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 September 30, 1999
Commission File Number 333-28737
UDS CAPITAL I
Formed under the laws of the State of Delaware
I.R.S. Employer Identification No. 74-6454974
6000 North Loop 1604 West
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.
Formed under the laws of the State of Delaware
I.R.S. Employer Identification No. 74-2835441
6000 North Loop 1604 West
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 ____
<PAGE>
UDS CAPITAL I AND UDS FUNDING I, L.P.
FORM 10-Q
September 30, 1999
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
UDS CAPITAL I
Balance Sheets as of September 30, 1999 and December 31, 1998........ 3
Statements of Income for the Three and Nine Months 4
Ended September 30, 1999 and 1998..................................
Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998.................................. 5
Notes to Financial Statements........................................ 6
UDS FUNDING I, L.P.
Balance Sheets as of September 30, 1999 and December 31, 1998........ 8
Statements of Income for the Three and Nine Months
Ended September 30, 1999 and 1998.................................. 9
Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998.................................. 10
Notes to Financial Statements........................................ 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................. 14
SIGNATURES............................................................. 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UDS CAPITAL I
BALANCE SHEETS
(in thousands, except securities data)
September December
30, 31,
1999 1998
---- ----
(Unaudited)
Assets
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
======== ========
See accompanying notes to financial statements.
<PAGE>
UDS CAPITAL I
STATEMENTS OF INCOME
(Unaudited, in thousands)
Three Months Nine Months Ended
Ended Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Net income on UDS Funding I, L.P.
Preferred Securities $4,289 $4,289 $12,866 $12,866
====== ====== ======= =======
See accompanying notes to financial statements.
<PAGE>
UDS CAPITAL I
STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
September 30,
1999 1998
---- ----
Cash Flows Provided By Operating Activities -
Net income on UDS Funding I, L.P. Preferred Securities $ 12,866 $ 12,866
-------- -------
Cash Flows From Financing Activities:
Distributions on 8.32% Trust Originated Preferred
Securities $(12,480) $(12,480)
Distributions on 8.32% Trust Common Securities (386) (386)
-------- --------
Net cash used in financing activities (12,866) (12,866)
-------- --------
Net Change in Cash - -
Cash at Beginning of Period - -
-------- --------
Cash at End of Period $ - $ -
======== ========
See accompanying notes to financial statements.
<PAGE>
UDS CAPITAL I
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
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 for the exclusive purposes of:
o 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,
o 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
o engaging in only those other activities necessary or incidental
thereto.
The Trust has a perpetual existence, subject to certain termination events.
The Trust is a wholly-owned subsidiary of Ultramar Diamond Shamrock Corporation
(the Company). All expenses related to the operations of the Trust are paid for
by the Company. Two Trustees, who manage the Trust, are employees of the
Company.
The accompanying unaudited financial statements have been prepared by 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 the audited financial statements and notes
thereto included in the Trust's annual report on Form 10-K for the year ended to
December 31, 1998.
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.
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. The Company
is the General Partner of the Partnership. 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
<PAGE>
UDS CAPITAL I
NOTES TO FINANCIAL STATEMENTS (Continued)
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.
NOTE 3: Stockholders' Equity
Trust Originated Preferred Securities
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>
UDS FUNDING I, L.P.
BALANCE SHEETS
(in thousands, except securities data)
September 30, December 31,
1999 1998
---- ----
(Unaudited)
Assets
Cash and cash equivalents $ 34 $ 25
-------- --------
Investments:
Bank certificate of deposit 100 100
Investment in U.S. government securities,
at amortized cost 2,564 2,472
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 242,810 242,718
Accrued interest receivable 32 26
-------- --------
Total Assets $242,876 $242,769
======== ========
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 36,690 36,583
-------- --------
Total Partners' Capital $242,876 $242,769
======== ========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
UDS FUNDING I, L.P.
STATEMENTS OF INCOME
(Unaudited, in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
<S> <C> <C> <C> <C>
Interest income on subordinated debenture
of Ultramar Diamond Shamrock Corporation ................. $4,289 $4,289 $12,866 $12,866
Interest income on subordinated debentures
of Ultramar Inc. and Diamond Shamrock
Refining Company, L.P., both wholly-
owned subsidiaries of Ultramar Diamond
Shamrock Corporation ..................................... 706 706 2,119 2,119
Interest income on U.S. government
securities, certificate of deposit and
cash equivalents ......................................... 38 35 112 112
------ ------ ------- -------
Net income ............................................. $5,033 $5,030 $15,097 $15,097
====== ====== ======= =======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
UDS FUNDING I, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
September 30,
1999 1998
---- ----
Cash Flows From Operating Activities:
Net income $ 15,097 $ 15,097
Amortization of U.S. government securities 1 2
Increase in accrued interest receivable (6) (23)
-------- ---------
Net cash provided by operating activities 15,092 15,076
-------- --------
Cash Flows From Investing Activities:
Purchase of bank certificate of deposit - (100)
Purchases of U.S. government securities (593) (2,382)
Maturity of bank certificate of deposit - 99
Maturities of U.S. government securities 500 2,326
-------- --------
Net cash used in investing activities (93) (57)
-------- --------
Cash Flows From Financing Activities:
Distributions to Limited Partner (12,866) (12,866)
Distributions to General Partner (2,124) (2,125)
-------- --------
Net cash used in financing activities (14,990) (14,991)
-------- --------
Net Increase in Cash and cash equivalents 9 28
Cash and cash equivalents at Beginning of Period 25 56
-------- --------
Cash and cash equivalents at End of Period $ 34 $ 84
======== ========
See accompanying notes to financial statements.
<PAGE>
UDS FUNDING I, L.P.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
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 for the exclusive purposes of:
o issuing its partnership interests,
o investing in certain eligible securities of the Company and eligible
debt securities of non-affiliated entities, and
o engaging in only those other activities necessary or incidental
thereto.
The Partnership is a wholly-owned subsidiary of Ultramar Diamond Shamrock
Corporation (the Company). The Company, as General Partner, has agreed to pay
all expenses and fees related to the organization and operation of the
Partnership and for all 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 provided by law, the
holders of the Preferred Securities have no voting rights.
The accompanying unaudited financial statements have been prepared by 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 year ended December 31, 1998.
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 September 30, 1999 and December 31, 1998, cash
equivalents consisted of money market funds, whose cost approximates fair value.
Investments: Investments in subordinated debentures of 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 September 30, 1999 and December 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.
<PAGE>
UDS FUNDING I, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
NOTE 2: Investments
U.S. government securities Investments in U.S. government securities consisted
of the following (in thousands):
Amortized Gross Unrealized Fair
----------------
Cost Gains Losses Value
---- ----- ------ -----
Nine Months Ended September 30, 1999 $2,564 $1 $20 $2,545
Year Ended December 31, 1998 2,472 7 1 2,478
At September 30, 1999, U.S. government securities mature as follows (in
thousands):
March 2000 650
June 2001 631
June 2002 1,283
------
$2,564
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.
NOTE 3: 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.
<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 which exists for the
exclusive purposes of:
o issuing the 8.32% Trust Originated Preferred Securities (TOPrS) and
the Common Securities of the Trust,
o investing in the 8.32% Preferred Securities issued by UDS Funding I,
L.P., and
o engaging in only those other activities necessary or incidental
thereto.
UDS Funding I, L.P. (the Partnership) is a limited partnership which exists for
the exclusive purposes of:
o issuing its partnership interests,
o investing in certain eligible securities of Ultramar Diamond Shamrock
Corporation (the Company) and wholly-owned subsidiaries of the Company
and eligible debt securities of non-affiliated entities, and
o engaging in only those activities necessary or incidental thereto.
The Company is the General Partner and the Trust is the Limited Partner of the
Partnership. The Partnership is managed by the General Partner.
On June 25, 1997, the Trust issued the TOPrS and Common Securities for total
proceeds of $200,000,000 and $6,186,000, respectively, and invested those
proceeds into Preferred Securities of the Partnership. The Trust received net
income from Preferred Securities from the Partnership and made distributions to
the TOPrS and Common Securities as summarized below:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Net income from Preferred
Securities $4,289 $4,289 $12,866 $12,866
====== ====== ======= =======
Distributions to:
TOPrS $4,160 $4,160 $12,480 $12,480
Common Securities 129 129 386 386
------ ------ ------- -------
$4,289 $4,289 $12,866 $12,866
====== ====== ======= =======
On June 25, 1997, the Partnership issued the Preferred Securities and the
general partner interest for total proceeds of $206,186,000 and $36,386,000,
respectively, and invested those proceeds into the subordinated debentures of
the Company and wholly-owned subsidiaries of the Company totaling $240,146,000.
In addition, the Partnership invested approximately $2,400,000 in Eligible Debt
Securities and other investments. Net income from debentures and other
investments and distributions to the General Partner and the Limited Partner are
summarized below:
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Net income from debentures
and other investments $5,033 $5,030 $15,097 $15,097
====== ====== ======= =======
Distributions to:
Limited partner $4,289 $4,289 $12,866 $12,866
General partner 711 712 2,124 2,125
------ ------ ------- -------
$5,000 $5,001 $14,990 14,991
====== ====== ======= =======
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Neither the Trust nor the Partnership have entered into any transactions using
derivative financial instruments or derivative commodity instruments. The
Company's management believes that the Trust's and Partnership's exposure to
market risk associated with other investments is not material.
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 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.
UDS Capital I
By: /s/ H. Pete Smith
Name: H. Pete Smith
Title: Regular Trustee
November 9, 1999
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
November 9, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 206,186
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 206,186
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
200,000
<COMMON> 6,186
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 206,186
<SALES> 12,866
<TOTAL-REVENUES> 12,866
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,866
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,866
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
