SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 Commission file
number 2-85622
DCS CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 38-2449183
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2030 WILLARD H. DOW CENTER, MIDLAND, MICHIGAN 48674
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
517-636-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which registered:1
New York Stock Exchange
Notes:
12.375% Series B, due 1996
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 X . No .
Indicate by check mark if disclosures of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) 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 this Form 10-K or any amendment to this Form 10-K. ( )
As of March 10, 1994, there were 300 shares of common stock outstanding.
The registrant qualifies under General Instruction J(l)(a) and (b) of Form 10-K
and is filing this Form using the reduced disclosure format described in
General Instruction J(2).
DCS CAPITAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31,1993
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders Executive Officers
of the Registrant
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
* Omitted pursuant to the provisions of General Instruction J of Form 10-K.
PART I
Item 1. Business
The Company
DCS Capital Corporation (the "Corporation") was incorporated in November 1982
under Delaware law. The Corporation was organized to assist DCS Capital
Partnership (the "Partnership") in raising funds in connection with the
Partnership's contractual obligation to finance approximately 76% of the
construction and start-up costs, and certain deferred costs, of an ethylene
plant designed and constructed by Dow Chemical Canada Inc. near Joffre,
Alberta, Canada, for Novacor Chemicals Ltd. The ethylene plant was completed
in 1984 at a cost of approximately S337 million and is designed to produce
1.5 billion pounds per year of polymer grade ethylene using ethane as
feedstock.
The Corporation's only business is to arrange financing for the Partnership
through the issuance of debt securities to obtain funds for lending to the
Partnership and to refinance prior borrowings. The interest cost charged to
the Partnership is an amount that equals the interest cost incurred by the
Corporation on its borrowings. In addition, the Partnership reimburses the
Corporation for all its other costs. For this reason, the Corporation's
revenues are always equal to its expenses.
See also Notes 1 and 2 to the financial statements included elsewhere in this
Annual Report for a further discussion of the business of the Corporation and
the Partnership.
Item 2. Properties
The Corporation has no plants or other physical properties.
Item 3. Legal Proceedings
There are no claims or other legal proceedings against the Corporation.
Item 4. Submission of Matters to a Vote of Security Holders Omitted pursuant
to General Instruction J of Form 10-K.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The common stock of the Corporation is wholly owned by the Partnership and does
not trade in any securities market. The Corporation does not pay dividends and
does not intend to pay dividends in the foreseeable future.
Item 6. Selected Financial Data
Omitted pursuant to General Instruction J of Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
The Corporation's only business has been to issue debt securities and either
loan the proceeds to the Partnership or use the proceeds to refinance
commercial paper notes issued by the Corporation. On February 15, 1984, the
Corporation issued $150,000,000 of 12.20% Series A Notes due 1994 and on
October 15, 1984, issued $100,000,000 of 12.375% Series B Notes due 1996.
The proceeds of these debt issues were used to repay maturing commercial
paper notes and make loans to the Partnership. During 1992, the Corporation
redeemed $21,615,000 of the outstanding principal amounts of the 12.375%
Series B notes, which was funded through short-term borrowings from a Bank.
A $3,197,940 extraordinary loss on early redemption resulted from this
transaction. During 1991 the Corporation redeemed all of the outstanding
principal amounts of the 12.2% Series A notes, and borrowed $70,000,000 from
Swiss Bank Corporation, New York. The corporation borrowed and repaid
$80,000,000 under a bridge loan used to provide financing between the
redemption of the Series A notes and the receipt of proceeds from the Swiss
Bank Corporation note. Novacor Chemicals Ltd. continued repaying its loans from
DCS Capital Partnership, which in turn made long-term debt and demand note
payments to DCS Capital Corporation.
Administrative expenses decreased by approximatley $308,000 and $240,000 in
1993 and 1992, respectively, from the 1991 administrative expense due primarily
to debt issuance costs on the bridge loan and Swiss Bank note.
The Corporation believes that it has ample liquidity for its business. In
addition, the terms of its agreement with the Partnership and the Partnership's
relationship with its general partners as described in Note 1 to the financial
statements included elsewhere in this Annual Report assure that the
Corporation's fixed charge coverage ratio will be maintained at 1.0.
Item 8. Financial Statements and Supplementary Data
(a) Index to financial statements presented elsewhere in this Annual Report:
Independent Auditors' Report
Balance Sheets, December 31, 1993 and 1992
Statements of Income and Expenses for the Years Ended December 31, 1993, 1992,
and 1991
Statements of Cash Flows for the Years Ended December 31, 1993, 1992 and 1991
Notes to Financial Statements
(b) Selected Quarterly Financial Data - Unaudited (in thousands):
1993 1st Qtr 2nd Qtr 3rdQtr 4th Qtr Year
Interest on Partnership
advances $2,820 $2,855 $2,831 $2,767 $11,273
Interest expense $2,820 $2,855 $2,831 $2,767 $11,273
1992 1st Qtr 2nd Qtr 3rdQtr 4th Otr Year
Interest on Partnership
advances $3,827 $3,230 $2,989 $2,910 $12,956
Reimbursement for early
debt redemption(*) $ 0 $3,198 $ 0 $ 0 $3,198
Interest expense $3,827 $3,230 $2,989 $2,910 $12,956
Extraordinary loss on early
debt redemption(*) $ 0 $3,198 $ 0 $ 0 $3,198
(*) See note 4 to the financial statements.
2
No dividends were paid and the Corporation's common stock does not trade in any
securities market.
Note - other supplementary data is omitted because it is not applicable.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no reported disagreements on any matter of accounting
principles, procedures or financial disclosures in 1993 with the independent
auditors.
PART III
Item 10. Directors and Executive Officers of the Registrant
Omitted pursuant to the provisions of General Instruction J of Form 10-K.
Item 11. Executive Compensation
Omitted pursuant to the provisions of General Instruction J of Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Omitted pursuant to the provisions of General Instruction J of Form 10-K.
Item 13. Certain Relationships and Related Transactions
Omitted pursuant to the provisions of General Instruction J of Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial statements and independent auditors' report: See Item 8 of this
Annual Report.
2. Financial statement schedules: Schedules are omitted because of the absence
of the conditions under which they are required or because the information
called for is included in the financial statements.
3. Exhibits - See the Exhibit Index on page 16 of this Annual Report.
The Corporation will provide a copy of any exhibit upon receipt of a written
request for the particular exhibit or exhibits desired and upon receipt of
payment of an amount equal to a charge of twenty-five cents for each exhibit
page, with a minimum charge of two dollars per request. All requests should be
addressed to the Secretary of the Corporation at the address of the
Corporation's principal executive offices.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended December 31, 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 16th day of
March, 1994.
DCS CAPITAL CORPORATION
By J. P. Reinhard
J. P. Reinhard, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed by the following persons in the capacities and
on the dates indicated.
Signatures Title Date
R. C. Bass Director
C. L. Williams Director
B. Taylorson Director
J. P. Reinhard President
(Principal Financial
Officer, Principal
Accounting Officer)
INDEPENDENT AUDITORS' REPORT
DCS Capital Corporation:
We have audited the accompanying balance sheets of DCS Capital Corporation as
of December 31, 1993 and 1992, and the related statements of income and
expenses, and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of the
Corporation'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 that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of DCS Capital Corporation at December 31,
1993 and 1992 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.
Deloitte & Touche
DELOITTE & TOUCHE
Midland, Michigan
March 7, 1994
DCS CAPITAL CORPORATION
BALANCE SHEETS
December 31,
1993 1992
ASSETS
CURRENT ASSETS:
Cash $300 $300
Receivables from DCS Capital
Partership Current (Note 2) 46,387,812 45,608,007
Total Current Assets 46,388,112 45,608,307
Receivables from DCS Capital
Partership Long-term (Note 2) 95,022,269 108,999,799
TOTAL ASSETS $141,410,381 $154,608,106
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts Payable $3,500 $ 0
Notes Payable (Note 3) 30,388,000 29,520,000
Long-term debt due within one year
(Note 4) 14,000,000 14,000,000
Accrued Interest 1,996,312 2,088,007
Total Current Liabilities 46,387,812 45,608,007
LONG-TERM DEBT (Note 4) 95,022,269 108,999,799
STOCKHOLDER'S EQUITY:
Common stock ($1 par value; authorized, issued
and outstanding, 300 shares) (Note 1) 300 300
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY 141,410,381 154,608,106
See notes to financial statements.
DCS CAPITAL CORPORATION
STATEMENTS OF INCOME AND EXPENSES
Year Ended Year Ended Year Ended
December 31 December 31 December 31
1993 1992 1991
INTEREST AND OTHER INCOME:
Interest earned on advances to
DCS Capital Partnership (Note 1) 11,273,404 12,955,574 17,208,990
Reimbursement for early debt
redemption 3,197,940
Administrative service fees from
DCS Capital Partnership 140,636 208,899 449,033
TOTAL INCOME $11,414,040 $16,362,413 $17,658,023
INTEREST AND OTHER EXPENSES:
Interest on short-term debt $1,060,018 $861,240 $3,030,632
Interest on long-term debt 10,213,386 12,094,334 14,178,358
Administrative expenses (Note 5) 140,636 208,899 449,033
Total Expenses before
extraordinary loss 11,414,040 13,164,473 17,658,023
Extraordinary loss on early
redemption of debt (Note 4) 0 3,197,940 0
TOTAL EXPENSES $11,414,040 $16,362,413 $17,658,023
See notes to financial statements.
DCS CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended
December 31 December 31 December 31
1993 1992 1991
Net Income $ 0 $ 0 $ 0
Cash Flows from Operating Activities:
Amortization of Discount on Notes 22,470 24,245 29,567
Decrease (Increase) in
Accounts Receivable (779,805) (21,861,883) 3,143,427
Increase (Decrease) in
Accounts Payable 3,500 0 (13,840)
Decrease in Accrued Interest (91,695) (1,108,117) (3,029,587)
Net Cash Provided/(Used) in
Operations (845,530) (22,945,755) 129,567
Cash Flows from Financing Activities:
Proceeds of Bank of America
Notes 407,108,000 324,355,000 124,626,000
Repayment of Bank of America
Notes (406,240,000) (301,385,000) (131,226,000)
Proceeds from bridge loan 0 0 80,000,000
Repayment of bridge loan 0 0 (80,000,000)
Proceeds from long-term debt 0 0 70,000,000
Repayment of long-term debt (14,000,000) (38,812,940) (77,082,000)
Discount on Notes Repaid 0 32,228 0
Loss on Early Redemption 0 3,197,940 0
Net Cash Used by Financing
Activities (13,132,000) (12,612,772) (13,682,000)
Cash Flows from Investing Activities:
Decrease in Long-term
Receivables 13,977,530 35,558,528 13,552,433
Net Change in Cash 0 0 0
Cash at Beginning of Year 300 300 300
Cash at End of Year $ 300 $ 300 $ 300
See notes to financial statements.
DCS CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
DCS Capital Corporation (the "Corporation") is a Delaware corporation wholly
owned by DCS Capital Partnership (the "Partnership"), a Delaware partnership,
the general partners of which are Dofinco Inc., Prentiss Glycol Company and
Scotlene, Inc. The general partners are wholly owned subsidiaries of The Dow
Chemical Company ("Dow"), Union Carbide Chemicals and Plastics Company, Inc.,
and Shell Canada Limited, respectively. The Corporation was incorporated on
November 22, 1982, and was organized to assist the Partnership in raising fund
to finance approximately 76 percent of the construction and start-up costs and
certain deferred costs of an ethylene plant near Joffre, Alberta, Canada for
Novacor Chemicals Ltd. ("Novacor"), an unrelated party.
The Corporation's only business is to arrange financing for the Partnership
through the issuance of debt securities to obtain funds for lending to the
Partnership and to refinance prior borrowings. The interest cost charged to
the Partnership is an amount that equals the interest cost incurred by the
Corporation on its borrowings. In addition, the Partnership reimburses the
Corporation for its administrative expenses as further discussed in Note 5
below. The Partnership in turn is reimbursed for its net expenses by Novacor.
2. RECEIVABLES FROM DCS CAPITAL PARTNERSHIP
Receivables from the Partnership represent the net proceeds from the
Corporation's borrowings that have been loaned to the Partnership, related
accrued interest and other amounts for reimbursement of expenses. Advances
and accrued interest thereon are evidenced by Partnership notes that are due at
the same times and in the same amounts as principal, earned discount, interest
and premium, if any, on the Corporation's borrowings. The Partnership notes
bear interest at a variable interest rate based on the aggregate interest and
amortization of discount on the Corporation's borrowings, which was
approximately 7.87 percent at December 31, 1993 and 8.03 percent at
December 31, 1992 and 9.86 at December 31, 1991. The Partnership notes are
secured by certain rights of the Partnership under a Cash Deficiency Agreement
among the partners and the Partnership. In addition, the performance of each
partner pursuant to the Cash Deficiency Agreement has been guaranteed by each
Partner's respective parent company (see Note 1). The Partnership notes are
pledged as security for repayment of the Corporation's borrowings.
The summarized financial statements of the Partnership are as follows:
BALANCE SHEET
December 31 December 31
1993 1992
Assets:
Cash and Time Deposits $ 783 $ 3,1921
Due from Novacor Chemicals, Ltd.:
Note receivable 140,512,391 153,789,153
Accrued interest 923,134 815,761
Investment in DCS Capital Corporation 300 300
Total $141,436,608 $154,608,406
Liabilities and Partners' Capital:
Accounts Payable 25,927
Payable to DCS Capital Corporation:
Notes and accrued interest $ 141,410,081 $154,607,806
Total liabilities 141,436,008 154,607,806
Partners' Capital 600 600
Total $ 141,436,608 $154,608,406
STATEMENTS OF INCOME AND EXPENSE
Year Ended Year Ended Year Ended
December 31 December 31 December 31
1993 1992 1991
Interest Income:
Interest on Time Deposits $ 0 $ 0 $ 8,700
Interest on loans to Novacor
Chemicals Company Ltd. 11,427,708 16,369,133 17,662,208
TOTAL INCOME $11,427,708 $16,369,133 $17,670,908
Expenses:
Reimbursement for Loss on
early debt redemption by
DCS Capital Corporation $ 0 $ 3,197,940 $ 0
Interest on advances from
DCS Capital Corporation 11,273,404 12,955,574 17,208,990
Administrative expenses:
Paid to DCS Capital Corp. 140,636 208,899 449,033
Paid to others 13,668 6,720 12,885
TOTAL EXPENSES $11,427,708 $16,369,133 $17,670,908
3. NOTES PAYABLE
During 1993, 1992 and 1991, the Corporation borrowed and repaid several short-
term bank loans. The outstanding balances were $30,388,000, $29,520,000, and
$6,550,000 at December 31, 1993, 1992 and 1991, respectively. The interest
rates on outstanding loans were 3.56%, 3.75% and 5.09% at December 31, 1993,
199 and 1991, respectively. The maximum amount of short-term notes payable
outstanding at any month-end during the year was $34,300,000, $36,325,000, and
$82,640,000 for 1993, 1992 and 1991, respectively. The month-end average amount
outstanding during the year was $29,195,200, $22,755,833, and $33,742,844 for
1993, 1992 and 1991, respectively. The weighted average interest rate during
the year was 3.46%, 4.08%, and 7.01% for 1993, 1992 and 1991 respectively.
4. LONG-TERM DEBT
Long-term debt is comprised of the following:
December 31 December 31
1993 1992
12.375% Series B Notes, due
in 1996 67,085,000 67,085,000
Swiss Bank Corp., N.Y. 28,000,000 42,000,000
95,085,000 109,085,000
Less unamortized debt discount (62,731) (85,201)
Total $95,022,269 $108,999,799
The notes are secured by related Partnership notes receivable which are in turn
secured by the Cash Deficiency Agreement referred to in Note 2 above. The long
term debt of the Corporation had a fair value of approximately $14.0 million
and $8.8 million more than the book value at December 31, 1993 and December 31,
1992, respectively, based upon current market rates on those dates.
During 1991 the Corporation entered into a new long-term variable rate
borrowing of $70,000,000 from Swiss Bank Corporation, N.Y. in order to
redeem the 12.20% Series A notes. This long-term borrowing is payable in
semi-annual installments of $7,000,000 due April and October. The interest
rate at December 31, 1993 and 1992 was 3.75% and 3.5% respectively.
During 1992 the Corporation redeemed $21,615,000 of the outstanding principal
amounts of the 12.375% Series B notes, which was funded through short-term
borrowings from a Bank. A $3,197,940 extraordinary loss on early redemption
resulted from this transaction.
5. RELATED PARTY TRANSACTIONS
The Corporation and the Partnership have no salaried employees and their
officers are employees of Dow. Dow performs management services for both and
is reimbursed for actual cash expenditures, including an allocation of general
overhead and administrative expenses, none of which are material to the
Corporation.
6. CASH FLOW
Prior years statement of cash flows have been restated to conform with current
year presentations. Additionally, the cash payments for interest for the years
ended December 31, 1993, 1992 and 1991 were $11,365,099; $14,063,691 and
$20,238,577, respectively.
EXHIBIT INDEX
3.1 Certificate of Incorporation of the Corporation (incorporated by reference
to Registration Statement No. 2-85622, Exhibit 3.1)
3.2 By-laws of the Corporation (incorporated by reference to Registration
Statement No. 2-85622, Exhibit 3.2)
4.1 Form of Series B Notes (incorporated by reference to Registration
Statement No. 2-93612, Exhibit A to Exhibit 4.3)
4.2 Indenture dated as of February 15, 1984 between the Corporation and The
Royal Bank and Trust Company, trustee (the "Trustee")(incorporated by reference
to Registration Statement No. 2-85622,Exhibit 4.2)
4.3 Form of Supplement No. 2 to Indenture (incorporated by reference to
Registration Statement No. 2-93612, Exhibit 4.3)
4.4 Form of Partnership Note of the Partnership (incorporated by reference to
Registration Statement No. 2-85622, exhibit A to Exhibit 4.9)
4.5 Cash Deficiency Agreement dated as of March 1, 1983, among Dofinco, Inc.,
Pretiss Glycol Company and Scotlene, Inc. (the "Partners") and the Partnership
(incorporated by reference to Registration Statement No. 2-85622, Exhibit 4.5)
4.6 Guarantee Agreement dated as of March 1, 1983, between Dow and the
Partnership (incorporated by reference to Registration Statement No. 2-85622,
Exhibit 4.6)
4.7 Guarantee Agreement dated as of March 1, 1983, between Union Carbide
Corporation and the Partnership (incorporated by reference to Registration
Statement No. 2-85622, Exhibit 4.7)
4.8 Guarantee Agreement dated as of March 1, 1983, between Shell Canada
Limited and the Partnership (incorporated by reference to Registration
Statement No. 2-85622, Exhibit 4.8)
4.9 Financing Agreement dated as of February 15, 1984 between the Corporation
and the Partnership (incorporated by reference to Registration Statement No.
2-85622, Exhibit 4.9)
4.10 Form of Consent Assignment and Agreement among the Partners, the
Partnership and the Trustee (incorporated by reference to Registration
Statement No. 2-85622, Exhibit 4.9)
4.11 Partnership Agreement dated as of February 9, 1983, among the Partners
(incorporated by reference to Registration Statement No. 2-85622, Exhibit 4.11)
26 Form T-l Statement of of Eligibility and Qualification under the Trust
Indenture Act of 1939 of the Trustee (incorporated by reference to
Registration Statement No. 2-93612, Exhibit 26)
