Segment Information

9 Months Ended

Sep. 30, 2011

Segment Information [Abstract]

Segment Information

NOTE N – 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 polyisobutylenes and diisobutylenes, and we produce nonene and tetramer at our Baytown facility.

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.

1. Reportable Segments

The following table provides unaudited revenues, cost of sales, operating expenses, depreciation and amortization, and TPCGI Adjusted EBITDA (defined below) by reportable segment (amounts in thousands) for the periods presented. The table also provides a reconciliation of TPCGI Adjusted EBITDA to TPCGI Net Income, the US GAAP measure most directly comparable to Adjusted EBITDA. The amount of revenues, cost of sales, operating expenses and depreciation and amortization are the same for both TPCGI and TPCGLLC. Adjusted EBITDA for TPCGLLC differs slightly from TPCGI due to miscellaneous corporate expenses (see Note 4 in the table below).

Adjusted EBITDA is not a measure computed in accordance with US GAAP. A non-US 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 US 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.

As a complement to financial measures provided in accordance with GAAP, management believes that Adjusted 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 Adjusted 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 operating performance and allocates capital. Since Adjusted EBITDA is not a measure computed in accordance with US GAAP, it is not intended to be presented herein as a substitute to operating income or net income as indicators of the Company's operating performance. Adjusted EBITDA is the primary performance measurement used by our senior management and TPCGI's Board of Directors to evaluate operating results and to allocate capital resources between our business segments.

We calculate Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization (EBITDA), which is then adjusted to remove or add back certain items. The items removed or added back have historically consisted of items we consider to be non-recurring in nature and which we believe distort comparability between periods, as well as certain non-cash items such as stock-based compensation and unrealized gains and losses on derivative financial instruments. As indicated in the table below, during the first quarter of 2011 we revised our previous definition of Adjusted EBITDA to no longer remove the effect of non-cash stock-based compensation and unrealized gains and losses on derivative financial instruments, because they are recurring in nature. For comparison purposes the following table shows Adjusted EBITDA for all periods presented under both the revised definition and the previous definition used for the six month transition period ended December 31, 2010. As shown below in the reconciliation of TPCGI Adjusted EBITDA to TPCGI Net Income, the US GAAP measure most directly comparable to Adjusted EBITDA, under the revised definition of Adjusted EBITDA, there were no adjustments to EBITDA for any of the periods presented. Our calculation of Adjusted EBITDA may be different from the calculation used by other companies; therefore, it may not be comparable to other companies.

Financial results by operating segment are as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Revenues:
C4 Processing	$	713,492		$	397,876		$	1,806,890		$	1,122,152
Performance Products		121,788			101,567			376,873			309,849
	$	835,280		$	499,443		$	2,183,763		$	1,432,001
Cost of sales (1):
C4 Processing	$	645,110		$	350,594		$	1,587,691		$	984,109
Performance Products		103,213			77,546			313,805			239,018
	$	748,323		$	428,140		$	1,901,496		$	1,223,127
Operating expenses:
C4 Processing	$	25,179		$	23,484		$	78,542		$	73,426
Performance Products		10,416			9,386			31,301			27,615
	$	35,595		$	32,870		$	109,843		$	101,041
Depreciation and amortization:
C4 Processing	$	4,426		$	4,371		$	13,401		$	13,015
Performance Products		2,585			2,553			7,932			7,721
Corporate		309			305			1,077			1,048
Unallocated		2,653			2,621			7,928			7,717
	$	9,973		$	9,850		$	30,338		$	29,501
TPCGI Adjusted EBITDA-as previously defined during the six months ended December 31, 2010 (2)
C4 Processing (3)	$	33,479		$	23,799		$	130,933		$	64,617
Performance Products (3)		8,056			14,635			31,663			43,216
Corporate (4)		(6,832	)		(5,313	)		(20,545	)		(20,068	)
	$	34,703		$	33,121		$	142,051		$	87,765
TPCGI Adjusted EBITDA-current definition (2)
C4 Processing (3)	$	33,479		$	23,799		$	130,933		$	64,617
Performance Products (3)		8,056			14,635			31,663			43,216
Corporate (4)		(7,124	)		(5,714	)		(21,687	)		(18,933	)
	$	34,411		$	32,720		$	140,909		$	88,900

(1) Does not include operating expenses, depreciation and amortization expense or the $9.8 million lower-of-cost-or-market adjustment discussed below.

(2) See above for a discussion of Adjusted EBITDA and the revision starting in the first three months of 2011 of our previous definition of Adjusted EBITDA to no longer remove the effect of non-cash stock-based compensation and unrealized gains and losses on derivative financial instruments, because they are recurring in nature. See below for reconciliations of TPCGI Adjusted EBITDA to TPCGI Net Income for the periods presented. Net Income is the most directly comparable GAAP measure reported in the Consolidated Statements of Operations.

(3) TPCGI Adjusted EBITDA for the three and nine months ended September 30, 2011 includes a lower-of-cost-or-market charge of $9.8 million, of which $9.7 million relates to the C4 Processing Segment and $0.1 million relates to the Performance Products Segment.

(4) There are no significant differences in miscellaneous corporate expenses between TPCGLLC and TPCGI.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
TPCGI net income	$	9,381		$	12,775		$	55,087		$	31,236
Income tax expense		6,409			6,875			29,827			17,430
Interest expense, net		8,648			3,220			25,657			10,733
Depreciation and amortization		9,973			9,850			30,338			29,501
TPCGI EBITDA		34,411			32,720			140,909			88,900
Non-cash stock-based compensation		292			401			1,142			957
Unrealized gain on derivatives		—			—			—			(2,092	)
Adjusted EBITDA as previously defined during the six months ended December 31, 2010		34,703			33,121			142,051			87,765
Non-cash stock-based compensation		(292	)		(401	)		(1,142	)		(957	)
Unrealized gain on derivatives		—			—			—			2,092
TPCGI Adjusted EBITDA	$	34,411		$	32,720		$	140,909		$	88,900

2. 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
	September 30,		December 31,		September 30,		December 31,
	2011		2010		2011		2010
C4 Processing	$	621,171	$	462,120	$	621,171	$	462,120
Performance Products		202,062		216,052		202,062		216,052
Corporate		120,992		126,535		51,833		128,104
Unallocated		129,911		107,471		129,911		107,471
	$	1,074,136	$	912,178	$	1,004,977	$	913,747

3. 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.