<PAGE> 1
EXHIBIT 99.1
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS (as defined
in the Sale and Purchase Agreement between Exxon Mobil Corporation and
Valero Refining Company -- California)
Report of Independent Accountants
Balance Sheet as of December 31, 1999 and 1998
Statement of Income for the Years Ended December 31, 1999, 1998 and 1997
Statement of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997
Statement of Changes in Exxon Mobil Corporation Net Investment
Notes to Financial Statements as of December 31, 1999
Balance Sheet as of March 31, 2000 (unaudited) and December 31, 1999
Statement of Income for the Three Months Ended March 31, 2000 and 1999
(unaudited)
Statement of Cash Flows for the Three Months Ended March 31, 2000 and 1999
(unaudited)
Notes to Financial Statements as of March 31, 2000
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Exxon Mobil Corporation
In our opinion, the accompanying balance sheet and the related statements of
income, of cash flows and of changes in Exxon Mobil Corporation net investment
present fairly, in all material respects, the financial position of the Exxon
California Refinery, Terminal and Retail Assets Business (as defined in the Sale
and Purchase Agreement between Exxon Mobil Corporation and Valero Refining
Company - California) at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of Exxon
Mobil Corporation's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 3 to the financial statements, Exxon Mobil Corporation
changed its method of accounting for the cost of start-up activities in 1998.
PricewaterhouseCoopers LLP
Houston, Texas
May 10, 2000
<PAGE> 3
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
BALANCE SHEET
DECEMBER 31, 1999 AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4 $ 246
Receivables 41,039 28,002
Inventories 41,680 38,218
Other current assets 3,922 10,124
------------ ------------
Total current assets 86,645 76,590
Property, plant and equipment, net 476,687 478,928
Prepaids and deferred charges 8,422 6,940
Other noncurrent assets 7,360 6,587
------------ ------------
Total assets $ 579,114 $ 569,045
============ ============
LIABILITIES AND EXXON MOBIL CORPORATION NET INVESTMENT
Current liabilities:
Accounts payable $ 23,949 $ 19,142
Payroll and benefits payable 2,080 2,000
Taxes other than income taxes 17,481 10,263
Deferred income tax 1,147 2,451
Other current liabilities 5,932 3,311
------------ ------------
Total current liabilities 50,589 37,167
Long-term deferred income taxes 85,654 71,575
Deferred credits and other liabilities 6,057 1,430
------------ ------------
Total liabilities 142,300 110,172
Exxon Mobil Corporation net investment 436,814 458,873
------------ ------------
Total liabilities and Exxon Mobil Corporation net investment $ 579,114 $ 569,045
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
(in thousands)
<S> <C> <C> <C>
Revenues:-
Sales and other operating revenue, including
excise taxes:
Unrelated parties $ 1,818,355 $ 1,611,327 $ 1,793,767
Related parties 7,726 13,698 20,529
------------ ------------ ------------
1,826,081 1,625,025 1,814,296
------------ ------------ ------------
Costs and expenses:
Crude oil and product purchases 962,718 785,040 1,060,502
Operating expenses 214,506 160,291 188,282
Selling, general and administrative expenses 25,478 27,961 30,705
Depreciation and amortization 26,474 22,748 20,983
Excise taxes 474,506 497,714 414,370
Taxes other than income taxes 10,020 9,957 9,493
Loss on property, plant and equipment sales 825 740 418
------------ ------------ ------------
Total costs and expenses 1,714,527 1,504,451 1,724,753
------------ ------------ ------------
Income before income taxes 111,554 120,574 89,543
Income taxes 46,023 48,317 36,549
------------ ------------ ------------
Income before cumulative effect of accounting
change 65,531 72,257 52,994
Cumulative effect of accounting change (2,925)
------------ ------------ ------------
Net income $ 65,531 $ 69,332 $ 52,994
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:-
Net income $ 65,531 $ 69,332 $ 52,994
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 26,474 22,748 20,983
Deferred income taxes 12,775 14,411 19,335
Cumulative effect of accounting change 2,925
Loss on sale of property, plant and equipment 825 740 418
Increase in accounts receivable (13,037) (11,483) 16,820
Decrease (increase) in inventories (3,462) 4,312 (13,052)
Decrease (increase) in other current assets 6,202 (5,044) (2,876)
Decrease (increase) in prepaids and deferred charges (1,482) 3,440 4,263
Decrease (increase) in other noncurrent assets (773) (3,587) (1,529)
Increase (decrease) in accounts payable and
accrued liabilities 7,508 (1,909) 507
Decrease (increase) in taxes other than income 7,218 23,094 (4,557)
Increase in deferred credits and other liabilities 4,627 413 1,017
------------ ------------ ------------
Net cash provided by operating activities 112,406 119,392 94,323
------------ ------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (25,058) (37,866) (31,267)
------------ ------------ ------------
Net cash used in investing activities (25,058) (37,866) (31,267)
------------ ------------ ------------
Cash flows from financing activities:
Net cash distributions to Exxon Mobil Corporation (87,590) (81,413) (63,023)
------------ ------------ ------------
Net cash used in financing activities (87,590) (81,413) (63,023)
------------ ------------ ------------
Net increase (decrease) in cash (242) 113 33
Cash at beginning of year 246 133 100
------------ ------------ ------------
Cash at end of year $ 4 $ 246 $ 133
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
STATEMENT OF CHANGES IN EXXON MOBIL CORPORATION NET INVESTMENT
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Exxon Mobil Corporation net investment at December 31, 1996 $ 480,983
Net income 52,994
Net cash distributions to Exxon Mobil Corporation (63,023)
------------
Exxon Mobil Corporation net investment at December 31, 1997 470,954
Net income 69,332
Net cash distributions to Exxon Mobil Corporation (81,413)
------------
Exxon Mobil Corporation net investment at December 31, 1998 458,873
Net income 65,531
Net cash distributions to Exxon Mobil Corporation (87,590)
------------
Exxon Mobil Corporation net investment at December 31, 1999 $ 436,814
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
Exxon Mobil Corporation (ExxonMobil) operates a refinery and marketing
assets in the state of California which are collectively referred to
herein as the Exxon California Refinery, Terminal and Retail Assets
Business (the Business). The Business is engaged in the manufacturing,
purchasing and marketing of petroleum products in the state of
California. Operating assets primarily consist of: (a) the Benicia
Refinery, located in the San Francisco Bay area, including a deepwater
dock, (b) a 20-inch crude pipeline and an adjacent truck terminal for
regional truck rack sales and (c) Exxon-branded retail assets comprised
of 80 marketing sites, of which ten are ExxonMobil owned and operated
and 70 are owned by ExxonMobil and leased to dealers. The retail assets
owned by ExxonMobil are primarily located in the San Francisco Bay
area. In addition, there are 260 independently owned and operated,
Exxon-branded retail assets located throughout California.
On March 2, 2000, ExxonMobil agreed to sell to Valero Refining Company
- California (a subsidiary of Valero Energy Corporation) these assets
as a result of Consent Decrees issued by the Federal Trade Commission
and the state of California, which provided that certain assets be
divested by ExxonMobil in connection with the merger of Exxon
Corporation and Mobil Corporation. The anticipated closing date for the
refinery sale is May 15, 2000 with a secondary close for the remaining
assets scheduled for June 15, 2000. The accompanying financial
statements do not include any adjustments that might result from the
proposed sale.
The accompanying financial statements represent a carve-out financial
statement presentation of the Business' operations and reflect
ExxonMobil historical cost basis. The financial statements include
allocations and estimates of direct and indirect ExxonMobil
administrative costs attributable to the Business' operations. The
methods by which such amounts are attributed or allocated are deemed
reasonable by management. However, these allocations and estimates are
not necessarily indicative of the costs and expenses that would have
resulted if the Business had been operated as a separate entity.
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
that affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of
-1-
<PAGE> 8
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
contingent assets and liabilities. Actual results could differ from
these estimates.
REVENUE RECOGNITION
Revenues associated with sales of petroleum products and all other
items are recorded when title passes to the customer.
INVENTORIES
Inventories are carried at lower of current market value or cost. Cost
of crude oil and refined products inventories is determined under the
last-in, first-out (LIFO) method. Crude oil and product purchases are
reflected in the income statement at cost. Costs include applicable
purchase costs and operating expenses but not general and
administrative expenses or research and development costs. Inventory is
adjusted for any ExxonMobil consolidated LIFO effect at the end of each
period. Cost of materials and supplies is determined under the average
cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost, less accumulated
depreciation. Depreciation, based on cost less estimated salvage value
of the asset, is determined under the straight-line method. When a
major facility depreciated on an individual basis is sold or otherwise
disposed of, any gain or loss is reflected in income. Expenditures for
maintenance and repairs, including those for refinery turnarounds, are
expensed as incurred.
Assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amounts may not be
recoverable. ExxonMobil estimates undiscounted future cash flows to
judge the recoverability of carrying amounts.
ENVIRONMENTAL CONSERVATION
Liabilities for environmental conservation are recorded when it is
probable that obligations have been incurred and the amounts can be
reasonably estimated. These liabilities are not reduced by possible
recoveries from third parties, and projected cash expenditures are not
discounted.
INCOME TAXES
Historically, the Business' results have been included in the
consolidated federal income tax returns filed by ExxonMobil. The income
tax provision for each period presented represents the current and
deferred income taxes that would have resulted if the Business were a
stand-alone taxable entity filing its own income tax returns.
Accordingly, the calculation of tax provisions and deferred taxes
necessarily require certain assumptions, allocations and estimates
which management believes are
-2-
<PAGE> 9
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
reasonable to reflect the tax reporting for the Business as a
stand-alone taxpayer.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported amounts of financial instruments such as receivables and
payables approximate fair value because of their short maturities.
3. ACCOUNTING CHANGE
The American Institute of Certified Public Accountants' Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities", was
implemented by ExxonMobil in the fourth quarter of 1998, effective as
of January 1, 1998. This statement requires that costs of start-up
activities and organizational costs be expensed as incurred. The
cumulative effect of this accounting change on years prior to 1998
applicable to the Business was a charge of $2.9 million (net of $2
million income tax effect).
4. EXXON MOBIL CORPORATION NET INVESTMENT, ALLOCATIONS AND RELATED-PARTY
TRANSACTIONS
For purposes of these carve-out financial statements, payables and
receivables related to transactions between the Business and
ExxonMobil, as well as liabilities and refunds related to current
income taxes, are included as a component of the Exxon Mobil
Corporation net investment. Such amounts related to current income
taxes are deemed to have been paid in cash to ExxonMobil in the year in
which the income taxes were recorded.
The Business purchased crude oil from ExxonMobil, at transfer prices
that were intended to reflect market prices, in the amounts of $755
million, $565 million and $802 million for the years ended December 31,
1999, 1998 and 1997, respectively. The Business' sales of refined
products to ExxonMobil for the years ended December 31, 1999, 1998 and
1997, were $8 million, $14 million and $21 million, respectively.
Throughout the period covered by the financial statements, ExxonMobil
provided the Business with certain services, including data processing,
legal, human resources and financial services and certain
corporate-funded research programs. Charges for these services were
allocated based on various formulas that incorporate indicators such as
expenditures, personnel head counts and refinery throughputs. Such
charges amounted to $21 million, $20 million and $22 million for the
years ended December 31, 1999, 1998 and 1997, respectively. These
amounts include research and development expenses of $3 million, $2
million and $2 million, respectively. ExxonMobil uses a
-3-
<PAGE> 10
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
centralized cash management system under which cash receipts of the
Business are remitted to ExxonMobil and cash disbursements of the
Business are funded by ExxonMobil. No interest has been charged or
credited on transactions with ExxonMobil.
5. EMPLOYEE BENEFIT PLANS
ExxonMobil has noncontributory defined benefit pension plans covering
substantially all employees of the Business. Benefits under these plans
are based primarily upon years of service and final earnings. The
funding policy for all plans provides that payments to the pension
trusts shall be equal to the minimum funding requirements of the
Employee Retirement and Income Security Act, plus such additional
amounts as may be approved.
ExxonMobil also has defined benefit retiree life and health insurance
plans covering most of the Business' employees upon their retirement.
Health benefits are primarily provided through comprehensive hospital,
surgical and major medical benefit provisions subject to various
cost-sharing features.
For the purposes of these carve-out financial statements, the Business
is considered to be participating in multiemployer benefit plans of
ExxonMobil.
For 1999, 1998 and 1997, the Business' allocated share of compensation
expense related to these plans was approximately $3 million for each of
the three years.
6. INCOME TAXES
Income tax provisions and related assets and liabilities are determined
on a stand-alone basis (Note 2).
Income tax provision consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
------------------------------ ------------------------------ ------------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $ 26,035 $ 9,330 $ 35,365 $ 27,098 $ 11,958 $ 39,056 $ 16,571 $ 12,048 $ 28,619
State 7,213 3,445 10,658 6,808 2,453 9,261 643 7,287 7,930
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total $ 33,248 $ 12,775 $ 46,023 $ 33,906 $ 14,411 $ 48,317 $ 17,214 $ 19,335 $ 36,549
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
-4-
<PAGE> 11
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
A reconciliation of federal statutory tax rate (35%) to total
provisions follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
<S> <C> <C> <C>
Statutory rate applied to income before
income taxes $ 39,044 $ 42,201 $ 31,340
State income taxes (net of federal income tax
benefit and California business tax credits) 6,928 6,019 5,154
Other 51 97 55
-------- -------- --------
Total provisions $ 46,023 $ 48,317 $ 36,549
======== ======== ========
</TABLE>
Deferred tax assets and liabilities resulted from the following
temporary differences as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
<S> <C> <C>
Deferred tax assets:
Accrued liabilities $ 3,898 $ 1,519
---------- ----------
Total deferred tax assets 3,898 1,519
---------- ----------
Deferred tax liabilities:
Depreciation 75,524 62,390
Inventory 2,935 3,154
Other 12,240 10,001
---------- ----------
Total deferred tax liabilities 90,699 75,545
---------- ----------
Net deferred tax liabilities $ 86,801 $ 74,026
========== ==========
</TABLE>
7. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
<S> <C> <C>
Crude oil $ 12,892 $ 7,872
Refined products 17,416 16,111
Materials and supplies 11,372 14,235
---------- ----------
Total inventories $ 41,680 $ 38,218
========== ==========
</TABLE>
-5-
<PAGE> 12
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
The LIFO method accounted for 73% and 63% of total inventory at
December 31, 1999 and 1998, respectively. The aggregate replacement
cost of inventories was estimated to exceed their LIFO carrying values
by $115 million and $39 million at December 31, 1999 and 1998,
respectively.
8. OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
<S> <C> <C>
Prepaid expenses $ 7,853
Catalyst $ 2,699 1,937
Other 1,223 334
---------- ----------
Total $ 3,922 $ 10,124
========== ==========
</TABLE>
9. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
(in thousands) 1999 1998
<S> <C> <C>
Refining $811,868 $788,295
Marketing 84,300 83,990
-------- --------
896,168 872,285
Less - accumulated depreciation and amortization 419,481 393,357
-------- --------
Total property, plant and equipment, net $476,687 $478,928
======== ========
</TABLE>
The depreciation lives used in computing the annual provision for
depreciation are substantially as follows:
Refining 25 - 33 years
Marketing 3 - 21 years
10. LEASES
The Business leases a wide variety of facilities and equipment under
operating leases, including office equipment and transportation
equipment. Rent expense approximated $5 million, $4 million and $3
million for December 31, 1999, 1998 and 1997, respectively.
-6-
<PAGE> 13
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
11. CONTINGENCIES AND COMMITMENTS
ExxonMobil is the subject of, or party to, a number of pending or
threatened legal actions, contingencies and commitments relating to the
Business involving a variety of matters, including laws and regulations
relating to the environment. The more significant of these matters are
discussed below.
ENVIRONMENTAL MATTERS
The Business is subject to federal, state and local environmental laws
and regulations that in the future may require ExxonMobil to take
action to correct or reduce the effects on the environment of prior
disposal or release of chemical or petroleum substances, including
MTBE, by ExxonMobil or other parties. These laws generally provide for
control of pollutants released into the environment and require
responsible parties to undertake remediation of hazardous waste
disposal sites. Penalties may be imposed for noncompliance. At December
31, 1999 and 1998, accrued liabilities for remediation totaled $11
million and $4 million, respectively. Environmental expenses were $11
million, $5 million and $3 million during the years ended December 31,
1999, 1998 and 1997, respectively, and are included in operating
expenses. It is not presently possible to estimate the ultimate amount
of all remediation costs that might be incurred or the penalties that
might be imposed.
For a number of years, the Business has made substantial capital
expenditures to maintain compliance with various laws relating to the
environment at existing facilities. The Business anticipates making
additional such expenditures in the future; however, the exact amounts
and timing of such expenditures are uncertain because of the continuing
evolution of specific regulatory requirements.
UNOCAL PATENT LITIGATION
ExxonMobil and four other refiners filed a lawsuit against Unocal
Corporation (UNOCAL) in Los Angeles, California, seeking a
determination that a UNOCAL patent on certain gasoline compositions
(commonly referred to as the " '393 patent") is invalid and
unenforceable. UNOCAL's '393 patent potentially covers a substantial
portion of the reformulated gasoline compositions required by the CARB
Phase II regulations that went into effect in March 1996. In 1997, a
federal court found that the refiners had not proven the '393 patent to
be invalid or unforceable and, furthermore, found the reasonable
royalty for infringement to be 5.75 cents per gallon. The case was
appealed and, in March 2000, the Court of Appeals for the Federal
Circuit affirmed. In April 2000, ExxonMobil and the other four refiners
filed a petition for reconsideration and for rehearing en banc
-7-
<PAGE> 14
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
-------------------------------------------------------------------------------
with the appellate court. The ultimate outcome of the litigation is
uncertain. ExxonMobil has retained, and will continue to retain, even
after transfer of the Business to Valero Refining Company - California,
any and all liability associated with the UNOCAL patent litigation
arising prior to the date of transfer of the assets. For operations
subsequent to the transfer of the Business, Valero Refining Company -
California will be responsible for any UNOCAL patent exposure.
OTHER MATTERS
Claims have been made against ExxonMobil relating to the Business in
other pending lawsuits, the outcome of which is not expected to have a
materially adverse effect on the Business' operations, cash flows or
financial position.
12. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board released
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities Information." As amended by Statement No. 137 issued in June
1999, this statement, which must be adopted no later than January 1,
2001 for calendar-year companies such as the Business, establishes
accounting and reporting standards for derivative instruments. The
statement requires that an entity recognize all derivatives as either
assets or liabilities in the financial statements and measure those
instruments at fair value, and it defines the accounting for changes in
the fair value of the derivatives depending on the intended use of the
derivative. Adoption of this statement is not expected to have a
material effect upon the Business' operations or financial condition.
-8-
<PAGE> 15
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
BALANCE SHEET
MARCH 31, 2000 AND DECEMBER 31, 1999
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 99 $ 4
Receivables 44,998 41,039
Inventories 30,345 41,680
Other current assets 3,224 3,922
------------ ------------
Total current assets 78,666 86,645
Property, plant and equipment, net 475,450 476,687
Prepaids and deferred charges 9,901 8,422
Other noncurrent assets 8,208 7,360
------------ ------------
Total assets $ 572,225 $ 579,114
------------ ------------
LIABILITIES AND EXXON MOBIL CORPORATION NET INVESTMENT
Current liabilities:
Accounts payable $ 37,768 $ 23,949
Payroll and benefits payable 2,080 2,080
Taxes other than income taxes 14,856 17,481
Deferred income tax 1,147 1,147
Other current liabilities 6,429 5,932
------------ ------------
Total current liabilities 62,280 50,589
Long-term deferred income taxes 88,560 85,654
Deferred credits and other liabilities 11,503 6,057
------------ ------------
Total liabilities 162,343 142,300
Exxon Mobil Corporation net investment 409,882 436,814
------------ ------------
Total liabilities and Exxon Mobil Corporation
net investment $ 572,225 $ 579,114
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 16
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
(in thousands)
(unaudited)
<S> <C> <C>
Revenues:-
Sales and other operating revenue, including excise taxes:
Unrelated parties $ 619,358 $ 233,106
Related parties 3,979 1,497
------------ ------------
623,337 234,603
------------ ------------
Costs and expenses:
Crude oil and product purchases 397,081 79,006
Operating expenses 39,158 86,966
Selling, general and administrative expenses 7,501 7,722
Depreciation and amortization 6,723 6,496
Excise taxes 128,538 108,337
Taxes other than income taxes 2,758 2,647
Loss on property, plant and equipment sales 45 203
------------ ------------
Total costs and expenses 581,804 291,377
------------ ------------
Income (loss) before income taxes 41,533 (56,774)
Income taxes 16,923 (23,133)
------------ ------------
Net income (loss) $ 24,610 $ (33,641)
------------ ------------
</TABLE>
<PAGE> 17
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
(in thousands)
(unaudited)
<S> <C> <C>
Cash flows from operating activities:-
Net income (loss) $ 24,610 $ (33,641)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,723 6,496
Deferred income taxes 2,906 2,813
Loss on sale of property, plant and equipment 45 203
Increase in accounts receivable (3,959) (24,740)
Decrease (increase) in inventories 11,335 (3,530)
Decrease in other current assets 698 9,656
Increase in prepaids and deferred charges (1,479) (2,348)
Increase in other noncurrent assets (848) (262)
Increase in accounts payable and accrued liabilities 14,316 6,984
Decrease in taxes other than income (2,625) (9,004)
Increase in deferred credits and other liabilities 5,446 4,038
------------ ------------
Net cash provided by (used in) operating activities 57,168 (43,335)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (5,531) (9,498)
------------ ------------
Net cash used in investing activities (5,531) (9,498)
------------ ------------
Cash flows from financing activities:
Net cash advances from (distributions to)
Exxon Mobil Corporation (51,542) 52,787
------------ ------------
Net cash provided by (used in) financing activities (51,542) 52,787
------------ ------------
Net increase (decrease) in cash 95 (46)
Cash at beginning of period 4 246
------------ ------------
Cash at end of period $ 99 $ 200
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 18
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
Exxon Mobil Corporation (ExxonMobil) operates a refinery and marketing
assets in the state of California which are collectively referred to
herein as the Exxon California Refinery, Terminal and Retail Assets
Business (the Business). The Business is engaged in the manufacturing,
purchasing and marketing of petroleum products in the state of
California. Operating assets primarily consist of: (a) the Benicia
Refinery, located in the San Francisco Bay area, including a deepwater
dock, (b) a 20-inch crude pipeline and an adjacent truck terminal for
regional truck rack sales and (c) Exxon-branded retail assets
comprised of 80 marketing sites, of which ten are ExxonMobil owned and
operated and 70 are owned by ExxonMobil and leased to dealers. The
retail assets owned by ExxonMobil are primarily located in the San
Francisco Bay area. In addition, there are 260 independently owned and
operated, Exxon-branded retail assets located throughout California.
On March 2, 2000, ExxonMobil agreed to sell to Valero Refining Company
- California (a subsidiary of Valero Energy Corporation) these assets
as a result of Consent Decrees issued by the Federal Trade Commission
and the state of California, which provided that certain assets be
divested by ExxonMobil in connection with the merger of Exxon
Corporation and Mobil Corporation. The closing date for the refinery
sale was May 15, 2000 with a secondary close for the remaining assets
scheduled for June 15, 2000. The accompanying unaudited financial
statements do not include any adjustments that might result from the
proposed sale.
The accompanying unaudited financial statements represent a carve-out
financial statement presentation of the Business' operations and
reflect ExxonMobil historical cost basis. The unaudited financial
statements include allocations and estimates of direct and indirect
ExxonMobil administrative costs attributable to the Business'
operations. The methods by which such amounts are attributed or
allocated are deemed reasonable by management. However, these
allocations and estimates are not necessarily indicative of the costs
and expenses that would have resulted if the Business had been
operated as a separate entity.
These unaudited financial statements should be read in the context of
the carve-out financial statements and notes thereto included in
Valero Energy Corporation's Form 8-K/A filed with the Securities and
Exchange Commission. In the opinion of management, the information
furnished herein reflects all known accruals and adjustments necessary
for a fair statement of the results for the periods reported herein.
All such adjustments are of a normal recurring nature.
2. EXXON MOBIL CORPORATION NET INVESTMENT, ALLOCATIONS AND RELATED-PARTY
TRANSACTIONS
For purposes of these unaudited carve-out financial statements,
payables and receivables related to transactions between the Business
and ExxonMobil, as well as liabilities and refunds related to current
income taxes, are included as a component of the Exxon Mobil
Corporation net investment. Such amounts related to current income
taxes are deemed to have been paid in cash to ExxonMobil in the year
in which the income taxes were recorded. ExxonMobil uses a centralized
cash management system under which cash receipts of the Business are
remitted to ExxonMobil and cash disbursements of the Business are
funded by ExxonMobil. No interest has been charged or credited on
transactions with ExxonMobil.
3. INVENTORIES
Inventories consist of the following:
- 1 -
<PAGE> 19
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
(in thousands)
<S> <C> <C>
Crude oil $ 7,481 $ 12,892
Refined products 10,980 17,416
Materials and supplies 11,884 11,372
------------ ------------
Total inventories $ 30,345 $ 41,680
------------ ------------
</TABLE>
4. CONTINGENCIES AND COMMITMENTS
ExxonMobil is the subject of, or party to, a number of pending or
threatened legal actions, contingencies and commitments relating to
the Business involving a variety of matters, including laws and
regulations relating to the environment. The more significant of these
matters are discussed below.
ENVIRONMENTAL MATTERS
The Business is subject to federal, state and local environmental laws
and regulations that in the future may require ExxonMobil to take
action to correct or reduce the effects on the environment of prior
disposal or release of chemical or petroleum substances, including
MTBE, by ExxonMobil or other parties. These laws generally provide for
control of pollutants released into the environment and require
responsible parties to undertake remediation of hazardous waste
disposal sites. Penalties may be imposed for noncompliance. At March
31, 2000 and December 31, 1999, accrued liabilities for remediation
totaled $11 million and $11 million, respectively.
For a number of years, the Business has made substantial capital
expenditures to maintain compliance with various laws relating to the
environment at existing facilities. The Business anticipates making
additional such expenditures in the future; however, the exact amounts
and timing of such expenditures are uncertain because of the
continuing evolution of specific regulatory requirements.
UNOCAL PATENT LITIGATION
ExxonMobil and four other refiners filed a lawsuit against Unocal
Corporation (UNOCAL) in Los Angeles, California, seeking a
determination that a UNOCAL patent on certain gasoline compositions
(commonly referred to as the " '393 patent") is invalid and
unenforceable. UNOCAL's '393 patent potentially covers a substantial
portion of the reformulated gasoline compositions required by the CARB
Phase II regulations that went into effect in March 1996. In 1997, a
federal court found that the refiners had not proven the '393 patent
to be invalid or unforceable and, furthermore, found the reasonable
royalty for infringement to be 5.75 cents per gallon. The case was
appealed and, in March 2000, the Court of Appeals for the Federal
Circuit affirmed. In April 2000, ExxonMobil and the other four
refiners filed a petition for reconsideration and for rehearing en
banc with the appellate court. In May 2000, the federal appeals court
denied this petition. ExxonMobil is currently reviewing its options
and the ultimate outcome of the litigation is uncertain. ExxonMobil
has retained, and will continue to retain, even after transfer of the
Business to Valero Refining Company - California, any and all
liability associated with the UNOCAL patent litigation arising prior
to the date of transfer of the assets.
- 2 -
<PAGE> 20
EXXON CALIFORNIA REFINERY, TERMINAL AND RETAIL ASSETS BUSINESS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
-------------------------------------------------------------------------------
For operations subsequent to the transfer of the Business, Valero
Refining Company - California will be responsible for any UNOCAL
patent exposure.
OTHER MATTERS
Claims have been made against ExxonMobil relating to the Business in
other pending lawsuits, the outcome of which is not expected to have a
materially adverse effect on the Business' operations, cash flows or
financial position.
5. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board released
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities Information." As amended by Statement No. 137 issued in
June 1999, this statement, which must be adopted no later than January
1, 2001 for calendar-year companies such as the Business, establishes
accounting and reporting standards for derivative instruments. The
statement requires that an entity recognize all derivatives as either
assets or liabilities in the financial statements and measure those
instruments at fair value, and it defines the accounting for changes
in the fair value of the derivatives depending on the intended use of
the derivative. Adoption of this statement is not expected to have a
material effect upon the Business' operations or financial condition.
- 3 -
