UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934: For the period from June 5,1997 (inception) to December 31, 1997
Commission File Number 333-28737
UDS CAPITAL I
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification No. 74-6454974
6000 N. Loop 1604 W
San Antonio, Texas 78249-1112
Telephone number: (210) 592-2000
Securities registered pursuant to Section 12(b) of the Act: 8.32% Trust
Originated Preferred Securities (TOPrS) (and the related guarantee) registered
on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the Act: None
UDS FUNDING I, L.P.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification No. 74-2835441
6000 N. Loop 1604 W
San Antonio, Texas 78249-1112
Telephone number: (210) 592-2000
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. Yes XXX No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. (XXX)
No voting stock was held by non affiliates of UDS Capital I as of February 27,
1998.
As of February 27, 1998, there are 247,440 shares of 8.32% Trust Common
Securities, $25.00 liquidation amount per security of UDS Capital I outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of UDS Capital I's Prospectus, dated June 20, 1997, filed
pursuant to Rule 424(b) in connection with the Registration Statement on Form
S-3 (No. 333-28737) filed by UDS Capital I and Ultramar Diamond Shamrock
Corporation are incorporated by reference into Part I.
TABLE OF CONTENTS
Item Page
PART I
1. Business....................................................... 2
2. Properties..................................................... 4
3. Legal proceedings.............................................. 4
4. Submission of matters to a vote of security stockholders....... 4
PART II
5. Market for Registrant's common equity and related stockholder
matters........................................................ 4
6. Selected financial data........................................ 4
7. Management's discussion and analysis of financial condition
and results of operations...................................... 5
8. Financial statements and supplementary data.................... 7
9. Changes in and disagreements with accountants on accounting and
financial disclosure........................................... 21
PART III
10. Directors and executive officers of the Registrant.............. 21
11. Executive compensation.......................................... 21
12. Security ownership of certain beneficial owners and management.. 21
13. Certain relationships and related transactions.................. 21
PART IV
14. Exhibits, financial statement schedules and reports on Form 8-K. 22
Signatures........................................................... 24
This Annual Report on Form 10-K (including documents incorporated by reference
herein) contain statements with respect to the Trust's, the Partnership's and
the Company's expectations or beliefs as to future events. These type of
statements are "forward-looking" and are subject to uncertainties. See
"Forward-Looking Statements" on page 6.
PART I
ITEM 1. BUSINESS
UDS Capital I
UDS Capital I (the Trust) is a statutory business trust formed under the
Delaware Business Trust Act, as amended, pursuant to a declaration of trust and
the filing of a certificate of trust with the Secretary of State of the State of
Delaware on June 5, 1997, which was subsequently amended by an amended and
restated declaration of trust dated as of June 25, 1997. On June 25, 1997, the
Trust issued 8,000,000 shares of 8.32% Trust Originated Preferred Securities
(TOPrS), with a $25.00 liquidation amount pe security, in an underwritten public
offering. Also on June 25, 1997, Ultramar Diamond Shamrock Corporation (the
Company) purchased 247,440 shares of 8.32% Trust Common Securities (the Common
Securities and together with the TOPrS, the Trust Securities), which have a
$25.00 liquidation amount per security and represent 3% of the total equity of
the Trust.
The Trust used the proceeds derived from the issuances of the Trust Securities
to purchase partnership preferred securities (the Preferred Securities),
representing the limited partnership interests of UDS Funding I, L.P. (the
Partnership) and, accordingly, the assets of the Trust consist solely of the
Preferred Securities. The Trust exists for the exclusive purpose of (a) issuing
the Trust Securities representing undivided beneficial ownership interests in
the assets of the Trust, (b) investing the gros proceeds of the Trust Securities
in the Preferred Securities, and (c) engaging in only those other activities
necessary or incidental thereto.
Pursuant to the Trust declaration, there are four trustees (the Trustees), two
of the Trustees are individuals who are employees or officers of or who are
affiliated with the Company, a third Trustee is The Bank of New York (the
Property Trustee) and a fourth Trustee is The Bank of New York (Delaware) (the
Delaware Trustee). The Property Trustee will hold title to the Preferred
Securities for the benefit of the holders of the Trust Securities.
Holders of the TOPrS are entitled to receive cumulative cash distributions
accumulating from the date of original issuance (June 25, 1997) and payable
quarterly in arrears on each March 31, June 30, September 30, and December 31,
at an annual rate of 8.32% of the liquidation amount of $25.00 per TOPrS
(equivalent to $2.08 per TOPrS per annum) if, as and when the Trust has the
funds available for payment. The ability of the Trust to pay distributions on
the TOPrS is entirely dependent on its receipt of corresponding distributions
with respect to the Preferred Securities.
The Company has irrevocably guaranteed, on a subordinated basis, the payment in
full of (a) any accumulated and unpaid distributions on the TOPrS to the extent
of funds of the Trust are legally available therefor, (b) the amount payable
upon redemption of the TOPrS to the extent of funds of the Trust are legally
available therefor and (c) generally, the liquidation amount of the TOPrS to the
extent of the assets of the Trust are legally available for distribution to
holders of TOPrS.
UDS Funding I, L.P.
The Partnership is a limited partnership that was formed under the Delaware
Revised Uniform Limited Partnership Act, as amended, pursuant to an agreement of
limited partnership and the filing of a certificate of limited partnership with
the Secretary of State on June 5, 1997, which was subsequently amended by an
amended and restated agreement of limited partnership dated June 25, 1997 (the
Limited Partnership Agreement). On June 25, 1997, the Partnership issued
8,247,440 securities of 8.32% Preferred Securities, with a $25.00 liquidation
preference per security, to the Trust, the Partnership's limited partner. Also
on June 25, 1997, the Company made a capital contribution to the Partnership for
its general partner interest. Pursuant to the Limited Partnership Agreement, the
Company is the sole general partner of the Partnership (the General Partner).
The Partnership is managed by the General Partner and exists for the sole
purpose of (a) issuing its partnership interest, (b) investing the proceeds
thereof in certain eligible securities of the Company and eligible debt
securities of non-affiliated entities, and (c) engaging in only those other
activities necessary or incidental thereto. To the extent that aggregate
payments to the Partnership on its investments exceed distributions accumulated
or payable with respect to the Preferred Securities, the Partnership may at
times have excess funds which shall be allocated to and may, in the General
Partner's sole discretion, be distributed to the General Partner.
So long as the Preferred Securities remain outstanding, the General Partner will
convenant in the Limited Partnership Agreement (a) to remain the sole general
partner of the Partnership and to maintain directly 100% ownership of the
General Partner's interest in the Partnership, which interest will at all times
represent at least 1% of the total capital of the Partnership, (b) to cause the
Partnership to remain a limited partnership and not to voluntarily dissolve,
liquidate, wind-up or be terminated, except as permitted by the Limited
Partnership Agreement, and (c) to use its efforts to ensure that the Partnership
will not be (1) an investment company for purposes of the 1940 Act or (2) an
association or a publicly traded partnership taxable as a corporation for United
States Federal income tax purposes.
The Partnership used the proceeds derived from the issuances of the Preferred
Securities and the capital contribution from the General Partner to purchase
subordinated debentures of the Company and two wholly-owned subsidiaries of the
Company (the Debentures). In addition, the Partnership acquired certain eligible
debt securities representing 1% of the total assets of the Partnership in fixed
maturity securities of the United States government or its agencies (Eligible
Debt Securities). The Debentures have a term of 20 years and bear interest at
8.32% per annum. The Debentures are redeemable on or after June 30, 2002 at the
option of the Company and its subsidiaries, in whole or in part. The interest
payment dates on the Debentures correspond to the distribution payment dates on
the Preferred Securities.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions accumulating from the date of original issuance (June 25, 1997)
and payable quarterly in arrears on each March 31, June 30, September 30, and
December 31, at an annual rate of 8.32% of the liquidation amount of $25.00 per
security (equivalent to $2.08 per security per annum) if, as and when declared
by the General Partner in its sole discretion out of the assets of the
Partnership when funds are legally available for payment. The ability of the
Partnership to pay distributions on the Preferred Securities is dependent on its
receipt of payments with respect to the Debentures and Eligible Debt Securities
held by the Partnership.
The Preferred Securities are redeemable for cash, at the option of the
Partnership, in whole or in part, from time to time, after June 30, 2002 at an
amount per preferred security equal to $25.00 plus accumulated and unpaid
distributions thereon. Upon the redemption of the Preferred Securities, the
TOPrS will be redeemed, in whole or in part.
The Company has irrevocably guaranteed, on a subordinated basis, the payment in
full of (a) any accumulated and unpaid distributions on the Preferred Securities
if, as and when declared out of funds legally available therefor, (b) the amount
payable upon redemption of the Preferred Securities to the extent of funds of
the Partnership are legally available therefor and (c) generally, the
liquidation amount of the Preferred Securities to the extent of the assets of
the Partnership are legally available for distribution to holders of Preferred
Securities.
The location of the principal executive offices of the Company, the Trust, and
the Partnership is c/o Ultramar Diamond Shamrock Corporation, 6000 North Loop
1604 West, San Antonio, Texas 78249-1112 and the telephone number is (210)
592-2000.
ITEM 2. PROPERTIES
Not Applicable.
ITEM 3. LEGAL PROCEEDINGS
Neither the Trust nor the Partnership know of no material legal proceedings
involving the Trust, the Partnership or the assets of either of them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of holders of any securities of the Trust or
the Partnership during the period from June 5, 1997 (inception) to December 31,
1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(1) There is no established public market for the Common Securities of the Trust
or the general partnership interest in the Partnership.
(2) All of the Common Securities of the Trust and all of the general partnership
interest in the Partnership are owned of record and beneficially by the Company.
(3) The Company, as holder of the Common Securities of the Trust, is entitled to
receive cumulative cash distributions accumulating from June 25, 1997 and
payable quarterly in arrears on each March 31, June 30, September 30, and
December 31, at an annual rate of 8.32% of the liquidation amount per annum.
Distributions not paid on the scheduled payment dates will accumulate and
compound quarterly at a rate per annum equal to 8.32%. The Limited Partnership
Agreement does not require any regular periodic distributions to be made to the
General Partner; however, to the extent that aggregate payments to the
Partnership on the Debentures and Eligible Debt Securities exceed distributions
accumulated or payable with respect to the Preferred Securities, the Partnership
may at times have excess funds which shall be allocated to and may, in the
General Partner's sole discretion, be distributed to the General Partner.
(4) Since June 25, 1997, the 8.32% TOPrS of the Trust have been listed on the
New York stock exchange under the symbol "UDS-PA". From June 25, 1997 through
December 31, 1997, the high and low sales prices on the New York Stock Exchange
have been $26.25 and $25.00 per TOPrS, respectively. As of February 27, 1998,
there were 8,000,000 TOPrS outstanding which were held by 100 holders of record.
(5) Since issuance in June 1997, the Trust has declared and paid dividends of
$1.07 per TOPrS. The Trust expects to continue to pay quarterly distributions on
the TOPrS at a rate of $0.52 per TOPrS to the extent the Trust has funds
available for the payment of such distributions.
ITEM 6. SELECTED FINANCIAL DATA
The activities of the Trust and the Partnership are limited to issuing
securities and investing the proceeds as described in Item 1 - Business above.
Accordingly, the financial statements included herein in response to Item 8 -
Financial Statements and Supplementary Data are incorporated by reference in
response to this Item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Trust is a statutory business trust formed on June 5, 1997 under the
Delaware Business Act. The Trust exists for the exclusive purpose of (a) issuing
the 8.32% TOPrS and the Common Securities of the Trust, representing undivided
ownership interests in the assets of the Trust, (b) investing the gross proceeds
from the issuance of the Trust Securities into the 8.32% Preferred Securities
issued by the Partnership, and (c) engaging in only those other activities
necessary or incidental thereto.
The Partnership is a limited partnership formed on June 5, 1997 under the
Delaware Revised Uniform Limited Partnership Act, as amended. The Company is the
general partner of the Partnership and the Trust holds 100% of the limited
partnership interest of the Partnership. The Partnership is managed by the
general partner and exists for the exclusive purposes of (a) issuing its
partnership interests, consisting of the general partner interest and the
Preferred Securities, (b) investing the proceeds thereof in certain subordinated
debentures of the Company and wholly-owned subsidiaries of the Company and in
certain non-affiliated debt securities, and (c) engaging in only those
activities necessary or incidental thereto.
The Trust's and the Partnership's activities are limited to issuing securities
and investing the proceeds as described above. Since the Trust was organized on
June 5, 1997, its activities, as specified in its declaration of trust, have
been limited to the issuance of the TOPrS and Common Securities for total
proceeds of $200,000,000 and $6,186,000, respectively, and investing the
proceeds therefrom into Preferred Securities of the Partnership. Each quarter
ended, the Trust made distribution payments on the TOPrS and Common Securities
in accordance with their terms, and received funds from the Partnership of
equivalent amounts. Total distributions for the period from June 5, 1997
(inception) to December 31, 1997 on the TOPrS and Common Securities were
$8,552,000 and $264,000, respectively. Total earnings from the Preferred
Securities were $8,816,000 for the period from June 5, 1997 (inception) to
December 31, 1997.
Since the Partnership was organized on June 5, 1997, its activities, as
specified in its Limited Partnership Agreement, have been limited to the
issuance of the Preferred Securities and the general partner interest for total
proceeds of $206,186,000 and $36,386,000, respectively, and investing the
proceeds therefrom into the subordinated debentures of the Company and
wholly-owned subsidiaries of the Company totaling $240,146,000. In addition, the
Partnership has invested approximately $2,400,000 in non-affiliated debt
securities and other investments. Each quarter ended, the Partnership made
distribution payments on the Preferred Securities and general partner interest
in accordance with their terms, and received funds from the Company,
wholly-owned subsidiaries of the Company and non-affiliated investment issuers
of approximately the same amounts. Total distributions for the period from June
5, 1997 (inception) to December 31, 1997 on the Preferred Securities and general
partner interest were $8,816,000 and $1,452,000, respectively. Total earnings
from the Debentures and other Partnership investments were $10,326,000 for the
period from June 5, 1997 (inception) to December 31, 1997.
Neither the Trust nor the Partnership use derivative financial instruments.
The Company provides, at no cost, all computer and administrative support
necessary to process the activities of the Trust and the Partnership, and the
Company is in the process of making the necessary system conversions to handle
the year 2000 dated transactions.
The impact of inflation has slowed in recent years and is not expected to have a
significant effect on the Trust or the Partnership as their activities are
fixed, based on the investments owned and the distribution requirements of the
equity ownership interest in the related entities.
Certain Forward Looking Statements
This Annual Report on Form 10-K and Form S-3, incorporated herein by reference,
contains certain "forward-looking" statements as such term is defined in the
U.S. Private Securities Litigation Reform Act of 1995 and information relating
to the Trust, the Partnership or the Company and its subsidiaries that are based
on the beliefs of management as well as assumptions made by and information
currently available to management. When used in this Annual Report or the Form
S-3, the words "anticipate," "believe "estimate," "expect," "intend" and similar
expressions, as they relate to the Trust, the Partnership, the Company or its
subsidiaries or management, identify forward-looking statements. Such statements
reflect the current views of management with respect to future events and are
subject to certain risks, uncertainties and assumptions relating to the
operations and results of operations, including as a result of competitive
factors and pricing pressures, shifts in market demand and general economic
conditions and other factors. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results or
outcomes may vary materially from those described herein as anticipated,
believed, estimated, expected, or intended.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Public Accountants
To UDS Capital I:
We have audited the accompanying balance sheet of UDS Capital I, a Delaware
business trust (the Trust) as of December 31, 1997 and the related statements of
income, stockholders' equity and cash flows for the period from June 5, 1997
(inception) to December 31, 1997. These financial statements are the
responsibility of Ultramar Diamond Shamrock Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UDS Capital I as of December
31, 1997 and the results of its operations and its cash flows for the period
from June 5, 1997 (inception) to December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
February 27, 1998
UDS CAPITAL I
BALANCE SHEET
December 31, 1997
(in thousands)
Assets
Investment in UDS Funding I, L.P. preferred securities $206,186
--------
Total assets $206,186
========
Stockholders' Equity
8.32 % Trust Originated Preferred Securities, $25.00
liquidation amount per security:
8,000,000 securities authorized, issued and outstanding $200,000
8.32% Trust Common Securities, $25.00 liquidation amount per
security:
247,440 securities authorized, issued and outstanding 6,186
---------
Total stockholders' equity $206,186
See accompanying notes to financial statements.
UDS CAPITAL I
STATEMENT OF INCOME
For the Period from June 5, 1997 (inception) to December 31, 1997
(in thousands)
Income on UDS Funding I, L.P. preferred securities $8,816
======
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
UDS CAPITAL I
STATEMENT OF STOCKHOLDERS' EQUITY
For the Period from June 5, 1997 (inception) to December 31, 1997
(in thousands)
Total
Common Preferred Retained Stockholders'
Securities Securities Earnings Equity
---------- ---------- -------- -------------
June 5, 1997 (Inception)
<S> <C> <C> <C> <C>
Issuance of 247,440 securities of 8.32% Trust Common
Securities to Ultramar Diamond Shamrock Corporation $6,186 $ - $ - $ 6,186
Issuance of 8,000,000 securities of 8.32% Trust Originated
Preferred Securities in a public offering - 200,000 - 200,000
Net income - - 8,816 8,816
Dividends on 8.32% Trust Originated Preferred Securities - - (8,552) (8,552)
Dividends on 8.32% Trust Common Securities - - (264) (264)
------- -------- ------- --------
Balance at December 31, 1997 $6,186 $200,000 $ - $206,186
======= ======== ======= ========
See accompanying notes to financial statements.
</TABLE>
UDS CAPITAL I
STATEMENT OF CASH FLOWS
For the Period from June 5, 1997 (inception) to December 31, 1997
(in thousands)
Cash Flows Provided By Operating Activities -
Net income on UDS Funding I, L.P. preferred securities $ 8,816
---------
Cash Flows Used In Investing Activities -
Purchase of UDS Funding I, L.P. preferred securities (206,186)
---------
Cash Flows From Financing Activities:
Issuance of 8.32% Trust Originated Preferred Securities in a
public offering 200,000
Issuance of 8.32% Trust Common Securities to Ultramar
Diamond Shamrock Corporation 6,186
Distributions on 8.32% Trust Originated Preferred Securities (8,552)
Distributions on 8.32% Trust Common Securities (264)
--------
Net cash provided by financing activities 197,370
--------
Net Change in Cash -
Cash at June 5, 1997 (Inception) -
---------
Cash at December 31, 1997 $ -
=========
See accompanying notes to financial statements.
UDS CAPITAL I
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1: Summary of Significant Accounting Policies
Basis of Presentation: UDS Capital I (the Trust) is a statutory business trust
formed on June 5, 1997 under the Business Trust Act of the State of Delaware for
the exclusive purposes of (a) issuing the Trust Originated Preferred Securities
(TOPrS) and the Trust Common Securities (the Common Securities and together with
the TOPrS, the Trust Securities) representing undivided beneficial ownership
interests in the assets of the Trust, (b) purchasing Partnership Preferred
Securities (the Preferred Securities) representing the limited partnership
interests of UDS Funding I, L.P. (the Partnership) with the proceeds from the
sale of the Trust Securities, and (c) engaging in only those other activities
necessary or incidental thereto. The Trust has a perpetual existence, subject to
certain termination events as provided in the Declaration of Trust under which
it was formed.
The Trust and Partnership are wholly-owned subsidiaries of Ultramar Diamond
Shamrock Corporation (the Company) and all expenses related to the operations of
the Trust and the Partnership are paid for by the Company. The Trustees, who
manage the Trust, are employees of the Company.
Cash: The Trust maintains minimal cash balances, as all income received on the
Preferred Securities is distributed immediately.
Investments: The investment in Preferred Securities represents the limited
partnership interest in the Partnership, and is recorded at cost. The carrying
value of the investment approximates its fair value. Income on the investment is
accrued when earned.
Income Taxes: The Trust is classified as a grantor trust for U.S. Federal income
tax purposes. Accordingly, the Trust does not incur any income tax liabilities.
Such liabilities are incurred directly by the security holders.
Use of Estimates: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. On an
ongoing basis, management reviews its estimates, including those related to
investment values, based on currently available information. Changes in facts
and circumstances may result in revised estimates.
NOTE 2: Investment in UDS Funding I, L.P. Preferred Securities
On June 25, 1997, the Trust purchased 8,247,440 8.32% Preferred Securities with
a $25.00 liquidation preference per security from the Partnership, a Delaware
partnership. The general partnership interest in the Partnership is owned by the
Company. The Preferred Securities are redeemable on or after June 30, 2002 at
the option of the Partnership, in whole or in part, at a redemption price equal
to $25.00 per security. Upon any redemption of the Preferred Securities, the
TOPrS will be redeemed.
Distributions on the Preferred Securities are payable quarterly in arrears on
March 31, June 30, September 30, and December 31 of each year. Distributions not
paid on the scheduled payment date accumulate and compound quarterly at the rate
of 8.32% per annum. The distribution payment dates of the Preferred Securities
correspond to the distribution payment dates of the TOPrS. The Company has
guaranteed, on a subordinated basis, the distributions due on the Preferred
Securities if and when declared by th Partnership and the payments upon
liquidation of the Partnership or the redemption of the Preferred Securities to
the extent funds are legally available.
UDS CAPITAL I
NOTES TO FINANCIAL STATEMENTS -continued
December 31, 1997
NOTE 3: Stockholders' Equity
Trust Originated Preferred Securities (TOPrS)
On June 25, 1997, the Trust issued 8,000,000 of the 8.32% TOPrS, with a $25.00
liquidation amount per security in an underwritten public offering. The total
proceeds from the public offering were $200,000,000 and the Company paid all
fees and expenses related to the offering. Holders of the TOPrS have limited
voting rights and are not entitled to vote to appoint, remove or replace, or to
increase or decrease the number of trustees, which voting rights are vested
exclusively in the holder of the Common Securities. Under certain circumstances,
the TOPrS have preferential rights to payments relative to the Common
Securities.
The TOPrS are redeemable on or after June 30, 2002 at the option of the Trust,
in whole or in part, at a redemption price equal to $25.00 per security.
Distributions on the TOPrS are cumulative, from June 25, 1997, and are payable
quarterly on March 31, June 30, September 30, and December 31 of each year, if
and when the Trust has funds available for distribution. The Company has
guaranteed, on a subordinated basis, the payment of all distributions and other
payments on the TOPrS to the extent funds are legally available. This guarantee
and the Partnership distribution guarantee are subordinated to all other
liabilities of the Company and rank pari passu with the most senior preferred
stock of the Company.
Trust Common Securities
On June 25, 1997, the Trust issued 247,440 of the 8.32% Common Securities with a
$25.00 liquidation amount per security to the Company for $6,186,000. The Common
Securities are redeemable on or after June 30, 2002 at the option of the Trust,
in whole or in part, at a redemption price equal to $25.00 per security.
Distributions on the Common Securities are cumulative, from June 25, 1997, and
payable quarterly on March 31, June 30, September 30, and December 31 of each
year, in arrears, at the annual rate of 8.32% of the liquidation amount, if and
when the Trust has funds available for distribution, subject to the Preferred
Securities preferential rights.
Report of Independent Public Accountants
To UDS Funding I, L.P.:
We have audited the accompanying balance sheet of UDS Funding I, L.P., a
Delaware limited partnership (the Partnership) as of December 31, 1997 and the
related statements of income, partners' capital and cash flows for the period
from June 5, 1997 (inception) to December 31, 1997. These financial statements
are the responsibility of the General Partner's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UDS Funding I, L.P. as of
December 31, 1997 and the results of its operations and its cash flows for the
period from June 5, 1997 (inception) to December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
February 27, 1998
<TABLE>
<CAPTION>
UDS FUNDING I, L.P.
BALANCE SHEET
December 31, 1997
(in thousands)
Assets
<S> <C>
Cash and cash equivalents $ 56
--------
Investments:
Bank certificate of deposit 99
Investment in U.S. Treasury Notes, at amortized cost 2,329
Subordinated debentures of Ultramar Diamond Shamrock Corporation, at cost 206,186
Subordinated debentures of Ultramar, Inc. and Diamond Shamrock Refining
Company, both wholly-owned subsidiaries of Ultramar Diamond Shamrock
Corporation, at cost 33,960
Total investments 242,574
Total assets $242,630
========
Partners' Capital
Limited partnership interest held by UDS Capital I, a Delaware business trust
8,247,440 preferred securities with $25.00 per security liquidation preference $206,186
General partnership interest held by Ultramar Diamond Shamrock Corporation 36,444
--------
Total Partners' Capital $242,630
========
See accompanying notes to financial statements.
</TABLE>
UDS FUNDING I, L.P.
STATEMENT OF INCOME
For the Period from June 5, 1997 (inception) to December 31, 1997
(in thousands)
Interest income:
Interest income on subordinated debenture of Ultramar Diamond
Shamrock Corporation $ 8,816
Interest income on subordinated debentures of Ultramar, Inc. and
Diamond Shamrock Refining Company, both wholly-owned
subsidiaries of Ultramar Diamond Shamrock Corporation 1,452
Interest income on U.S. government securities, certificate of 58
deposit and cash equivalents
Net income $10,326
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
UDS FUNDING I, L.P.
STATEMENT OF PARTNERS' CAPITAL
For the Period from June 5, 1997 (inception) to December 31, 1997
(in thousands)
Total
General Limited Partners'
Partner Partners Capital
------- -------- ---------
June 5, 1997 (Inception)
<S> <C> <C> <C>
Issuance of partnership preferred securities to UDS Capital I $ - $206,186 $206,186
Issuance of general partner interest to Ultramar Diamond
Shamrock Corporation 36,386 - 36,386
Net income allocated to partners 1,510 8,816 10,326
Distributions to partners (1,452) (8,816) (10,268)
------- -------- --------
Balance at December 31, 1997 $36,444 $206,186 $242,630
======= ======== ========
See accompanying notes to financial statements.
</TABLE>
UDS FUNDING I, L.P.
STATEMENT OF CASH FLOWS
For the Period from June 5, 1997 (inception) to December 31, 1997
(in thousands)
Cash Flows from Operating Activities:
Net income $ 10,326
Accretion on U.S. government securities (26)
-----------
Net cash provided by operating activities 10,300
-----------
Cash Flows from Investing Activities:
Purchases of affiliated subordinated debentures (240,146)
Purchases of U.S. government securities (3,503)
Maturities of U.S. government securities 1,200
Purchase of bank certificate of deposit (99)
-----------
Net cash used in investing activities (242,548)
-----------
Cash Flows from Financing Activities:
Proceeds from issuance of preferred securities 206,186
Contributions for general partner interest 36,386
Distributions to partners (10,268)
-----------
Net cash provided by financing activities 232,304
-----------
Net Change in Cash 56
Cash at June 5, 1997 (Inception) -
-----------
Cash at December 31, 1997 $ 56
===========
See accompanying notes to financial statements.
UDS FUNDING I, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
NOTE 1: Summary of Significant Accounting Policies
Basis of Presentation: UDS Funding I, L.P. (the Partnership) is a limited
partnership formed on June 5, 1997 under the Delaware Revised Uniform Limited
Partnership Act for the exclusive purposes of purchasing certain eligible debt
instruments of Ultramar Diamond Shamrock Corporation (the Company) and the
Company's wholly-owned subsidiaries, Ultramar, Inc. and Diamond Shamrock
Refining Company (the Subsidiaries) with (a) the proceeds from the sale of the
Partnership preferred securities (the Preferred Securities), representing 100%
of the limited partnership interest, to UDS Capital I (the Trust), and (b) a
capital contribution from the Company in exchange for the general partnership
interest in the Partnership.
The Company in its capacity as the sole general partner of the Partnership, has
agreed to pay all expenses and fees related to the organization and operation of
the Partnership and for all the debts and other obligations of the Partnership.
Additionally, the Company has agreed to indemnify certain officers and agents of
the Partnership. Except as provided in certain partnership agreements and as
otherwise provided by law, the holders of the Preferred Securities have no
voting rights.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with an original maturity of three months or less when purchased to be cash
equivalents. As of December 31, 1997, cash equivalents consisted of $12,258 of
overnight money market funds, whose cost approximates fair value.
Investments: Investments in subordinated debentures of the Company and the
Subsidiaries, and in U.S. government securities are classified as
held-to-maturity and are recorded at amortized cost. The carrying value of the
subordinated debentures approximates their fair value as of December 31, 1997.
As of December 31, 1997, the U.S. government securities consist of a U.S.
Treasury Note with a market value of $1,723,843, which matures on June 30, 1998,
and a U.S. Treasury Note with a market value of $600,750, which matures on March
31, 1998.
Income Taxes: The Partnership is classified as a partnership for U.S. Federal
income tax purposes. Accordingly, the Partnership does not incur any income tax
liabilities. Such liabilities are incurred directly by the partners.
Use of Estimates: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. On an
ongoing basis, management reviews its estimates, including those related to
investment values, based on currently available information. Changes in facts
and circumstances may result in revised estimates.
NOTE 2: Investment in Subordinated Debentures
On June 25, 1997, the Partnership purchased debentures of the Company and the
Subsidiaries. The subordinated debentures have a term of 20 years and bear
interest at 8.32% per annum. The subordinated debentures are redeemable on or
after June 30, 2002 at the option of the Company and the Subsidiaries, in whole
or in part, at a redemption price equal to the entire principal amount of the
subordinated debentures being so redeemed plus any accrued and unpaid interest.
The interest payment dates correspond to the distribution payment dates of the
Preferred Securities. Interest and redemption payments on the Subsidiaries
debentures are guaranteed by the Company on a subordinated basis.
UDS FUNDING I, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
December 31, 1997
NOTE 3: Partners' Capital
On June 25, 1997, the Partnership sold 8,247,440 of the 8.32% Preferred
Securities, with a $25.00 liquidation preference per security to the Trust for
total proceeds of $206,186,000. The Preferred Securities are redeemable on or
after June 30, 2002 at the option of the Partnership, in whole or in part, at a
redemption price equal to $25.00 per security. Distributions on the Preferred
Securities are cumulative from June 25, 1997 and are payable quarterly on March
31, June 30, September 30 and December 31 of each year, if and when declared by
the General Partner.
The Company has guaranteed, on a subordinated basis, the distributions due on
the Preferred Securities if and when declared by the Partnership and the
payments upon liquidation of the Partnership or the redemption of the Preferred
Securities to the extent funds are legally available. This guarantee is
subordinated to all other liabilities of the Company and ranks pari passu with
the most senior preferred stock of the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Trustees of the Trust are as follows:
Regular Trustee H. Pete Smith
Regular Trustee Steve Blank
Property Trustee The Bank of New York
Delaware Trustee The Bank of New York (Delaware)
H. Pete Smith is Executive Vice President and Chief Financial Officer of the
Company, and has served in those capacities since the Merger of Ultramar
Corporation and Diamond Shamrock, Inc. in December 1996. From April 1996 to the
Merger, he was Senior Vice President and Chief Financial Officer of Ultramar
Corporation. Prior to April 1996, he was Vice President and Chief Financial
Officer of Ultramar Corporation.
Steve Blank is Vice President and Treasurer of the Company and has served in
that capacity with the Company since the Merger of Ultramar Corporation and
Diamond Shamrock, Inc. in December 1996. Previously he served in various
positions within Ultramar Corporation. Each Trustee has served in their
respective capacity since the Trust was organized on June 5, 1997. The Trustees
serve at the pleasure of the Company, as the holder of the Common Securities of
the Trust.
The Partnership has no directors or executive officers, and the Company serves
as General Partner.
ITEM 11. EXECUTIVE COMPENSATION
Neither the Trust nor the Partnership has any executive officers. No employee of
the Company receives any compensation for serving as a Trustee or acting in any
capacity for the Trust or the Partnership separate from compensation as an
employee of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in Item 1 - Business and Item 5 - Market for Registrants' Common
Equity and Related Stockholder Matters with respect to ownership of the Common
Securities of the Trust is incorporated by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(A) Documents filed as part of this report:
(1) Financial Statements of the Trust and the Partnership are included
under Part II, Item 8:
UDS Capital I - Financial Statements:
Accountants Report
Balance Sheet as of December 31, 1997
Statement of Income for the Period from June 5, 1997 (inception) to December
31, 1997 Statement of Stockholders' Equity for the Period from June 5, 1997
(inception) to
December 31, 1997
Statement of Cash Flows for the Period from June 5, 1997 (inception) to
December 31, 1997 Notes to Financial Statements
UDS Funding I, L.P. - Financial Statements:
Accountants Report
Balance Sheet as of December 31, 1997
Statement of Income for the Period from June 5, 1997 (inception) to December
31, 1997 Statement of Partners' Capital for the Period from June 5, 1997
(inception) to
December 31, 1997
Statement of Cash Flows for the Period from June 5, 1997 (inception) to
December 31, 1997 Notes to Financial Statements
(2) Financial Statement Schedules - None.
(B) Reports on Form 8-K - None.
(C) Exhibits:
Certain of the following exhibits were previously filed as exhibits to other
reports or registration statements filed by the Trust and are incorporated
herein by reference to such reports or registration statements as indicated
parenthetically below by the appropriate report reference date or registration
statement number.
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
Number Description to the Following Documents
<S> <C> <C> <C>
4.1 Certificate of Trust of UDS Capital I dated June Registration Statement on Form S-3 (File
5, 1997 No.333-28737)
4.2 Amended and Restated Declaration of Trust of Current Report on Form 8-K dated June 30, 1997
UDS Capital I dated June 25, 1997
4.3 Certificate of Limited Partnership of UDS Registration Statement on Form S-3 (File
Funding I, L.P. dated June 5, 1997 No.333-28737)
4.4 Amended and Restated Limited Partnership Current Report on Form 8-K dated June 30, 1997
Agreement of UDS Funding I, L.P. dated June
25, 1997
4.5 Trust Preferred Securities Guarantee Agreement Current Report on Form 8-K dated June 30, 1997
between Ultramar Diamond Shamrock
corporation and The Bank of New York as
guarantee Trustee dated June 25, 1997
4.6 Partnership Preferred Securities Guarantee Current Report on Form 8-K dated June 30, 1997
Agreement by Ultramar Diamond Shamrock
Corporation dated June 25, 1997
4.7 Subordinated Indenture between Ultramar Current Report on Form 8-K dated June 30, 1997
Diamond Shamrock Corporatoin The Bank
of New York dated June 25, 1997
4.8 Affiliate Debenture Guarantee Agreement Registration Statement on Form S-3 (File
between Ultramar Diamond Shamrock No.333-28737)
Corporation and The Bank of New York
4.9 Certificate Evidencing Trust Preferred Security Current Report on Form 8-K dated June 30, 1997
4.10 Certificate Evidencing Partnership Preferred Current Report on Form 8-K dated June 30, 1997
Security
4.11 Subordinated Debenture Current Report on Form 8-K dated June 30, 1997
10.1 8.32% Subordinated Debenture Due 2017 dated Current Report on Form 8-K dated June 30, 1997
June 25, 1997
23.1 Consent of Arthur Andersen +
27.1 Financial Data Schedule +
+ Filed herewith.
</TABLE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the Trust and the Partnership have duly caused this report to be
signed on their behalf by the undersigned, thereunto duly authorized as of March
16, 1998.
UDS Capital I
By: /s/ H. PETE SMITH
Name: H. Pete Smith
Title: Trustee
By: /s/ STEVE BLANK
Name: Steve Blank
Title: Trustee
UDS Funding I, L.P.
By: Ultramar Diamond Shamrock Corporation, as General Partner
By: /s/ H. PETE SMITH
Name: H. Pete Smith
Title: Executive Vice President and Chief Financial Officer
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Trust's previously filed
Registration Statement on Form S-3 (No. 333-28737).
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
March 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1040581
<NAME> UDS Capital I
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 206,200
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 206,200
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
200,000
<COMMON> 6,200
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 206,200
<SALES> 8,800
<TOTAL-REVENUES> 8,800
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,800
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
