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 year ended December 31, 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
--- ---
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 9,
2000.
As of February 9, 2000, 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.
<PAGE>
TABLE OF CONTENTS
Item Page
PART I
1. Business.......................................................... 2
2. Properties........................................................ 3
3. Legal Proceedings................................................. 3
4. Submission of Matters to a Vote of Security Stockholders.......... 3
PART II
5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 4
6. Selected Financial Data........................................... 5
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 5
7A. Quantitative and Qualitative Disclosures About Market Risk........ 7
8. Financial Statements and Supplementary Data....................... 8
9. Changes in and disagreements with Accountants on Accounting and
Financial Disclosure............................................ 22
PART III
10. Directors and Executive Officers of the Registrant................ 22
11. Executive Compensation............................................ 22
12. Security Ownership of Certain Beneficial Owners and Management.... 22
13. Certain Relationships and Related Transactions.................... 22
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 23
Signatures............................................................... 25
This Annual Report on Form 10-K (including documents incorporated by reference
herein) contains statements with respect to the Trust's, the Partnership's and
the Company's expectations or beliefs as to future events. These types of
statements are "forward-looking" and are subject to uncertainties. See "Certain
Forward-Looking Statements" on page 6.
<PAGE>
PART I
Item 1. Business
UDS Capital I
UDS Capital I (the Trust) is a statutory business trust formed on June 5, 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 per 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 from the issuance of the Trust Securities to
purchase the Preferred Securities of UDS Funding I, L.P. (the Partnership).
Accordingly, the assets of the Trust consist solely of the Preferred Securities.
The Trust exists for the exclusive purposes of:
o issuing the Trust Securities representing ownership interests in the
assets of the Trust,
o investing in the Preferred Securities, and
o engaging in only those other activities necessary or incidental
thereto.
There are four Trustees of the Trust:
o two Trustees are individuals who are officers of the Company,
o the Property Trustee is The Bank of New York, and
o the Delaware Trustee is The Bank of New York (Delaware).
The Property Trustee holds 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 issuance 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 from the Preferred Securities.
The Company has irrevocably guaranteed, on a subordinated basis, the payment of
all distributions and other payments on the TOPrS to the extent funds are
legally available.
UDS Funding I, L.P.
The Partnership is a limited partnership formed on June 5, 1997. 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. The Company is
the sole General Partner of the Partnership.
The Partnership is managed by the General Partner and exists 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.
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.
<PAGE>
So long as the Preferred Securities remain outstanding, the General Partner
agrees to:
o 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,
o 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
o use its efforts to ensure that the Partnership will not be:
o an investment company for purposes of the 1940 Act or
o an association or a publicly traded partnership taxable as a
corporation for United States Federal income tax purposes.
The Partnership used the proceeds from the Preferred Securities and capital
contribution to purchase subordinated debentures of the Company and two
wholly-owned subsidiaries of the Company (the Debentures). In addition, the
Partnership purchased 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 issuance 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 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 from the Debentures and Eligible Debt Securities.
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. 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 of
distributions due on the Preferred Securities, and the payments upon liquidation
of the Partnership or the redemption of the Preferred Securities to the extent
funds are legally available.
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
None.
Item 3. Legal Proceedings
Neither the Trust nor the Partnership knows of any material legal proceedings
involving the Trust or the Partnership.
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 year ended December 31, 1999.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
There is no established public market for the Common Securities of the Trust or
the general partnership interest in the Partnership.
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". The table below shows the high
and low sales prices on the New York Stock Exchange for the 8.32% TOPrS and the
quarterly cash dividends paid:
Sales Price
----------- Cash
High Low Dividends
---- --- ---------
Year 1999
---------
4th quarter $ 22.50 $ 20.38 $ 0.52
3rd quarter 24.50 20.63 0.52
2nd quarter 25.13 24.44 0.52
1st quarter 25.50 24.75 0.52
Year 1998
4th quarter 26.06 24.94 0.52
3rd quarter 25.96 24.69 0.52
2nd quarter 26.13 25.38 0.52
1st quarter 26.38 25.25 0.52
Holders
The Company owns all of the Common Securities of the Trust and all of the
general partnership interest in the Partnership.
As of February 9, 2000, there were 8,000,000 TOPrS outstanding which were held
by at least 100 beneficial owners.
Dividends
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 $514,675. Distributions not paid on 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 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.
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 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 , which exists for the exclusive
purposes of:
o issuing the 8.32% TOPrS and the Common Securities of the Trust,
o investing in the 8.32% Preferred Securities issued by the Partner-
ship, and
o engaging in only those other activities necessary or incidental
thereto.
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 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.
o 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 made quarterly
distribution payments on the TOPrS and Common Securities and received funds from
the Partnership of equivalent amounts as summarized below:
Period from
June 5, 1997
(Inception) to
1999 1998 December 31, 1997
---- ---- -----------------
Net income from Preferred Securities $17,155 $17,155 $8,816
======= ======= ======
Distributions to:
8.32% TOPrS $16,640 $16,640 $8,552
8.32% Trust Common Securities 515 515 264
------- ------- ------
$17,155 $17,155 $8,816
======= ======= ======
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. The Partnership made quarterly distribution
payments on the Preferred Securities and general partner interest, and received
funds from the Company, wholly-owned subsidiaries of the Company and investment
issuers of approximately the same amounts. Net income from debentures and other
investments and distributions to the General Partner and the Limited Partner is
summarized below:
Period from
June 5, 1997
Years Ended December 31, (Inception) to
1999 1998 December 31, 1997
---- ---- -----------------
Net income from debentures and
other investments $20,131 $20,125 $10,326
======= ======= =======
Distributions to:
General partner $ 2,831 $ 2,831 $ 1,452
Limited partner 17,155 17,155 8,816
------- ------- -------
$19,986 $19,986 $10,268
======= ======= =======
The Company provides, at no cost, all computer and administrative support
necessary to process the activities of the Trust and the Partnership. To date,
there have been no material malfunctions of the Company's systems or activities
due to Year 2000 issues. However, the operations of the Trust and Partnership
are not complex and the impact, if any, from year 2000 issues should be
immaterial.
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.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes new accounting and
reporting standards for derivative instruments. In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133", which defers the
effective date of SFAS No. 133 for one year to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Trust and the
Partnership have not entered into, and are not expected to enter into, any
transactions involving derivative instruments or hedging activities. Therefore,
management believes there would be no material effect to the Trust's or
Partnership's financial position or results of operation as a result of
implementation of this statement.
In August 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 99 - Materiality which provides guidance in
applying materiality thresholds to the preparation of financial statements filed
with the SEC and the performance of audits of those financial statements. In
November 1999, the SEC issued SAB No. 100 - Restructuring and Impairment Charges
which provides guidance regarding the accounting for and disclosure of certain
expenses commonly reported in connection with exit activities and business
combinations. In December 1999, the SEC issued SAB No. 101 - Revenue Recognition
in Financial Statements which provides the SEC's views in applying generally
accepted accounting principles to selected revenue recognition issues.
Management of the Company has reviewed the guidance of these SABs and believes
that the accounting policies of the Company and the disclosures in the financial
statements and in Management's Discussion and Analysis of Financial Condition
and Results of Operations are appropriate.
Certain Forward Looking Statements
This Annual Report on Form 10-K and the Form S-3, incorporated herein by
reference, contain 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 7A. Quantitative and Qualitative Disclosures About Market Risk
Neither the Trust nor the Partnership has 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.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Report of Independent Public Accountants
To UDS Capital I:
We have audited the accompanying balance sheets of UDS Capital I, a Delaware
business trust (the Trust) as of December 31, 1999 and 1998, and the related
statements of income, stockholders' equity and cash flows for the years ended
December 31, 1999 and 1998, and the period from June 5, 1997 (inception) to
December 31, 1997. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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 audits provide 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, 1999 and 1998, and the results of its operations and its cash flows for the
years ended December 31, 1999 and 1998, and 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 1, 2000
<PAGE>
UDS CAPITAL I
BALANCE SHEETS
(in thousands, except securities data)
December 31,
1999 1998
---- ----
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
(in thousands)
Period from
Years Ended June 5, 1997
December 31, (Inception) to
1999 1998 December 31, 1997
---- ---- -----------------
Net income on UDS Funding I, L.P.
Preferred Securities $17,155 $17,155 $8,816
======= ======= ======
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
UDS CAPITAL I
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998, and the Period from June 5, 1997
(Inception) to December 31, 1997
(in thousands, except securities data)
Total
Common Preferred Retained Stockholders'
Securities Securities Earnings Equity
---------- ---------- -------- -------------
<S> <C> <C> <C> <C>
June 5, 1997 (Inception)
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
Net income ......................................................... -- -- 17,155 17,155
Dividends on 8.32% Trust Originated Preferred Securities ........... -- -- (16,640) (16,640)
Dividends on 8.32% Trust Common Securities ......................... -- -- (515) (515)
--------- --------- --------- ---------
Balance at December 31, 1998 ......................................... 6,186 200,000 -- 206,186
Net income ......................................................... -- -- 17,155 17,155
Dividends on 8.32% Trust Originated Preferred Securities ........... -- -- (16,640) (16,640)
Dividends on 8.32% Trust Common Securities ......................... -- -- (515) (515)
--------- --------- --------- ---------
Balance at December 31, 1999 ......................................... $ 6,186 $ 200,000 $ -- $ 206,186
========= ========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UDS CAPITAL I
STATEMENTS OF CASH FLOWS
(in thousands)
Period from
June 5, 1997
Years Ended December 31, (Inception) to
1999 1998 December 31, 1997
---- ---- -----------------
<S> <C> <C> <C>
Cash Flows Provided By Operating Activities -
Net income on UDS Funding I, L.P. Preferred Securities ..... $ 17,155 $ 17,155 $ 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 (16,640) (16,640) (8,552)
Distributions on 8.32% Trust Common Securities ............. (515) (515) (264)
--------- --------- ---------
Net cash (used in) provided by financing activities .... (17,155) (17,155) 197,370
--------- --------- ---------
Net Change in Cash ......................................... -- -- --
Cash at Beginning of Period ................................ -- -- --
--------- --------- ---------
Cash at End of Period ...................................... $ -- $ -- $ --
========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
UDS CAPITAL I
NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
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 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. Two 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. 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
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.
UDS CAPITAL I
NOTES TO FINANCIAL STATEMENTS -continued
December 31, 1999 and 1998
NOTE 3: Stockholders' Equity
Trust Originated Preferred Securities
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 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 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>
Report of Independent Public Accountants
To UDS Funding I, L.P.:
We have audited the accompanying balance sheets of UDS Funding I, L.P., a
Delaware limited partnership (the Partnership) as of December 31, 1999 and 1998,
and the related statements of income, partners' capital and cash flows for the
years ended December 31, 1999 and 1998, and the period from June 5, 1997
(inception) to December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits 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 audits provide 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, 1999 and 1998, and the results of its operations and its cash flows
for the years ended December 31, 1999 and 1998, and 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 1, 2000
<PAGE>
<TABLE>
<CAPTION>
UDS FUNDING I, L.P.
BALANCE SHEETS
(in thousands, except securities data)
December 31,
1999 1998
---- ----
Assets
<S> <C> <C>
Cash and cash equivalents ...................................................... $ 90 $ 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 .................................................... 15 26
-------- --------
Total Assets ............................................................ $242,915 $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 ..... 36,729 36,583
-------- --------
Total Partners' Capital ................................................. $242,915 $242,769
======== ========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UDS FUNDING I, L.P.
STATEMENTS OF INCOME
(in thousands)
Period from
Years Ended June 5, 1997
December 31, (Inception) to
1999 1998 December 31, 1997
---- ---- -----------------
Interest income:
<S> <C> <C> <C>
Interest income on subordinated debenture of
Ultramar Diamond Shamrock Corporation ....................... $17,155 $17,155 $ 8,816
Interest income on subordinated debentures of Ultramar Inc. and
Diamond Shamrock Refining Company, L.P., both wholly-owned
subsidiaries of Ultramar Diamond Shamrock Corporation ........ 2,825 2,825 1,452
Interest income on U.S. government securities,
certificate of deposit and cash equivalents ................. 151 145 58
------- ------- -------
Net income ................................................. $20,131 $20,125 $10,326
======= ======= =======
See accompanying notes to financial
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UDS FUNDING I, L.P.
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1999 and 1998, and the Period from June 5, 1997
(Inception) to December 31, 1997
(in thousands)
Total
General Limited Partners'
Partner Partner Capital
------- ------- ---------
<S> <C> <C> <C>
June 5, 1997 (Inception)
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
Net income allocated to partners ............................ 2,970 17,155 20,125
Distributions to partners ................................... (2,831) (17,155) (19,986)
--------- --------- ---------
Balance at December 31, 1998 .................................. 36,583 206,186 242,769
Net income allocated to partners ............................ 2,976 17,155 20,131
Distributions to partners ................................... (2,830) (17,155) (19,985)
--------- --------- ---------
Balance at December 31, 1999 .................................. $ 36,729 $ 206,186 $ 242,915
========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UDS FUNDING I, L.P.
STATEMENTS OF CASH FLOWS
(in thousands)
Period from
June 5, 1997
Years Ended December 31, (Inception) to
1999 1998 December 31, 1997
---- ---- -----------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 20,131 $ 20,125 $ 10,326
Accretion of U.S. government securities - - (23)
Decrease (Increase) in accrued interest receivable 11 (23) (3)
-------- -------- ----------
Net cash provided by operating activities 20,142 20,102 10,300
-------- -------- ----------
Cash Flows from Investing Activities:
Purchases of affiliated subordinated debentures - - (240,146)
Purchase of bank certificate of deposit - (100) (99)
Maturity of bank certificate of deposit - 99 -
Purchases of U.S. government securities (592) (3,072) (3,503)
Maturity of U.S. government securities 500 2,926 1,200
-------- -------- ----------
Net cash used in investing activities (92) (147) (242,548)
-------- -------- ----------
Cash Flows from Financing Activities:
Proceeds from issuance of preferred securities - - 206,186
Contributions for general partner interest - - 36,386
Distributions to Limited Partner (17,155) (17,155) (8,816)
Distributions to General Partner (2,830) (2,831) (1,452)
-------- -------- ----------
Net cash (used in) provided by financing activities (19,985) (19,986) 232,304
-------- -------- ----------
Net Change in Cash 65 (31) 56
Cash at Beginning of Period 25 56 -
-------- -------- ----------
Cash at End of Period $ 90 $ 25 $ 56
======== ======== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
UDS FUNDING I, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 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 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 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.
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 December 31, 1999 and 1998, cash equivalents
consisted of $89,868 and $25,049, respectively, of overnight money market funds,
whose cost approximates fair value.
Investments: The Partnership holds investments in subordinated debentures of
Ultramar Diamond Shamrock Corporation (the Company) and two wholly-owned
subsidiaries of the Company. The Company is one of the largest independent
refining and marketing companies in North America. The Company owns six
refineries in the United States and Canada and has approximately 5,300 retail
convenience stores.
Investments in subordinated debentures of the Company and its 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, 1999 and 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.
<PAGE>
UDS FUNDING I, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
December 31, 1999, 1998 and 1997
NOTE 2: Investments
U.S. government securities
Investments in U.S. government securities consisted of the following at December
31 (in thousands):
Amortized Gross Unrealized
Year Cost Gains Losses Fair Value
---- --------- ----- ------ ----------
1999 $2,564 $ - $33 $2,531
1998 2,472 7 1 2,478
As of December 31, 1999, maturity of U.S. government securities was as follows
(in thousands):
Year ending December 31,
2000 $ 650
2001 631
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 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 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 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.
<PAGE>
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: Report of Independent Public
Accountants Balance Sheets as of December 31, 1999 and 1998
Statements of Income for the Years Ended December 31, 1999 and
1998, and the Period from June 5, 1997 (Inception) to December
31, 1997
Statements of Stockholders' Equity for the Years Ended December
31, 1999 and 1998, and the Period from June 5, 1997 (Inception)
to December 31, 1997
Statements of Cash Flows for the Years Ended December 31, 1999
and 1998 and the Period from June 5, 1997 (Inception) to
December 31, 1997
Notes to Financial Statements
UDS Funding I, L.P. - Financial Statements:
Report of Independent Public Accountants
Balance Sheets as of December 31, 1999 and 1998
Statements of Income for the Years Ended December 31, 1999 and
1998, and the Period from June 5, 1997 (Inception) to December
31, 1997
Statements of Partners' Capital for the Years Ended December 31,
1999 and 1998, and the Period from June 5, 1997 (Inception) to
December 31, 1997 Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998,
and 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.
Exhibit Incorporated by Reference
Number Description To the Following Documents
- ------- ----------- --------------------------
4.1 Certificate of Trust of UDS Registration Statement on Form
Capital I dated June 5, 1997 S-3 (File No.333-28737)
4.2 Amended and Restated Declaration of Current Report on Form 8-K
Trust of UDS Capital I dated June 25, dated June 30, 1997
1997
4.3 Certificate of Limited Partnership of Registration Statement on Form
UDS Funding I, L.P. dated June 5, 1997 S-3 (File No.333-28737)
4.4 Amended and Restated Limited Partner- Current Report on Form 8-K
ship Agreement of UDS Funding I, L.P. dated June 30, 1997
dated June 25, 1997
4.5 Trust Preferred Securities Guarantee Current Report on Form 8-K
Agreement between Ultramar Diamond dated June 30, 1997
Shamrock Corporation and The Bank of
New York as guarantee Trustee dated
June 25, 1997
4.6 Partnership Preferred Securities Current Report on Form 8-K
Guarantee Agreement by Ultramar dated June 30, 1997
Diamond Shamrock Corporation dated
June 25, 1997
4.7 Subordinated Indenture between Current Report on Form 8-K
Ultramar Diamond Shamrock Corporation dated June 30, 1997
and The Bank of New York dated June
25, 1997
4.8 Affiliate Debenture Guarantee Agree- Registration Statement on Form
ment between Ultramar Diamond Shamrock S-3 (File No.333-28737)
Corporation and The Bank of New York
4.9 Certificate Evidencing Trust Preferred Current Report on Form 8-K
Security dated June 30, 1997
4.10 Certificate Evidencing Partnership Current Report on Form 8-K
Preferred Security dated June 30, 1997
4.11 Subordinated Debenture Current Report on Form 8-K
dated June 30, 1997
10.1 8.32% Subordinated Debenture Due 2017 Current Report on Form 8-K
dated June 25, 1997 dated June 30, 1997
23.1 Consent of Arthur Andersen +
27.1 Financial Data Schedule +
+ Filed herewith.
<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
February 10, 2000.
UDS Capital I
By: /s/ H. PETE SMITH By: /s/ STEVE BLANK
Name: H. Pete Smith........ Name: Steve Blank
Title: Regular Trustee... Title: Regular Trustee
UDS Funding I, L.P.
By: Ultramar Diamond Shamrock Corporation, as General Partner
By: H. PETE SMITH
Name: H. Pete Smith
Title: Executive Vice President and Chief Financial Officer
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports 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
February 10, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<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> 17,155
<TOTAL-REVENUES> 17,155
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,155
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,155
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
