UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934:
For the quarter ended March 31, 1998
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 XX No
<PAGE>
UDS CAPITAL I AND UDS FUNDING I, L.P.
FORM 10-Q
March 31, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
UDS CAPITAL I
Balance Sheets as of March 31, 1998 and December 31, 1997................ 2
Statement of Income for the Three Months Ended March 31, 1998............ 3
Statement of Cash Flows for the Three Months Ended March 31, 1998........ 4
Notes to Financial Statements............................................ 5
UDS FUNDING I, L.P.
Balance Sheets as of March 31, 1998 and December 31, 1997................ 7
Statement of Income for the Three Months Ended March 31, 1998............ 8
Statement of Cash Flows for the Three Months Ended March 31, 1998........ 9
Notes to Financial Statements............................................10
Item 2. Management's discussion and analysis of financial condition
and results of operation.......................................12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................13
SIGNATURES...................................................................14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
UDS CAPITAL I
BALANCE SHEETS
(in thousands)
March 31, December 31,
1998 1997
(Unaudited)
Assets
<S> <C> <C>
Investment in UDS Funding I, L.P. Preferred Securities $206,186 $206,186
-------- --------
Total assets $206,186 $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 $200,000
8.32% Trust Common Securities, $25.00 liquidation amount per security:
247,440 securities authorized, issued and outstanding 6,186 6,186
-------- --------
Total stockholders' equity $206,186 $206,186
======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
UDS CAPITAL I
STATEMENT OF INCOME
For the Three Months Ended March 31, 1998
(Unaudited, in thousands)
Income on UDS Funding I, L.P. Preferred Securities $4,289
======
Prior year comparable information does not exist since UDS Capital I was formed
on June 5, 1997.
See accompanying notes to financial statements.
<PAGE>
UDS CAPITAL I
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1998
(Unaudited, in thousands)
Cash Flows Provided By Operating Activities -
Net income on UDS Funding I, L.P. Preferred Securities $ 4,289
-------
Cash Flows From Financing Activities:
Distributions on 8.32% Trust Originated Preferred Securities (4,160)
Distributions on 8.32% Trust Common Securities (129)
-------
Net cash used in financing activities (4,289)
-------
Net Change in Cash -
Cash at December 31, 1997 -
-------
Cash at March 31, 1998 $ -
=======
Prior year comparable information does not exist since UDS Capital I was formed
on June 5, 1997.
See accompanying notes to financial statements.
<PAGE>
UDS CAPITAL I
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
NOTE 1: Basis of Presentation
The accompanying unaudited financial statements have been prepared by UDS
Capital I (the Trust) in accordance with generally accepted accounting
principles for interim financial reporting and with Securities and Exchange
Commission rules and regulations for Form 10-Q. In the opinion of the Trust's
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. These unaudited financial
statements should be read in conjunction with th audited financial statements
and notes thereto included in the Trust's annual report on Form 10-K for the
period from June 5, 1997 (inception) to December 31, 1997.
NOTE 2: Summary of Significant Accounting Policies
Cash: The Trust maintains minimal cash balances, as all income received on the
UDS Funding I, L.P. Preferred Securities is distributed immediately.
Investments: The investment in Preferred Securities represents the limited
partnership interest in UDS Funding I, L.P. (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.
Expenses: 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 officers of the Company.
NOTE 3: 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
Trust Originated Preferred Securities (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 the Partnership and the payments upon
liquidation of the Partnership or the redemption of the Preferred Securities to
the extent funds are legally available.
<PAGE>
UDS CAPITAL I
NOTES TO FINANCIAL STATEMENTS -continued
March 31, 1998
(Unaudited)
NOTE 4: Stockholders' Equity
Trust Originated Preferred Securities (TOPrS)
On June 25, 1997, the Trust issued 8,000,000 of 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 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 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 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.
<PAGE>
<TABLE>
<CAPTION>
UDS FUNDING I, L.P.
BALANCE SHEETS
(in thousands)
March 31, December 31,
1998 1997
(Unaudited)
Assets
<S> <C> <C>
Cash and cash equivalents $ 25 $ 56
----------- ------------
Investments:
Bank certificate of deposit 99 99
Investment in U.S. Treasury Notes, at amortized cost 2,391 2,329
Subordinated debentures of Ultramar Diamond Shamrock Corporation, at cost 206,186 206,186
Subordinated debentures of Ultramar Inc. and Diamond Shamrock Refining
Company, L.P., both wholly-owned subsidiaries of Ultramar Diamond Shamrock
Corporation, at cost 33,960 33,960
----------- ------------
Total investments 242,636 242,574
----------- ------------
Total assets $242,661 $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 $206,186
General partnership interest held by Ultramar Diamond Shamrock Corporation 36,475 36,444
----------- ------------
Total partners' capital $242,661 $242,630
=========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
UDS FUNDING I, L.P.
STATEMENT OF INCOME
For the Three Months Ended March 31, 1998
(Unaudited, in thousands)
Interest income:
Interest income on subordinated debenture of Ultramar Diamond
Shamrock Corporation $4,289
Interest income on subordinated debentures of Ultramar Inc. and
Diamond Shamrock Refining Company, L.P., both wholly-owned
subsidiaries of Ultramar Diamond Shamrock Corporation 706
Interest income on U.S. government securities, certificate of
deposit and cash equivalents 32
Net income $5,027
Prior year comparable information does not exist since UDS Funding I, L.P. was
formed on June 5, 1997.
See accompanying notes to financial statements.
<PAGE>
UDS FUNDING I, L.P.
STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1998
(Unaudited, in thousands)
Cash Flows from Operating Activities:
Net income $ 5,027
Accretion on U.S. government securities (2)
--------
Net cash provided by operating activities 5,025
--------
Cash Flows from Investing Activities:
Purchases of U.S. government securities (650)
Maturities of U.S. government securities 600
Other (11)
--------
Net cash used in investing activities (61)
--------
Cash Flows from Financing Activities:
Distributions to general partner (706)
Distributions to limited partner (4,289)
Net cash used in financing activities (4,995)
--------
Net Decrease in Cash (31)
Cash at December 31, 1997 56
--------
Cash at March 31, 1998 $ 25
========
Prior year comparable information does not exist since UDS Funding I, L.P. was
formed on June 5, 1997.
See accompanying notes to financial statements.
<PAGE>
UDS FUNDING I, L.P.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
NOTE 1: Basis of Presentation
The accompanying unaudited financial statements have been prepared by UDS
Funding I, L.P. (the Partnership) in accordance with generally accepted
accounting principles for interim financial reporting and with Securities and
Exchange Commission rules and regulations for Form 10-Q. In the opinion of the
Partnership's management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. These
unaudited financial statements should be read in conjunction with the audited
financial statements and notes thereto included in UDS Capital I's (the Trust)
annual report on Form 10-K for the period from June 5, 1997 (inception) to
December 31, 1997.
NOTE 2: Summary of Significant Accounting Policies
Cash and Cash Equivalents: The Partnership considers all highly liquid
investments with an original maturity of three months or less when purchased to
be cash equivalents. As of March 31, 1998, cash equivalents consisted of $25,000
of overnight money market funds, whose cost approximates fair value.
Investments: Investments in subordinated debentures of Ultramar Diamond Shamrock
Corporation (the Company) and Ultramar Inc. and Diamond Shamrock Refining
Company L.P. (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 March
31, 1998.
As of March 31, 1998, 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 $648,375, which matures on March 31,
2000.
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.
Expenses: 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.
NOTE 3: 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.
<PAGE>
UDS FUNDING I, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
March 31, 1998
(Unaudited)
NOTE 4: Partners' Capital
On June 25, 1997, the Partnership sold 8,247,440 of 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 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. Except as provided in certain
partnership agreements and as otherwise provide by law, the holders of the
Preferred Securities have no voting rights.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
UDS Capital I (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% Trust Originated Preferred Securities (the TOPrS) and the
Common Securities of the Trust (collectively with the TOPrS, the Trust
Securities), 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% Partnership Preferred Securities (the Preferred
Securities) issued by UDS Funding I, L.P. (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. Ultramar Diamond
Shamrock Corporation (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 Ultramar Inc. and
Diamond Shamrock Refining Company L.P. (the Subsidiaries), 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 three months ended March 31,
1998 on the TOPrS and Common Securities were $4,160,000 and $129,000,
respectively. Total earnings from the Preferred Securities were $4,289,000 for
the three months ended March 31, 1998.
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 $2,500,000 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 three months
ended March 31, 1998 on the Preferred Securities and general partner interest
were $4,289,000 and $706,000, respectively. Total earnings from the Debentures
and other Partnership investments were $5,027,000 for the three months ended
March 31, 1998.
Neither the Trust nor the Partnership use derivative financial instruments.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
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 May
11, 1998.
UDS Capital I
By: /s/ H. PETE SMITH
Name: H. Pete Smith
Title: Regular Trustee
May 11, 1998
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
May 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<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> 4,300
<TOTAL-REVENUES> 4,300
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,300
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,300
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
