases we would realize a temporary margin contraction. When pricing is stable, our unit margins equal the value of the processing and aggregation services we provide to our customers. Upward trends in the published contract price for butadiene during the three months ended March 31, 2012 and 2011 resulted in corresponding upward trends in our selling prices, raw material costs and unit margins over the same periods. The contract price for butadiene increased 49% during the first quarter of 2012 (from $0.98/lb. in December 2011 to $1.46/lb. in March 2012) and increased 21% during the first quarter of 2011 (from $0.86/lb. in December 2010 to $1.04/lb. in March 2011).

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


	Three Months Ended March 31,
	2012			2011
% increase in butadiene contract price		49	%		21	%
Impact on gross profit	$	17		$	8

The following table summarizes the primary indices which impact our revenues and raw material costs by segment.


Segment / Finished Product	Revenues	Raw Material Costs
C4 Processing Segment
Butadiene	Butadiene	Butadiene
Butene – 1	Unleaded regular gasoline	Unleaded regular gasoline
Raffinates	Unleaded regular gasoline	Unleaded regular gasoline
MTBE	Unleaded regular gasoline	Unleaded regular gasoline

Performance Products Segment
High purity isobutylene	Butane	Unleaded regular gasoline
Diisobutylene	Butane	Butane
Polyisobutylene	Butane	Butane
Nonene	Propylene	Propylene
Tetramer	Propylene	Propylene

The following table summarizes the average index prices for each period presented.


	Three Months Ended March 31,
	2012		2011		% Chg.
Average commodity prices:
Butadiene (cents/lb)(1)		123.8		97.9		26	%
Unleaded regular gasoline (cents/gal)(2)		302.2		261.0		16	%
Butane (cents/gal)(3)		192.6		175.2		10	%
Propylene (cents/lb)(1)		67.2		71.7		-6	%

(1)	Industry pricing was obtained through the Chemical Market Associates, Inc.

(2)	Industry pricing was obtained through Platts.

(3)	Industry pricing was obtained through the Oil Price Information Service.

Three months ended March 31, 2012 versus three months ended March 31, 2011

Revenue, cost of sales, operating expenses, general and administrative expenses, depreciation and amortization and interest expense were the same for TPCGI and TPCGLLC for each period discussed below.

Revenue

Total revenue for the quarter ended March 31, 2012 was $606.1 million, an increase of $50.5 million, or 9%, compared to total revenue of $555.6 million for the prior year quarter. The increase in revenue reflected a 29% increase in the overall average unit selling price, partially offset by a 16% decline in overall sales volume. The higher average unit selling price reflected higher selling prices across our entire product line portfolio due to higher petroleum prices and related commodity market indices to which a substantial portion of our product selling prices (and raw material costs, as discussed above) are linked.

C4 Processing segment revenue of $500.9 million for the first quarter of 2012 was up $66.6 million, or 15%, compared to the first quarter of 2011. The increase was driven by higher selling prices, partially offset by 13% lower sales volume. The higher selling prices reflected the higher commodity indices noted above, while the lower sales volume primarily reflected curtailed production as a result of limited availability of crude C4 feedstock due to an abnormally high concentration of ethylene cracker maintenance outages during the first quarter of 2012. The average unit selling price for the segment was up 33%, which had a positive impact of $105 million, while the 13% decline in sales volume had a negative impact of $38 million. The average contract price for butadiene increased 26% compared to the prior year quarter and average selling prices for butene-1 and our fuel-related products also increased due to a 16% increase in the average price of unleaded regular gasoline. The lower sales volume reflected declines in all product lines due to the curtailed supply of crude C4 feedstock.

Performance Products segment revenue for the first quarter of 2012 was $105.2 million compared to $121.3 million for the prior year quarter, a decrease of $16.1 million, or 13%. The lower revenue reflected the impact of a 24% decrease in sales volume, partially offset by a 14% increase in average unit selling price for the segment. The negative impact of the lower sales volume was $26 million and the positive impact of the higher average unit selling price was $10 million. The higher average unit selling price reflected a 10% increase in the average price of butane, which is a major pricing component of our isobutylene derivative products, partially offset by a slightly lower average price of propylene, which is a major pricing component of our propylene derivative products, as well as favorable sales mix that included lower volume of lower value by-products. The lower sales volume reflected declines in all product lines due primarily to the impact of the curtailed supply of crude C4 feedstock and reduced volume of low value by-products.

Cost of sales

Total cost of sales (which excludes operating expenses and depreciation and amortization) was $517.0 million for the first quarter of 2012 compared to $475.9 million for the first quarter of 2011. The overall $41.1 million, or 9%, increase reflected a 32% increase in average per unit raw material cost, partially offset by the 16% decrease in sales volume.

C4 Processing segment cost of sales was up 15% from $376.3 million in the prior year quarter to $431.5 million in the first quarter of 2012. The $55.2 million increase reflected the impact of a 37% increase in average per unit raw material cost, partially offset by the 13% decline in sales volume. The increase in average per unit raw material cost was driven by increases in the average price for butadiene and unleaded regular gasoline of 26% and 16%, respectively. Cost of sales for the first quarters of 2012 and 2011 included favorable butadiene pricing impacts of $17 million and $8 million, respectively (see discussion of butadiene price impact above). Due to the timing of when we purchase raw material feedstocks and sell finished products, the upward trends in butadiene pricing in both the current and prior year quarters resulted in margin expansion in both periods. C4 Processing segment cost of sales as a percentage of segment revenues was 86% for the first quarter of 2012 compared to 87% for the first quarter of 2011.

Performance Products segment cost of sales was $85.6 million in the first quarter of 2012 compared to $99.6 million in the prior year quarter, which represents a decrease of $14.0 million, or 14%. The decrease reflected the 24% decline in sales volume, partially offset by the effect of 13% increase in average per unit raw material cost. The higher average per unit raw material cost reflected higher raw material costs for all product lines within the segment. High purity isobutylene raw material costs are linked to unleaded regular gasoline prices, which were up 16% over the prior year. Isobutylene derivatives average raw material costs are linked to butane prices, which were up 10%. The average per unit raw material cost for propylene derivatives was higher as well, in spite of lower propylene costs, as a result of a product mix that included reduced volume of lower value by-products. Performance Products segment cost of sales as a percentage of segment revenues was 81% for the first quarter of 2012 compared to 82% for the first quarter of 2011.

The cost of our raw material feedstock purchases is usually determined by application of index-based formulas contained in many of our raw material supply contracts. Through these index-based formulas, our raw material costs are linked to commodity market indices (such as the published contract price for butadiene and indices based on the price of unleaded regular gasoline, butane, isobutane or propylene) or to the selling price of the related finished product. The selling prices for our finished products are also typically determined from index-based formulas contained in many of our sales contracts and, in most cases, the indices used to determine finished product selling prices are the same indices used to determine the cost of the corresponding raw material feedstock. The linkage between the costs of our raw material feedstocks and the selling prices of our finished products to the same indices mitigates, to varying degrees, our exposure to volatility in our material margin percentage (which we define as the difference between average revenue per pound and average raw material cost per pound as a percentage of average revenue per pound). Although these index-based pricing formulas provide relative stability in our material margin percentage over time, it is not perfectly constant due to various factors, including those listed below.

•

We may purchase raw material feedstocks in one period based on market indices for that period, and then sell the related finished products in a later period based on market indices for the later period. Changes in selling prices of finished products, based on changes in the underlying market indices between the period the raw material feedstocks are purchased and the related finished products are sold, lessens the effect of the matching indices and causes variation in our material margin percentage. For example, we may purchase crude C4 at pricing based on the January butadiene index but sell the finished butadiene at pricing based on the February butadiene index. If the butadiene index for January and February are the same, we would expect to realize substantially the same unit margins regardless of the absolute value of the index. However, if the index increases between January and February, we would realize a temporary margin expansion until pricing stabilizes; and conversely, if the index decreases we would realize a temporary margin contraction. The magnitude of the effect on material margin percentage depends on the magnitude of the change in the underlying indices between the period the raw material is purchased and the period the finished product is sold and the quantity of inventory impacted by the change.

•

Although most of our supply and sales contracts contain index-based formulas, varying proportions of our raw material purchases and finished product sales are done on a spot basis or otherwise negotiated terms. In addition, while many of the index-based formulas in our contracts are simply based on a percentage of the relevant index, others apply adjustment factors to the market indices that do not fluctuate with changes in the underlying index. In periods when market indices are high, the use of non-fluctuating adjustment factors tends to reduce the material margin percentage; and conversely, in periods when market indices are low the non-fluctuating adjustment factors tend to increase the material margin percentage.

•

Finished product selling price formulas under some of our sales contracts, primarily in the Performance Products segment, are based on commodity indices not for the period in which the sale occurs but for either a prior or subsequent period. The effect on profit margins of these selling price formulas is diminished during times of relatively stable market indices, but can have a substantial effect during times of rapidly increasing or decreasing market indices, which can impact our material margin percentage.

Increases in almost all of the market indices used in our index-based raw material costs and finished products selling prices for the first quarter of 2012 versus the prior year quarter were the drivers behind the higher overall average selling price and the higher overall average raw material cost noted above. The 29% increase in the average selling price equated to $0.22 per pound and the 32% increase in the average raw material cost also equated to $0.19 per pound, for an improvement in overall average material margin of $0.03 per pound. As a result of the combination of factors noted above, which have an impact on material margin percentage, the material margin percentage for the first quarter of 2012 was 19% compared to 21% for the first quarter of 2011.

Operating expenses

Operating expenses incurred in the first quarter of 2012 were $35.7 million compared to $37.5 million for the prior year quarter. The $1.8 million, or 5%, decrease consisted primarily of lower maintenance expense of $2.3 million, partially offset by higher personnel expense of $0.5 million. The lower maintenance expense reflected a write-off in the prior year quarter of $1.1 million of previously deferred turnaround cost as a result of accelerating the timing of a planned turnaround at the Houston facility.

General and administrative expenses

General and administrative expenses of $8.4 million for the first quarter of 2012 were up $1.3 million compared to the first quarter of 2011 due primarily to higher professional fees.

Depreciation and amortization expense

Depreciation and amortization expense was $10.2 million for the first quarter of 2012 compared to $10.0 million for the prior year quarter. The slightly higher depreciation expense reflected depreciation on projects completed over the past year, none of which were individually significant, partially offset by assets that became fully depreciated over the same period.

Interest expense

Interest expense, consisting primarily of interest on the 8¹/4% Senior Secured Notes (the Notes), for the first quarter of 2012 was $8.1 million, which was down slightly from $8.4 million in the prior year quarter, primarily due to capitalized interest in the current year quarter. No interest was capitalized in the first quarter of 2011.

Interest income

Interest income represents interest on short-term deposits. TPCGI interest income is higher than TPCGLLC interest income in both the current and prior year quarters due to TPCGI’s larger cash balance during each period.

Other, net

Other, net for both TPCGI and TPCGLLC for the first quarter of 2012 consisted primarily of income from our investment in Hollywood/Texas Petrochemicals LP, a joint venture we formed in the 1980’s with Kirby Inland Marine to operate four barges capable of transporting chemicals, which is accounted for under the equity method. The minor difference in other, net expense between TPCGLLC and TPCGI in the first quarter of 2012 was due to TPCGI Delaware franchise tax expense.

Income tax expense

The effective income tax rate for both TPCGI and TPCGLLC for the first quarter of 2012 was 33.3% and for the prior year quarter was 33.3% and 33.0%, respectively. The effective rate for the the first quarter of 2012 and 2011 was based on the projected effective rate for the full years ending December 31. The effective rates for all periods reflected the federal statutory rate of 35%, adjusted for the impact of projected permanent differences and state income taxes. TPCGI’s effective rate was slightly higher than TPCGLLC’s effective rate in the prior year quarter due to Delaware franchise taxes, which are recorded in other, net in the first quarter of 2012.

Net income

Net income for TPCGI in the first quarter of 2012 was $18.0 million compared to $11.4 million in the first quarter of 2011. The primary components of the $6.6 million increase were improved margin between revenue and cost of sales of $9.4 million and lower operating expenses of $1.8 million, partially offset by higher general and administrative expenses of $1.3 million and higher income tax expense of $3.3 million. TPCGLLC’s net income for the current and prior year quarters was slightly different from the TPCGI amounts due to minor differences in miscellaneous corporate expenses and Delaware franchise taxes, recorded in income taxes in the first quarter of 2011, discussed above.

EBITDA

EBITDA for the first quarter of 2012 was $45.2 million compared to $35.5 million for the first quarter of 2011. The $9.7 million, or 27%, improvement reflected a 44% improvement for the C4 Processing segment, partially offset by an 18% decline for the Performance Products segment.

EBITDA for the C4 Processing and Performance Products operating segments were the same for TPCGI and TPCGLLC for each period discussed below. Total TPCGI EBITDA differs slightly from total TPCGLLC EBITDA due to minor differences in miscellaneous corporate expenses. Due to the insignificance of the differences the discussion of total EBITDA and corporate expenses below will be from the TPCGI perspective only.

C4 Processing segment EBITDA was $43.9 million in the current year quarter versus $30.6 million in the prior year quarter. The increase of $13.3 million, or 44%, reflected improved margin between revenue and cost of sales of $11.4 million and lower operating expenses of $1.9 million. The overall margin improvement was driven primarily by a 38% increase in average unit margin, which contributed $16 million, partially offset by the impact of 13% lower volume of $5 million. The average unit margin improvement reflected the positive impact of our service based business model, within which we are striving to realize the value of the logistics and aggregation we provide for both our suppliers and our customers, favorable market conditions for our fuel component products, and a comparatively favorable impact of butadiene price changes of $9 million.

Performance Products segment EBITDA for the first quarter of 2012 was $9.4 million compared to $11.6 million for the first quarter of 2011. The $2.1 million, or 18%, decrease reflected lower margin between revenue and cost of sales of $2.0 million and higher operating expenses of $0.1 million. The impact of higher average unit margin, due primarily to favorable product mix that included reduced volume of low margin by-products, was more than offset by the negative impact of 24% lower sales volume.

Corporate and other expenses consist of general and administrative expenses and other, net discussed above.

Liquidity and Capital Resources

Our financing arrangements consist of the Notes and the $175 million asset based revolving credit facility (the “Revolving Credit Facility”).

The Notes are fully and unconditionally and jointly and severally guaranteed initially by all of TPCGLLC’s material domestic subsidiaries. Each of the subsidiary guarantors is 100% owned by TPCGLLC, and there are no subsidiaries of TPCGLLC other than the subsidiary guarantors. TPCGLLC is a direct wholly owned subsidiary of TPCGI. TPCGI and its only other wholly owned subsidiary, Texas Petrochemicals Netherlands B.V., are neither issuers nor guarantors of the Notes.

At March 31, 2012, we had total debt of $348.1 million and cash on hand of $109.3 million. Debt outstanding consisted entirely of the Notes, as there were no borrowings under our Revolving Credit Facility. As of March 31, 2012, we were in compliance with all covenants set forth in the indenture governing the Notes and the credit agreement governing the Revolving Credit Facility.

Sources and uses of cash

Our primary source of liquidity is cash flow generated from our operating activities, borrowing capacity under the Revolving Credit Facility and the remaining cash proceeds from the Notes. Our primary uses of cash are working capital, capital expenditures, contractual obligations, debt service and stock repurchases or dividends by TPCGI. We expect to have adequate liquidity to fund our liquidity requirements over the foreseeable future. This expectation is based, however, on estimates and assumptions regarding, among other things, our sales volumes, our feedstock purchase volumes, market prices for petrochemicals, capital and credit market conditions, and general industry and economic conditions. If one or more of these factors materially differs from our estimates, we may need to obtain additional financing to conduct our operations, which may not be available on acceptable terms or at all.

Availability under the Revolving Credit Facility is limited to the borrowing base, comprised of 85% of eligible accounts receivable and 65% of eligible inventory, as redetermined monthly. Up to $30 million of the facility may be used for the issuance of letters of credit. The Revolving Credit Facility also includes an accordion feature under which the lenders may agree, upon our request, to increase their commitments to an aggregate amount not to exceed $200 million. The Revolving Credit Facility matures on April 29, 2014. At March 31, 2012, we had the ability to access the full $175.0 million of availability under the Revolving Credit Facility, while still maintaining compliance with the covenants contained therein and in the indenture governing the Notes.

Amounts borrowed under the Revolving Credit Facility bear interest, at our option, at a rate equal to either (a) the Eurodollar Rate (as defined in the credit agreement governing the Revolving Credit Facility) plus 3.00% to 3.75%, or (b) the base rate (as described below) plus 2.00% to 2.75%, in each case depending on the ratio of TPCGLLC’s consolidated debt to consolidated EBITDA (as defined in the credit agreement governing the Revolving Credit Facility), with a lower leverage ratio resulting in lower rates. The base rate equals the highest of (i) the administrative agent’s prime lending rate, (ii) the Federal Funds Rate plus 1/2 of 1%, or (iii) the one-month Eurodollar Rate (as defined in the credit agreement governing the Revolving Credit Facility) plus 1%.

A commitment fee is payable on the unused portion of the Revolving Credit Facility in an amount equal to 0.50% per annum if average availability is less than 50% of the total commitments, or 0.75% per annum if average availability is 50% or more of the total commitments, in each case based on average availability during the previous fiscal quarter.

The Revolving Credit Facility is secured with a first priority lien on TPCGLLC’s cash, accounts receivable, inventory and certain intangibles, and through cross-collateralization with the Notes, a second priority lien on all other assets, including fixed assets. The Revolving Credit Facility is guaranteed by all of the material domestic subsidiaries of TPCGLLC and provides for customary events of default.

The Revolving Credit Facility includes covenants that restrict, subject to specified exceptions, our ability to:

•

create or permit liens on assets;

•

incur additional indebtedness or issue redeemable equity securities;

•

guarantee indebtedness;

•

merge or consolidate with a third party;

•

sell or otherwise dispose of assets;

•

pay dividends or effect stock buy-backs;

•

issue or sell stock of subsidiaries;

•

make loans, investments and acquisitions;

•

enter into transactions with affiliates;

•

change the lines of business in which we are engaged;

•

change our fiscal year;

•

make voluntary prepayments or redemptions of subordinated indebtedness;

•

enter into agreements that limit our subsidiaries’ ability to pay distributions to or enter into transactions with us;

•

maintain cash balances in excess of $15 million without using such excess cash to prepay loans under the Revolving Credit Facility; and

•

enter into receivables financings or securitization programs.

Although the Revolving Credit Facility restricts acquisitions, investments and the payment of dividends, respectively, acquisitions, investments and dividends are permitted, subject to restrictions under other indebtedness, if (a) pro forma current and average 90-day historical availability each exceed the greater of $50 million or 50% of the total commitments, or (b) pro forma projected, current and average 90-day historical availability each exceed the greater of $25 million or 25% of the total commitments and we meet a minimum consolidated fixed charge coverage ratio. Finally, the Revolving Credit Facility requires a minimum consolidated fixed charge coverage ratio should availability be less than the greater of $15 million or 15% of the total commitments. We were in compliance with all covenants of the Revolving Credit Facility as of March 31, 2012.

Distributions to TPCGI from TPCGLLC

A portion of the proceeds of the October 5, 2010 issuance and sale of the Notes, along with cash on hand, was used to fund a $130.0 million distribution by TPCGLLC to TPCGI to be used by TPCGI for dividends, stock repurchases or other returns of capital to its stockholders. The $130.0 million distribution was made in installments of $61.4 million on December 30, 2010, $5.0 million on March 4, 2011 and $63.6 million on March 14, 2011. No distributions occurred in the quarter ended March 31, 2012.

Purchase of Shares under Stock Repurchase Program

On March 3, 2011, TPCGI announced that its Board of Directors approved a stock repurchase program for up to $30.0 million of its common stock. Purchases of common stock under the program have been and will be executed periodically in the open market or in privately negotiated transactions in accordance with applicable securities laws. The stock repurchase program does not obligate TPCGI to repurchase any dollar amount or number of shares of common stock, does not have an expiration date and may be limited or terminated at any time by the Board of Directors without prior notice. During the first quarter of 2011, TPCGI purchased 282,532 shares under the program in the open market at an average of $27.59 per share, for a total of $7.8 million. There were no purchases under the program during the first quarter of 2012. Total shares purchased as of March 31, 2012 under the $30.0 million program were 634,791 shares at an average of $25.33 per share for a total cost of $16.1 million. As of March 31, 2012, the remaining amount available for stock purchases under the program was $13.9 million. Subsequent to March 31, 2012 and through the filing date of this Form 10-Q, there have been no additional shares purchased. The shares purchased were immediately retired and any additional shares to be purchased under the program will be retired immediately. Any future purchases will depend on many factors, including the market price of the shares, our business and financial position and general economic and market conditions.

Cash Flow Summary

The following table summarizes changes in cash and cash equivalents for TPCGI and TPCGLLC during the three months ended March 31, 2012 and 2011 (in thousands):


	TPCGI						TPCGLLC
	2012			2011			2012			2011
Cash flows (used in) provided by :
Operating activities	$	11,515		$	(19,754	)	$	11,530		$	(18,035	)
Investing activities		(9,878	)		(8,031	)		(9,878	)		(8,031	)
Financing activities		149			3,669			—			(57,606	)

Change in cash and cash equivalents	$	1,786		$	(24,116	)	$	1,652		$	(83,672	)

Operating activities

For the quarter ended March 31, 2012, TPCGI had positive net cash flows from operations of $11.5 million. The primary components of the operating cash flows were net income of $18.0 million plus depreciation and other net non-cash expenses of $12.9 million, partially offset by an increased investment in working capital of $18.7 million and deferred plant turnaround costs of $1.5 million. The increased investment in working capital during the first quarter of 2012 reflected the upward trend in selling prices of our products and the costs of our raw material over the course of the period. Increased investment in trade accounts receivable and inventory (discussed below) were partially offset by increased levels of trade accounts payable, which also reflect the impact of higher raw material costs. Overall days outstanding for receivables, inventories and payables at March 31, 2012 were each consistent with historical trends. The deferred turnaround costs, related primarily to a major turnaround project at our Houston facility during the first quarter of 2012, will be amortized until the next scheduled turnaround.

Overall days outstanding for receivables, inventories and payables at March 31, 2012 were each consistent with historical trends.

The minor difference between TPCGI and TPCGLLC operating cash flows for the first quarter of 2012 reflected a minor difference in net income and a minor effect of intercompany cash transactions.

Our inventory at March 31, 2012 of $133.5 million was $54.2 million higher than the $79.3 million at December 31, 2011. The increase in inventory value reflected the combined effect of a 39% increase in physical inventory volumes and a 21% increase in overall average cost per pound. The increase in volume between December 31, 2011 and March 31, 2012 reflected abnormally low levels at the end of 2011 as a result of an effort over the course of the fourth quarter of 2011 to manage our inventory levels in light of curtailed business activity as well as reduced crude C4 inventories at December 31, 2011 due to a turnaround at one of our major storage facilities and lower C4 spot purchases. The higher average cost per pound reflected the higher values for butadiene and fuel related products, for which selling prices are linked to gasoline prices, which were on an upward trend over the course of the first quarter of 2012. The impacts of the higher volume and higher average cost were $31 million and $23 million, respectively.

Trade accounts receivable were $247.8 million at March 31, 2012 compared to $210.8 million at December 31, 2011. The increase reflected significantly higher sales in March 2012 compared to December 2011, driven by higher selling prices on flat sales volumes. Days of sales outstanding at March 31, 2012 was 29 days, which is slightly lower than the 32 day average over the past year and the 34 days at December 31, 2011. Trade accounts receivable were more than 98% current at both March 31, 2012 and December 31, 2011.

In the first quarter of 2011, we had negative net cash flows from operations of $19.8 million. The primary components of our negative operating cash flows were increased investment in working capital of $39.6 million and deferred plant turnaround costs of $5.5 million, partially offset by net income of $11.4 million plus depreciation and other net non-cash expenses of $13.9 million. The primary components of the increased investment in working capital during the quarter were increases in inventory and trade accounts receivable. The increase in trade accounts receivable was essentially offset by an increase in accounts payable, which reflected higher cost of raw material purchases in March 2011 compared to December 2010. The deferred turnaround costs, related primarily to a major turnaround project at our Houston facility, will be amortized until the next scheduled turnaround.

The difference between TPCGI and TPCGLLC operating cash flows for the first quarter of 2011 was due primarily to the effect of intercompany transactions.

Investing activities

During the quarters ended March 31, 2012 and 2011, we invested $9.9 million and $ 8.0 million, respectively, in the form of capital expenditures. Capital spending during the first quarter of 2012, in addition to baseline spending, included $4.8 million for our strategic projects to produce isobutylene feedstock and on-purpose butadiene. Capital spending in the prior year quarter, in addition to baseline spending, included $2.4 million for the new lab at the Houston facility.

Financing activities

Cash generated from financing activities of $0.1 million during the first quarter of 2012 was from exercise of stock options, which related to TPCGI. Cash provided by financing activities in the prior year quarter of $3.7 million consisted primarily of borrowings on the Revolving Credit Facility of $11.0 million, partially offset by stock purchases under the Stock Repurchase Program of $7.8 million. Cash used in financing activities by TPCGLLC for the prior year quarter consisted of the distribution to TPCGI of $68.6 million, partially offset by borrowings on the Revolving Credit Facility of $11.0 million.

Off-balance sheet arrangements

We do not currently utilize any off-balance sheet arrangements to enhance our liquidity and capital resource positions, or for any other purpose.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

There have been no material developments during the three months ended March 31, 2012 regarding the matters previously disclosed about quantitative and qualitative market risk in TPCGI’s and TPCGLLC’s combined Annual Report on Form 10-K for the year ended December 31, 2011.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of TPC Group Inc.’s and TPC Group LLC’s Disclosure Committee and management, including our President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, TPC Group Inc.’s and TPC Group LLC’s President and Chief Executive Officer, and Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2012.

Changes in Internal Controls

During the period covered by this report there were no changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

See Note K to the condensed consolidated financial statements for a description of certain legal proceedings.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

As reflected in the following table there were no purchases by us of shares of TPCGI’s common stock during the three months ended March 31, 2012:

Total Number
of Shares
Purchased

Average
Price
Paid Per
Share

Total Number of
Shares Purchased
As Part of
Publicly
Announced Plans
or Programs

Approximate
Dollar Value of Shares
that may yet be
Purchased Under the
Plans or Programs

January 2012

—

$13.9 million

February 2012

—

$13.9 million

March 2012

—

$13.9 million

—

$13.9 million

Item 6.

Exhibits

The following exhibits are filed as part of this report:

INDEX TO EXHIBITS


Exhibit No.		Description

31.1 *		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for TPC Group Inc.

31.2 *		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for TPC Group LLC.

31.3 *		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for TPC Group Inc.

31.4 *		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, for TPC Group LLC.

32.1 **		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for TPC Group Inc.

32.2 **		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for TPC Group LLC.

32.3 **		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for TPC Group Inc.

32.4 **		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, for TPC Group LLC.

101.INS ***		XBRL Instance Document

101.SCH ***		XBRL Schema Document

101.CAL ***		XBRL Calculation Linkbase Document

101.LAB ***		XBRL Label Linkbase Document

101.PRE ***		XBRL Presentation Linkbase Document

101.DEF ***		XBRL Definition Linkbase Document

*	Filed herewith.

Pursuant to Securities and Exchange Commission Release No. 33-8238, this certification is treated as “accompanying” this report and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

***

Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised pursuant to Rule 406T of Regulation S-T that the interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise not subject to liability under these sections. The financial information contained in the XBRL-related documents is “unaudited” or “unreviewed.”

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		TPC Group Inc.

Date: May 2, 2012	By:	/s/ Michael T. McDonnell
		Michael T. McDonnell
		President and Chief Executive Officer

Date: May 2, 2012	By:	/s/ Miguel A. Desdin
		Miguel A. Desdin
		Senior Vice President and Chief Financial Officer

		TPC Group LLC

Date: May 2, 2012	By:	/s/ Michael T. McDonnell
		Michael T. McDonnell
		President and Chief Executive Officer

Date: May 2, 2012	By:	/s/ Miguel A. Desdin
		Miguel A. Desdin
		Senior Vice President and Chief Financial Officer