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 Fiscal Year Ended Commission File Number
December 31, 1993 1-9409
___________________
DIAMOND SHAMROCK, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 74-2456753
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9830 Colonnade Boulevard
San Antonio, Texas 78230
(Address of Principal (Zip Code)
Executive Offices)
Registrant's Telephone Number, Including Area Code: (210) 641-6800
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.01 Par Value New York Stock Exchange
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 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 this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 1, 1994 was approximately $848,098,982.
Shares of Common Stock outstanding at March 1, 1994 -- 28,994,837.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to shareholders for the fiscal
year ended December 31, 1993, filed as Exhibits 13.1 and 13.2 hereto, are
incorporated by reference into Parts I and II hereof. Portions of the
registrant's definitive Proxy Statement for the 1994 Annual Meeting of
Stockholders, to be filed with the Commission pursuant to Regulation 14A no
later than 120 days after the end of the fiscal year covered by this report, are
incorporated by reference into Part III hereof.
PART I
Item 1. Business.
Diamond Shamrock, Inc. (the "Company") is the leading independent refiner
and marketer of petroleum products in the southwestern United States. The
Company operates two crude oil refineries located in Texas and is engaged in the
wholesale marketing of refined petroleum products in an eight state area. The
Company sells gasoline and convenience merchandise through Company-operated
retail outlets concentrated in Texas, Colorado, New Mexico, and Louisiana, and
distributes gasolines through independently owned Diamond Shamrock branded
outlets in Texas and nearby states. The Company also stores and markets natural
gas liquids, and manufactures and markets certain petrochemicals.
The Company was incorporated in Delaware in February 1987 to hold all of
the capital stock of Diamond Shamrock Refining and Marketing Company ("DSRMC"),
a wholly owned subsidiary of Maxus Energy Corporation (formerly Diamond Shamrock
Corporation) ("Maxus"). DSRMC had been operating all of Maxus' refining and
marketing business since August 1983. The Company became a publicly owned
corporation effective April 30, 1987 as a result of the distribution (the "Spin-
Off") of its common stock, $.01 par value (the "Common Stock"), to the
stockholders of Maxus. On February 1, 1990 the name of the Company was changed
from Diamond Shamrock R&M, Inc. to Diamond Shamrock, Inc.
On December 27, 1993 DSRMC transferred all of the assets associated with
its two refineries to Diamond Shamrock Refining Company, L.P., a Delaware
limited partnership, which is also a wholly owned subsidiary of the Company, and
the two refineries are now operated by that entity.
A description of the general development and conduct of the business of the
Company is set forth below. Consolidated financial information for the Company
for the year ended December 31, 1993 and for certain prior years, including
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Consolidated Financial Statements, and Selected Financial Data, is
attached to this report as Exhibits 13.1 and 13.2, and all such information is
incorporated into this report by reference. Information concerning outside
sales and operating revenues and operating profit for the Company and each of
its business segments for the three years ended December 31, 1993, together with
information concerning the identifiable assets of the various business segments
as of December 31, 1991, 1992, and 1993, is set forth in Note 4 contained in
Exhibit 13.2, which is incorporated herein by reference.
Refining
The Company owns and operates two modern refineries strategically located
near its key markets. The McKee Refinery, located near Amarillo, Texas, and the
Three Rivers Refinery, located near San Antonio, Texas, have an aggregate
refining capacity of approximately 195,000 barrels of crude oil per day (125,000
barrels at the McKee Refinery and 70,000 barrels at the Three Rivers Refinery).
The Company operated its refineries at approximately 92% of capacity in 1993 and
at levels in excess of 94% in each of the four years preceding 1993.
Approximately 94% of the refinery outputs are high-value products, including
gasoline, diesel, jet fuels, and liquified petroleum gases. The refineries also
produce sulfur, sulfuric acid, ammonium thiosulfate, refinery grade propylene,
fuel oil, asphalt, and carbon black oil.
The Company believes that it is at or near the top of its peer group in
productivity, capacity utilization, and operational cost efficiency. The
Company continually strives to increase its refinery efficiency, control costs,
retain its competitive edge, and meet changing market demands.
In April 1990 the Company completed an upgrade of an existing 10,000 barrel
per day reformer located at the McKee Refinery to a 25,000 barrel per day
continuous catalyst regeneration unit. This unit has enabled the McKee Refinery
to produce significantly more high octane gasolines.
Construction of a 30,000 barrel per day diesel desulfurization unit at the
McKee Refinery was completed in August 1993. This unit enables the refinery to
produce diesel fuel that meets the new federally mandated sulfur specifications
which went into effect on October 1, 1993.
The completion of certain debottlenecking projects at the McKee Refinery
during 1993 increased its refining capacity to approximately 125,000 barrels per
day.
At the Three Rivers Refinery, construction was completed during 1993 on a
25,000 barrel per day hydrocracker, the expansion of a 10,000 barrel per day
continuous regeneration reformer which was installed in 1991, and the expansion
of a crude distillation unit which was installed in 1990. The Company also
installed a new naptha hydrotreater, light ends unit, and quality-control lab in
1993. The completion of these projects enabled the Three Rivers Refinery to
meet federally mandated diesel desulfurization requirements, expand crude oil
throughput capacity to 70,000 barrels per day, provide additional octane
producing capacity, increase gasoline production at the refinery by
approximately 50%, and increase diesel production capacity by approximately 25%.
The Company owns a natural gas processing facility located at the McKee
Refinery which ceased operating in early 1993. The facility had been operated
under an agreement with Maxus entered into in connection with the Spin-Off.
Maxus terminated the gas processing agreement as of January 1993 and operation
of the facility was phased out. In 1992 this facility had a throughput of
approximately 172 million cubic feet of natural gas per day, and recovered
approximately 16,100 barrels per day of natural gas liquids. The Company has no
present plans to operate the gas processing plant.
Supply and Distribution
Because of the volatility of crude oil prices over recent years, the
flexibility to supply the Company's refineries from a variety of sources is an
essential part of being competitive. The Company's network of 2,112 miles of
crude oil pipelines gives the Company the ability to acquire crude oil directly
from producing leases, major domestic oil trading centers, or Gulf Coast ports,
and to transport crude oil to the refineries at a competitive cost.
The McKee Refinery has access to crude oil from the Texas Panhandle,
Oklahoma, southwestern Kansas, and eastern Colorado through approximately 2,023
miles of crude oil pipeline owned or leased (in whole or in part) by the
Company. This refinery is also connected by common carrier pipelines to the
major crude oil centers of Cushing, Oklahoma and Midland, Texas.
In September 1992 the Company completed a 270 mile crude oil pipeline from
Wichita Falls, Texas to the McKee Refinery. This pipeline has an initial
capacity of 50,000 barrels per day, and it delivered crude oil to the McKee
Refinery at the rate of approximately 40,000 barrels per day during 1993. At
Wichita Falls the pipeline has access to two major pipelines which transport
crude oil from the Texas Gulf Coast into the Mid-Continent region, and to a
third pipeline which transports crude oil from major West Texas oil fields.
The Three Rivers Refinery has access to crude oil production in South
Texas, to West Texas Intermediate crude oil by common carrier pipeline, and to
foreign crude oil from the Texas Gulf Coast near Corpus Christi through 89 miles
of Company-owned crude oil pipelines connected to third party pipelines and
terminals.
Although both of its refineries primarily run "sweet" (low-sulfur content)
crude, the Company has constructed "sour" (high-sulfur content) crude oil tanks
at the McKee Refinery, and at the Dixon pump station southeast of the McKee
Refinery so that, when economics dictate, a small percentage of sour crude oil
can be blended with sweet crude oil for processing.
The crude oil requirements of the McKee Refinery are currently satisfied by
purchases of domestic crude oil under short-term contracts. With completion of
the Wichita Falls to McKee pipeline, this refinery now also has cost-effective
access to foreign crude oil. In 1993 the crude oil requirements of the Three
Rivers Refinery were supplied by foreign crude oil and by domestic crude oil
under short-term contracts. Over 90% of the crude oil processed by the Three
Rivers Refinery in 1993 was foreign crude oil, mostly from the North Sea. While
the Company has no crude oil reserves and its operations could be adversely
affected by fluctuations in availability of crude oil and other supplies, the
Company believes that current domestic and foreign sources of crude oil will be
sufficient to meet the Company's requirements for the foreseeable future.
In January 1994 the Company received a notice terminating the lease
arrangement under which the Company currently has use of Fina's terminaling and
storage facilities at Harbor Island, near Corpus Christi, Texas. That
termination will become effective in January 1995. The Harbor Island facility
is one of two crude oil terminaling and storage facilities through which the
Company receives shipments of foreign crude oil for its Three Rivers Refinery.
The Company is currently in the process of negotiating arrangements to either
continue use of the Harbor Island facility or to secure the use of substitute
facilities. The Company does not currently anticipate that the termination will
have a material effect on its access to crude oil supplies for the Three Rivers
Refinery.
The Company's refined products are distributed primarily through the
Company's approximately 2,460 miles of refined products pipelines and its 15
terminals. The Company's refined products terminal near Dallas, the Southlake
Terminal, also receives products from the Explorer Pipeline, a major common
carrier of refined products from the Houston area. In late 1989 the Company
completed a project to expand its Southlake products pipeline by 15% to 32,500
net barrels per day. In April 1990 the Company completed an expansion project
for its Amarillo-Tucumcari-Albuquerque products pipeline. Pipeline capacity to
Tucumcari was increased by over 50% to 8,963 net barrels per day, and pipeline
capacity to Albuquerque was increased to 8,055 net barrels per day. On December
31, 1993, the Company completed the purchase of one-half of the total interest
of Texaco Pipeline Inc. (which was approximately one-third) in the Amarillo-
Tucumcari-Albuquerque products pipeline. The Company is currently in the
process of again expanding the Amarillo-Tucumcari-Albuquerque products pipeline,
to increase capacity by an additional 2,000 barrels per day, with completion
anticipated in the second quarter of 1994.
In January 1991 the Company completed the construction of turbine fuel
loading and measurement facilities at its Southlake Terminal. This facility
enables the Company to transport turbine fuel produced at its McKee Refinery to
the terminal, then by truck to Love Field in Dallas. The project also included
a five mile pipeline connecting the new Southlake Terminal facilities directly
to turbine fuel facilities servicing airlines at the Dallas-Fort Worth
International Airport.
In October 1992 the Company commenced operation of its newly constructed
refined products terminal near Laredo, Texas. The project included construction
of a 100 mile refined products pipeline connecting the terminal to the Three
Rivers Refinery. The new terminal enables the Company to deliver approximately
15,000 barrels per day of refined products to southwest Texas and adjacent
market areas in Mexico.
In the second quarter of 1993 the Company commenced construction of a
refined products pipeline from the McKee Refinery to the Colorado Springs,
Colorado area. The project includes a 10-inch pipeline covering approximately
254 miles, and a terminal facility near Colorado Springs. The pipeline will
have an initial capacity of 32,000 barrels per day. Completion is anticipated
during the first quarter of 1994.
In August 1993 the Company connected its product pipeline running from the
McKee Refinery to the Southlake Terminal to those of another gasoline refiner
and marketer at Wichita Falls, Texas and at Southlake, Texas. The new
connections will enable the Company to deliver an additional 2,500 barrels of
gasoline per day from the McKee Refinery to Wichita Falls as part of a product
exchange arrangement, and to deliver an additional 4,000 to 8,000 barrels of
gasoline per day from the McKee Refinery to the Southlake Terminal for sale at a
specified margin above the spot market price.
In December 1993 the Company announced a plan to construct a 400-mile, 10-
inch pipeline from the McKee Refinery to El Paso, Texas, which will have an
initial capacity of 32,000 barrels per day of refined products. The Company
will also construct a new terminal at El Paso, with total associated storage
capacity of 500,000 barrels. The new pipeline will give the Company the
capability of delivering refined products from the McKee Refinery to the El Paso
market and also give it the capability to deliver refined products to markets in
Phoenix and Tucson, Arizona through a common carrier pipeline originating in El
Paso. Completion of the new pipeline is anticipated by the end of the second
quarter of 1995.
The Company has historically entered into product exchange and purchase
agreements with unaffiliated companies. Exchange agreements provide for the
delivery to unaffiliated companies of refined products at the Company's
terminals in exchange for delivery of a similar amount of refined products to
the Company by such unaffiliated companies at agreed locations. Purchase
agreements involve the purchase by the Company of refined products from
unaffiliated companies with delivery occurring at agreed locations. Such
arrangements enable the Company to broaden its geographical distribution
capabilities and supply markets not connected to its refined products pipeline
system. Most of the Company's exchanges and purchase arrangements are long-
standing arrangements, but generally can be terminated on 30 to 90 days notice.
Some agreements have terms as long as five years. Products are currently
received on exchange or by purchase through 49 terminals and distribution points
throughout the Company's principal marketing areas.
Marketing
The Company has a strong brand identification in much of its eight-state
marketing area. The volume of gasoline the Company sells through its network of
776 Company-operated retail outlets is equal to approximately 47% of the
gasoline the Company produces at its refineries. The volume of gasoline the
Company sells to independent branded and unbranded jobbers, commercial, and end
user accounts, and other marketers exceeds the remainder of the gasoline
production at the Company's refineries. To the extent the Company's
requirements exceed the production at its refineries, the balance is made up
through spot market purchases of gasoline from other refiners.
Total motor fuel outlets at the dates indicated below were as follows:
December 31,
1993 1992 1991
Company Owned and Operated 504 518 529
Company Leased and Operated 272 243 234
Total Company Operated 776 761 763
Jobber Operated 1,194 1,163 1,155
Total Motor Fuel Outlets 1,970 1,924 1,918
As of December 31, 1993, Company-operated retail outlets were located in
Texas (622), Colorado (98), Louisiana (37), and New Mexico (19). Most of the
Company's outlets are modern, attractive, high-volume gasoline/convenience
stores which sell, in addition to motor fuels, a variety of products such as
groceries, health and beauty aids, fast foods, and beverages.
The Company plans to open between 25 and 30 new retail outlets during 1994.
The Company opened nine newly constructed retail outlets in 1993. In 1993
the Company also purchased 14 retail outlets in Albuquerque, New Mexico, and
five retail outlets in El Paso, Texas, all of which were branded "Vickers", from
Total Petroleum. These outlets have been reidentified under the Diamond
Shamrock brand.
In 1992 the Company opened 12 newly constructed retail outlets. In 1991
the Company opened 22 newly constructed retail outlets and acquired an
additional 89, including 24 stores in El Paso, Texas from National Convenience
Stores, and 64 stores in the Dallas to San Antonio corridor from Strasburger
Enterprises. During 1990 and 1989 the Company constructed 48 and 44 new retail
units, respectively, and completely rebuilt a total of six outlets.
The Company has an on-going program to modernize and upgrade the retail
outlets it operates. These efforts are designed to improve appearances and
create a uniform look easily recognizable by customers. Exterior improvements
generally include the installation of new price signs, lighting, and canopies
over the gasoline pumping areas. The program also includes the installation of
computer-controlled pumping equipment and the renovation of interiors.
The Company is continuing its program of closing and selling retail outlets
which have marginal profitability or which are situated outside its principal
marketing areas. During 1993 the Company closed 11 such outlets.
As of December 31, 1993 127 independent jobbers supplied 1,194 "Diamond
Shamrock" branded retail outlets located in eight states. The Company enjoys
long-term relationships with many of its jobbers. Representatives from 20
jobbers make up a Jobber Council that meets on a regular basis with the
Company's management to communicate concerns, and to learn about opportunities
and developments in the Company's marketing program.
During the past five years the Company has made a number of significant
improvements to its jobber assistance programs in an on-going effort to improve
the quality of the "Diamond Shamrock" brand image. Under one program the
Company sets aside an amount for each gallon of Diamond Shamrock branded motor
fuels sold by the jobber, which the jobber may then use to help offset expenses
for advertising, image improvements, and upgrading of equipment. In 1988 the
Company doubled the amount of this per-gallon set aside, and in 1991 increased
the amount again by 62.5%. Under another program, the jobber building incentive
program, the Company offers financial incentives which may total in excess of
$100,000 per site to encourage jobbers to build, refurbish, or rebuild outlets
according to Diamond Shamrock plans and guidelines. In early 1993 the Company
also implemented a program pursuant to which the Company assists jobbers in
securing loans to construct units that meet Diamond Shamrock's plans and image
requirements.
In July 1993 the Company formed a joint venture for the purpose of
franchising the Company's "Corner Store" branded convenience stores in Mexico.
The stores are operated in conjunction with Pemex gasoline outlets under the
name "Corner Store", and are patterned after the Company's retail outlets in the
United States. The Company anticipates that seven such stores will be open and
operating under the franchise arrangement by the end of the first quarter of
1994.
The Company sells three grades of high-quality unleaded gasoline products,
including mid and high octane grades, all of which contain a detergent package
with a polymer additive. This additive package meets all the standard tests
generally accepted by researchers and automobile manufacturers for today's more
sophisticated engine technology.
The Company's competitive position is supported by its own credit card
program, with approximately 509,000 active accounts. The Company offers a no
fee credit card, and a prestige card marketed as the Diamond Shamrock Club Card
which, for an annual fee, offers a debit function that earns an annual credit
and certain other features. A credit card program designed especially for use
by the operators of fleets of vehicles is also marketed by the Company. Over
61,000 vehicles are now in the program, and during 1993 gasoline sales
(including sales by Diamond Shamrock branded jobbers) under the program averaged
approximately 4.2 million gallons per month.
The Company currently utilizes electronic point of sales credit card
processing ("P.O.S.") at all of its Company-operated stores, and since early
1990 all of its independent branded jobber outlets have also used the P.O.S.
system. P.O.S. reduces transaction time at the retail outlet and lowers the
Company's credit card program costs by reducing float, eliminating postage and
insurance costs, and reducing bad debts.
The Company is in the process of installing a computer based, intelligent
retail information system ("IRIS") at Company-operated stores. IRIS incorporates
an enhanced P.O.S. system and will automate inventory control, pricing, and
sales tracking. IRIS interfaces with the Company's continuous underground
storage tank monitoring system now being installed. The Company is also
installing pump-mounted credit card readers which will interface with IRIS at
certain high-volume locations. At December 31, 1993 500 Company-operated stores
had been equipped with the IRIS system. The IRIS system is projected to be in
place at all Company-operated stores by the end of 1994 and is expected to
increase customer convenience and merchandise sales volumes.
In connection with its credit card program, the Company developed a
computer software system (the Retail Account Management System ("RAMS")) which
it uses to process credit card transactions and to manage credit card accounts.
In June 1989 the Company formed a new subsidiary, D-S Systems, Inc., to license
the RAMS software to other proprietary credit card issuers, to process credit
card transactions for such issuers, and provide such issuers with certain
related services.
The "Corner Store" concept for the retail outlets that began in 1987 is
intended to provide the customer with a message of convenience and friendly
customer service. The Company also uses "Corner Store" to identify its newly
expanded merchandise line. Customers now find a greater variety of merchandise
and consistency of appearance from outlet to outlet.
The Company actively uses radio, television, newspaper, and billboard
advertising to promote the Company and its products. These promotional efforts
are facilitated by the concentration of a substantial portion of the Company's
outlets in the Texas metropolitan areas of Austin, Corpus Christi, Dallas, El
Paso, Fort Worth, Houston, and San Antonio, and in Denver and Colorado Springs,
Colorado. The Company considers the "Diamond Shamrock" brand name and logo to
be of significant importance to its business.
In addition to gasoline, the Company also markets an average of 43,774
barrels per day of diesel fuel to branded and non-branded customers, railroads,
and large fleet accounts. Asphalt produced at the McKee Refinery is sold to
local contractors, primarily to the roofing industry and for road construction.
The Company also sells an average of 20,437 barrels per day of high quality jet
fuel to commercial airlines and the United States military.
Allied Businesses
In addition to its core refining and marketing businesses, the Company is
engaged in several related businesses. In 1988 the Company established its
Development and New Ventures group to develop these related businesses, and to
explore opportunities for entry into additional fields where the Company has
technical, operating, or management expertise. The more significant of these
businesses and new ventures are described below.
The Company owns and operates large underground natural gas liquids and
petrochemical storage and distribution facilities located on the Mont Belvieu
salt dome, northeast of Houston. The Company's original facility provided
approximately 37 million barrels of storage capacity in 14 wells. In September
1989 the Company acquired a similar facility, XRAL Storage, and Terminaling
Company, which added 11 new underground storage wells and approximately 23
million barrels of additional storage capacity to the Company's existing
facilities. The total permitted storage capacity of the facilities is currently
approximately 76 million barrels. The two facilities are interconnected by
pipeline and are utilized for storing and distributing ethane, ethane/propane
mix, propane, butane, and isobutane, as well as refinery, chemical, and polymer-
grade propylene. The Mont Belvieu facilities receive products from the McKee
Refinery through the Skelly-Belvieu pipeline (in which the Company owns a 50%
interest), as well as through major pipelines coming from the Mid-Continent
region, West Texas, and New Mexico. In 1993 an average of approximately 529,237
barrels per day of natural gas liquids and petrochemicals moved through the
facilities, and was distributed via an extensive network of pipeline connections
to various refineries and petrochemical complexes on the Texas and Louisiana
Gulf Coasts, earning various storage and distribution fees for the Company.
In June 1990 the Company completed a propane/propylene splitter plant
located at the Company's Mont Belvieu hydrocarbon storage facility. A
subsidiary of American PetroFina Inc. ("Fina") has a one-third interest in the
plant. The plant is operated by the Company. Each of the Company and Fina pays
its proportionate share of the costs and receive in kind its proportionate share
of the products produced at the plant.
When first completed the splitter was capable of producing 600 million
pounds of polymer-grade propylene per year. Capacity has since been increased to
720 million pounds per year. Polymer-grade propylene is a feedstock used in the
manufacture of plastics. This plant utilizes refinery-grade propylene produced
by the Company's refineries and additional refinery-grade propylene purchased
from other refiners for feedstock. The Company's storage facilities at Mont
Belvieu are used to store both feedstock for the plant and polymer-grade
propylene after it is produced. The product is distributed by pipeline to
purchasers in the Houston ship channel area and for export. In 1993 the
Company's share of production from the splitter totaled approximately 370
million pounds of polymer-grade propylene, and the Company was successful in
marketing product in excess of that amount.
In December 1991 the Company entered into a joint venture to construct a
petrochemical export terminal located on the Houston Ship Channel. The terminal
was completed and commenced operation in August 1992. The terminal is connected
by pipeline to the Company's propane/propylene splitter plant and petrochemical
storage facilities at Mont Belvieu. The terminal provides the Company with
access to international petrochemical markets.
In late 1990 the Company repurchased an ammonia production facility located
at the McKee Refinery, which had been sold by a predecessor of the Company in
the late 1970's. In March 1991 the Company commenced operation of one of the
two production units at the plant. In December 1991 the second unit commenced
operation. During 1993 the plant produced approximately 359 tons per day of
anhydrous ammonia which is marketed by the Company as a fertilizer.
In September 1991 the Company and Sol Petroleo, S.A. ("Sol"), an Argentine
company headquartered in Buenos Aires, jointly acquired the oil and gas
exploration and production interests of Occidental Petroleum in the Republic of
Bolivia. The operation includes a 100% interest in the Porvenir Field in
southeastern Bolivia which has daily sales of approximately 50 million cubic
feet of gas and a 50% interest in the Madre de Dios concession in northern
Bolivia. This operation is conducted by a staff located in Santa Cruz, Bolivia.
In 1992 the Company exchanged a portion of its Bolivian interests for a minority
interest in Sol, which owns a small solvents refinery located in Buenos Aires
and markets gasoline under the "Sol" brand. The venture presently includes
twenty branded retail outlets, eight operated by the venture and twelve operated
by jobbers.
In late 1988 the Company formed a subsidiary to provide environmental
testing services, primarily relating to underground petroleum product storage
tanks. This subsidiary also designs and installs waste treatment systems and
provides environmental services, including cleanup and disposal of industrial
waste, tank cleaning, monitoring, site surveying, and record keeping.
In August 1989 the Company acquired the assets of an existing telephone
services company to form a new subsidiary, North American InTeleCom, Inc.
("NAI"), to provide private pay telephone services and telephone services for
correctional facilities. At the end of 1993 NAI operated inmate telephone
systems in 63 correctional facilities capable of housing some 40,000 inmates and
owned or managed approximately 6,900 private pay telephones.
NAI is currently testing a software system for use by correctional
facilities, which will monitor inmates' physical movements, inventories of
supplies, and perform certain accounting functions with respect to telephone and
commissary charges, trustee fund accounts, and various other inmate-related
matters.
On March 27, 1992 the Company completed a sale of its wholly-owned
subsidiary, Industrial Lubricants Co. ("Industrial Lubricants"), to Specialty
Oil Company of Shreveport, Louisiana. Industrial Lubricants blends and packages
motor oils and other lubricant products. It is also a distributor of a number
of major brand motor oils and automotive products.
Competitive Considerations
The Company's two refineries and refined products pipelines and terminals
network are strategically located to service its markets in the states in which
the Diamond Shamrock brand is strongly represented. The Company consistently
sells more refined products than its refineries produce, purchasing its
additional requirements in the spot market. This strategy has enabled the
Company to operate its refineries at high rates while allowing for incremental
refinery capacity expansions to be quickly utilized upon completion.
Quality products and a strong brand identification have positioned the
Company as the third largest marketer of motor fuels in Texas, with a market
share of over 10%, and have led to a growing wholesale and retail market
presence for the Company in Colorado (particularly the Denver and Colorado
Springs areas), Louisiana, and New Mexico.
The Company expects to continue to experience intense competition in all
areas of its retail marketing business from major integrated oil and gas
companies, and other independent refining and marketing concerns, as well as
from national and regional convenience store chains that sell motor fuels. The
Company believes that its products compare favorably as to price and quality
with the products sold by its competitors.
The refining and marketing business has historically been volatile and
highly competitive. A refiner's earnings are largely dependent upon its
refining margin -- the difference between crude oil and other feedstock costs,
and the prices it receives for refined products. In recent years crude oil
costs have fluctuated substantially, as have prices of refined products. The
industry also tends to be seasonal in that refining margins often begin to
increase in the second quarter and decrease in the third quarter of the year,
reflecting increased demand for gasoline and other refined products during the
summer driving season.
Many of the Company's competitors are large multi-national oil companies
which, because of their diverse operations, may be better able to withstand
volatile industry conditions.
Regulatory Matters
Federal, state, and local laws and regulations establishing various health
and environmental quality standards affect nearly all of the operations of the
Company. Included among such statutes are the Clean Air Act of 1955, as amended
("CAA"), including substantial amendments adopted in 1990 (the "Clean Air Act
Amendments"), the Clean Water Act of 1977, as amended ("CWA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), and the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"). Also significantly affecting the Company are the rules and
regulations of the Occupational Safety and Health Administration ("OSHA").
The CAA requires the Company to meet certain air emission standards. The
CWA requires the Company to obtain and comply with the terms of water discharge
permits. The RCRA empowers the Environmental Protection Agency ("EPA") to
regulate the treatment and disposal of industrial wastes and to regulate the use
and operation of underground storage tanks. CERCLA requires notification to the
National Response Center of releases of hazardous materials and provides a
program to remediate hazardous releases at uncontrolled or abandoned hazardous
waste sites. The Superfund Amendments and Reauthorization Act of 1986 ("SARA")
is an extension of the CERCLA cleanup program. Title III of SARA, the Emergency
Planning and Community Right to Know Act of 1986, relates to planning for
hazardous material emergencies and provides for a community's right to know
about the hazards of chemicals used or manufactured at industrial facilities.
The OSHA rules and regulations call for the protection of workers, and provide
for a worker's right to know about the hazards of chemicals used or produced at
the Company's facilities.
Regulations issued by the EPA in 1988 with respect to underground storage
tanks require the Company, over a period of time of up to ten years, to install,
where not already in place, spill prevention manholes, tank overfill protection
devices, leak detection devices, and corrosion protection on all underground
tanks and piping at retail gasoline outlets. The regulations also require
periodic tightness testing of underground tanks and piping. Commencing in 1998,
operators will be required under these regulations to install continuous
monitoring systems for underground tanks.
State and local regulations in parts of Texas, New Mexico, and Colorado
require that only motor fuels containing higher than the normal levels of oxygen
may be marketed in winter months. Such fuels are intended to reduce the amount
of carbon monoxide in automobile emissions. The Clean Air Act Amendments
required that beginning in November 1992 only oxygenated gasoline having a
minimum oxygen content of 2.7% could be marketed in these areas. The level of
oxygen in motor fuels is normally raised by the addition of methyl tertiary
butyl ether ("MTBE"), ethanol, or tertiary amyl methyl ether ("TAME"). The
Company produces some MTBE at its McKee Refinery and purchases the remainder of
such blending components. If other areas currently not identified as severe
carbon monoxide or ozone nonattainment areas elect to require the use of
oxygenates or reformulated gasoline, the Company may be required to purchase
additional blending components. To the extent that the Company is unable to
pass along such compliance costs by raising motor fuel prices, the Company's
profitability will be adversely affected.
In March 1989 the EPA issued Phase I of regulations under authority of the
CAA requiring a reduction for the summer months in 1989 in the volatility of
gasoline ("RVP") (the measure of the amount of light hydrocarbons contained in
gasoline, such as normal butane, an octane booster). In June 1990 Phase II of
these regulations were issued by the EPA which required further reductions in
RVP beginning in May 1992. The Clean Air Act Amendments also established
nationwide RVP standards which went into effect as of May 1992, but did not
exceed the EPA's Phase II standards. Such regulations required reductions in
RVP for gasolines produced at the McKee Refinery for distribution in the Denver
and Dallas-Fort Worth markets, beginning May 1, 1992.
The Clean Air Act Amendments will impact the Company in the following
areas: (i) starting in 1995, a "reformulated" gasoline (which would include
content standards for oxygen, benzenes, and aromatics) is mandated in the nine
worst ozone polluting cities, including Houston, Texas, and other cities may opt
into the program, including Dallas and El Paso, Texas; (ii) "Stage II" hose and
nozzle controls on gas pumps to capture fuel vapors in nonattainment areas,
including Beaumont, Dallas, El Paso, Fort Worth and Houston, Texas; and (iii)
more stringent refinery and petrochemical permitting requirements.
In addition EPA regulations required that after October 1, 1993 the sulfur
contained in on-highway diesel fuel produced in the United States must be
reduced. Construction of a desulfurization unit at the McKee Refinery and a
hydrocracker unit at the Three Rivers Refinery enabled the Company to produce
diesel fuel in compliance with such regulations.
It is expected that rules and regulations implementing the Clean Air Act
Amendments and other federal, state, and local laws relating to health and
environmental quality will continue to affect the operations of the Company.
The Company cannot predict what health or environmental legislation or
regulations will be enacted in the future or how existing or future laws or
regulations will be administered or enforced with respect to products or
activities of the Company. However, compliance with more stringent laws or
regulations, as well as more expansive interpretation of existing laws and their
more vigorous enforcement by the regulatory agencies could have an adverse
effect on the operations of the Company and could require substantial additional
expenditures by the Company, such as for the installation and operation of
pollution control systems and equipment. Much of the capital spent by the
Company for environmental compliance is integrally related to projects that
increase refinery capacity or improve product mix, and the Company does not
specifically identify capital expenditures related to such projects on the basis
of environmental as opposed to economic purpose. However, with respect to
capital expenditures budgeted primarily to produce federally-mandated fuels to
comply with regulations related to air and water toxic emission levels and for
remediation and compliance costs related to underground storage tanks, it is
estimated that approximately $21.4 million was spent in 1993, $9.6 million in
1992 and $7.5 million in 1991. For 1994 the Company has budgeted approximately
$10.0 million primarily related to environmental capital expenditures for the
retail segment to comply with Stage II Vapor recovery requirements and
underground storage tank regulations.
The Company has in effect policies, practices, and procedures in the areas
of pollution control, product safety, and occupational health, the production,
handling, storage, use, and transportation of refined petroleum products, and
the storage, use, and disposal of hazardous materials to prevent an unreasonable
risk of material environmental or other damage, and the material financial
liability which could result from such events. However, some risk of
environmental or other damage is inherent in the businesses of the Company, as
it is with other companies engaged in similar businesses.
Employees
The Company employs approximately 6,300 people, about 600 of which are
part-time employees. Approximately 315 hourly paid workers at the McKee
Refinery are affiliated with the Oil, Chemical, and Atomic Workers International
Union, AFL-CIO, with which the Company has a contract extending to April 1996.
The Company considers its relationship with its employees to be good and has not
experienced any organized work stoppage in over 30 years.
Certain Transactions with Maxus
In connection with the Spin-Off in 1987, Maxus and the Company entered into
an agreement (the "Distribution Agreement") which, among other things, provides
that as between the Company and Maxus, the Company will be responsible for
liabilities and other obligations relating principally to the Company's business
and Maxus will be responsible for all other liabilities relating principally to
Maxus' continuing and former businesses, subject to certain cost-sharing
arrangements described below.
The Distribution Agreement provides for the sharing by Maxus and the
Company of certain liabilities (other than product liability) relating to
businesses discontinued or disposed of by Maxus prior to April 30, 1987. In
substance, the cost of such liabilities will be borne one-third by the Company
and two-thirds by Maxus until the Company's aggregate reimbursement share equals
$85.0 million, and thereafter solely by Maxus.
Payments with respect to the obligations to be shared pursuant to the
Distribution Agreement are initially made by Maxus, and the Company is obligated
to reimburse Maxus for the Company's share of such payments after receipt of
Maxus' invoice accompanied by appropriate supporting data. In the fourth
quarter of 1989 the Company recorded a non-cash charge as an extraordinary item
in the amount of $32.0 million, after taxes, to establish a reserve for such
obligations under the Distribution Agreement.
During June 1993 the Emerging Issues Task Force ("ETIF") of the Financial
Accounting Standards Board ("FASB") released the minutes of its May 20, 1993
meeting during which the ETIF announced a consensus with regard to certain
issues of "Accounting for Environmental Liabilities" (Issue 93-5). The
consensus effectively changes the criteria for determining when a liability may
be recorded on a discounted method. Consequently, the Company changed the
accounting method for recording the liability to reflect the entire unpaid
amount rather than the discounted amount of the liability (See Note 3 to the
Consolidated Financial Statements contained in Exhibit 13.1 to this report).
Although some expenditures are still subject to audit, the Company has
reimbursed Maxus for a total of $53.4 million as of December 31, 1993, including
$11.3 million paid during 1993.
Pursuant to the Distribution Agreement, the Company will also reimburse
Maxus for one-third of all payments made by Maxus after April 30, 1987 for
providing certain medical and life insurance benefits with respect to persons
who retired on or before the effective date of the Spin-Off. (See Note 6 to the
Consolidated Financial Statements contained in Exhibit 13.1 to this report.)
The actuarial cost of these expected payments under the Distribution Agreement
has been recognized by the Company. (See Note 3 to the Consolidated Financial
Statements contained in Exhibit 13.1 to this report.)
Item 2. Properties.
The principal plants and properties used by the Company in its Refining and
Wholesale segment are the McKee Refinery, the Three Rivers Refinery, the
Company's crude oil and refined products pipelines, and products terminals. For
a description of the foregoing, see "Refining", and "Supply and Distribution" in
Item 1 above. The refineries are owned by the Company in fee. Of the
Company's 2,112 miles of crude oil pipelines, 2,069 miles are owned in fee and
43 miles are leased under a long-term lease agreement expiring in 1999 which may
be extended for up to 30 years. Of the Company's 2,460 miles of refined
products pipelines, 364 miles are under a long term lease, and 2,096 miles are
owned in fee. 614 miles of the Company's owned crude oil pipelines and 527
miles of its owned refined products pipelines are owned jointly with one or more
other companies. The Company's interests in such pipelines are between 33% and
50%. Of the Company's 15 products terminals, 14 are owned in fee and one is
leased under an agreement expiring in 1999 which may be renewed for 30 years.
All of the terminals are 100% owned or leased by the Company except for one
terminal which is owned 60% by the Company.
The principal properties used in the Company's Retail segment are 776
Company-operated retail outlets, 504 of which are owned in fee and 272 of which
are leased. Of the leased outlets, 166 are currently leased to the Company
pursuant to a lease facility entered into in 1992 (which replaced a lease
facility with an affiliate of a major securities and money market firm).
Financing for the lease facility was expanded by an additional $25 million in
April 1993. The facility has an initial five year term which expires in 1997.
After the initial five year term the Company may purchase the properties or
renew the lease with the lessor's consent for an additional five year term or
arrange for a sale of the outlets. (See Note 15 to the Consolidated Financial
Statements contained in Exhibit 13.2 to this report.) For a description of the
Company-operated retail outlets, see "Marketing" in Item 1 above.
The principal plants and properties used in the Company's Allied Businesses
segment are the hydrocarbon storage facility at Mont Belvieu, which the Company
owns, and the jointly-owned propane/propylene splitter at Mont Belvieu. See
Allied Businesses in Item 1 above.
Item 3. Legal Proceedings.
In January 1994 a settlement was reached in a contemplated action by the
District Attorney of Santa Clara County, California, against Autotronic Systems,
Inc. for failure to expeditiously remediate groundwater contaminated by
hydrocarbons at a former gasoline station site. Autotronic Systems, Inc. is a
wholly-owned subsidiary of the Company. Autotronic Systems, Inc. agreed to pay
a $100,000.00 fine of which $95,000.00 was abated against Autotronic Systems,
Inc.'s future remediation expenses at the site. Settlement documents reflecting
the fine's abatement and Autotronic Systems, Inc.'s agreement to remediate the
site are currently being negotiated.
The Company is a party to a number of lawsuits which are ordinary routine
litigation incidental to the Company's businesses, the outcomes of which are not
expected to have a material adverse effect on the Company's operations or
financial position. The Company is engaged in a number of environmental cleanup
projects, mostly relating to retail gasoline outlets. While such cleanup
projects are typically conducted under the supervision of a governmental
authority, they do not involve proceedings seeking monetary sanctions from the
Company and are not expected to be material to the Company's operations or
financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The principal United States market on which the Common Stock is traded is
the New York Stock Exchange. The high and low sales prices for the Common
Stock for each full quarterly period during 1992 and 1993 as reported on the New
York Stock Exchange Composite Tape, together with the amount of cash dividends
paid per share of the Common Stock by calendar quarter, are contained in Exhibit
13.2 to this report, which information is incorporated herein by reference.
The approximate number of record holders of the Common Stock at March 1,
1994 was 21,241.
Item 6. Selected Financial Data.
The information required by this item appears in Exhibit 13.2 to this
report, which information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The information required by this item appears in Exhibit 13.1 to this
report, which information is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The information required by this item appears in Exhibit 13.2 to this
report, which information is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Inapplicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to the identity and
business experience of the directors of the Company appears under the heading
"Election of Directors" in the Company's definitive Proxy Statement for the 1994
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission (the "Commission") pursuant to Regulation 14A (the "Proxy
Statement"), which information is incorporated herein by reference.
The following information concerning the executive officers of the Company
is as of March 1, 1994.
Roger R. Hemminghaus, 57, is Chairman of the Board and President of the Company,
and has served as the chief executive officer of the Company since April 1987.
Robert C. Becker, 52, has served as Vice President and Treasurer of the Company
since April 1987.
Timothy J. Fretthold, 44, is Senior Vice President/Group Executive and General
Counsel of the Company. He served as a Group Vice President, and General
Counsel of the Company from April 1987 to June 1989.
Gary E. Johnson, 58, has served as Vice President and Controller of the Company
since April 1987.
William R. Klesse, 47, is Senior Vice President/Group Executive of the Company.
He served as Group Vice President - Development and New Ventures of the Company
from May 1988 to June 1989. Mr. Klesse served as Group Vice President -Planning
and Public Affairs of the Company from April 1987 through May 1988.
J. Robert Mehall, 51, is Senior Vice President/Group Executive of the Company.
He served as Group Vice President - Supply of the Company from April 1987 to
June 1989.
A. W. O'Donnell, 61, is Senior Vice President/Group Executive of the Company. He
served as Group Vice President - Marketing of the Company from April 1987 to
June 1989.
J. E. Prater, 55, is Senior Vice President/Group Executive of the Company. He
served as Group Vice President - Refining of the Company from April 1987 to June
1989.
Officers are elected annually by the Board of Directors and may be removed
at any time by the Board. There are no family relationships among the executive
officers listed or the directors of the Company, and there are no arrangements
or understandings pursuant to which any of the officers or directors were
elected as such.
Information concerning compliance by the directors and executive officers
of the Company with Section 16(a) of the Securities Exchange Act of 1934 appears
under the heading "Compliance with Section 16(a) of the Securities Exchange Act
of 1934" in the Company's definitive Proxy Statement for the 1994 Annual Meeting
of Stockholders to be filed with the Commission pursuant to Regulation 14A,
which information is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item appears under the heading
"Compensation of Executive Officers" in the Proxy Statement, which information
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item appears under the heading "Beneficial
Ownership of Securities" in the Proxy Statement, which information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this item with respect to directors appears
under the heading "The Board of Directors and Its Committees - Certain Business
Relationships" in the Proxy Statement, which information is incorporated herein
by reference.
The information required by this item with respect to executive officers
appears under the heading "Compensation of Executive Officers - Retirement and
Other Compensation - Employee Stock Purchase Loan Program" in the Proxy
Statement, which information is incorporated herein by reference.
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
The following financial statements are attached hereto as
Exhibit 13.2, and are incorporated herein by reference:
Consolidated Statement of Operations for the three
years ended December 31, 1993
Consolidated Balance Sheet - December 31, 1993 and
1992
Consolidated Statement of Cash Flows for the three
years ended December 31, 1993
Notes to Consolidated Financial Statements
Supplementary Financial Information
The Report of Independent Accountants relating to such
financial statements is attached hereto as Exhibit 13.3,
and is incorporated herein by reference.
Condensed parent company financial information has been
omitted, since the amount of restricted net assets of
consolidated subsidiaries does not exceed 25% of total
consolidated net assets. Also, footnote disclosure
regarding restrictions on the ability of both
consolidated and unconsolidated subsidiaries to transfer
funds to the parent company has been omitted since the
amount of such restrictions does not exceed 25% of total
consolidated net assets.
(2) Financial Statement Schedules.
The following report of independent accountants and
financial statement schedules are also a part of this
report:
Report of Independent Accountants on Financial
Statement Schedules
Schedule V - Consolidated Properties and Equipment
Schedule VI - Consolidated Accumulated Depreciation
All other schedules have been omitted because they are not
applicable or the required information is shown in the
Financial Statements or the Notes to Consolidated Financial
Statements.
(3) Exhibits.
Exhibit Filing
No. Reference Description of Document
3.1 * Certificate of Incorporation of the Company
(Exhibit 3.1 to the Company's Form 10 Registration
Statement No. 1-9409 (the "Form 10")).
3.2 * Form of Certificates of Designations of Series A
Junior Participating Preferred Stock (Exhibit 3 to
the Company's Form 8-A Registration Statement dated
March 6, 1990, filed under Commission File No.
1-9409 (the "Form 8-A for Preferred Stock Purchase
Rights")).
3.3 * Form of Certificate of Designations establishing 5%
Cumulative Convertible Preferred Stock (filed as
Exhibit 4.7 to the Company's Form S-3 Registration
Statement dated August 6, 1993, under Commission
file 33-67166, and incorporated herein by reference).
3.4 * By-Laws of the Company (Exhibit 3.2 to the Form 10.
4.1 * Certificate of Incorporation of the Company
(Exhibit 3.1 to the Form 10).
4.2 * By-Laws of the Company (Exhibit 3.2 to the Form
10).
4.3 * Form of Common Stock Certificate (Exhibit 4.3
to the Form 10).
4.4 * Form of Indenture between the Company and The
First National Bank of Chicago (Exhibit 4.1 to the
Company's Form S-1 Registration Statement No.
33-32024 (the "Form S-1 for Medium-Term Notes")).
4.5 * Form of Right Certificate (Exhibit 1 to the
Form 8-A for Preferred Stock Purchase Rights).
4.6 * Rights Agreement between the Company and
Ameritrust Company National Association (Exhibit 2
to the Form 8-A for Preferred Stock Purchase
Rights).
4.7 * Form of 9-3/8% Note Due March 1, 2001 (Exhibit 4.1
to Form 8-K dated February 20, 1991, filed with the
Commission on February 22, 1991).
4.8 * Forms of Medium-Term Notes (Exhibit 4.2 to the
Company's Form S-3 Registration Statement No.
33-588744).
4.9 * Form of 8% Debenture due April 1, 2023 (Exhibit 4.1
to Form 8-K dated March 22, 1993, filed with the
Commission on March 25, 1993).
4.10 * 401(k) Retirement Savings Plan creating certain
"participation interests" (Exhibit 4.1 to Form S-8
Registration Statement dated October 6, 1993, filed
under Commission File No. 33-50573).
4.11 * Form of Certificate of Designations establishing 5%
Cumulative Convertible Preferred Stock (filed as
Exhibit 4.7 to the Company's Form S-3 Registration
Statement dated August 6, 1993, under Commission file
file 33-67166, and incorporated herein by reference).
4.12 + Form of 5% Cumulative Convertible Preferred
Stock Certificate
10.1 * Distribution Agreement between the Company and Maxus
(Exhibit 10.1 to the Form 10).
10.2 * Tax-Sharing Agreement between the Company and Maxus
(Exhibit 10.2 to the Form 10).*
10.3 * Credit Agreement I, dated as of April 14, 1987, as
amended and restated through April 15, 1993, between
the Company and certain banks (Exhibit 10.1 to the
Company's report on Form 10-Q for the quarter ended
June 30, 1993.)
10.4 * Credit Agreement II, dated as of April 14, 1987, as
amended and restated through April 15, 1993, between
the Company and certain banks (Exhibit 10.2 to the
Company's report on Form 10-Q for the quarter ended
June 30, 1993).
10.5 * Senior Subordinated Note Purchase Agreement, dated
as of April 17, 1987, between the Company and certain
purchasers (the "Senior Subordinated Note Agreement")
(Exhibit 10.22 to the Form 10).
10.6 * Amendment No. 1 to the Senior Subordinated Note
Agreement, dated as of March 31, 1988 (Exhibit 19.5
to the Company's report on Form 10-Q for the quarter
ended March 31, 1988).
10.7 * Amendment No. 2 to the Senior Subordinated Note
Agreement, dated as of July 12, 1989, between the
Company and certain purchasers. (Exhibit 19.2 to
the Company's report on Form 10-Q for the quarter
ended June 30, 1989 (the "June 30, 1989 10-Q")).
10.8 + Amendment No. 3 to the Senior Subordinated Note
Agreement, dated as of December 6, 1993, between the
Company and certain purchasers.
10.9 # 9% Senior Note Purchase Agreement, dated as of June
4, 1987, between the Company and Prudential
Insurance Company of America (the "9% Senior Note
Agreement").
10.10 # Amendment No. 1 to the 9% Senior Note Agreement,
dated as of July 12, 1989.
10.11 # Amendment No. 2 to the 9% Senior Note Agreement,
dated as of December 6, 1993.
10.12 # 8.35% Senior Note Purchase Agreement, dated as of
December 1, 1988, between the Company and Prudential
Insurance Company of America (the "8.35% Senior Note
Agreement").
10.13 # Amendment No. 1 to the 8.35% Senior Note Agreement,
dated as of July 12, 1989.
10.14 # Amendment No. 2 to the 8.35% Senior Note Agreement,
dated as of December 6, 1993.
10.15 # 8.77% Senior Note Agreement, dated as of April 20,
1989, between the Company and Prudential Insurance
Company of America (the "8.77% Senior Note
Agreement").
10.16 # Amendment No. 1 to the 8.77% Senior Note Agreement,
dated as of July 12, 1989.
10.17 # Amendment No. 2 to the 8.77% Senior Note Agreement,
dated as of December 6, 1993.
10.18 * X Form of Indemnification Agreement between the
Company and its directors and executive officers
(Exhibit 19.6 to the Company's report on Form 10-Q
for the quarter ended June 30, 1987 (the "June 30,
1987 10-Q")).
10.19 * X Amended form of Employment Agreement between the
Company and certain of its executive officers
(Exhibit 19.2 to the Company's report on Form 10-Q
for the quarter ended March 31, 1989).
10.20 * X Deferred Compensation Plan for executives and
directors of the Company, amended and restated as of
January 1, 1989 (Exhibit 10.13 to the Company's
report on Form 10-K for the year ended December 31,
1988 (the "1988 Form 10-K")).
10.21 * X Supplemental Executive Retirement Plan of the
Company (the "SERP")
(Exhibit 10.16 to the Form 10).
10.22 * X First Amendment to the SERP (Exhibit 10.17 to the
Form S-1 for Preferred Stock).
10.23 * X Second Amendment to the SERP (Exhibit 10.21 to the
1989 Form 10-K).
10.24 * X Performance Incentive Plan of the Company (Exhibit
10.19 to the Form 10).
10.25 * X Excess Benefits Plan of the Company (Exhibit 19.5 to
the June 30, 1987 Form 10-Q).
10.26 * X 1987 Long-Term Incentive Plan of the Company (Annex
A-1 to the Company's Form S-8 Registration Statement
No. 33-15268).
10.27 * X Amended Form of Non-Incentive Stock Option Agreement
with Stock Appreciation Rights between the Company
and certain officers (Exhibit 19.5 to the June 30,
1989 Form 10-Q).
10.28 * X Amended Form of Restricted Stock Agreement between
the Company and certain officers (Exhibit 19.6 to
the June 30, 1989 Form 10-Q).
10.29 * X Form of Disability Benefit Agreement between the
Company and certain of its executive officers
(Exhibit 10.21 to the Form S-1 for Preferred Stock).
10.30 * X Form of Split Dollar Insurance Agreement between the
Company and certain of its executive officers
(Exhibit 10.20 to the 1988 Form 10-K).
10.31 * X Form of Supplemental Death Benefit Agreement between
the Company and certain of its executive officers
(Exhibit 19.9 to the June 30, 1987 Form 10-Q).
10.32 * X Form of Employee Stock Purchase Loan Agreement
between the Company and certain of its executive
officers and employees (Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1987).
10.33 * X Amendment dated March 5, 1990 to the Employee Stock
Purchase Loan Agreement (Exhibit 10.31 to the 1989
Form 10-K).
10.34 * X Retirement Plan for Non-Employee Directors of the
Company dated as of May 2, 1989 (Exhibit 19.7 to the
June 30, 1989 Form 10-Q).
10.35 * X Diamond Shamrock, Inc. Long-Term Incentive Plan
(Exhibit 4.1 to the Company's Form S-8 Registration
Statement No. 33-34306 filed on April 13, 1990).
10.36 * X Form of Executive Officer's Restricted Stock
Agreement between the Company and certain officers
pursuant to the Diamond Shamrock, Inc. Long-Term
Incentive Plan. (Exhibit 19.3 to the Company's
report on Form 10-Q for the quarter ended June 30,
1990 (the "June 30, 1990 Form 10-Q")).
10.37 * X Form of Non-Incentive Stock Option Agreement with
Stock Appreciation Rights between the Company and
certain officers pursuant to the Diamond Shamrock,
Inc. Long-Term Incentive Plan. (Exhibit 19.4 to the
June 30, 1990 Form 10-Q).
10.38 * X Form of Executive Officer's Performance Restricted
Stock Agreement between the Company and certain
officers pursuant to the Diamond Shamrock, Inc. Long
-Term Incentive Plan. (Exhibit 19.5 to the June 30,
1990 Form 10-Q).
10.39 * X Form of Non-Incentive Stock Option Agreement between
the Company and certain officers pursuant to the
Diamond Shamrock, Inc. Long-Term Incentive Plan
(Exhibit 19.2 to the Company's report on Form 10-Q
for the quarter ended September 30, 1991 (the
"September 30, 1991 Form 10-Q").
10.40 * X Form of Non-Incentive Stock Option Agreement With
Reload between the Company and certain officers
pursuant to the Diamond Shamrock, Inc. Long-Term
Incentive Plan (Exhibit 19.3 to the Company's report
on Form 10-Q for the quarter ended September 30,
1991 (the "September 30, 1991 Form 10-Q").
10.41 * X Form of Amendment to the Non-Incentive Stock Option
Agreement with Stock Appreciation Rights and the Non
-Incentive Stock Option Agreement with Reload, each
between the Company and certain officers pursuant to
the Diamond Shamrock, Inc. Long-Term Incentive Plans
(Exhibit 19.1 to the Company's report on Form 10-Q
for the quarter ended March 31, 1992 (the "March 31,
1992 Form 10-Q").
10.42 * X Form of Amendment to the Non-Incentive Stock Option
Agreement between the Company and certain officers
pursuant to the Diamond Shamrock, Inc. Long-Term
Incentive Plan (Exhibit 19.2 to the March 31, 1992
Form 10-Q).
10.43 * X Diamond Shamrock, Inc. Long-Term Incentive Plan,
amended and restated as of May 5, 1992 (Exhibit
19.1 to the Company's report on Form 10-Q for the
quarter ended June 30, 1992 (the "June 30, 1992 Form
10-Q").
10.44 * X Form of Employee Stock Purchase Loan Agreement
between the Company and certain of its executive
officers and employees, amended and restated as of
May 26, 1992 (Exhibit 19.2 to the June 30, 1992
Form 10-Q).
10.45 * X Ground Lease Agreement between Brazos River Leasing,
L.P. and DSRMC, dated as of April 23, 1993 (Exhibit
19.3 to the June 30, 1992 Form 10-Q).
10.46 * First Amendment to Ground Lease Agreement between
Brazos River Leasing, L.P. and Diamond Shamrock
Refining and Marketing Company, dated as of August 1,
1992 (Exhibit 10.2 to the Company's report on Form
10-Q for the quarter ended, September 30, 1993).
10.47 * Facilities Lease Agreement between Brazos River
Leasing L.P. and DSRMC, dated as of April 23,
1992 (Exhibit 19.4 to the June 30, 1992 Form 10-Q).
10.48 * First Amendment to Facilities Lease Agreement
between Brazos River Leasing, L.P. and Diamond
Shamrock Refining and Marketing Company, dated as
of August 1, 1992. (Exhibit 10.3 to the Company's
report on Form 10-Q for the quarter ended
September 30, 1993 (the "September 30, 1993 10-Q").
10.49 * Schedule Relating to Certain Lease Agreements
(Exhibit 10.4 to the September 30, 1993 10-Q).
10.50 * X Form of Excess Benefits Plan between the Company and
certain officers, amended and restated as of
December 1, 1992 (Exhibit 10.49 to the Company's
report on Form 10-K for the year ended December 31,
1992 (the "1992 10-K")).
10.51 * X Form of Disability Benefit Agreement between the
Company and certain officers, amended and restated as
of January 1, 1993 (Exhibit 10.50 to the 1992 10-K).
10.52 * X Form of Deferred Compensation Plan between the
Company and certain directors, officers and other
employees of the Company, amended and restated as of
January 1, 1993 (Exhibit 10.51 to the 1992 10-K).
13.1 + Management's Discussion and Analysis of Financial
Condition and Results of Operation from the
Company's Annual Report to Shareholders for the
year ended December 31, 1993.
13.2 + Consolidated Financial Statements and Selected
Financial Data from the Company's Annual Report to
Shareholders for the year ended December 31, 1993.
13.3 + Report of Independent Accountants from the Company's
Annual Report to Shareholders for the year ended
December 31, 1993.
21.1 + Significant Subsidiaries of the Company.
23.1 + Consent of Price Waterhouse.
24.1 + Powers of Attorney of directors and officers of the
Company.
- --------------------------
* Each document marked with an asterisk is incorporated herein by reference
to the designated document previously filed with the Securities and
Exchange Commission.
# The Company hereby agrees pursuant to Item 601(b)(4)(III)(A) of
Regulation S-K to furnish a copy of this agreement to the Securities and
Exchange Commission upon request.
+ Indicates a document filed with this report.
X Indicates a document which constitutes an executive contract or
compensation plan or arrangement.
- ------------------------------
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the fourth
quarter of 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 report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DIAMOND SHAMROCK, INC.
By /s/ R. R. HEMMINGHAUS
R. R. Hemminghaus,
Chairman of the Board and
President
March 28, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant, and
in the capacities, and on the dates indicated.
Signature Title
/s/ R. R. HEMMINGHAUS
R. R. Hemminghaus Chairman of the Board and
President
(Principal Executive Officer)
/s/ ROBERT C. BECKER*
Robert C. Becker Vice President and Treasurer
(Principal Financial Officer)
/s/ GARY E. JOHNSON*
Gary E. Johnson Vice President and Controller
(Principal Accounting Officer)
/s/ B. CHARLES AMES*
B. Charles Ames Director
/s/ E. GLENN BIGGS*
E. Glenn Biggs Director
/s/ WILLIAM E. BRADFORD*
William E. Bradford Director
/s/ LAURO F. CAVAZOS*
Lauro F. Cavazos Director
/s/ W. H. CLARK*
W. H. Clark Director
/s/ WILLIAM L. FISHER*
William L. Fisher Director
/s/ WILLIAM S. McCONNOR*
William S. McConnor Director
/s/ BOB MARBUT*
Bob Marbut Director
/s/ KATHERINE D. ORTEGA*
Katherine D. Ortega Director
* The undersigned, by signing his name hereto, does hereby sign this report
on Form 10-K pursuant to the Powers of Attorney executed on behalf of the above-
named officers and directors of the registrant, and contemporaneously filed
herewith with the Securities and Exchange Commission
/s/ TODD WALKER
Todd Walker
Attorney-in-Fact
March 28, 1994
<PAGE>
CONSOLIDATED FINANCIAL INFORMATION
Index
Financial Statement Schedules:
Report of Independent Accountants on Financial
Statement Schedules
For the three years ended December 31, 1993:
Consolidated Properties and Equipment
Consolidated Accumulated Depreciation
and Depletion - Properties and Equipment
(All other schedules have been omitted because they are not applicable or
the required information is shown in the Financial Statements or the Notes to
Consolidated Financial Statements.)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Diamond Shamrock, Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 25, 1994, which includes an explanatory paragraph with respect to
the Company's changes in its methods of accounting for its long-term shared cost
liability, postretirement benefits other than pensions, and income taxes, which
is attached as Exhibit 13.3 to this Annual Report on Form 10-K, also includes an
audit of the Financial Statement Schedules listed in Item 14(a)(2) hereof. In
our opinion, these Financial Statement Schedules present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ Price Waterhouse
PRICE WATERHOUSE
San Antonio, Texas
February 25, 1994
<PAGE>
SCHEDULE V
DIAMOND SHAMROCK, INC.
CONSOLIDATED PROPERTIES AND EQUIPMENT
Three Years Ended December 31, 1993
(dollars in millions)
Refining & Retail Allied
Wholesale Marketing Businesses Other Total
Balance January 1, 1991 $ 615.5 $ 245.1 $ 195.2 $ 18.0 $ 1,073.8
Additions, at cost 80.1 65.6 21.2 13.2 180.1
Disposals and transfers (2.6) (4.5) (4.7) 0.1 (11.7)
Balance December 31, 1991 693.0 306.2 211.7 31.3 1,242.2
Additions, at cost 143.8 4.8 19.6 2.3 170.5
Disposals and transfers 2.1 (4.3) (18.7) - (20.9)
Balance December 31, 1992 838.9 306.7 212.6 33.6 1,391.8
Additions, at cost 100.1 26.5 4.4(1) 0.8 131.8
Disposals and transfers 10.1 (6.7) (34.5) (0.5) (31.6)
Balance December 31, 1993 $ 949.1 $ 326.5 $ 182.5 $ 33.9 $ 1,492.0
(1) During 1993, the Company exchanged an undivided interest in certain
properties and equipment for an equity ownership interest in a limited liability
company. This transaction increased investments by $19.2 million, decreased
properties and equipment by $22.0 million and decreased accumulated depreciation
by $2.8 million in the Allied Businesses segment.
<PAGE>
SCHEDULE VI
DIAMOND SHAMROCK, INC.
CONSOLIDATED ACCUMULATED DEPRECIATION
Three Years Ended December 31, 1993
(dollars in millions)
Refining & Retail Allied
Wholesale Marketing Businesses Other Total
Balance January 1, 1991 $ 270.1 $ 63.6 $ 63.4 $ 7.8 $ 404.9
Additions charged
against income 27.4 12.3 10.1 2.5 52.3
Disposals and transfers 0.5 (2.1) (3.6) (1.0) (6.2)
Balance December 31, 1991 298.0 73.8 69.9 9.3 451.0
Additions charged
against income 29.5 13.7 10.9 2.7 56.8
Disposals and transfers 0.7 (3.3) (3.5)* (1.5) (7.6)
Balance December 31, 1993 $ 366.9 $ 96.6 $ 74.5 $ 12.9 $ 550.9
*See footnote (1) to the preceding Schedule V "Consolidated Properties and
Equipment."
The provisions for depreciation were computed principally in accordance
with the following methods and range of rates:
Method Rate
Buildings and land improvements Straight line 3% to 5%
Machinery and equipment Straight line 5% to 20%
Furniture and fixtures Straight line 10% to 20%
Automotive equipment Straight line 14% to 33%
Leasehold improvements Straight line Lease terms
INDEX TO EXHIBITS
DIAMOND SHAMROCK, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1993
Exhibit
No.
4.12 Form of 5% Cumulative Convertible Preferred Stock
Certificate.
10.8 Amendment No. 3 to Senior Subordinated Note Agreement,
dated as of December 6, 1993, between the Company and
certain purchasers.
13.1 Management's Discussion and Analysis of Financial
Condition and Results of Operation from the Company's
Annual Report to Shareholders for the year ended
December 31, 1993.
13.2 Consolidated Financial Statements and Selected Financial
Data from the Company's Annual Report to Shareholders for
the year ended December 31, 1993.
13.3 Report of Independent Accountants from the Company's Annual
Report to Shareholders for the year ended December 31, 1993.
21.1 Significant Subsidiaries of the Company.
23.1 Consent of Price Waterhouse.
24.1 Powers of Attorney of directors and officers of the Company.
<PAGE>
Exhibit 4.12
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, OR
OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION
TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE
DATE HEREOF AND THE LAST DATE ON WHICH THE CORPORATION OR ANY AFFILIATE OF THE
CORPORATION WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY)
ONLY TO A PERSON THAT IS NOT AN "AFFILIATE" OR ACTING ON BEHALF OF AN
"AFFILIATE" OF THE CORPORATION AND ONLY (A) TO THE CORPORATION, (B) PURSUANT TO
A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE
SECURITIES ACT, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATIONS UNDER THE SECURITIES
ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF
SUBPARAGRAPH (A)(1), (A)(2), (A)(3), OR (A)(7) OF RULE 501 UNDER THE SECURITIES
ACT THAT IS REQUIRING THE SECURITY FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE CORPORATION'S AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH
OFFER, SALE, OR TRANSFER PURSUANT TO CLAUSE (F) TO REQUIRE THE DELIVERY OF ANY
OPINION OF COUNSEL SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING
CASES. A CERTIFICATE IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY
IS DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.
THIS CERTIFICATE IS TRANSFERABLE PREFERRED STOCK
IN THE CITY OF NEW YORK PAR VALUE $.01
OR IN CLEVELAND, OHIO
5% CUMULATIVE CONVERTIBLE
PREFERRED STOCK
CUSIP 252747 30 8
SEE REVERSE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
DIAMOND SHAMROCK, INC.
CERTIFICATE NUMBER REFERENCE DATE SHARES
__________________ _________ ____________ ________
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE 5% CUMULATIVE CONVERTIBLE PREFERRED
STOCK OF Diamond Shamrock, Inc. (hereinafter referred to as the "Corporation")
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Certificate of
Incorporation, as amended, of the Corporation (a copy of which certificate is on
file with the Transfer Agent) to all of which the holder by acceptance hereof
assents. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
Witness the signatures of duly authorized officers of the Corporation
/s/ Jerry D. King /s/ Roger R. Hemminghaus Countersigned
SECRETARY CHAIRMAN OF THE BOARD AND and
CHIEF EXECUTIVE OFFICER registered
SOCIETY NATIONAL BANK
(Cleveland, Ohio)
By:
Transfer Agent
and Registrar
<PAGE> DIAMOND SHAMROCK, INC.
DIAMOND SHAMROCK, INC. WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER
WHO SO REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF
STOCK OR SERIES THEREOF WHICH DIAMOND SHAMROCK, INC. IS AUTHORIZED TO ISSUE AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS, ANY SUCH REQUEST IS TO BE ADDRESSED TO THE SECRETARY OF DIAMOND
SHAMROCK, INC., SAN ANTONIO, TEXAS OR TO THE TRANSFER AGENT NAMED ON THE FACE OF
THIS CERTIFICATE.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable law or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - __________________ Custodian ________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _________________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________
_______________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
________________________________________________________________________________
_____________________ Shares of the capital stock represented by the within
Certificate, and do hereby irrevocably constitute and appoint __________________
_______________________________________________________ Attorney to transfer the
said stock on the books of the within-named Company with full power of
substitution in the premises.
Date:____________________ _______________________________
Transferee Letter of Representations
Diamond Shamrock, Inc.
c/o Transfer Agent
Dear Sirs:
This certificate is delivered to request a transfer of ________ shares of 5%
Cumulative Convertible Preferred Stock (the "Preferred Stock") of Diamond
Shamrock, Inc. (the "Company") or _______ shares of Common Stock of the Company
issued upon conversion or redemption of the Preferred Stock.
Upon transfer, the share of Preferred Stock or Common Stock would be registered
in the name of the new beneficial owner as follows:
Name:___________________________________________
Address:________________________________________
Taxpayer ID Number:_____________________________
The undersigned represents and warrants to you that it is an institutional
"accredited investor" (within the meaning of subparagraph (a)(1), (2), (3), or
(7) of Rule 501 of Regulation D under the Securities Act of 1933, as amended
(the "Securities Act")) that it is acquiring the shares of Preferred Stock or
Common Stock, as the case may be, for investment purposes and not for
distribution in violation of the Securities Act.
TRANSFEREE:_________________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
Exhibit 10.8
DIAMOND SHAMROCK, INC.
AMENDMENT NO. 3 TO
NOTE PURCHASE AGREEMENT
dated as of April 17, 1987
(Senior Subordinated Notes due 1999)
This document is AMENDMENT NO. 3, dated as of December 6, 1993, relating to
that certain NOTE PURCHASE AGREEMENT dated as of April 17, 1987, between DIAMOND
SHAMROCK, INC., a Delaware corporation (the "Company") and the institution whose
signature appears below (the "Holder").
WITNESSETH:
WHEREAS, the Company and the Holder have entered into a Note Purchase
Agreement dated as of April 17, 1987 pursuant to which the Company issued and
sold to the Holder Senior Subordinated Notes of the Company due 1999 (the
"Notes"); and
WHEREAS, such Note Purchase Agreement was amended by Amendment No. 1
thereto, dated as of March 31, 1988, and by Amendment No. 2 thereto, dated as of
July 12, 1989, (such "Note Purchase Agreement" as so amended, being referred to
herein as the "Original Agreement"); and
WHEREAS, the Holder holds the principal amount of the Notes set forth
opposite the Holder's name on the signature page hereof; and
WHEREAS, the Company has requested that certain provisions of the Original
Agreement be amended and the Holder is willing to consent to such amendments as
hereinafter set forth;
NOW, THEREFORE, the Company and the Holder agree as follows:
1. DEFINED TERMS.
Terms used herein which are defined in the Original Agreement are used
herein as so defined, unless otherwise provided herein.
2. AMENDMENTS.
2A. AMENDMENTS TO PARAGRAPH 5.
Paragraph 5D of the Original Agreement shall be amended as of the Approval
Date (as defined in paragraph 2E below) by substituting the following paragraph,
in its entirety, for Paragraph 5D of the Original Agreement:
5D. LEGAL EXISTENCE, ETC. The Company will at all times preserve and keep in
full force and effect its existence as a legal entity, and rights and franchises
material to its business, and those of each of its Subsidiaries and will
qualify, and cause each of its Subsidiaries to qualify to do business in any
jurisdiction where the failure to do so would have a material adverse effect on
the business, condition (financial or other), assets, properties or operations
of the Company and its Subsidiaries, taken as a whole, provided that the legal
existence of any such Subsidiary (other than, subject to the provisions of
paragraph 6E, Diamond Shamrock Refining and Marketing Company) may be terminated
if, in the good faith judgment of the Company, such termination is in the best
interests of the Company and is not disadvantageous to the holders of any of the
Notes.
2B. AMENDMENTS TO PARAGRAPH 9.
Paragraph 9A of the Original Agreement shall be amended as of the Approval
Date by substituting the following paragraph, in its entirety, for Paragraph
9A(xii) of the Original Agreement:
(xii) any order, judgment or decree is entered in any proceedings against
the Company or any of its Subsidiaries decreeing a split-up of the Company or
such Subsidiary which requires the divestiture of a substantial part, or the
divesture of the capital stock, partnership interests, membership interests, or
other equity interests in a Subsidiary of the Company the assets of which
constitute a substantial part of the consolidated assets of the Company and its
Subsidiaries or which requires the divestiture of assets, or capital stock,
partnership interests, membership interests, or other equity interests in a
Subsidiary of the Company, which shall have contributed a substantial part of
consolidated net earnings for any of the three fiscal years then most recently
ended, and such order, judgment or decree remains unstayed and in effect for
more than 60 days; or
2C. AMENDMENTS TO PARAGRAPH 12.
(a) The definition of "Restricted Investment" contained in Paragraph 12 of
the Original Agreement shall be amended as of the Approval Date by substituting
the following paragraph in its entirety for paragraph (i) of the definition of
"Restricted Investment" contained in the Original Agreement:
(i) an Investment in a Restricted Subsidiary or in a Person which
becomes a Restricted Subsidiary as a result of such Investment;
(b) The definition of "Subsidiary" contained in Paragraph 12 of the
Original Agreement shall be amended as of the Approval Date by substituting the
following definition, in its entirety, for the corresponding definition
contained in paragraph 12 of the Original Agreement:
"Subsidiary" of any Person (the "Parent") shall mean (a) all corporations,
general and limited partnerships, limited liability companies, associations, or
other legal entities, organized under the laws of any State of the United States
of America, Canada, or any Province of Canada, a majority of capital stock,
partnership interests, membership interests, or other equity interests of every
class of which, except for any directors' qualifying shares, shall, at the time
as of which any determination is being made, be owned by the Parent either
directly or through Subsidiaries, and (b) in the case of the Company, Sigmor
Beverage, Inc., Big Diamond, Inc., and Colonnade Assurance Ltd.
2D. AMENDMENTS TO EXHIBIT C.
Exhibit C (being the form of Indenture) to the Original Agreement shall be
amended as of the Approval Date as follows:
(a) Section 4.06 of Exhibit C shall be amended in the same manner as
paragraph 5D of the Original Agreement as set forth in paragraph 2A above;
(b) Section 6.01(10) of Exhibit C shall be amended in the same manner as
paragraph 9A(xii) of the Original Agreement as set forth in paragraph 2B above;
(c) The definition of the term "Subsidiary" contained in Section 1.01 of
Exhibit C shall be amended in the same manner as the definition of such term
contained in paragraph 12 of the Original Agreement are to be amended as set
forth in paragraph 2C above.
2E. APPROVAL DATE.
The amendments provided for in paragraphs 2A, 2B, 2C, and 2D above, shall
become effective on the date, if any (the "Approval Date"), as of which the
Company shall have received from the holders of not less than a majority in
aggregate principal amount of the Notes outstanding executed instruments in the
same form (except for the identity of the Holder delivering such instrument and
the identification of the principal amount of Notes held by such holder) as this
Amendment No. 3. The Company shall, not later than five days after the Approval
Date give each holder of each Note written notice thereof.
3. RATIFICATION.
Except as expressly provided herein, the Original Agreement shall remain
and continue in effect in accordance with its terms.
4. COUNTERPARTS.
This Amendment No. 3 may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Amendment No. 3 to produce or account for more
than one such counterpart.
IN WITNESS WHEREOF, this Amendment No. 3 has been executed as of the 6th
day of December, 1993.
DIAMOND SHAMROCK, INC.
By: /s/ R. C. BECKER
R. C. Becker
Its: Treasurer
Principal Amount of Notes Held: MERRILL LYNCH LIFE INSURANCE
COMPANY
$ 3,000,000.
By: /s/ DAVID M. DUNFORD
David M. Dunford
Its: Senior Vice President
Principal Amount of Notes Held: THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
$ 44,000,000.
By: /s/ CRAIG WILSON
Craig Wilson
Its: Vice President
Principal Amount of Notes Held: JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
$ 25,000,000.
By: /s/ EUGENE R. HODY, JR.
Eugene R. Hody, Jr.
Its: Investment Officer
Principal Amount of Notes Held: INTEGRITY LIFE INSURANCE COMPANY
$ 5,000,000.
By:_______________________
Its:_______________________
Principal Amount of Notes Held: SUN LIFE ASSURANCE COMPANY OF
CANADA
$ 8,000,000.
By: /s/ JOHN N. WHELIHAN
John N. Whelihan
Its: Assistant Vice President
Principal Amount of Notes Held: MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
$ 10,000,000.
By: /s/ RICHARD C. MORRISON
Richard C. Morrison
Its: Vice President
Principal Amount of Notes Held: GREAT WEST LIFE ASSURANCE COMPANY
$ 15,000,000.
By: /s/ WAYNE T. HOFFMANN
Wayne T. Hoffmann
Its: Vice President
Principal Amount of Notes Held: ALLIANCE CORPORATE FINANCE
GROUP, INC.
$ 7,000,000.
By:_______________________
Its:_______________________
Principal Amount of Notes Held: THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
$ 25,000,000.
By: /s/ J. THOMAS CHRISTOFFERSON
J. Thomas Christofferson
Its: Vice President
Principal Amount of Notes Held: SUN LIFE ASSURANCE CO. OF
CANADA (US)
$ 8,000,000.
By: /s/ L. BROCK THOMSON
L. Brock Thomson
Its: Treasurer
Exhibit 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated Results 1993 vs 1992
Sales and operating revenues for 1993 were $2,555.3 million compared to
$2,602.6 million in 1992. Sales and operating revenues decreased by $47.3
million in 1993, primarily due to a decrease in natural gas liquids sales
volumes, attributable to the cancellation of the Company's contract to process
natural gas for Maxus Energy Corporation ("Maxus") during the second quarter of
1993, and a decrease in Retail segment sales, primarily due to a 3.9% decrease
in retail gasoline sales prices. During 1993, the Company had income (before
cumulative effect of accounting changes) of $32.6 million and net income of
$18.4 million compared with income (before cumulative effect of accounting
changes) of $26.4 million and net income of $8.7 million in 1992.
The Company's 1993 results were positively impacted by strong refining
margins as motor fuel demand increased and pipeline and refinery expansion
projects were completed. Retail gasoline and merchandise sales volumes and
strong margins, primarily in the third and fourth quarters of 1993, contributed
to record earnings in the Retail segment.
In addition, the Company's 1993 results were affected by two noncash
charges totaling $15.9 million after tax. The first noncash charge arose
because, at the time of the 1987 spin-off of Diamond Shamrock, the Company
agreed to pay Maxus up to $85.0 million for a portion of certain liabilities
related to businesses discontinued by Maxus prior to the time of the spin-off.
Recent changes in accounting standards require that the Company record, as of
January 1, 1993, $23.6 million (or $14.2 million after tax) which represents the
full amount of the liability not previously expensed by the Company. With this
noncash charge, the entire $85.0 million potential maximum liability has been
expensed. The second noncash charge, which affected the third quarter, arose
because the Company took a charge of $1.7 million to restate deferred taxes as a
result of the recent increase in corporate income tax rates.
A major portion of the Company's inventory is valued at the lower of last-
in, first-out (LIFO) cost or market. At December 31, 1993, inventories of crude
oil and refined products of the Refining and Wholesale segment, and propylene
products in the Allied Businesses segment were valued at market (lower than LIFO
cost). Motor fuel products of the Retail segment were recorded at their LIFO
costs. Estimating the financial impact of changes in the valuation of refinery
inventories due to such inventories being valued at market is difficult because
of the number of variables that must be considered. For operating purposes,
management attempts to estimate the impact of changes in valuation of refinery
inventories on net income. The estimated after tax effect on income because of
the change in inventory values was a negative $16.5 million and a negative $1.7
million, in 1993 and 1992, respectively. For purposes of estimating the impact
on net income, the changes in inventory valuation are offset by changes in the
LIFO reserve. Thus, in 1993 the estimated after tax impact on income due to the
change in inventory values net of changes in the LIFO reserve was a negative
$15.7 million. There was no change in the LIFO reserve in 1992.
Consolidated Results 1992 vs 1991
In 1992, sales and operating revenues increased by $26.7 million from
$2,575.9 million in 1991, primarily due to an increase in retail gasoline
volumes. This increase was offset by decreased sales and operating revenues in
the Allied Businesses segment, primarily due to the sale of Industrial
Lubricants Company in the first quarter of 1992. Income (before cumulative
effect of accounting changes) in 1992 was $26.4 million and net income was $8.7
million compared with net income of $37.1 million in 1991.
The Company's 1992 results were negatively impacted by weak refining
margins which were only partially offset by record retail profits. Falling
prices and weak demand throughout the industry put severe pressure on refining
margins early in the first quarter of 1992, recovering slightly in the second
quarter as gasoline demand increased. Refining margins began to decline in the
third and fourth quarters of 1992 due to a sluggish economy and flat demand. In
addition, the Company's 1992 results were affected by noncash charges totaling
$17.7 million after tax, as a result of adopting the Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and No. 109, "Accounting for Income Taxes."
The estimated after tax effect on income because of the change in inventory
values was a negative $1.7 million and a negative $37.2 million in 1992 and
1991, respectively. The estimated after tax impact due to the change in
inventory values net of changes in the LIFO reserve was a negative $12.9 million
in 1991. There was no change in the LIFO reserve in 1992.
Segment Results 1993 vs 1992
Sales and operating revenues from the Refining and Wholesale segment were
$1,294.8 million in 1993, compared with $1,290.4 million for 1992. Refined
product sales volumes increased by 6.5%, primarily due to increased product
demand and completed pipeline and refinery expansion projects. This increase
was partially offset by an 8.0% decrease in refined product sales prices.
Refining and Wholesale operating profit increased by 8.5% to $73.9 million
compared to $68.1 million in 1992. This increase in operating profit was
primarily due to a 17.1% increase in refinery margins. Refinery margins were up
as the Company benefitted from projects brought on in late 1992 and during 1993,
namely the crude oil pipeline from Wichita Falls, Texas to the McKee refinery,
the Three Rivers expansion, and the diesel desulfurizer at McKee. The 1993
operating profit was negatively impacted due to a fall in the value of crude oil
and refined product inventories.
The Retail segment showed a $12.6 million decrease in sales and operating
revenues in 1993 from $970.7 million in 1992, primarily due to a 3.9% decrease
in retail gasoline sales prices, partially offset by a 1.6% increase in retail
merchandise sales and a 1.1% increase in retail gasoline sales volumes. Per
store gasoline sales volumes and merchandise sales increased by 1.7% and 2.1%,
respectively. Retail operating profit increased by 34.5% to $62.7 million in
1993, due to a 13.0% increase in retail gasoline margins and a 4.2% increase in
merchandise margins. Gross profit from lottery sales in 1993 was $7.3 million
compared to $3.9 million in 1992. Increased customer traffic from lottery
sales, improved product mix, and the closing of unproductive units contributed
to the increase in operating profit in 1993.
Sales and operating revenues from the Allied Businesses segment decreased
11.4% to $302.4 million in 1993, due primarily to an 18.5% decrease in natural
gas liquids sales volumes, reflecting the cancellation of the Company's contract
to process natural gas for Maxus during the second quarter. Also contributing
to the decrease in sales and operating revenues was the full year effect of the
sale in the first quarter of 1992 of Industrial Lubricants Company, a wholesaler
of automotive aftermarket products. Allied Businesses operating profits
decreased by 34.3% in 1993 to $15.0 million, primarily due to a $6.3 million and
$5.8 million decrease in operating profits from the propane/propylene splitter
and natural gas liquids marketing businesses, respectively. Lower operating
profit from the propane/propylene splitter was caused by lower margins as a weak
economy, particularly outside the U.S., kept petrochemical feedstocks plentiful.
This decrease was partially offset by a $3.0 million improvement in 1993 in
operating profit from the Company's telephone service business.
Segment Results 1992 vs 1991
Sales and operating revenues from the Refining and Wholesale segment in
1992 were $1,290.4 million, compared to $1,293.2 million in 1991. Refined
product sales volumes increased by 5.6% in 1992, primarily due to increased
demand. This increase was offset by a 4.8% decrease in refined product sales
prices. Operating profit in 1992 was $68.1 million compared with an operating
profit of $86.8 million in 1991. The decrease in operating profit was primarily
due to a 15.3% decrease in refinery margins during the period, partially offset
by the increase in refined product sales volumes. Refinery margins were lower
in 1992 as sluggish economic growth combined with relatively high utilization
rates to keep gasoline inventories for the industry plentiful.
Sales and operating revenues in the Retail segment increased 6.9% in 1992
primarily due to a 17.6% increase in merchandise sales and an 8.5% increase in
retail gasoline volumes. Per store merchandise sales increased 8.3% in 1992.
Operating profit increased by 78.7% to $46.6 million in 1992, due to these sales
and volume increases, a 13.9% increase in merchandise margins, and a 10.5%
increase in retail gasoline margins. Gross profit from lottery sales in 1992
was $3.9 million compared to $0.5 million in 1991. The Retail segment also
benefitted from the full-year impact of the purchase of 88 additional outlets in
the second quarter of 1991.
Allied Businesses sales and operating revenues decreased 8.8% to $341.5
million in 1992, due primarily to the sale in the first quarter of 1992 of
Industrial Lubricants Company. Operating profits decreased by 29.7% in 1992,
primarily due to decreased operating profit of $5.7 million in liquid
hydrocarbon storage, a $2.4 million decrease in operating profit due to the sale
of Industrial Lubricants Company, and a $1.9 million decrease in gas plant
processing, partially offset by a $6.0 million and a $4.0 million increase in
operating profit from the propylene and natural gas liquids marketing
businesses, respectively. In addition, the decrease in operating profit in 1992
was impacted by a gain of $5.2 million from the sale of a 25% interest in a
major portion of a natural gas liquids pipeline in the first quarter of 1991.
Outlook
Although approximately 800,000 barrels per day of crude distillation
capacity has been shut down over the last three years, no significant amount of
additional refinery closures is expected to occur in the near term. An
additional 750,000 barrels per day is said to be vulnerable to closure or for
sale, but it remains to be seen what portion of this capacity will be bought,
shut down, or operated as some other refinery-related facility. Some of these
closures have been somewhat offset by increased gasoline capacity brought on by
refinery debottlenecking projects, expansions, and the addition of oxygenates to
the gasoline pool.
Economic activity accelerated in the latter part of 1993 and moderate
growth is expected to continue over the next year. Gasoline demand for 1993 was
up approximately 2% versus 1992 and is expected to improve another 1% to 1.5% in
1994. With continued gasoline demand improvements and high industry refinery
utilization rates, which averaged over 90% in 1993, refining capacity is
expected to remain relatively tight. Given this outlook, refinery margins for
the industry should show year over year improvement. The Company expects to
continue to improve its refining margins in 1994 as it receives the full benefit
from the expansion of its Three Rivers refinery and the completion of its new
products pipeline into Colorado in the first quarter of 1994.
Liquidity and Capital Resources
Cash Flow and Working Capital
For the year ended December 31, 1993, cash provided by operations was
$109.3 million, compared with $120.3 million provided in 1992. Decreased
working capital positively impacted cash provided by operations during 1993.
Working capital at December 31, 1993, was down $5.7 million from 1992, and
consisted of current assets of $356.2 million and current liabilities of $220.4
million, or a current ratio of 1.6. At December 31, 1992, the current ratio was
1.7, with current assets of $358.5 million and current liabilities of $217.0
million. The decrease in working capital in 1993 was primarily due to a 16.8%
increase in accrued taxes, attributable to the increase in operating income.
The decrease in current assets was primarily due to a 3.7% decrease in
inventories, attributable to a 23.0% decrease in inventory prices, partially
offset by a 20.4% increase in inventory volumes during the period. This
decrease in inventories was partially offset by a 5.1% increase in receivables
during the period.
Cash provided by operations for the year ended December 31, 1992 was
positively impacted by decreased working capital, primarily due to a $49.6
million decrease in inventories as compared to 1991, attributable to a 31.6%
decrease in inventory volumes during the period. Inventory volumes were
unusually low at December 31, 1992, primarily due to refinery turnarounds in the
fourth quarter of 1992.
Capital Expenditures
In recent years capital expenditures have represented a variety of projects
designed to expand and maintain up-to-date refinery facilities, improve terminal
and distribution systems, modernize and expand retail outlets, comply with
environmental regulations, and pursue new ventures in related businesses. The
Company's capital expenditures during 1993 were $131.8 million. Included in
1993 capital expenditures were the expansion at Three Rivers, completed in June,
and the diesel desulfurization unit at McKee, which was completed in August.
These projects, which are mostly economic as opposed to stay-in-business,
increase crude oil throughput and gasoline production capacities at the
refineries, and lower the amount of sulfur in diesel as required by the Clean
Air Act regulations. The Company's capital expenditures were $170.5 million in
1992, and $180.1 million in 1991.
Also included in the 1993 capital expenditures was the 32,000 barrels per
day refined products pipeline from the McKee refinery to Colorado Springs, and
the Colorado Springs terminal, and the pipeline to Denver. The McKee to
Colorado Springs pipeline should be completed during the first quarter of 1994
and the Colorado Springs to Denver leg of the pipeline by the third quarter of
1994.
Based upon the Company's expectations regarding cash from operations, the
Company's capital expenditures budget for 1994 is approximately $130.0 million,
including approximately $88.0 million to complete projects recently announced or
that are currently underway. These projects would include the pipeline to
Colorado and the recently announced 400-mile pipeline to El Paso from McKee with
completion anticipated in mid-1995.
The Company anticipates that its capital expenditures, expenditures for
debt service, lease obligations, working capital, and dividend requirements may
exceed cash generated by operations. To the extent that the Company's
requirements exceed cash generated by operations, the Company presently
anticipates that it may access its commercial paper and bank money market
facilities. The Company may also consider other alternatives depending upon
various factors, including changes in its capital requirements, results of
operations, and developments in the capital markets.
The Company continued to increase its retail marketing business in 1993
with the acquisition of 14 outlets in New Mexico in March, and five outlets in
Texas in September from Total Petroleum Corporation. In addition, the Company
opened nine outlets and closed 13 marginal outlets in 1993. The Company
presently anticipates opening 25 to 30 new outlets during 1994. The Company
opened 12 and 22 new outlets, in 1992 and 1991, respectively. These outlets
were leased by the Company under a long-term lease arrangement (the "Brazos
Lease"). In April 1993, the Company expanded its lease arrangement with an
additional $25.0 million in commitments. The initial lease terms of the outlets
leased under the Brazos Lease expire in April 1997. After the initial lease
term, a lease may be extended by agreement of the parties, or the Company may
purchase or arrange for the sale of the retail outlets. Rent payable under the
Brazos Lease is based on the amounts spent to acquire or construct the outlets
and the lessor's cost of funds from time to time. At December 31, 1993,
approximately $142.9 million of the $165.0 million commitment was utilized to
construct and/or acquire retail outlets.
Environmental Matters
Environmental laws and regulations impact the Company in many areas.
Starting on January 1, 1995, a reformulated gasoline is mandated by the Clean
Air Act for the nine worst ozone polluting cities, including Houston, which is
in the Company's market area and other cities may opt into the program,
including Dallas and Fort Worth. The Company currently supplies its Houston
market through third party purchases and exchange agreements and anticipates it
will continue such supply arrangements for its reformulated gasoline
requirements in Houston.
The Company plans to make reformulated gasoline for its Dallas market which
historically has represented approximately 25 percent of the McKee refinery's
total gasoline pool. With the completion of a TAME unit at that refinery in
early 1995, the Company will be in a position to satisfy all of its expected
reformulated gasoline requirements off the McKee system.
The Clean Air Act also impacts the Company by requiring Stage II vapor
recovery nozzles on gas pumps in ozone nonattainment areas, including Beaumont,
Dallas, El Paso, Fort Worth and Houston, Texas and more stringent refinery and
petrochemical permitting requirements.
Most of the capital spent by the Company for environmental compliance is
integrally related to projects that increase refinery capacity or improve
product mix, and the Company does not specifically identify capital expenditures
related to such economic projects as being environmental.
However, with respect to capital expenditures budgeted primarily to produce
federally-mandated fuels to comply with regulations related to air and water
toxic emission levels and for remediation and compliance costs related to
underground storage tanks, it is estimated that approximately $21.4 million was
spent in 1993, $9.6 million in 1992, and $7.5 million in 1991. For 1994, the
Company has budgeted approximately $10.0 million primarily related to
environmental capital expenditures for the Retail segment to comply with Stage
II vapor recovery requirements and underground storage tank regulations.
Federal, state, and local laws and regulations relating to health and
environmental quality affect nearly all of the operations of the Company. While
the Company cannot predict what legislation, rules, or regulations will be
developed or how they will be administered, management believes that compliance
with the more stringent laws or regulations could require substantial additional
expenditures by the Company for installation and operation of systems and
equipment related to health and environmental quality.
Capital Structure
Financing Activities During 1993
In June 1993, the Company issued 1.725 million shares of 5% Cumulative
Convertible Preferred Stock (the "Preferred Stock") in a private placement to
approximately 63 institutions. The issue was priced at $50 per share with a
dividend rate of 5 percent. The stock became convertible into the Company's
Common Stock on September 8, 1993, at an initial conversion price of $26.50 per
share. After June 15, 1996, the stock is redeemable at the Company's option,
subject to certain conditions, for Common Stock, and after June 15, 2000, it is
redeemable at the Company's option at par for cash. The primary purpose of the
offering was to increase the Company's financial flexibility and thereby
facilitate its ability to take advantage of opportunities that may develop in
its businesses and market areas. The net proceeds of approximately $84.3
million were used in part to reduce amounts outstanding under the Company's bank
money market facilities and the balance was added to the Company's working
capital to be used for general corporate purposes.
During February 1993, the Company issued $46.0 million in medium-term notes
with an average rate of 7.44% and average maturities of 12 years. The Company
filed a post-effective amendment to its shelf registration for registration of
an additional $75.0 million in medium-term notes in February 1993. On April 1,
1993, the Company issued $100.0 million of 8% debentures due April 1, 2023, from
its medium-term note shelf registration. The proceeds from the issuance of
medium-term notes and debentures were used to refinance existing long-term debt
and for general corporate purposes.
The Company has filed a post-effective amendment to its existing shelf
registration and registered additional debt securities in the amount of $95.0
million. The combination of this amendment and existing shelf registration
enables the Company to issue up to $100.0 million of debt securities with terms
of up to 30 years.
The Revolving Credit Loan agreement (the "Revolving Credit Loan") was
amended on April 15, 1993. In this amendment, the original agreement was split
into two separate agreements, ("Agreement I" and "Agreement II") and the total
amount available was increased from $250.0 million to $300.0 million. Agreement
I has a face value of $100.0 million with a maturity date of April 14, 1994.
Agreement II matures on September 30, 1996, and has a value of $200.0 million.
Interest under Agreement I and Agreement II varies depending on specified
lending options available to the Company. Generally, the variable conditions
relate to the prime rate, certificates of deposit, and London Interbank Offered
("LIBO") rates, as adjusted upward by specified percentages. On December 31,
1993, the Company had no borrowings outstanding under Agreement I or Agreement
II.
The maximum amount outstanding under the commercial paper program (the
"Commercial Paper") during 1993 was $109.2 million. The average amount of
Commercial Paper outstanding during 1993 was $10.5 million at an average
interest rate of 4.1%. Borrowings of Commercial Paper are reported as long-term
debt because the Company has the intent and the ability either to roll over the
debt as it becomes due or to convert it into long-term debt. Proceeds from this
program are used for general corporate purposes.
At December 31, 1993, the Company had outstanding $5.0 million of
borrowings under bank money market facilities provided by major money center
banks, at a rate of 3.46%.
The Company amended its $65.0 million Term Loan Agreement (the "Term Loan")
as of July 31, 1993. The agreement provides for funds to be drawn as needed,
with interest based on variable LIBO rates. The average interest rate for 1993
was 4.05%. As of December 31, 1993, $30.0 million outstanding under the Term
Loan had been prepaid, leaving $35.0 million outstanding.
The Revolving Credit Loan and Term Loan agreements are unsecured. Certain
subsidiaries of the Company have unconditionally guaranteed the repayment of all
indebtedness and the performance of all obligations incurred by the Company
under the Revolving Credit Loan and Term Loan agreements.
Financing Activities Prior To 1993
In December 1991, the Company issued $24.0 million in medium-term notes
from the existing shelf registration with an average rate of 8.45% and average
maturities of 12 years.
The Company issued on February 27, 1991, $75.0 million of 9-3/8% Notes due
March 1, 2001 (the "Notes") under its medium-term note program. The aggregate
net proceeds of approximately $74.4 million from the sale of the Notes were used
to reduce bank line and commercial paper borrowings of the Company.
In April 1987, the Company sold $150.0 million of 11% Subordinated Notes
due April 30, 1999 (the "11% Subordinated Notes") to institutional investors.
On July 14, 1989, the original 11% Subordinated Notes became 10.75% Senior Notes
(the "10.75% Senior Notes") after certain contractual conditions were met.
Beginning April 30, 1995, the 10.75% Senior Notes are to be repaid by equal
annual payments of $30.0 million.
Subsequently, the Company placed $25.0 million of 9% Senior Notes due
1987-1997 (the "9% Senior Notes") and $5.0 million of 8.35% Senior Notes due
1989-1997 (the "8.35% Senior Notes") with an institutional investor and loaned
the proceeds to the ESOP I. In 1989, the Company placed $30.0 million of 8.77%
Senior Notes due 1997-2009 (the "8.77% Senior Notes") with the same
institutional investor and loaned the proceeds to the ESOP II (ESOP I and ESOP
II are collectively referred to as the "ESOPs"). The 10.75% Senior Notes, 9%
Senior Notes, 8.35% Senior Notes, and 8.77% Senior Notes are collectively
referred to as the "Senior Notes."
The Company's 9% Senior Notes are repayable in 20 semi-annual installments
beginning November 15, 1987; the 8.35% Senior Notes are repayable in 17 semi-
annual installments beginning May 15, 1989; and the 8.77% Senior Notes are
repayable in 80 quarterly installments beginning August 15, 1989 (interest only
for first 32 payments).
The Revolving Credit Loan, Term Loan, and Senior Notes all contain various
restrictive covenants relating to the Company and its financial condition,
operations and properties. Under these covenants, the Company is required to
maintain a minimum working capital ratio and net worth. These covenants also
include restrictions on the payment of dividends. However, it is not
anticipated that such limitations will affect the Company's present ability to
pay dividends. At December 31, 1993, under the most restrictive of these
covenants, $242.7 million was available for the payment of dividends.
The Company maintains two Employee Stock Ownership Plans. ESOP I was
formed in June 1987, and ESOP II was formed in April 1989. Between 1987 and
1991, the Company loaned ESOP I $34.5 million which it used to purchase
2,052,207 shares of Common Stock. Between 1989 and 1991, $31.3 million was
loaned by the Company to ESOP II which it used to purchase 1,466,957 shares of
Common Stock.
In 1992 and 1991, the Company contributed 37,400 and 45,000 treasury shares
of Common Stock, respectively, to ESOP I as part of special award programs and a
success sharing program. In 1993, in accordance with the success sharing
program, the Company accrued $ 1.3 million for the purchase of 31,668 shares.
Accounting Matters
The Company changed the accounting method for recording the liability under
an agreement with Maxus (the "Distribution Agreement"). The change of method
was recorded as if the change had occurred on January 1, 1993 (see Note 3 of the
Notes to the Consolidated Financial Statements on page 35 of this Annual
Report).
Effective January 1, 1992, the Company adopted Financial Accounting
Standard No. 106 ("FAS 106"), "Employers' Accounting for Postretirement Benefits
Other Than Pensions." This method of accounting for postretirement benefits
accrues the actuarially determined costs ratably during the working lives of
eligible employees. The Company previously accounted for these costs on a "pay-
as-you-go" basis. In accordance with the provisions of FAS 106, the Company
recognized the Accumulated Postretirement Benefit Obligation as of the beginning
of 1992. On an after tax basis, this charge was $15.5 million, or $0.54 per
share, net of tax benefits of $10.3 million, or $ 0.36 per share.
Effective January 1, 1992, the Company adopted Financial Accounting
Standard No. 109 ("FAS 109"), "Accounting for Income Taxes." FAS 109 requires
that liabilities and receivables for future taxes be calculated using a balance
sheet approach rather than the income statement approach. The Company
recognized the cumulative effect of adopting the pronouncement in the first
quarter of 1992 as a change in accounting principle with a charge to earnings of
$2.2 million, or $0.08 per share. As required, previously reported first
quarter results have been restated to reflect both the FAS 106 and the FAS 109
adjustments. The adoption of the new standards had no material effect on the
results of continuing operations for 1992.
Effective January 1993, the Company adopted Financial Accounting Standard
No. 112 ("FAS 112"), "Employers' Accounting for Postemployment Benefits, an
Amendment of FASB Statements No. 5 and 43." FAS 112 addresses the accounting
for compensation for future absences and for postemployment benefits provided to
former or inactive employees that are not provided as part of a pension or
postretirement plan. The adoption of the new standard had no material effect on
the results of operations and did not require recording any cumulative effect of
adoption of a change of accounting method.
Exhibit 13.2
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in millions, except per share 1993 1992 1991
REVENUES
Sales and operating revenues
(excludes excise taxes) $ 2,555.3 $2,602.6 $2,575.9
Other revenues, net 10.2 9.1 13.2
2,565.5 2,611.7 2,589.1
COSTS AND EXPENSES
Cost of products sold and
operating expenses 2,305.5 2,374.1 2,349.8
Depreciation 64.3 56.8 52.3
Selling and administrative 60.9 59.9 57.1
Taxes other than income taxes 36.7 36.4 34.5
Interest 40.6 40.5 37.7
2,508.0 2,567.7 2,531.4
Income before Tax Provision and Cumulative
Effect of Accounting Changes 57.5 44.0 57.7
Provision for Income Taxes 24.9 17.6 20.6
Income before Cumulative Effect of
Accounting Changes 32.6 26.4 37.1
Cumulative Effect of Accounting
Changes (net of income taxes) (14.2) (17.7) -
Net Income 18.4 8.7 37.1
Dividend Requirement on Preferred Stock 2.4 - -
Earnings Applicable to Common Shares $ 16.0 $ 8.7 $ 37.1
Primary Earnings (Loss) Per Common Share
Before Cumulative Effect of Accounting
Changes $ 1.04 $ 0.92 $ 1.39
Cumulative Effect of Accounting Changes (0.49) (0.62) -
Total $ 0.55 $ 0.30 $ 1.39
Fully Diluted Earnings (Loss) Per Common Share
Before Cumulative Effect of
Accounting Changes $ 1.04 $ .92 $ 1.36
Cumulative Effect of Accounting Changes (0.49) (0.62) -
Total $ 0.55 $ 0.30 $ 1.36
Cash Dividends Per Share
Common $ 0.52 $ 0.52 $ 0.52
Preferred $ 1.28 $ - $ -
Weighted Average Common Shares Outstanding
(thousands of shares)
Primary 28,871 28,703 26,735
Fully Diluted 28,968 28,703 28,476
Pro forma amounts assuming the effect of the 1993 change
in accounting principle is applied retroactively:
1993 1992 1991
Income before cumulative effect of
accounting changes $ 32.6 $ 29.6 $ 39.0
Cumulative effect of adopting
FAS 106 and FAS 109 - (17.7) -
Net income $ 32.6 $ 11.9 $ 39.0
The Notes to Consolidated Financial Statements are an integral part of this and
related Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEET
December 31,
(dollars in millions, except per share) 1993 1992
ASSETS
Current Assets
Cash and cash equivalents $ 12.8 $ 17.5
Receivables, less doubtful receivables 148.8 141.6
Inventories 186.0 193.2
Prepaid expenses 8.6 6.2
Total Current Assets 356.2 358.5
Properties and Equipment, less
accumulated depreciation 941.1 897.6
Deferred Charges and Other Assets 51.9 41.4
$ 1,349.2 $ 1,297.5
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Long-term debt payable within one year $ 3.5 $ 3.4
Accounts payable 88.5 88.3
Accrued liabilities 128.4 125.3
Total Current Liabilities 220.4 217.0
Long-term Debt 486.2 533.5
Deferred Income Taxes 48.7 61.4
Other Liabilities and Deferred Credits 66.2 49.9
Stockholders' Equity
Preferred Stock, $.01 par value
Authorized shares - 25,000,000
Issued and outstanding shares -
1,725,000; 0 in 1992 0.0 -
Common Stock, $.01 par value
Authorized shares - 75,000,000
Issued shares - 28,927,217; 28,761,542 in 1992
Outstanding shares - 28,903,468; 28,692,810
in 1992 0.3 0.3
Paid-in Capital 444.8 356.8
ESOP Stock and Stock Held in Treasury (47.9) (52.9)
Retained Earnings 130.5 131.5
Total Stockholders' Equity 527.7 435.7
$1,349.2 $1,297.5
See Note 16 - Commitments and Contingencies
The Notes to Consolidated Financial Statements are an integral part of this and
related Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in millions) 1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18.4 $ 8.7 $ 37.1
Adjustments to arrive at net cash
provided by operating activities:
Depreciation 64.3 56.8 52.3
Deferred income taxes (9.9) (4.2) 6.8
Loss (gain) on sale of properties
and equipment 3.0 1.3 (6.3)
Cumulative Effect of Accounting
Changes 23.6 25.8 -
Cash flow from futures activity (3.0) (7.0) (5.6)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (7.2) 5.2 37.4
Decrease (increase) in inventories 7.2 49.6 (4.3)
Decrease (increase) in prepaid expenses (2.4) (1.7) (1.7)
Increase (decrease) in accounts payable
and accrued liabilities 3.3 (28.9) (76.5)
Other, net 12.0 14.7 15.4
NET CASH PROVIDED BY OPERATING ACTIVITIES 109.3 120.3 54.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of futures contracts (133.3) (157.2) (150.8)
Settlement of futures contracts 136.3 164.2 156.4
Proceeds from sales of facilities 2.0 6.6 10.6
Purchase of properties and equipment (131.8) (170.5) (180.1)
Expenditures for investments (1.3) (22.4) (5.2)
NET CASH USED IN INVESTING ACTIVITIES (128.1) (179.3) (169.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper (108.5) 89.9 (48.3)
Increases in long-term debt 321.8 246.3 302.1
Repayments of long-term debt (260.5) (245.4) (108.7)
Payments of long-term liability (11.3) (16.1) (26.0)
Funds advanced to ESOP - - (5.8)
Funds received from ESOP 4.3 3.7 3.2
Issuance of Common Stock 1.7 - 0.4
Issuance of Common Stock sold to ESOP - - 5.8
Purchase of treasury stock (0.6) (2.8) (2.0)
Issuance of Preferred Stock 84.3 - -
Sale of Common Stock held in treasury 0.1 0.1 -
Dividends paid (17.2) (14.9) (13.8)
NET CASH PROVIDED BY FINANCING ACTIVITIES 14.1 60.8 106.9
Net increase (decrease) in cash and cash
equivalents (4.7) 1.8 (7.6)
Cash and cash equivalents at beginning of period 17.5 15.7 23.3
Cash and cash equivalents at end of period $ 12.8 $ 17.5 15.7
Excluded from the Consolidated Statement of Cash Flows was the effect of certain
non-cash activities in which the Company exchanged an undivided interest in
certain properties and equipment for an equity ownership interest in a limited
liability company. This transaction increased investments by $19.2 million and
decreased properties and equipment by $19.2 million during 1993.
The Notes to Consolidated Financial Statements are an integral part of this and
related Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Data is as of December 31 of each year or for the year then ended unless
otherwise noted, and dollar amounts in tables are in millions, except per share
amounts).
Note 1 ORGANIZATION
Diamond Shamrock, Inc. (the "Company") was organized in February 1987, as a
wholly-owned subsidiary of Maxus Energy Corporation, formerly Diamond Shamrock
Corporation ("Maxus"), to engage in the business of refining and marketing of
petroleum products and related businesses.
Effective April 30, 1987, the shares of the Company's common stock, $0.01
par value (the "Common Stock") were distributed to the shareholders of Maxus in
a spin-off transaction (the "Spin-off") approved by the Maxus Board of Directors
on February 1, 1987. As a result, the Company became an independent entity which
is primarily engaged in refining, marketing, and processing petroleum products.
Note 2 SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements have been prepared in conformity with
generally accepted accounting principles, the most significant of which are
described below.
Consolidation
The Consolidated Financial Statements include the accounts of the Company
and its subsidiaries. Investments in other companies which are at least 20%
owned are reported on the equity method. All significant intercompany accounts
and transactions have been eliminated.
Cash and Cash Equivalents
It is the Company's policy to invest cash in excess of operating
requirements in highly liquid income producing investments. The Company
considers such investments with a maturity of three months or less at the time
of purchase to be cash equivalents.
Inventory Valuation
Inventories are valued at the lower of cost or market. The last-in, first-
out (LIFO) method is used to determine cost for inventories of crude oil and
refined products of the Refining and Wholesale segment, motor fuel products of
the Retail segment, and propylene products in the Allied Businesses segment.
Costs of all other inventories are determined on an average cost method.
Futures Contracts
The Company uses commodity futures contracts to purchase a portion of its
crude oil requirements and to minimize exposure to inventory price fluctuations.
Decreases in the market value of the contracts, if any, are recognized in
earnings currently.
Properties and Equipment
Properties and equipment are carried at cost. Major additions are
capitalized; expenditures for repairs and maintenance are charged against
earnings. Properties and equipment are depreciated generally on the
straight-line basis over their estimated useful lives.
The Company capitalizes the interest cost associated with major property
additions while in progress, such amounts being amortized over the useful lives
of the related assets.
Income Taxes
Effective January 1, 1992, the Company adopted Financial Accounting
Standard No. 109 ("FAS 109"), "Accounting for Income Taxes" (see Note 3).
Under FAS 109 deferred income taxes are provided for the differences in the
financial reporting and tax bases of assets and liabilities, and for tax credits
available for carryforward.
Earnings per Share
The computation of primary earnings (loss) per share is based on the
weighted average number of common shares outstanding during the year plus common
stock equivalents consisting of stock options, stock awards subject to
restrictions, and stock appreciation rights. In June 1993, the company issued
1.725 million shares of 5% Cumulative Convertible Preferred Stock (the
"Preferred Stock") in a private transaction for an aggregate of $86.3 million,
before discounts and transaction costs. Each share of Preferred Stock is
convertible into approximately 1.8868 shares of Common Stock. Primary earnings
(loss) per common share have been adjusted for dividend requirements on
Preferred Stock. The computation of fully diluted earnings (loss) per share for
the year ended December 31, 1993, did not assume conversion of the Preferred
Stock because the effect would have been antidilutive. The computation of fully
diluted earnings (loss) per share for the year ended December 31, 1991, assumed
conversion of the Company's 8% Convertible Subordinated Debentures (the
"Debentures") during the time that the Debentures were outstanding.
Other Postemployment Benefits
Effective January 1, 1992, the Company adopted Financial Accounting
Standard No. 106 ("FAS 106"), "Employers' Accounting for Postretirement Benefits
Other Than Pensions" (see Note 3).
Effective January 1, 1993, the Company adopted Financial Accounting
Standard No. 112 ("FAS 112"), "Employers' Accounting for Postemployment
Benefits, an Amendment of FASB Statements No. 5 and 43." FAS 112 addresses the
accounting for compensation for future absences and postemployment benefits
provided to former or inactive employees that are not provided as part of a
pension or postretirement plan. The adoption of the new standard had no
material effect on the results of operations and did not require recording any
cumulative effect of adoption of a change of accounting method.
Note 3 CHANGES IN ACCOUNTING PRINCIPLES
At December 31, 1989, the Company recorded a liability for payments to be
made pursuant to the Distribution Agreement (the "Distribution Agreement") with
Maxus, the Company's former parent, for certain liabilities relating to
businesses of Maxus discontinued or disposed of prior to the date on which the
Company was spun off to Maxus shareholders. The Company's total liability under
the Distribution Agreement is limited to $85.0 million. At December 31, 1989,
the Company believed that it would be required to make payments under the
Distribution Agreement beginning in 1991 and continuing for approximately ten or
more years. The Company did, in fact, begin to make payments in 1991, and based
on current levels of payments it is expected that payments will continue until
1998 or 1999.
Inasmuch as the total amount of the liability was known ($85.0 million) and
the Company believed the timing and amount of the payments could be estimated
with reasonable accuracy, the liability at December 31, 1989 was recorded on a
discounted basis, in accordance with the accounting rules in existence at the
time. Annual additions to the liability have been recorded as interest through
December 31, 1992.
During June 1993, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") released the minutes of its May 20, 1993
meeting during which the EITF announced a consensus with regard to certain
issues of "Accounting for Environmental Liabilities" (Issue 93-5). The
consensus effectively changed the criteria for determining when a liability may
be recorded on a discounted method. Consequently, the Company changed the
accounting method for recording its liability under the Distribution Agreement
to reflect the entire unpaid amount rather than the discounted amount of the
liability.
The change of method was recorded as if the change had occurred on January
1, 1993, and is reflected in the Consolidated Statement of Operations as the
Cumulative Effect of Accounting Changes in the data for the twelve months ended
December 31, 1993. The amount of $14.2 million represents the unrecorded
liability of $23.6 million at December 31, 1992, less tax benefit of $9.4
million. The results of operations for the first and second quarters of 1993
have been restated (see the Supplementary Financial Information [Unaudited] on
page 45 of this Annual Report).
The following pro forma information is provided to reflect the earnings per
share amounts which would have been reported had the undiscounted accounting
method for recording the liability been adopted in the year the liability was
originally recorded.
1993 1992 1991
Pro forma Primary Earnings
(Loss) Per Share Before
Cumulative Effect of
Accounting Changes $ 1.04 $ 1.03 $ 1.46
Cumulative Effect of Adopting
FAS 106 and FAS 109 - (0.62) -
Total $ 1.04 $ 0.41 $ 1.46
Pro forma Fully Diluted
Earnings (Loss) Per Share
Before Cumulative Effect of
Accounting Changes $ 1.04 $ 1.03 $ 1.42
Cumulative Effect of Adopting
FAS 106 and FAS 109 - (0.62) -
Total $ 1.04 $ 0.41 $ 1.42
Earnings per share as currently reported:
1993 1992 1991
Primary Earnings (Loss)
Per Share Before
Cumulative Effect of
Accounting Changes $ 1.04 $ 0.92 $ 1.39
Cumulative Effect of
Accounting Changes (0.49) (0.62) -
Total $ 0.55 $ 0.30 $ 1.39
Fully Diluted Earnings (Loss)
Per Share Before
Cumulative Effect of
Accounting Changes $ (1.04) $ 0.92 $ 1.36
Cumulative Effect of
Accounting Changes (0.49) (0.62) -
Total $ 0.55 $ 0.30 $ 1.36
Effective January 1, 1992, the Company adopted FAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This method of
accounting for postretirement benefits accrues the actuarially determined costs
ratably during the working lives of eligible employees rather than accounting
for the costs on a "pay-as-you-go" basis. The charge to income as of January 1,
1992, was $15.5 million, or $0.54 per share, net of tax benefits of $10.3
million, or $0.36 per share.
Effective January 1, 1992, the Company also adopted the provisions of FAS
109, "Accounting for Income Taxes." FAS 109 requires that liabilities and
receivables for future taxes be calculated using a balance sheet approach rather
than an income statement approach. The Company recognized the cumulative effect
of adopting the pronouncement as of January 1, 1992 with a charge to earnings of
$2.2 million, or $0.08 per share.
Effective January 1993, the Company adopted FAS 112, "Employers' Accounting
for Postemployment Benefits, an Amendment of FASB Statements No. 5 and 43." FAS
112 addresses the accounting for compensation for future absences and for
postemployment benefits provided to former or inactive employees that are not
provided as part of a pension or postretirement plan. The adoption of the new
standard had no material effect on the results of operations and did not require
recording any cumulative effect of adoption of a change of accounting method.
Note 4 BUSINESS SEGMENTS
The Company's revenues from continuing operations are principally derived
from three business segments: Refining and Wholesale, Retail, and Allied
Businesses. Refining and Wholesale is engaged in crude oil refining and
wholesale marketing of refined petroleum products. Retail is engaged in selling
refined petroleum products and other merchandise. Allied Businesses is engaged
in selling and processing natural gas; transporting, storing, and marketing
natural gas liquids; upgrading refinery grade propylene and selling polymer
grade propylene; selling specialized telephone services; selling environmental
testing and related services; and investing in petroleum related opportunities.
The Company's business segments operate primarily in the Southwest region
of the United States with particular emphasis in Texas, Colorado, Louisiana, New
Mexico, and Oklahoma.
Business segment operating profit is sales and operating revenues less
applicable segment operating expense. In determining the operating profit of
the three business segments, neither interest expense nor other administrative
expenses are included.
Refining
and Allied
Wholesale Retail Businesses Total
1993
Sales and operating
revenues $1,294.8 $ 958.1 $ 302.4 $2,555.3
Costs and expenses 1,220.9 895.4 287.4 2,403.7
Operating profit $ 73.9 $ 62.7 $ 15.0 151.6
Interest expense 40.6
Administrative expenses 53.5
Income before tax
provision and
cumulative effect of
accounting change $ 57.5
1992
Sales and operating
revenues $1,290.4 $ 970.7 $ 341.5 $ 2,602.6
Costs and expenses 1,222.3 924.1 318.6 2,465.0
Operating profit $ 68.1 $ 46.6 $ 22.9 137.6
Interest expense 40.5
Administrative expenses 53.1
Income before tax
provision and cumulative
effect of accounting changes $ 44.0
1991
Sales and operating
revenues $1,293.2 $ 908.1 $ 374.6 $2,575.9
Costs and expenses 1,206.4 882.0 342.1 2,430.5
Operating profit $ 86.8 $ 26.1 $ 32.5 $ 145.4
Interest expense 37.7
Administrative expenses 50.0
Income before
tax provision $ 57.7
Intersegment sales and operating revenues are generally derived from
transactions made at prevailing market rates. Sales of refined petroleum
products from the Refining and Wholesale segment to the Retail segment amounted
to $510.1 million in 1993, $542.7 million in 1992, and $536.2 million in 1991.
Sales of natural gas liquids from the Allied Businesses segment to the Refining
and Wholesale segment amounted to $23.4 million in 1993, $31.5 million in 1992,
and $37.3 million in 1991.
Identifiable Assets
1993 1992 1991
Refining and Wholesale $ 846.8 $ 760.9 $ 693.9
Retail 281.2 265.0 276.1
Allied Businesses 142.7 194.4 199.2
Corporate 78.5 77.2 53.1
$ 1,349.2 $ 1,297.5 $ 1,222.3
Identifiable assets are those assets that are utilized by the respective
business segment. Corporate assets are principally cash, investments, and other
assets that cannot be directly associated with the operations or activities of a
business segment.
Note 5 TAXES
The Company's provision for income taxes was comprised of the following:
1993 1992 1991
Current
Federal $ 21.8 $ 11.9 $ 12.8
State and local 3.5 1.7 1.0
25.3 13.6 13.8
Deferred
Federal (0.3) 3.0 6.6
State and local (0.1) 1.0 0.2
(0.4) 4.0 6.8
$ 24.9 $ 17.6 $ 20.6
Federal income taxes paid during 1993, 1992, and 1991 were: $21.5 million,
$10.0 million, and $5.7 million, respectively.
The principal reasons for the difference between the statutory federal
income tax rate and the Company's provision for income taxes were:
1993 1992 1991
Tax provision at statutory federal rate
(35% in 1993, 34% in 1992 and 1991) $ 20.1 $ 14.9 $ 19.6
Effect of tax rate increase on
deferred taxes 1.7 - -
State income taxes, net of federal
tax benefit 2.2 1.7 0.8
Other, net 0.9 1.0 0.2
$ 24.9 $ 17.6 $ 20.6
The components of the net deferred tax liability are summarized as follows:
1993 1992
Deferred tax assets
Inventory valuation reserves $ 21.7 $ 9.7
Postretirement and pension plan
liabilities 13.1 12.2
Long-term shared costs liability 10.5 6.8
Alternative minimum tax credit 7.1 9.3
Allowance for doubtful receivables 2.0 1.7
Miscellaneous other 8.1 6.2
62.5 45.9
Deferred tax liabilities
Properties and equipment (111.0) (107.3)
Miscellaneous other (0.2) -
(111.2) (107.3)
$ (48.7) $ (61.4)
The provision for deferred income taxes (prior to the adoption of FAS 109)
was comprised of the tax effects of timing differences as follows:
1991
Accelerated depreciation $ 3.1
Inventory valuation reserves (8.3)
Payments on long-term liability 6.4
Adjustment of insurance premiums 1.3
Use of alternative minimum tax credit 4.7
Other, net (0.4)
$ 6.8
For federal income tax purposes at December 31, 1993, the Company had $7.1
million of minimum tax credits available for carryforward with an indefinite
expiration.
Taxes other than income taxes were comprised of the following:
1993 1992 1991
Real and personal property $ 15.8 $ 15.6 $ 14.1
Payroll 11.2 10.5 10.2
Superfund 7.8 8.9 8.7
Other 1.9 1.4 1.5
$ 36.7 $ 36.4 $ 34.5
Note 6 EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
The Company maintains a retirement plan known as the Career Average
Retirement Income Plan (the "CARIP"). Under the CARIP, eligible employees
acquire a right upon retirement to an annual amount equal to 2% of the
employee's eligible earnings from February 1, 1987 to May 31, 1989, and 1% of
the employee's eligible earnings from June 1, 1989 forward, plus a potential
supplement under certain circumstances.
The Company also maintains a retirement plan for its collective bargaining
groups (the "Bargaining Unit Plan"). The Bargaining Unit Plan generally
provides benefits that are based on the union member's monthly base pay during
the five years before retirement.
The Company also maintains a retirement plan referred to as the Retirement
Income Plan (the "RIP") to cover certain employees not eligible for coverage
under the CARIP or the Bargaining Unit Plan. Under the RIP, eligible employees
acquire a right upon retirement to a monthly amount equal to $5 for each year of
plan service from January 1, 1989 forward.
In addition, the Company has adopted a Supplemental Retirement Plan (the
"SRP"). The SRP provides additional benefits for executive officers in excess
of amounts payable under the defined benefit plans of the Company or any
predecessor employer.
The Company also provides a retirement plan for its non-employee Directors
(the "Directors Retirement Plan"). The Directors Retirement Plan provides an
annual retirement benefit for a period of time equal to the shorter of (a)
length of service as a non-employee Director, or (b) life of Director.
Net periodic pension cost included the following components:
1993 1992 1991
Service cost-benefits earned during the period $ 2.5 $ 2.3 $ 2.0
Interest cost on projected benefit obligation 2.2 1.9 1.5
Actual return on assets (1.9) (1.2) (2.2)
Net amortization and deferral 0.5 (0.1) 1.2
Net periodic pension cost $ 3.3 $ 2.9 $ 2.5
Significant assumptions used in the actuarial calculations were:
Discount rates 7.25% 9.00% 9.50%
Rates of increase in compensation level 4.50% 5.50% 5.50%
Expected long-term rate of return on assets 9.00% 9.00% 9.50%
The Company's trusteed plans are funded at amounts required by the Employee
Retirement Income Security Act. Effective December 31, 1993, the Company lowered
its discount rate to 7.25% and its rates of increase in compensation level to
4.50%.
The following table summarizes the funded status of the Company's defined
benefit pension plans and the related amounts recognized in the Company's
Consolidated Balance Sheet:
1993 1992
Plans Plans Plans Plans
Where Where Where Where
Assets Benefits Assets Benefits
Exceed Exceed Exceed Exceed
Benefits Assets Benefits Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 6.9 $ 16.5 $ 8.0 $ 6.6
Accumulated benefit obligation 7.4 18.6 8.4 7.9
Projected benefit obligation 11.5 21.5 12.7 9.4
Plan assets at fair market value 8.5 14.9 10.9 7.1
Projected benefit obligation
in excess of plan assets 3.0 6.6 1.8 2.3
Unrecognized net loss (1.9) (7.0) (0.8) (1.4)
Unrecognized net obligation (0.1) (0.5) (0.4) (0.3)
Unrecognized prior service cost (0.2) 1.1 0.1 0.6
Adjustment to recognize
minimum liability 0.0 3.4 0.0 0.2
Pension liability recognized in
the Consolidated Balance Sheet 0.8 3.6 0.7 1.4
In 1993, the plan where assets exceeded the accumulated benefit obligation
was the Bargaining Unit Plan. In 1992, the plans where assets exceeded the
accumulated benefit obligation were the Bargaining Unit Plan and the SRP.
At December 31, 1993, Plan assets were invested in bonds (53%), cash
equivalents (13%), equity securities (26%), and other investments (8%). At
December 31, 1992, Plan assets were invested in bonds (52%), cash equivalents
(14%), equity securities (26%), and other investments (8%).
Retiree Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits to
eligible retirees. Employees who participate in the CARIP are eligible for
retiree health care and life insurance benefits if they satisfy certain age and
service requirements. The Company also shares in the cost of providing similar
benefits to former Maxus employees pursuant to the Distribution Agreement (see
Note 16).
Generally, the health care plans pay a stated percentage of most medical
expenses reduced for any deductibles, payments made by government programs, and
other group coverage. The cost of providing most of these benefits is shared
with retirees. The plans are unfunded.
The Company adopted Financial Accounting Standard No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," as of January 1,
1992. This statement requires the accrual of the cost of providing for
postretirement health care and life insurance benefits during the active service
period of the employee. The Company elected to recognize the total accumulated
liability, measured as of January 1, 1992. This resulted in a one-time charge
of $15.5 million, or $0.54 per share, net of tax benefits of $10.3 million, or
$0.36 per share (see Note 3).
Prior to 1992, the Company recognized expense in the year the benefits were
provided. During 1991, health care and life insurance costs were $1.5 million.
The following table sets forth the plans' status and the amount recognized
in the Company's Consolidated Balance Sheet as of December 31, 1993 and 1992.
Accumulated postretirement benefit obligation attributable to:
Health Life
Care Insurance Total
1993 1992 1993 1992 1993 1992
Retirees $ 16.6 $ 17.4 $ 3.2 $ 2.4 $ 19.8 $ 19.8
Fully Eligible Active
Plan Participants 1.5 1.2 0.0 0.7 1.5 1.9
Other Active
Plan Participants 3.6 2.6 2.4 1.5 6.0 4.1
Total Accumulated
Postretirement Benefit
Obligation $ 21.7 $ 21.2 $ 5.6 $ 4.6 $ 27.3 $ 25.8
Net Periodic Postretirement Benefit Cost:
Health Life
Care Insurance Total
1993 1992 1993 1992 1993 1992
Service Cost of Benefits
Earned $ 0.3 $ 0.3 $ 0.1 $ 0.2 $ 0.4 $ 0.5
Interest Cost on Accumulated
Postretirement Benefit
Obligation 1.5 1.6 0.4 0.4 1.9 2.0
Net Periodic Postretirement
Benefit Cost $ 1.8 $ 1.9 $ 0.5 $ 0.6 $ 2.3 $ 2.5
The discount rate used in the actuarial calculation was 7.25% and 8.00% in
1993 and 1992, respectively. The rate of increase in compensation level was
4.50% and 5.5% in 1993 and 1992, respectively.
For measuring the expected postretirement benefit obligation, the health
care cost trend rate ranged from 11.2% to 14.0% in 1993, grading down to an
ultimate rate of 6.0% in the year 2000.
A one percentage point increase in the assumed health care cost trend would
increase the aggregate of the service and interest components of 1993 net
periodic postretirement benefit cost by $0.2 million and the 1993 accumulated
postretirement benefit obligation by $2.3 million.
Long-Term Incentive Plans
In 1987 and 1990, the Company adopted Long-Term Incentive Plans which are
administered by the Compensation Committee of the Board of Directors to provide
officers and key employees with stock options, stock appreciation rights
("SARs"), performance units, and securities awards. A maximum of 3,500,000
shares of common stock may be issued pursuant to the exercise of options and
rights granted under the plans. At December 31, 1993, 1992, and 1991, Common
Stock reserved for future grants under the Long-Term Incentive Plans were
1,195,868 shares, 1,625,993 shares, and 451,107 shares, respectively.
The grant of an option does not necessarily result in a charge against the
Company's earnings. When stock options are granted along with SARs, any
appreciation in the market price of the optioned stock is recorded as a charge
against earnings, and any decline is recorded as income, but only to the extent
of expense previously recorded. Appreciation and decline in the market price of
the stock can affect earnings in future periods as long as the options with the
SARs are outstanding. There was no reported charge (benefit) to earnings for
SARs in 1993 and 1992. The charge (benefit) to earnings for SARs was $(0.3)
million for 1991.
Transactions in stock options are summarized as follows:
1993 1992 1991
Outstanding at January 1, 746,934 581,207 482,542
Granted 367,461 180,373 260,456
Exercised (206,957) (5,231) (36,792)
Cancelled upon exercise of SARs (84,979) (2,460) (123,144)
Forfeited (11,872) (6,955) (1,855)
Outstanding at December 31, 810,587 746,934 581,207
Exercisable at December 31, 283,285 293,009 228,717
Range of exercise prices of options
outstanding at December 31, $ 11.31 $ 11.31 $ 11.31
to 27.38 to 25.63 to 25.63
Range of exercise prices of
options exercised $ 11.31 $ 11.31 $ 11.31
to 22.57 to 19.45 to 22.57
Grants of restricted and performance restricted stock are summarized as
follows:
Shares
Shares Performance
Date Granted Restricted Restricted
Prior to 1991 49,200
February 1991 25,665 -
May 1991 33,850 52,500
February 1992 20,835 -
May 1992 34,350 53,400
December 1992 30,150 -
February 1993 40,568 63,414
December 1993 24,235 -
All shares of performance restricted stock granted will become
non-restricted if certain financial goals are met by December 31, two years
after the date of the grant. Otherwise, 75% of the shares will become
non-restricted after three years; or 50% of the shares after four years; or 100%
of the shares will be forfeited after the fourth year. On December 31, 1993,
the first 25% of the performance restricted stock granted in May 1991, and the
second 25% of the performance restricted stock granted in April 1990, was
forfeited.
Restricted stock vests ratably over a three to four year period through
1997. Deferred compensation equivalent to market value at the date of grant is
recorded to additional paid-in capital and is amortized to compensation expense
over the vesting period. The amount amortized in 1993, 1992, and 1991 was $2.1
million, $2.3 million, and $1.8 million, respectively. Unvested shares are
restricted as to transfer or sale.
Performance Incentive Plan
A Performance Incentive Plan has been adopted by the Company, under which
the Compensation Committee may grant cash awards to eligible employees. For
Plan years 1993, 1992, and 1991, the Company paid $2.3 million, $2.1 million,
and $1.8 million, respectively.
Employee Stock Ownership Plans (ESOPs)
The Company maintains two Employee Stock Ownership Plans. ESOP I was formed
in June 1987, and ESOP II was formed in April 1989 (ESOP I and ESOP II are
collectively referred to as the "ESOPs"). Between 1987 and 1991, the Company
loaned ESOP I $34.5 million which it used to purchase 2,052,207 shares of Common
Stock.
Between 1989 and 1991, $31.3 million was loaned by the Company to ESOP II
which it used to purchase 1,466,957 shares of Common Stock.
In 1992 and 1991, the Company contributed 37,400, and 45,000 treasury
shares of Common Stock, respectively, to ESOP I as part of special award
programs and a success sharing program. In 1993, in accordance with the
provisions of the success sharing program, the Company accrued $1.3 million for
the purchase of 31,668 shares.
All employees of the Company who have attained a minimum length of service
and satisfied other plan requirements are eligible to participate in the ESOPs,
except that ESOP II excludes employees covered by any collective bargaining
agreement with the Company.
The Company will make contributions to ESOP I and ESOP II in sufficient
amounts, when combined with dividends on the Common Stock, to retire the
principal and interest on the loans used to fund the ESOPs (see Note 12). Common
shares will be allocated to participants as the payments of principal and
interest are made on the loan. Contributions to the ESOPs charged to expense for
1993, 1992, and 1991 were $7.1 million, $7.0 million, and $6.3 million,
respectively. Dividend and interest income reduced the amounts charged to
expense in 1993, 1992, and 1991 by $1.8 million, $1.8 million, and $1.7 million,
respectively.
The number of allocated shares held by ESOP I and ESOP II at December 31,
1993, were 1,343,368 shares and 246,214 shares, respectively. The number of
suspense shares held by ESOP I and ESOP II at December 31, 1993, were 785,166
shares and 1,199,943 shares, respectively.
Note 7 RECEIVABLES
1993 1992
Notes and accounts receivable $ 154.3 $ 145.8
Less - Allowance for doubtful receivables 5.5 4.2
$ 148.8 $ 141.6
The following is a summary of the changes in the allowance for doubtful
receivables:
1993 1992 1991
January 1, $ 4.2 $ 4.0 $ 5.0
Additions charged against earnings 2.3 2.6 3.5
Write-offs, net of recoveries (1.0) (2.4) (4.5)
December 31, $ 5.5 $ 4.2 $ 4.0
Note 8 INVENTORIES
1993 1992
Finished products $ 114.0 $ 123.1
Raw materials 47.9 48.4
Supplies 24.1 21.7
$ 186.0 $ 193.2
The cost of approximately 59% and 60% of total inventories was determined
under the LIFO method at December 31, 1993 and 1992, respectively. At December
31, 1993 and 1992, market was lower than LIFO cost by $59.6 million and $27.8
million, respectively.
Note 9 PROPERTIES AND EQUIPMENT
1993 1992
Properties and Equipment
Refining and Wholesale $ 949.1 $ 838.9
Retail 326.5 306.7
Allied Businesses 182.5 212.6
Corporate 33.9 33.6
1,492.0 1,391.8
Less - Accumulated depreciation 550.9 494.2
$ 941.1 $ 897.6
The charge against earnings for maintenance and repairs was $29.3 million
in 1993, $26.9 million in 1992, and $29.2 million in 1991. Interest capitalized
was $6.1 million in 1993, $6.1 million in 1992, and $2.5 million in 1991.
Expenditures for
Properties and Equipment
1993 1992 1991
Refining and Wholesale $ 100.1 $ 143.8 $ 80.1
Retail 26.5 4.8 65.6
Allied Businesses 4.4 19.6 21.2
Corporate 0.8 2.3 13.2
$ 131.8 $ 170.5 $ 180.1
Depreciation
1993 1992 1991
Refining and Wholesale $ 35.1 $ 29.5 $ 27.4
Retail 14.6 13.7 12.3
Allied Businesses 11.7 10.9 10.1
Corporate 2.9 2.7 2.5
$ 64.3 $ 56.8 $ 52.3
Note 10 ACCRUED LIABILITIES
1993 1992
Accrued Taxes $ 56.9 $ 48.7
Accrued Royalties 7.1 10.0
Current Portion of Long-term
Shared Costs Liability (see Note 16) 8.0 8.0
Other Liabilities 56.4 58.6
$ 128.4 $ 125.3
Note 11 OTHER LIABILITIES AND DEFERRED CREDITS
1993 1992
Post Retirement Benefit Obligation $ 27.3 $ 26.5
Long-term Shared Costs
Liability (see Note 16) 23.6 11.3
Deferred Credits 5.1 4.3
Other Liability 10.2 7.8
$ 66.2 $ 49.9
Note 12 LONG-TERM DEBT
1993 1992
Commercial Paper $ 0.0 $ 108.5
10.75% Senior Notes* 150.0 150.0
9% Senior Notes 11.3 14.0
8.77% Senior Notes 30.0 30.0
8.35% Senior Notes 2.5 3.1
Medium Term Notes 145.0 99.0
Term Loan Agreement 35.0 65.0
Pollution Control Financings 10.9 10.9
8% Debentures 100.0 0.0
Bank Money Market Facilities 5.0 56.2
Other Notes 0.0 0.2
489.7 536.9
Less - Due within one year 3.5 3.4
$ 486.2 $ 533.5
* Prior to 7/14/89 - 11% Subordinated Notes.
The aggregate maturities of the long-term debt obligations at December 31,
1993, for the next five years will be as follows, assuming no prepayments: 1994-
$3.5 million; 1995-$33.9 million; 1996-$34.2 million; 1997-$67.9 million; 1998-
$31.6 million; and all future periods-$318.6 million.
During February 1993, the Company issued $46.0 million in medium-term notes
with an average rate of 7.44% and average maturities of 12 years. In February
1993, the Company filed a post-effective amendment to its existing shelf
registration, registering an additional $75.0 million in medium-term notes. On
April 1, 1993, the Company issued $100.0 million of 8% Debentures due April 1,
2023 under its shelf registration.
The Company has filed a post-effective amendment to its existing shelf
registration and shelf registered additional debt securities in the amount of
$95.0 million. The combination of this amendment and existing shelf
registration enables the Company to issue up to $100.0 million of debt
securities with terms of up to 30 years.
The Revolving Credit Loan agreement (the "Revolving Credit Loan")was
amended on April 15, 1993. In this amendment, the original agreement was split
into two separate agreements ("Agreement I" and "Agreement II") and increased
from $250.0 million to $300.0 million. Agreement I has a face value of $100.0
million with a maturity date of April 14, 1994. Agreement II matures on
September 30, 1996, and has a value of $200.0 million. Interest under Agreement
I and Agreement II varies depending on specified lending options available to
the Company. Generally, the variable conditions relate to the prime rate,
certificates of deposit, and LIBO rates, as adjusted upward by specified
percentages. As of December 31, 1993, the Company had no borrowings outstanding
under the Agreement I or Agreement II.
The maximum amount outstanding under the commercial paper program (the
"Commercial Paper") during 1993 was $109.2 million. The average amount of
Commercial Paper outstanding during 1993 was $10.5 million at an average
interest rate of 4.1%. Borrowings of Commercial Paper are reflected as long-
term debt because the Company has the intent and ability either to roll over the
debt as it becomes due or to convert such borrowings into long-term debt through
revolving credit borrowings. The Company's Commercial Paper program was
increased in 1993 to $300.0 million from $250.0 million. Proceeds from this
program are used for general corporate purposes.
At December 31, 1993, the Company had outstanding $5.0 million of borrowings
under bank money market facilities provided by major money center banks at a
rate of 3.46%.
The Company amended its $65.0 million Term Loan Agreement (the "Term Loan")
as of July 31, 1993. The agreement provides for funds to be drawn as needed,
with interest based on variable LIBO rates. The average interest rate for 1993
was 4.05%. As of December 31, 1993, $30.0 million had been prepaid, leaving
$35.0 million outstanding.
The Revolving Credit Loan and Term Loan agreements are unsecured. Certain
subsidiaries of the Company have unconditionally guaranteed the repayment of all
indebtedness and the performance of all obligations incurred by the Company
under the Revolving Credit Loan and Term Loan Agreement.
In December 1991, the Company issued $24.0 million in various notes with an
average rate of 8.45% and maturities of 12 years.
On February 27, 1991, the Company issued $75.0 million of 9-3/8% Notes due
March 1, 2001 (the "Notes") under its medium-term note program. The aggregate
net proceeds were approximately $74.4 million.
In connection with the Spin-off, the Company sold $150.0 million of 11%
Subordinated Notes due April 30, 1999, (the "11% Subordinated Notes") to
institutional investors. On July 14, 1989, the original 11% Subordinated Notes
became 10.75% Senior Notes (the "10.75% Senior Notes") after certain contractual
conditions were met. Beginning April 30, 1995, the 10.75% Senior Notes are to
be repaid by five equal annual payments of $30.0 million.
Subsequent to the Spin-off, the Company placed $25.0 million of 9% Senior
Notes due 1987-1997 (the "9% Senior Notes") and $5.0 million of 8.35% Senior
Notes due 1989-1997 (the "8.35% Senior Notes") with an institutional investor
and loaned the proceeds to the ESOP I (see Note 6). In 1989, the Company placed
$30.0 million of 8.77% Senior Notes due 1997-2009 (the "8.77% Senior Notes")
with the same institutional investor and loaned the proceeds to the ESOP II (see
Note 6).
The Revolving Credit Loan, Term Loan, and Senior Notes all contain various
restrictive covenants relating to the Company and its financial condition,
operations, and properties. Under these covenants, the Company is required to
maintain a minimum working capital ratio and net worth. These covenants also
include restrictions on the payment of dividends. However, it is not
anticipated that such limitations will affect the Company's present ability to
pay dividends. At December 31, 1993, under the most restrictive of these
covenants, $242.7 million was available for the payment of dividends.
Cash payments of interest for 1993, 1992, and 1991 were $41.3 million,
$44.1 million, and $36.9 million, respectively.
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt is estimated to be $541.0 million at December 31, 1993, including amounts
payable within one year.
Note 13 PREFERRED STOCK
In June 1993, the Company issued 1.725 million shares of 5% Cumulative
Convertible Preferred Stock (the "Preferred Stock") in a private placement for
an aggregate of $86.3 million, before discounts and transaction costs. The
issue was priced at $50 per share with a dividend rate of 5 percent. The stock
became convertible into the Company's Common Stock on September 8, 1993, at an
initial conversion price of $26.50 per share. After June 15, 1996, the stock is
redeemable at the Company's option, subject to certain conditions, for Common
Stock, and after June 15, 2000, it is redeemable at par for cash, at the
Company's option.
In June 1988, the Company issued 3.0 million shares of $2.00 Convertible
Exchangeable Preferred Stock ("The $2.00 Preferred Stock"). During 1990, the
Company exercised its right to exchange The $2.00 Preferred Stock for
debentures, issuing $71.2 million of debentures for the 2.8 million shares of
The $2.00 Preferred Stock which were outstanding at the time. In 1991, the
Company called for redemption of the debentures. After the call for redemption,
the Company issued 3.9 million shares of Common Stock through conversions of the
debentures, and redeemed a total of $14,000 in principal amount of the
debentures.
Note 14 STOCKHOLDERS' EQUITY
Common Paid-In Retained ESOP Treasury
Stock Capital Earnings Stock Stock
January 1, 1991 $ 0.3 $ 295.0 $ 116.9 $ (52.7) $(21.7)
Net income 37.1
Cash dividends:
Common ($0.52 per share) (13.8)
Issuance of Key Employees'
and Directors' stock 0.0 3.0
Payment on ESOP note 3.2
Purchase of treasury stock (2.0)
Conversion of Convertible
Debt to Common 0.0 50.1 (3.3) 24.0
Sale of stock to ESOP 5.8 (5.8) 0.9
Tax benefit of ESOP dividends 0.5
Tax benefit of stock options 0.1
Options exercised 0.0 2.3 (2.3)
December 31, 1991 0.3 356.3 137.4 (55.3) $ (1.1)
Net income 8.7
Cash dividends:
Common ($0.52 per share) (14.9)
Issuance of Key Employees'
and Directors' stock 0.0 0.5 1.8
Payment on ESOP note 3.7
Purchase of treasury stock (2.8)
Sale of stock to ESOP 0.7
Tax benefit of ESOP dividends 0.4
Options exercised 0.0 (0.1) 0.1
December 31, 1992 0.3 356.8 131.5 (51.6) (1.3)
Net income 18.4
Cash dividends:
Common ($0.52 per share) (15.0)
Convertible Preferred
($1.28 per share) See Note 13 (2.2)
Issuance of Key Employees'
and Directors' stock 0.0 1.4 0.9
Payment on ESOP note 4.3
Purchase of treasury stock (0.6)
Issuance of Convertible
Preferred stock* 84.3
Adjustment of minimum
liabilities for pensions (1.8)
Tax benefit of ESOP dividends 0.4
Tax benefit of stock options 0.4
Options exercised 0.0 1.9 (0.8) 0.4
December 31, 1993 $ 0.3 $444.8 $130.5 $ (47.3) $ (0.6)
At December 31, 1993 and 1992, the Company held 23,749 shares and 68,732 shares,
respectively, as treasury stock.
* The Preferred Stock that was issued in 1993 has a par value of $17,250 which
is not disclosed above since it does not round to the nearest $100,000.
Note 15 LEASE COMMITMENTS
The Company leases certain machinery and equipment, transportation and
marketing facilities, and office space under cancelable and non-cancelable
leases, most of which expire within 20 years unless renewed.
Minimum annual rentals under leases existing at December 31, 1993 were as
follows:
Operating
Leases
1994 $ 23.8
1995 22.1
1996 17.4
1997 8.4
1998 5.2
1999 and thereafter 13.9
$ 90.8
Rental expense for operating leases was as follows:
1993 1992 1991
Total rentals $ 21.1 $ 23.4 $ 23.9
Less-Sublease rental income 0.7 0.5 0.4
Rental expense $ 20.4 $ 22.9 $ 23.5
In April 1992, the Company replaced $45.0 million of its existing lease
agreement with a new long-term lease arrangement (the "Brazos Lease") to
accommodate its continued retail outlet construction program. In November 1992,
the Company replaced the remaining portion of the lease agreement with a new
$95.0 million expansion to the Brazos Lease. In April 1993, the Company
expanded the Brazos Lease with an additional $25.0 million in commitments. The
Brazos Lease provides the Company with more favorable terms and has an initial
lease term which expires in April 1997. After the initial non-cancelable lease
term, the Brazos Lease may be extended by agreement of the parties, or the
Company may arrange for the sale of the retail outlets, or purchase the
properties.
Rent payable under the lease is based upon the amounts spent to acquire or
construct the outlets and the lessor's cost of funds from time to time. At
December 31, 1993, approximately $142.9 million of the $165.0 million commitment
was utilized under the Brazos Lease to construct and/or acquire retail outlets.
Note 16 COMMITMENTS AND CONTINGENCIES
In connection with the Spin-off, the Company and Maxus entered into a
Distribution Agreement which, among other things, provides for the sharing by
the Company and Maxus of certain liabilities relating to businesses of Maxus
discontinued or disposed of prior to the Spin-off date. The Company's total
liability for such shared costs is limited to $85.0 million. Payments with
respect to the shared costs are made by Maxus and the Company is obligated to
reimburse Maxus for the Company's share promptly after receipt of Maxus' invoice
accompanied by appropriate supporting data. Inasmuch as the Company has already
reimbursed Maxus for more than $37.5 million, the Company's share of remaining
shared costs is one-third of the amounts paid by Maxus. Although some
expenditures are still subject to audit, the Company has reimbursed Maxus for a
total of $53.4 million as of December 31, 1993, including $11.3 million paid
during 1993. See Note 3 for a change in the method of accounting for the
liability.
Pursuant to the Distribution Agreement, the Company will also reimburse
Maxus for one-third of all payments for the cost of certain medical and life
insurance benefits for eligible retired employees made by Maxus after the Spin-
off date with respect to persons who retired on or before the Spin-off date (see
Note 6). The actuarial cost of these expected payments under the Distribution
Agreement is included in the Accumulated Postretirement Benefit Obligation (see
Note 3).
The Company's commitments for future purchases are for quantities not in
excess of anticipated requirements and at prices which will not result in a
loss. The Company anticipates that it will sustain no losses in fulfillment of
existing sales contracts.
The Company is a party to a number of lawsuits, the outcomes of which are
not expected to have a material effect on the Company's financial position or
results of operations.
Supplementary Financial Information (Unaudited)
QUARTERLY FINANCIAL DATA
(dollars in millions, except per share)
1993 Quarter Ended March 31(1) June 30(1) Sept. 30 Dec. 31
Net sales $ 620.8 $ 656.9 $ 650.5 $ 627.1
Gross profit (2) 39.1 60.2 50.9 35.3
Income before cumulative effect
of accounting changes 5.0 16.5 9.3 1.8
Cumulative effect of accounting
changes (14.2) - - -
Net income (loss) (9.2) 16.5 9.3 1.8
Primary earnings (loss) per common share
Before accounting changes 0.17 0.56 0.28 0.02
Cumulative effect of accounting
changes (0.49) - - -
Total $ (0.32) $ 0.56 $ 0.28 $ 0.02
Fully diluted earnings (loss) per common share
Before accounting changes 0.17 0.56 0.28 0.02
Cumulative effect of accounting
changes (0.49) - -
Total $ (0.32) $ 0.56 $ 0.28 $ 0.02
Cash dividends per share
Common $ 0.13 $ 0.13 $ 0.13 $ 0.13
Preferred - - 0.655 0.625
Market price per common share
High 21 7/8 22 1/8 26 1/8 27 3/8
Low 17 19 1/4 18 7/8 23 3/4
1992 Quarter Ended March 31 June 30 Sept. 30 Dec. 31
Net sales $ 585.5 $ 648.1 $ 702.4 $ 666.6
Gross profit (2) 14.6 70.5 60.2 26.4
Income (loss) before cumulative
effect of accounting changes (10.8) 23.5 17.6 (3.9)
Cumulative effect of accounting
changes (17.7) - - -
Net income (loss) (28.5) 23.5 17.6 (3.9)
Primary earnings (loss) per common share
Before accounting changes (0.37) 0.82 0.61 (0.14)
Cumulative effect of accounting
changes (0.62) - - -
Total $ (0.99) $ 0.82 $ 0.61 $ (0.14)
Fully diluted earnings (loss) per common share
Before accounting changes (0.37) 0.82 0.61 (0.14)
Cumulative effect of accounting
changes (0.62) - - -
Total $ (0.99) $ 0.82 $ 0.61 $ (0.14)
Cash dividends per common share $ 0.13 $ 0.13 $ 0.13 $ 0.13
Market price per common share
High 23 5/8 20 3/8 19 1/8 19 3/4
Low 20 3/8 17 1/8 15 5/8 17 3/4
(1) Net income has been restated by $14.2 million, or $0.49 per share to reflect
the cumulative effect of a change in accounting method for recording the
Company's liability under the Distribution Agreement (see Note 3 of the Notes To
Consolidated Financial Statements). In addition, net income has been restated
in the first and second quarters of 1993 to reflect the retroactive reversal of
$0.7 million in each of the quarters previously recorded as interest expense
associated with the liability under the Distribution Agreement.
(2) Gross profit is sales and operating revenues less cost of products sold and
operating expenses and depreciation.
SELECTED HISTORICAL FINANCIAL INFORMATION
(dollars in millions, except per share)
1993 1992 1991 1990 1989
OPERATIONS
Sales and operating revenues:
Refining and Wholesale $1,294.8 $1,290.4 $1,293.2 $1,457.3 $1,191.5
Retail 958.1 970.7 908.1 856.6 690.1
Allied Businesses 302.4 341.5 374.6 394.0 209.3
Total $2,555.3 $2,602.6 $2,575.9 $2,707.9 $2,090.9
Operating profit:
Refining and Wholesale $ 73.9 $ 68.1 $ 86.8 $ 152.8 $ 130.7
Retail 62.7 46.6 26.1 17.8 14.1
Allied Businesses 15.0 22.9 32.5 29.0 13.3
Total $ 151.6 $ 137.6 $ 145.4 $ 199.6 $ 158.1
Income from continuing
operations* $ 32.6 $ 26.4 $ 37.1 $ 77.5 $ 28.1
Net income $ 18.4 $ 8.7 $ 37.1 $ 77.5 $ 28.1
FINANCIAL POSITION
Current assets $ 356.2 $ 358.5 $ 409.8 $ 448.8 $ 374.8
Current liabilities 220.4 217.0 252.9 328.8 223.8
Properties and equipment, less
accumulated depreciation 941.1 897.6 791.2 668.9 639.3
Total assets $1,349.2 $1,297.5 $1,222.3 $1,133.9 $1,026.7
CAPITAL STRUCTURE
Long-term debt including portion
due within one year $ 489.7 $ 536.9 $ 446.1 $ 372.2 $ 351.4
Deferred income taxes 48.7 61.4 65.6 53.9 50.3
Redeemable Preferred Stock - - - - 75.0
Stockholders' equity 527.7 435.7 437.6 337.8 270.6
Total $1,066.1 $1,034.0 $ 949.3 $ 763.9 $ 747.3
OTHER DATA
Capital expenditures $ 131.8 $ 170.5 $ 180.1 $ 86.4 $ 128.8
Depreciation 64.3 56.8 52.3 47.2 41.8
Book value per share** 16.40 16.50 16.76 15.45 12.56
PER COMMON SHARE
Primary earnings:
Continuing operations* $ 1.04 $ 0.92 $ 1.39 $ 3.04 $ 0.90
Net income 0.55 0.30 1.39 3.04 0.90
Fully diluted earnings:
Continuing operations* $ 1.04 $ 0.92 $ 1.36 $ 2.78 $ 0.90
Net income* 0.55 0.30 1.36 2.78 0.90
CASH DIVIDENDS PER SHARE
Common Stock $ 0.52 $ 0.52 $ 0.52 $ 0.48 $ 0.44
Preferred Stock 1.28 1.00 2.00
FINANCIAL RATIOS
Current ratio 1.6 1.7 1.6 1.4 1.7
Total debt as a percent of
total capital 45.9% 51.9% 47.0% 48.7% 47.0%
* 1989 has been restated to reflect an extraordinary item as an operating
expense.
** Calculated excluding 1,985,109; 2,286,705; 2,573,904; 2,552,736; and
2,795,088 unallocated ESOP shares at December 31 of the respective years.
Five Year Operating Information
1993 1992 1991 1990 1989
OPERATIONS
Crude Oil Refining Capacity (barrels per day at year-end)
McKee 125,000 120,000 110,000 110,000 110,000
Three Rivers 70,000 55,000 55,000 55,000 50,000
Total 195,000 175,000 165,000 165,000 160,000
Crude Oil Refined (barrels per day)
McKee 118,949 112,909 111,765 112,910 109,153
Three Rivers 61,280 51,775 48,238 48,620 49,383
Total 180,229 164,684 160,003 161,530 158,536
Capacity Utilization 92.4% 94.1% 97.0% 97.9% 99.1%
Total Inputs
(barrels per day)
Domestic Crude Oil 137,672 145,687 140,244 144,765 129,990
Foreign Crude Oil 42,557 18,997 19,759 16,765 28,546
Other Feedstocks 16,528 16,034 19,003 18,583 18,250
Total 196,757 180,718 179,006 180,113 176,786
Crude Oil Purchase Cost
(dollars per barrel) 18.57 20.64 21.83 24.54 20.07
Inventory (thousands of
barrels at year-end)
Crude Oil 2,499 1,796 3,085 2,545 1,919
Petroleum Products 3,736 2,845 3,509 3,420 3,191
REFINED PRODUCT SPREAD
(dollars per barrel)
Product Sales Prices 22.39 24.04 25.55 28.52 23.25
Raw Material Costs 18.63 20.83 21.76 24.30 19.87
Refined Product Spread 3.76 3.21 3.79 4.22 3.38
PRODUCTS MANUFACTURED
(barrels per day)
Gasoline 112,974 104,220 103,271 104,596 100,432
Diesel Fuel 39,952 31,462 34,478 35,350 34,829
Aviation Fuel 17,602 18,900 16,382 16,210 16,493
Other 26,014 24,965 24,900 25,263 24,692
Total 196,542 179,547 179,031 181,419 176,446
WHOLESALE REFINED PRODUCT SALES
(barrels per day)
Gasoline 134,954 128,507 122,831 116,335 113,702
Diesel Fuel 43,774 36,487 37,686 39,731 38,860
Aviation Fuel 20,437 21,043 15,944 16,028 15,927
Other 12,872 13,156 12,148 12,463 11,172
Total 212,037 199,193 188,609 184,557 179,661
WHOLESALE REFINED PRODUCT SALES
(dollars per barrel)
Gasoline 24.15 26.54 28.09 31.41 25.52
Diesel Fuel 22.99 24.49 25.39 28.87 23.00
Aviation Fuel 23.78 25.07 26.95 31.75 24.68
Other 14.43 13.45 14.24 14.99 14.48
Five Year Operating Information (continued)
1993 1992 1991 1990 1989
RETAIL
Number of Retail Outlets
(at year-end) Company Operated 776 761 763 677 647
Company Owned 504 518 529 482 490
Company Leased 272 243 234 195 157
Retail Sales
Gasoline (barrels per day) 55,473 53,931 50,876 47,101 44,364
Diesel (barrels per day) 1,606 1,455 1,164 914 867
Merchandise ($000/day) 820.7 792.6 710.5 566.8 511.6
OTHER DATA
Number of Jobber Outlets
(at year-end) 1,194 1,163 1,155 1,237 1,300
Miles of Products Pipelines
(at year-end) 2,291 2,290 2,275 2,172 2,131
Miles of Crude Oil Pipelines
(at year-end) 2,110 2,110 1,839 1,839 1,790
Natural Gas Processed (million
cubic feet per day)* 75 172 176 171 186
Natural Gas Liquids Recovered
(barrels per day)* 4,241 16,113 16,649 15,925 17,896
* Natural Gas Plant shut down first quarter 1993.
Exhibit 13.3
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Diamond Shamrock, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of Diamond Shamrock, Inc. and its
subsidiaries at December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for its long-term shared cost liability
in 1993 and its methods of accounting for postretirement benefits other than
pensions and for income taxes in 1992.
PRICE WATERHOUSE
/s/ Price Waterhouse
San Antonio, Texas
February 25, 1994
Exhibit 21.1
DIAMOND SHAMROCK, INC. SIGNIFICANT SUBSIDIARIES
DECEMBER 31, 1993
DIAMOND SHAMROCK REFINING AND MARKETING COMPANY
SIGMOR CORPORATION
SIGMOR BEVERAGE, INC.
AUTOTRONIC SYSTEMS, INC.
BIG DIAMOND, INC.
D-S VENTURE COMPANY, L.L.C.
DIAMOND SHAMROCK REFINING COMPANY, L.P.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each of the Prospectuses
constituting part of the Registration Statements of Diamond Shamrock, Inc. on
Form S-3 (Nos. 33-58744, 33-67166, and 33-67556) filed on February 24, 1993,
August 9, 1993, and August 18, 1993 respectively, and on Form S-8 (Nos. 33-
15268, 33-34306, and 33-50573) filed on June 22, 1987, April 13, 1990, and
October 6, 1993 respectively, of our report dated February 25, 1994, which
includes an explanatory paragraph with respect to the Company's changes in its
methods of accounting for its long-term shared cost liability, postretirement
benefits other than pensions, and income taxes, which is attached as Exhibit
13.3 to this Annual Report on Form 10-K. We also consent to the incorporation
by reference of our report on the Financial Statement Schedules, which is
included in Item 14(a)(2) of this Form 10-K.
/s/ Price Waterhouse
PRICE WATERHOUSE
San Antonio, Texas
March 25, 1994
Exhibit 24.1
POWER OF ATTORNEY
The undersigned directors and/or officers of Diamond Shamrock, Inc., hereby
constitute and appoint Timothy J. Fretthold, John V. Cottle and Todd Walker, or
any of them, their true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, to do any and all acts and things in
their name and behalf in their capacity as a director and/or officer of Diamond
Shamrock, Inc. and to execute any and all instruments for them and in their name
in such capacity, which said attorneys-in-fact and agents, or any of them, may
deem necessary or advisable to enable Diamond Shamrock, Inc. to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with the
Annual Report on Form 10-K of Diamond Shamrock, Inc. for the year ended December
31, 1993, including without limitation, power and authority to sign for them, in
their name in the capacity indicated above, such Form 10-K and any and all
amendments thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that the said attorneys-in-fact and agents,
or their substitute or substitutes, or any one of them, shall do or cause to be
done by virtue hereof.
/s/ R. R. HEMMINGHAUS /s/ E. GLENN BIGGS
R. R. Hemminghaus E. Glenn Biggs
Chairman of the Board and Director
President
/s/ ROBERT C. BECKER /s/ WILLIAM E. BRADFORD
Robert C. Becker William E. Bradford
Vice President and Treasurer Director
/s/ GARY E. JOHNSON /s/ LAURO F. CAVAZOS
Gary E. Johnson Lauro F. Cavazos
Vice President and Controller Director
/s/ B. CHARLES AMES /s/ W. H. CLARK
B. Charles Ames W. H. Clark
Director Director
/s/ WILLIAM L. FISHER /s/ BOB MARBUT
William L. Fisher Bob Marbut
Director Director
/s/ WILLIAM S. MCCONNOR /s/ KATHERINE D. ORTEGA
William S. McConnor Katherine D. Ortega
Director Director
Dated: March 1, 1994
