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, 1994 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, 1995 was approximately $721,527.464.
Shares of Common Stock outstanding at March 1, 1995 -- 28,717,511.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to shareholders for the fiscal
year ended December 31, 1994, 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 1995 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 and retail marketing of refined petroleum products in an eight state
area. The Company sells gasoline and merchandise through Company-operated
retail outlets concentrated in Texas, Colorado, New Mexico, and Louisiana, and
distributes gasoline through independently owned Diamond Shamrock branded
outlets in Texas and nearby states. The Company also stores and markets natural
gas liquids, manufactures and markets anhydrous ammonia and polymer-grade
propylene, and operates certain other related businesses.
The Company was incorporated in Delaware in February, 1987, and became a
publicly owned corporation effective April 30, 1987 as a result of the
distribution of its common stock to the stockholders of Maxus Energy
Corporation, its former parent. On February 1, 1990 the name of the Company was
changed from Diamond Shamrock R&M, Inc. to Diamond Shamrock, Inc.
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, 1994 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
included in 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, 1994, together with
information concerning the identifiable assets of the various business segments
as of December 31, 1992, 1993, and 1994, 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 205,000 barrels of crude oil per day
(135,000 barrels at the McKee Refinery and 70,000 barrels at the Three Rivers
Refinery). The Company operated its refineries at levels which averaged in
excess of 95% of capacity in 1994. Approximately 94% of the refinery outputs are
high-value products, including gasoline, diesel, jet fuels, and liquefied
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.
The completion of certain debottlenecking projects at the McKee Refinery
during 1993 and 1994 increased its refining capacity to approximately 135,000
barrels per day. Other projects at the refinery in recent years permit it to
meet various federally mandated fuel specifications. Specifically, preparations
were completed at the McKee Refinery during 1994 for the production of
reformulated gasoline ("RFG"), as required by the 1990 Clean Air Act Amendments,
and production of RFG commenced in November 1994. In 1993, a desulfurization
unit was completed at the McKee Refinery which enabled the refinery to meet
lower sulfur specifications for on-road diesel which went into effect on October
1 of that year.
The Company recently commenced construction of a tertiary amyl methyl ether
("TAME") unit at the McKee Refinery. The new TAME unit will make the production
of RFG more cost effective for the Company when completed in mid-1995.
At the Three Rivers Refinery, 1994 saw the first full year of operation of
several projects completed in 1993 which increased the refinery's crude oil
throughput capacity to 70,000 barrels per day. This expansion included
construction of a hydrocracker and modification of a continuous regeneration
reformer and crude distillation unit. Completion of these projects enabled the
refinery to increase gasoline production capacity by approximately 50% and
production capacity for other distillates, including diesel, by approximately
25%. It also enabled the refinery to meet diesel desulphurization
requirements.
In 1995, the Company will commence several projects that will expand the
Three Rivers Refinery's crude oil throughput capacity to approximately 85,000
barrels per day. This expansion, which includes construction of a demetalized
oil hydrotreater, a hydrogen plant, and a sulphur recovery plant, as well as
expansion of the crude unit, will be completed in 1996.
The Company owns a natural gas processing facility located at the McKee
Refinery. Upon termination of a gas processing agreement as of January 1993,
the operation of the facility was phased out. This facility has a throughput
capacity of more than 172 million cubic feet of natural gas per day. The
Company has no present plans to resume operation of 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 crude oil
pipelines gives the Company the ability to acquire crude oil from producing
leases, major domestic oil trading centers, and Gulf Coast ports, and to
transport crude oil to the Company's 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 1,200
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.
During 1994, the Company continued to benefit from its Wichita Falls crude
oil pipeline completed in 1992. At Wichita Falls the 50,000 barrel per day
pipeline has access to major pipelines which transport crude oil from the Texas
Gulf Coast and major West Texas oil fields into the Mid-Continent region.
The Three Rivers Refinery has access to crude oil from foreign sources
delivered to the Texas Gulf Coast at Corpus Christi, Texas, as well as crude oil
from domestic sources. To enhance its access to foreign crude oil, the Company
recently completed a new crude oil terminal located at the Port of Corpus
Christi, which has a total storage capacity of 1.2 million barrels. The new
crude oil terminal is connected to the Three Rivers Refinery by a newly
installed 70 mile pipeline which has the capacity to deliver 120,000 barrels of
crude oil per day to the refinery. The Three Rivers Refinery also has access to
West Texas Intermediate crude oil through common carrier pipelines and to crude
oil production in South Texas.
The Company acquires a major portion of its crude oil requirements through
the purchase of futures contracts on the New York Mercantile Exchange. The
Company also uses the futures market to manage the price risk inherent in
purchasing the crude oil in advance of the delivery date, and in maintaining the
inventories contained within its refinery and pipeline systems.
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.
The Company's refined products are distributed primarily through the
Company's approximately 2,484 miles of refined products pipelines and its 16
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.
Over the last several years the Company has added significantly to its
product distribution system. This has been accomplished in part by the
construction of new product pipelines to connect the Company's refineries to
expanding markets and in part by adding to or purchasing additional capacity in
existing product pipelines.
Available carrying capacity in the Amarillo-Tucumcari-Albuquerque products
pipeline, which carries products from the McKee refinery, has been expanded both
by purchase of one-half of the interest of a pipeline partner, and by
construction projects that expanded the carrying capacity of that line by an
additional 2,000 barrels per day, so that at the end of 1994 it provided a total
product delivery capacity from the McKee Refinery of 12,600 barrels per day. In
the first quarter of 1994, the Company completed construction of a products
pipeline from the McKee Refinery to the Colorado Springs, Colorado area. The
project includes a 10-inch pipeline with an initial capacity of 32,000 barrels
per day, covering approximately 258 miles, and a terminal facility near Colorado
Springs, Colorado. Subject to obtaining regulatory approvals, the Company plans
to construct an extension of that pipeline to Denver.
The Company has 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. At the end of 1994,
the new connections enabled 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 9,000 to 18,000
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 February 1995, the Company commenced construction of a 420-mile, 10-inch
pipeline from the McKee Refinery to El Paso, Texas, which will have an initial
capacity to deliver 25,000 barrels per day of refined products. The Company has
also commenced construction of a new product terminal at El Paso, with total
associated storage capacity of approximately 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, in which the Company has established a
significant market presence, and also give it the capability to deliver
refined products to markets in Arizona through a common carrier pipeline
originating in El Paso. Completion of the new pipeline is anticipated by the
end of 1995.
The Company expanded the Three Rivers Refinery product distribution system
in 1992 with a newly constructed refined products terminal near Laredo, Texas.
The project required 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.
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. Products are currently received on exchange or by purchase through 43
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
810 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 Company's
gasoline production. 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,
1994 1993 1992
Company Owned and Operated 496 504 518
Company Leased and Operated 314 272 243
Total Company Operated 810 776 761
Jobber Operated 1,206 1,194 1,163
Total Motor Fuel Outlets 2,016 1,970 1,924
As of December 31, 1994, Company-operated retail outlets were located in
Texas (632), Colorado (119), Louisiana (37), and New Mexico (22). Most of the
Company's stores are modern, attractive, high-volume gasoline outlets. In
addition, these outlets sell a wide variety of products such as groceries,
health and beauty aids, fast foods, and beverages.
The Company plans to open approximately 30 new retail outlets during 1995.
The Company opened 17 new retail outlets in 1994. In 1994, the Company
also purchased 18 retail outlets in Colorado, and eight retail outlets in El
Paso, Texas, all from independent gasoline distributors which were not
previously Company distributors. These outlets have been reidentified under the
Diamond Shamrock brand.
In 1993, the Company opened nine new outlets, and purchased an additional
19. In 1992, the Company opened 12 new retail outlets.
The Company has an ongoing 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 1994, the Company closed 10 such outlets.
As of December 31, 1994, 135 independent jobbers supplied 1,206 "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 three 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. Such programs provide
assistance or incentives to jobbers to upgrade existing outlets or construct new
outlets and to make environmental improvements.
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. Nine stores were operating under the franchise arrangement at
the end of 1994, and the Company plans to franchise six to eight additional
stores in Mexico during 1995.
The Company's competitive position is supported by its own proprietary
credit card program, which had approximately 562,000 active accounts at the end
of 1994. The Company currently utilizes electronic point-of-sales credit card
processing ("P.O.S.") at all of its Company and jobber operated stores.
P.O.S. reduces transaction time at the sales counter and lowers the Company's
credit card program costs by reducing float, eliminating postage and insurance
costs, and reducing bad debts. In February 1994, the Company began installing
pump island-mounted credit card readers at high volume company operated retail
locations, as part of its "Pay the Pump" program. These units enable the
customer to pay for a gasoline purchase without leaving the gasoline pump.
In June 1994, the Company completed installation of 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 new pump
island-mounted credit card readers and the new continuous underground storage
tank monitoring system now being installed by the Company.
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 49,102
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
primarily to the roofing industry and for road construction. The Company also
sells an average of 21,206 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. 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 facility has total permitted storage
capacity of approximately 77 million barrels, and consists of 29 wells. The
facilities 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 (which the Company operates and in which it
owns a 50% interest), as well as through major pipelines coming from the Mid-
Continent region, West Texas, and New Mexico. In 1994, an average of
approximately 563,000 barrels per day of natural gas liquids and petrochemicals
moved through the facilities and were 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.
The Company operates 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 Company and
Fina each pay their proportionate share of the costs and receive in kind their
proportionate share of the products produced at the plant.
The splitter is capable of producing 720 million pounds of polymer-grade
propylene 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.
A petrochemical export terminal located on the Houston Ship Channel in
which the Company has a joint venture interest 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.
The Company has operated an ammonia production facility located at the
McKee Refinery since 1991. During 1994, the plant produced approximately 400
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 net daily sales of approximately 25 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. In 1994, the Company
purchased all of Sol's interest in the Bolivian operations. The venture
presently includes 28 branded retail outlets, eight operated by the venture and
twenty operated by jobbers.
The Company operates a wholly owned subsidiary, North American InTeleCom,
Inc. ("NAI"), which provides private pay telephone services and telephone
services for correctional facilities. At the end of 1994, NAI operated inmate
telephone systems in 83 correctional facilities capable of housing some 44,000
inmates and owned or managed approximately 7,700 private pay telephones.
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 the state of Texas.
The Company has a wholesale and retail market share of from 10% to 12% in the
states of Texas, Colorado, and New Mexico. It also has a significant wholesale
and retail market presence in Louisiana.
The retail markets have historically been highly competitive. Competitors
include a number of well capitalized and fully-integrated major oil companies
and both large and small independent operators. Industry studies indicate that
over the last several years, the retail markets have been characterized by
several significant trends including (i) increased store rationalization to
fewer geographic regions and (ii) increased consumer emphasis on convenience.
During the past several years, the retail market has experienced increasing
concentration of market outlets selling under the same brand in selected and
fewer geographic regions as major oil companies have divested non-strategic
locations and have focused efforts on targeted areas, many of which are near
strategic supply sources. Additionally, smaller operators have closed marginal
and unprofitable locations as a result of increasing environmental regulations
requiring replacement of underground storage tanks. The lack of additional
favorable sites in existing markets and the high cost of construction of new
facilities are also believed to be a barrier to new competition. Industry
studies indicate that consumer buying behavior continues to reflect the effect
of increasing demands on consumer time. Convenience and the time required to
make a purchase are increasingly important considerations in buying decisions.
The Company believes these two trends may result in decreased competition and a
corresponding increase in market share in the Company's core markets.
The Company's earnings and cash flow from operations are primarily
dependent upon processing crude oil and selling quantities of refined products
at refining and retail marketing margins sufficient to cover fixed and variable
expenses. Crude oil and refined products are commodities. Crude oil costs and
refined product prices depend on numerous factors beyond the Company's control,
including the supply of and demand for crude oil, gasoline and other refined
products which in turn depend on, among other factors, changes in domestic and
foreign economies, political affairs and production levels, the availability of
imports, the marketing of competitive fuels, and the extent of government
regulation. The prices received by the Company for its refined products are
affected by regional factors, such as product pipeline capacity, local market
conditions, and the level of operations of competing refineries. A large, rapid
increase in crude oil prices would adversely affect the Company's operating
margins if the increased cost of raw materials could not be passed on to the
Company's customers. In recent years, crude oil costs and prices of refined
products have fluctuated substantially. 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 "1990 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 United States 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 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.
The Company seeks reimbursement from state underground storage tank
insurance funds, when available, for expenses incurred in replacing older
underground storage tanks and in cleaning up related hydrocarbon contamination.
In 1994, the Company received over $2 million from such state insurance funds in
Texas and Louisiana for claims filed in previous years. Continued receipt of
such reimbursements remains problematic, insofar as aggregate claims made on
such insurance funds in the states in which the Company operates continue to
exceed amounts available in those insurance funds to pay such claims, and
receipt of such reimbursements continues to lag behind the time of application
therefor by substantial periods.
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. It is also constructing a unit to produce TAME at the
McKee Refinery. 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 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 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 impact the Company in the following areas:
(i) starting in 1995, RFG is mandated in the nine worst ozone polluting cities,
including Houston, Texas; Dallas, Texas has opted into the program; (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 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, for
remediation and compliance costs related to underground storage tanks, and to
meet Stage II Vapor Recovery requirements, it is estimated that approximately
$11.6 million was spent in 1994, $21.4 million was spent in 1993 and $9.6
million was spent in 1992. For 1995 the Company has budgeted approximately $7.7
million in environmental capital expenditures, primarily for the retail segment
and the refining and wholesale segment.
The Company has in effect policies, practices, and procedures in the areas
of pollution control, product safety, 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 6,400 people, about 630 of which are
part-time employees. Approximately 330 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
In connection with the divestiture of its ownership of the Company in 1987
(the "Spin-Off"), Maxus Energy Corporation ("Maxus") and the Company entered
into an 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 agreement provides for the sharing by Maxus and the Company of certain
liabilities 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. The
Company has reflected the entire undiscounted amount of its liability under the
Distribution Agreement in its financial statements (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 $63.6 million as of December 31, 1994, including
$10.2 million paid during 1994.
Pursuant to the 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. The actuarial cost of these expected
payments under the Distribution Agreement has been recognized by the Company.
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 1,289 miles of crude oil pipelines at the end of 1994, 1,246 miles
were 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
2,484 miles of refined products pipelines at the end of 1994, 322 miles were
under a long term lease, and 2,162 miles were owned in fee. 41 miles of the
Company's owned crude oil pipelines and 1,246 miles of its owned refined
products pipelines were owned jointly with one or more other companies. The
Company's interests in such pipelines were between 33% and 54%. Of the
Company's 15 products terminals, 14 were owned in fee and one is leased under
an agreement expiring in 1999 which may be renewed for 30 years. All of the
terminals were 100% owned or leased by the Company except for one terminal which
was owned 60% by the Company. The Company leases the property on which its new
Corpus Christi crude oil terminal is situated, under a lease which has a 20 year
primary term followed by six consecutive five year renewal options.
The principal properties used in the Company's Retail segment at the end of
1994 were 810 Company-operated retail outlets, 496 of which are owned in fee and
314 of which are leased. Of the leased outlets, 197 were leased to the Company
pursuant to a lease facility entered into in 1992. This lease facility was
expanded by $25 million in April 1993, and by an additional $25 million in
April 1994. The facility has an initial five year term which expires in 1999.
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. 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.
Routine Matters.
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. In addition, the Company is engaged in a number of
hydrocarbon remediation 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 material
monetary damages from the Company and are not expected to be material to the
Company's operations or financial position.
Albuquerque South Valley Superfund Site.
The New Mexico Environmental Department ("NMED") has commenced an
investigation of petroleum hydrocarbon contamination at a site (the "San Jose
Petroleum Site") in Albuquerque, New Mexico located within the Albuquerque South
Valley Super Fund Site (the "Super Fund Site"). Without admitting liability,
West Emerald Pipeline Corporation, a subsidiary of the Company, and two other
companies that owned a pipeline that crosses the San Jose Petroleum Site
performed a detailed investigation and characterization of petroleum
hydrocarbons at the South Unit of the San Jose Petroleum Site. Additionally,
the EPA has issued a Unilateral Administrative Order ("UAO") under Section
106(a) of CERCLA to West Emerald Pipe Line Corporation and three other companies
(collectively, "Respondents") dated February 8, 1991, as amended on October 8,
1991, in connection with the alleged hydrocarbon contamination at the San Jose
Petroleum Site. The UAO orders the Respondents to take action to prevent
petroleum hydrocarbons from interfering with the ongoing remediation of
hazardous substances being implemented at the Superfund Site. Without admitting
liability, the Respondents are currently implementing a Non-Interference Work
Plan pursuant to the UAO, and are in compliance with the requirements of the
UAO. Additionally, West Emerald Pipe Line Corporation performed a detailed
investigation and characterization of petroleum hydrocarbons at the Superfund
Site, and intends to vigorously seek reimbursement from responsible parties and
the Hazardous Substance Trust Fund for the costs incurred to comply with the
UAO. Based on the information currently available, it is not possible to
predict the outcome of this matter, but it is not expected to be material to the
Company's financial position or results of operations.
Three Rivers Refinery.
On October and November, 1994, the Texas Natural Resource Conservation
Commission ("TNRCC") conducted an inspection of the Company's Three Rivers
Refinery. As a result of that inspection, the Company received a Notice of
Violation from the TNRCC dated December 16, 1994. The Company expects the
TNRCC to issue a proposed enforcement order as a result of the inspection and
the Notice of Violation, but as of March 1, 1995, no enforcement order has been
proposed.
McKee Refinery.
On April 14, 1994, the TNRCC issued its "Notice of Solid Waste Violations"
stating that the Company was injecting contaminated wastewater into groundwater
through injection wells in violation of solid waste, injection control, and
permit rules and provisions. In May 1994, representatives of the Company met
with the TNRCC to discuss the violations. The Company has also filed injection
well permit amendments which would allow the injection of the waste stream in
question. The Company fully expects such amended permits to be issued; however,
the Company believes the TNRCC will also seek penalties for the violations
alleged.
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 of the Company
is traded is the New York Stock Exchange. The high and low sales prices for
the Common Stock of the Company for each full quarterly period during 1993 and
1994 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,
1995 was 14,905.
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 1995
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, 1995.
Roger R. Hemminghaus, 58, is Chairman of the Board, President, and Chief
Executive Officer of the Company, and has served as the chief executive officer
of the Company since April 1987.
Robert C. Becker, 53, has served as Vice President and Treasurer of the Company
since April 1987.
Timothy J. Fretthold, 45, 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, 59, has served as Vice President and Controller of the Company
since April 1987.
William R. Klesse, 48, is Executive Vice President of the Company. He served as
Group Vice President - Development and New Ventures of the Company from May 1988
to June 1989 and as Senior Vice President/Group Executive from that date until
February 1995. Mr. Klesse served as Group Vice President - Planning and Public
Affairs of the Company from April 1987 through May 1988.
J. Robert Mehall, 52, is Executive Vice President of the Company. He served as
Group Vice President - Supply of the Company from April 1987 to June 1989 and as
Senior Vice President/Group Executive from that date until February 1995.
A. W. O'Donnell, 62, is President/Marketing and Senior Vice President. He
served as Group Vice President - Marketing of the Company from April 1987 to
June 1989 and as Senior Vice President/Group Executive from that date until
February 1995.
J. E. Prater, 56, is President/Refining and Senior Vice President of the
Company. He served as Group Vice President - Refining of the Company from April
1987 to June 1989 and as Senior Vice President/Group Executive from that date
until February 1995.
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 1995 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 table below sets forth the share ownership of the Company's directors
and executive officers. As of March 1, 1995, no director or executive officer
beneficially owned 1% or more of the Common Stock, and all directors and
executive officers as a group beneficially owned approximately 1.5% of the
Common Stock. As of March 1, 1995, no shares of the Company's 5% Cumulative
Convertible Preferred Stock were beneficially owned by any director or executive
officer. Unless otherwise indicated in the footnotes to such table, each of the
named persons and members of the group has sole voting and investment power with
respect to the shares shown.
Shares
Beneficially
Name Position Owned (1)(2)
B. Charles Ames Director 9,799
E. Glenn Biggs Director 8,506
W. E. Bradford Director 3,244
Lauro F. Cavazos Director 2,071
W. H. Clark Director 1,719
William L. Fisher Director 8,506
Bob Marbut Director 13,722
Katherine D. Ortega Director 3,092(3)
Roger R. Hemminghaus Chairman, President and
C.E.O. 139,603(4)
T. J. Fretthold Sr. V.P./Group Executive
and General Counsel 40,624
W. R. Klesse Executive V.P. 51,512(5)
J. Robert Mehall Executive V.P. 38,900
A. W. O'Donnell President/Marketing and
Sr. V.P. 36,480
J. E. Prater President/Refining and
Sr. V.P. 37,501
All directors and executive officers
as a group (16 persons) 446,469
______________
(1) Includes shares of restricted stock issued under the
Long-Term Incentive Plans the vesting of which is contingent
on the passage of time, continued service, or performance
criteria as follows: B. Charles Ames, 1,570 shares;
E. Glenn Biggs, 1,570 shares; W. E. Bradford, 1,469 shares;
W. H. Clark, 518 shares; William L. Fisher, 1,570 shares;
R. R. Hemminghaus, 24,510 shares; Bob Marbut, 2,178 shares;
Katherine D. Ortega, 756 shares; T. J. Fretthold, 7,602 shares;
W. R. Klesse, 7,527 shares; J. R. Mehall, 7,602 shares;
A. W. O'Donnell, 7,612 shares; J. E. Prater, 7,482 shares;
and all directors, and executive officers as a group
(16 persons), 80,774 shares. See "The Board of Directors and
its Committees Directors' Fees and Related Information" and
"Compensation of Executive Officers."
(2) Includes shares of Common Stock which may be acquired within
60 days through the exercise of options granted under the
Long-Term Incentive Plans as follows: R. R. Hemminghaus,
41,737 shares; T. J. Fretthold, 13,594 shares; W. R. Klesse,
14,940 shares; J. R. Mehall, 5,660 shares; A. W. O'Donnell,
10,860 shares; J. E. Prater, 11,513 shares; and all directors,
and executive officers as a group (16 persons), 110,098
shares. See "Compensation of Executive Officers."
(3) Includes 500 shares of Common Stock with respect to which
Ms. Ortega shares voting and investment power.
(4) Includes 672 shares of Common Stock with respect to which
Mr. Hemminghaus acts as trustee. Mr. Hemminghaus disclaims
beneficial ownership of such shares.
(5) Includes 372 shares of Common Stock with respect to which
Mr. Klesse acts as trustee. Mr. Klesse disclaims beneficial
ownership of such shares.
The following table contains certain information regarding persons who the
Company has been advised are beneficial owners of 5% or more of the Common Stock
as of the dates indicated in the footnotes to the table.
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Owner Class
Forstmann-Leff Associates,
Inc. 2,836,860(1) 9.8%
55 East 52nd Street
New York, NY 10055
The Equitable Companies
Incorporated 1,918,100(2) 6.6%
787 Seventh Avenue
New York, NY 10019
FMR Corp 2,159,204(3) 7.3%
82 Devonshire Street
Boston, MA 02109
Diamond Shamrock, Inc. 3,574,691(4) 12.4%
Employee Stock Ownership Plans
9830 Colonnade Blvd.
San Antonio, TX 78230
(1) According to Schedule 13G filed as of December 31, 1994 with
the Securities and Exchange Commission by Forstmann-Leff Associates,
Inc. ("Forstmann-Leff"), Forstmann-Leff had sole voting power with
respect to 1,380,310 shares, sole dispositive power with respect to
2,017,585 shares, and together with Stamford Advisors Corp. and a
subsidiary, FLA Asset Management, Inc., shared voting power with
respect to 352,000 shares and shared dispositive power with respect
to 819,275 shares.
(2) According to Schedule 13G filed as of December 31, 1994 with the
Securities and Exchange Commission by The Equitable Companies
Incorporated ("Equitable"), Equitable had sole voting power with respect
to 1,893,100 shares and sole dispositive power with respect to 1,918,100
shares.
(3) According to Schedule 13G filed as of December 31, 1994 with the
Securities and Exchange Commission by FMR Corp. ("FMR"), FMR holds sole
voting power with respect to 218,332 shares and sole dispositive power
with respect to all 2,159,204 shares.
(4) Shares are held as of December 31, 1994 by the Trustee, Society National
Bank (successor by merger to Ameritrust Company National Association),
for the benefit of participants in the Employee Stock Ownership Plan
adopted in 1987 ("ESOP I") and the 1989 Employee Stock Ownership Plan
("ESOP II") (collectively, the "ESOPs"). Participants are entitled to
direct the voting of the 1,589,582 shares allocated to their accounts.
The plan documents provide that the unallocated 1,985,109 shares are to
be voted proportionately in the manner in which allocated shares are
voted. As of December 31, 1994, ESOP I and ESOP II held 2,128,534 and
1,446,157 shares, respectively. See "Compensation of Executive Officers
Retirement and Other Compensation".
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, 1994
Consolidated Balance Sheet - December 31, 1994
and 1993
Consolidated Statement of Cash Flows for the
three years ended December 31, 1994
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
33-67166, and incorporated herein by
reference).
4.12 * Form of 5% Cumulative Convertible Preferred
Stock Certificate (Exhibit 4.12 to the
Company's Form 10-K for the fiscal year
ended December 31, 1993 (the "1993 10-K").
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 (Exhibit 10.8 to the 1993 10-K).
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 * 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).
10.53 * Second Amendment to Agreement for Ground
Lease between Brazos River Leasing L.P. and
Diamond Shamrock Refining and Marketing
Company, dated as of April 23, 1994 (Exhibit
10.1 to the Company's report on Form 10-Q
for the quarter ended June 30, 1994 (the
"June 30, 1994 10-Q")).
10.54 * Second Amendment to Ground Lease Agreement
between Brazos River Leasing L.P. and
Diamond Shamrock Refining and Marketing
Company, dated as of April 23, 1994.
(Exhibit 10.2 to the June 30, 1994 10-Q)
10.55 * Second Amendment to Agreement for Facilities
Lease between Brazos River Leasing L.P. and
Diamond Shamrock Refining and Marketing
Company, dated as of April 23, 1994.
(Exhibit 10.3 to the June 30, 1994 10-Q).
10.56 * Second Amendment to Facilities Lease
Agreement between Brazos River Leasing L.P.
and Diamond Shamrock Refining and Marketing
Company, dated as of April 23, 1994 (Exhibit
10.4 to the June 30, 1994 10-Q).
10.57 * First Amendment to Agreement for Ground
Lease between Brazos River Leasing L.P. and
Diamond Shamrock Refining and Marketing
Company, dated as of June 1, 1994 (Exhibit
10.1 to the Company's report on Form 10-Q
for the quarter ended September 30, 1994
(the "September 30, 1994 10-Q")).
10.58 * First Amendment to Ground Lease Agreement
between Brazos River Leasing L.P. and
Diamond Shamrock Refining and Marketing
Company, dated as of June 1, 1994. (Exhibit
10.2 to the September 30, 1994 10-Q).
10.59 * First Amendment to Agreement for Facilities
Lease between Brazos River Leasing L.P. and
Diamond Shamrock Refining and Marketing
Company, dated as of June 1, 1994 (Exhibit
10.3 to the September 30, 1994 10-Q).
10.60 * First Amendment to Facilities Lease
Agreement between Brazos River Leasing L.P.
and Diamond Shamrock Refining and Marketing
Company, dated as of June 1, 1994 (Exhibit
10.4 to the September 30, 1994 10-Q").
10.61 * Third Amendment to Agreement for Ground
Lease between Brazos River Leasing L.P. and
Diamond Shamrock Refining and Marketing
Company, dated as of September 16, 1994
(Exhibit 10.5 to the September 30, 1994 10-Q).
10.62 * Third Amendment to Ground Lease Agreement
between Brazos River Leasing L.P. and
Diamond Shamrock Refining and Marketing
Company, dated as of September 16, 1994.
(Exhibit 10.6 to the September 30, 1994 10-Q).
10.63 * Third Amendment to Agreement for Facilities
Lease between Brazos River Leasing L.P. and
Diamond Shamrock Refining and Marketing
Company, dated as of September 16, 1994.
(Exhibit 10.7 to the September 30, 1994 10-Q).
10.64 * Third Amendment to Facilities Lease
Agreement between Brazos River Leasing L.P.
and Diamond Shamrock Refining and Marketing
Company, dated as of September 16, 1994.
(Exhibit 10.8 to the September 30, 1994 10-Q).
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,
1994.
13.2 . Consolidated Financial Statements and
Selected Financial Data from the Company's
Annual Report to Shareholders for the year
ended December 31, 1994.
13.3 . Report of Independent Accountants from the
Company's Annual Report to Shareholders for
the year ended December 31, 1994.
21.1 . Significant Subsidiaries of the Company.
23.1 . Consent of Price Waterhouse.
24.1 . Power of Attorney of the Company
24.2 . Powers of Attorney of directors and officers
of the Company.
27.1 . Financial Data Schedule
- --------------------
* Each document marked with an asterisk is incorporated herein by reference
to the designated document previously filed with the Securities 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 the 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 1994.
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/ TODD WALKER
Todd Walker
Attorney-in-Fact
March 27, 1995
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* Director
William E. Bradford
/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/ 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 27, 1995
W2825.TW
<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 24, 1995, 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.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
San Antonio, Texas
February 24, 1995
<PAGE>
SCHEDULE V
DIAMOND SHAMROCK, INC.
CONSOLIDATED PROPERTIES AND EQUIPMENT
THREE YEARS ENDED DECEMBER 31, 1994
(dollars in millions)
REFINING & RETAIL ALLIED
WHOLESALE MARKETING BUSINESSES OTHER TOTAL
Balance January 1, 1992 $ 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 at December 31, 1992 838.9 306.7 212.6 33.6 1,391.8
Additions, at cost 100.1 26.5 4.4 0.8 131.8
Disposals and transfers 10.1 (6.7) (34.5)(1) (0.5) (31.6)
Balance at December 31, 1993 949.1 326.5 182.5 33.9 1,492.0
Additions, at Cost 89.3 49.3 22.3 1.2 162.1
Disposals and Transfers (14.0) (6.3) 2.0 (0.4) (18.7)
Balance December 31, 1994 $1,024.4 $ 369.5 $ 206.8 $ 34.7 $1,635.4
(1) During 1993, the Company exchange an undivided interest in certain
properties and equipment for an equity ownership interest in a limited 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 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, 1994
(dollars in millions)
REFINING & RETAIL ALLIED
WHOLESALE MARKETING BUSINESSES OTHER TOTAL
Balance January 1, 1992 $ 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 3.6 (2.2) (14.5) (0.5) (13.6)
Balance December 31, 1992 331.1 85.3 66.3 11.5 494.2
Additions charged against
income 35.1 14.6 11.7 2.9 64.3
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
Additions charged against
income 38.3 16.3 13.1 3.2 70.9
Disposals and transfers (8.4) (4.2) 0.3 (0.2) (12.5)
Balance December 31, 1994 $ 396.8 $ 108.7 $ 87.9 $ 15.9 $ 609.3
* See footnote (1) to the preceding Schedule V "Consolidating 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
Exhibit 13.1
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Consolidated Results 1994 vs 1993
Sales and operating revenues for 1994 were $2,606.3 million compared to
$2,555.3 million in 1993. Sales and operating revenues increased primarily due
to a 6.4% increase in refined product sales volumes, a 6.4% increase in retail
merchandise sales and an improvement in revenues in the Allied Businesses
segment.
During 1994, the Company had net income of $75.8 million compared with income
before cumulative effect of accounting changes of $32.6 million and net income
of $18.4 million in 1993. The Company's integrated business approach
contributed significantly to the Company's profitability during 1994. The
Refining and Wholesale segment was supported by strong refining margins in the
first half of 1994. Then, as refining margins narrowed, the Company had
excellent results from the Retail segment, reflecting improved retail margins in
the second half of 1994. The Allied Businesses segment provided significant
operating profit improvements throughout 1994, reflecting a general improvement
in the petrochemical business and strong demand for anhydrous ammonia
fertilizer.
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, 1994, 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
change in inventory values was a positive $7.3 million and a negative $16.5
million, in 1994 and 1993, respectively.
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 primarily due
to a decrease in natural gas liquids sales volumes, attributable to the
cancellation of a contract to process natural gas 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 affected by strong refining margins,
as motor fuel demand increased and pipeline and refinery expansion projects were
completed. High retail gasoline ad merchandise sales volumes, and strong
margins, primarily in the third and fourth quarters of 1993, contributed to
record earnings in the Retail segment.
Falling crude oil and refined product prices resulted in inventory devaluation
that negatively affected net income by approximately $16.5 million during 1993.
The Company's 1993 results were also affected by two noncash charges totaling
$15.9 million after tax. The first noncash charge arose because the Company
changed the accounting method for recording the liability under an agreement
with Maxus Energy Corporation (see Note 3 of the Notes to the Consolidated
Financial Statements on page 35 of this Annual Report). The second arose
because the Company took a charge of $1.7 million to restate deferred taxes as
a result of increased corporate income tax rates.
Segment Results 1994 vs 1993
Sales and operating revenues from the Refining and Wholesale segment increased
$26.0 million from $1,294.8 million in 1993 to $1,320.8 million in 1994,
primarily due to a 6.4% increase in refined product sales volumes as the
Company's expansion of its Three Rivers Refinery came on-line. This increase
was partially offset by a 5.1% decrease in refined product sales prices.
Refining and Wholesale operating profit increased by 98.6% to $146.8 million
compared to $73.9 million in 1993. This increase in operating profit was
primarily due to a 17.0% increase in refinery margins compared to 1993. The 1994
operating profit was positively impacted by an increase in the value of crude
oil and refined product inventories. The Company also benefited from a full
year of the projects brought on in 1993, namely the Three Rivers expansion and
the diesel desulfurizer at McKee.
Sales and operating revenues in the Retail segment increased 1.7% in 1994,
primarily due to a 6.4% increase in retail merchandise sales, a 2.0% increase in
gasoline fuel sales volumes, and a 6.4% increase in lottery sales, partially
offset by a 2.9% decrease in retail gasoline sales prices. Per-store
merchandise sales increased by 5.1%. Retail operating profit decreased by 6.1%
to $58.9 million in 1994 from $62.7 million in 1993, primarily due to increased
operating costs, reflecting the costs associated with the installation of the
Company's computerized retail information inventory management and customer
service system ("IRIS"). IRIS has the capability of tracking merchandise sales
by item and interfaces with computerized controls for underground storage tank
monitoring that allows the Company increased environmental protection. Also
contributing to the decrease in operating profit was a 0.6% decrease in retail
merchandise margins. Gross profit from lottery sales in 1994 was $8.2 million
compared to $7.3 million in 1993.
Allied Businesses sales and operating revenues increased 2.9% to $311.2 million
in 1994, primarily due to an increase in revenues from the Company's Nitromite
fertilizer and propane/propylene businesses. The propane/propylene increases
reflected a general improvement in the petrochemical business and strong demand
for polymer grade propylene during the last half of the year. The Nitromite
fertilizer business benefited from strong demand for anhydrous ammonia and
depressed natural gas prices. These revenue increases were partially offset by
a 9.1% decrease in natural gas liquids sales volumes and a 6.9% decrease in
natural gas liquids sales prices. Allied Businesses operating profits
increased by 73.3% in 1994 to $26.0 million, primarily due to an $8.2 million
and $6.7 million increase in operating profits from the Company's
propane/propylene and Nitromite fertilizer businesses, respectively. Also
contributing to the increase in operating profits was a $3.0 million
improvement from Trans Texas Pipeline, reflecting a full year of higher
operating rates and tariffs. Partially offsetting the increase in operating
profits was a $5.7 million increase in operating expense from international
operations, and a $2.9 million decrease in natural gas processing operating
profit, reflecting the cancellation during the second quarter of 1993 of the
Company's contract to process natural gas.
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
positively impacted by 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 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 and natural gas liquids marketing businesses, respectively.
Lower operating profit from the propane/propylene business 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.
Outlook
Approximately 800,000 barrels per day of U.S. crude distillation capacity has
been shut down since 1989. While an estimated 300,000 barrels per day of U.S.
crude distillation capacity is said to be vulnerable to closure or for sale, it
remains to be seen what portion of this capacity will be bought, shut down, or
operated as some other refinery-related facility. The reduction in crude
capacity since 1989 has been partially offset by increased gasoline capacity
brought on by "capacity creep," which includes investments to increase
conversion capability, handle heavier crude oils, improve product slates, and
perform routine refinery debottlenecking projects.
The strong economy in 1994 resulted in gasoline demand growth of 2.3% over 1993,
and demand in 1995 is expected to grow another 1.0% to 1.5%. However, high
capacity utilization rates throughout 1994, high product inventories in Europe,
and the uncertainty surrounding reformulated gasoline supplies, combined with
the announcement that certain areas were "opting out" of the reformulated
gasoline program, worked to depress industry refining margins beginning in
the second half of 1994. The weakness in refining margins was partially
offset by the strength in retail marketing margins.
The outlook for the refining and marketing industry in 1995 is positive. Based
on the expectations of continued strong demand for gasoline, spurred by a
growing economy and industry-wide low gasoline inventory levels, refining
margins are expected to improve as the summer driving season approaches.
Additionally, the Company's recently completed Corpus Christi crude oil
terminal and related pipeline to Three Rivers, as well as product pipelines and
refinery projects planned for completion in 1995, should continue to improve
the Company's refining margins relative to the industry.
Liquidity and Capital Resources
Cash Flow and Working Capital
For the year ended December 31, 1994, cash provided by operations was $176.2
million, compared with $109.3 million provided in 1993. The increase in cash
provided by operations during 1994 was primarily due to a $57.4 million
increase in net income and a $31.9 million increase in deferred taxes. Deferred
taxes increased primarily because of the difference between book and tax
inventory valuation at the Company's two refineries and because of the increase
in the difference between the book and tax basis for properties and equipment,
offset in part by an increase in the alternative minimum tax credit
carryforward. The Company was in an alternative minimum tax position for the
1994 taxable year. Increased working capital negatively impacted cash provided
by operations during 1994. Working capital at December 31, 1994 consisted of
current assets of $540.4 million and current liabilities of $374.1 million, or a
current ratio of 1.4. At December 31, 1993, the current ratio was 1.6, with
current as sets of $356.2 million and current liabilities of $220.4 million.
The increase in working capital in 1994 was primarily due to a 56.5% increase
in inventories, attributable to high crude oil inventory at year end. The
increase in current liabilities was primarily due to a 125.2% increase in
accounts payable. The increase in inventories and accounts payable was
affected by the Company's decision to purchase additional crude oil in December
1994 in order to overcome potential supply disruptions caused by the
implementation of Oil Pollution Act 1990 ("OPA 90"). Under OPA 90, all vessels
trading in U.S. waters must have had a Certificate of Financial Responsibility,
approved by the Coast Guard, in place by December 28, 1994. Vessel owners
were slow to comply, setting the stage for a possible shortage of foreign
shipments to the U.S.
Cash provided by operations for the year ended December 31, 1993 was positively
impacted by decreased working capital, 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.
The Company acquires a major portion of its crude oil requirements through the
purchase of futures contracts on the New York Mercantile Exchange. The Company
also uses the futures market to manage the price risk inherent in purchasing the
crude oil in advance of the delivery date, and in maintaining the inventories
contained within its refinery and pipeline systems. The Company defers the
impact of changes in the market value of these contracts until such time as
the hedged transaction is completed.
The Company has not entered into any form of interest rate caps or on any of
its fixed or variable rate debt in recent periods.
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 regulatory requirements, and pursue new ventures in related
businesses. The Company's capital expenditures during 1994 were $162.1 million
compared with $131.8 million in 1993, and $170.5 million in 1992.
Included in 1994 capital expenditures were the acquisition of 26 retail outlets
in Texas and Colorado, the 32,000 barrels per day refined products pipeline from
the McKee refinery to Colorado Springs, and the Colorado Springs products
terminal. The crude oil storage terminal at Corpus Christi and the related
pipeline to Three Rivers were completed by the end of January 1995.
The Company's capital expenditures budget for 1995 is approximately $225.0
million, including approximately $110.9 million to complete various pipeline
projects. Also included in the 1995 capital expenditures budget are various
refinery projects and approximately 38.0 million associated with the Company's
decision to own outright rather than lease more of the retail outlets to be
built or acquired in 1995.
On February 13, 1995, the Company, anticipating that its capital expenditures
for debt service, lease obligations, working capital, and dividend
requirements would exceed cash generated by operations, issued $75.0 million in
non-callable 8.75% debentures due June 15, 2015. To the extent required to meet
its cash needs, the Company also has access to commercial paper and bank money
market facilities and may consider other financing 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 1994 with
the acquisition of eight outlets in El Paso, Texas in September and 18 outlets
in Colorado in November. In addition, the Company opened 17 outlets and closed
10 marginal outlets in 1994. The Company opened nine and 12 new outlets, in
1993 and 1992, respectively. The newly opened outlets are leased by the Company
under a pre-existing long-term lease arrangement (the "Brazos Lease"). The
Brazos Lease had an initial lease term which expired 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 purchase or arrange for the sale
of the retail outlets. In April 1994, the Company expanded the capacity of the
lease by $25.0 million and extended the primary term applicable to the
properties under the lease by two years, to April, 1999. 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, 1994,
approximately $161.7 million of the $190.0 million commitment had been utilized
to construct and/or acquire retail outlets.
Environmental Matters
Environmental laws and regulations affect the Company in many areas. Starting
on January 1, 1995, reformulated gasoline was mandated by the 1990 Clean Air
Act amendments for the nine worst ozone polluting cities in the United States.
Houston, which is in the Company's market area, is included among these nine
cities. Other cities, including Dallas, which is also in the Company's market
area, have chosen to "opt in" to the program. 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 currently makes reformulated
gasoline for its Dallas market, which historically has absorbed approximately
25 percent of the McKee refinery's total gasoline pool.
The 1990 Clean Air Act amendments also affect the Company by requiring more
stringent refinery and petrochemical permitting requirements and Stage II vapor
recovery nozzles on gas pumps in ozone nonattainment areas, including Beaumont,
Dallas, El Paso, Fort Worth, and Houston, which are located within the
Company's market area.
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, for remediation and compliance costs related to
underground storage tanks, and to meet Stage II Vapor Recovery requirements,
it is estimated that approximately $11.6 million was spent in 1994, $21.4
million was spent in 1993, and $9.6 million was spent in 1992. For 1995, the
Company has budgeted approximately $7.7 million in environmental capital
expenditures, primarily for the Retail segment and the Refining and Wholesale
segment.
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 1995
On February 13, 1995, the Company issued $75.0 million in non-callable 8.75%
debentures due June 15, 2015. The proceeds from the issuance of the debentures
will be used for general corporate purposes, including payment of a scheduled
$30.0 million principal installment on the 10.75% Senior Notes (as defined
below), and to fund anticipated capital expenditures in 1995.
Financing Activities During 1994
On January 6, 1994, the Company prepaid the $35.0 million balance on its $65.0
million Term Loan Agreement.
At December 31, 1994, the Company had outstanding $66.9 million of borrowings
under bank money market facilities provided by major money center banks at a
rate of 6.50%.
The Revolving Credit Loan Agreement (the Revolving Credit Agreement) consists
of two separate agreements, (Agreement I and Agreement II) under which the
total amount available is $300.0 million. Agreement I has face value of $200.0
million with a maturity date of September 30, 1996. Agreement II matures on
April 13, 1995, and it has a value of $100.0 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,
certificate of deposit rates, and London Interbank Offered ("LIBO") rates, all
as adjusted upward by specified percentages. On December 31, 1994, the Company
had no borrowings outstanding under Agreement I or Agreement II.
The Revolving Credit Agreement is 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 Agreement.
The Revolving Credit Agreement 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 current 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, 1994, under the most restrictive of these covenants, $250.3
million was available for the payment of dividends.
Financing Activities During 1993
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.
On April 1, 1993, the Company issued $100.0 million of 8% debentures due April
1, 2023.
In June 1993, the Company issued 1.725 million shares of 5% Cumulative
Convertible Preferred Stock (the "Preferred Stock") in a private placement. On
September 8, 1993, the Preferred Stock became convertible into the Company's
Common Stock at an initial conversion price of $26.50 per share. After June
15, 1996, the Preferred 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.
Financing Activities Prior to 1993
At December 31, 1994, the Company's long-term debt included the following
amounts incurred prior to 1993:
$150.0 million of 10.75% Senior Notes payable in equal annual installments of
$30.0 million beginning April 30, 1995.
$8.4 million of 9% Senior Notes payable in semi-annual installments ending May
15, 1997.
$30.0 million of 8.77% Senior Notes payable in quarterly installments
including interest only until the May, 1997 payment and then both interest and
principal for the remaining 48 quarterly payments.
$1.9 million of 8.35% Senior Notes payable in semi-annual installments ending
May 15, 1997.
$75.0 million of medium-term notes with an interest rate of 9-3/8% due March 1,
2001.
$24.0 million of medium-term notes with an average interest rate of 8.45%
maturing in the year 2003.
Accounting Matters
Effective January 1, 1993, the Company changed the accounting method for
recording the liability under an agreement with Maxus (see Note 3 of the Notes
to the Consolidated Financial Statements on page 35 of this Annual Report).
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" (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" and Financial Accounting Standard No. 109 ("FAS 109"),
"Accounting for Income Taxes," (see Note 3 of the Notes to the Consolidated
Financial Statements on page 35 of this Annual Report).
EXHIBIT 13.2
Consolidated Statement of Operations
(dollars in millions, except per share) 1994 1993 1992
REVENUES
Sales and operating revenues
(excludes excise taxes) $2,606.3 $2,555.3 $ 2,602.6
Other revenues, net 14.8 10.2 9.1
2,621.1 2,565.5 2,611.7
COSTS AND EXPENSES
Cost of products sold and
operating expenses 2,269.5 2,305.5 2,374.1
Depreciation 70.9 64.3 56.8
Selling and administrative 71.7 60.9 59.9
Taxes other than income taxes 39.9 36.7 36.4
Interest 43.3 40.6 40.5
2,495.3 2,508.0 2,567.7
Income before Tax Provision and
Cumulative Effect
of Accounting Changes 125.8 57.5 44.0
Provision for Income Taxes 50.0 24.9 17.6
Income before Cumulative Effect of
Accounting Changes 75.8 32.6 26.4
Cumulative Effect of Accounting Changes
(net of income taxes) - (14.2) (17.7)
Net Income 75.8 18.4 8.7
Dividend Requirement on Preferred Stock 4.3 2.4 -
Earnings Applicable to Common Shares $ 71.5 $ 16.0 $ 8.7
Primary Earnings (Loss) Per Common Share
Before Cumulative Effect of Accounting Changes $ 2.45 $ 1.04 $ 0.92
Cumulative Effect of Accounting Changes - (0.49) (0.62)
Total $ 2.45 $ 0.55 $ 0.30
Fully Diluted Earnings (Loss) Per Common Share
Before Cumulative Effect of Accounting Changes $ 2.34 $ 1.04 $ 0.92
Cumulative Effect of Accounting Changes - (0.49) (0.62)
Total $ 2.34 $ 0.55 $ 0.30
Cash Dividends Per Share
Common $ 0.53 $ 0.52 $ 0.52
Preferred $ 2.50 $ 1.28 $ -
Weighted Average Common Shares Outstanding
(thousands of shares)
Primary 29,128 28,871 28,703
Fully Diluted 32,383 28,968 28,703
Pro forma amounts assuming the effect of the 1993
change in accounting principle is applied retroactively:
1994 1993 1992
Income before cumulative effect of accounting changes $ 75.8 $ 32.6 $ 29.6
Cumulative effect of adopting FAS 106 and FAS 109 - - (17.7)
Net income $ 75.8 $ 32.6 $ 11.9
The Notes to Consolidated Financial Statements are an integral part of this and
related Consolidated Financial Statements.
<PAGE>
Consolidated Balance Sheet
December 31,
(dollars in millions, except per share) 1994 1993
ASSETS
Current Assets
Cash and cash equivalents $ 27.4 $ 12.8
Receivables, less doubtful receivables 211.6 148.8
Inventories 291.0 186.0
Prepaid expenses 10.4 8.6
Total Current Assets 540.4 356.2
Properties and Equipment, less accumulated
depreciation 1,026.1 941.1
Deferred Charges and Other Assets 54.3 51.9
$1,620.8 $1,349.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Long-term debt payable within one year $ 3.9 $ 3.5
Accounts payable 199.3 88.5
Accrued liabilities 170.9 128.4
Total Current Liabilities 374.1 220.4
Long-term Debt 509.2 486.2
Deferred Income Taxes 81.5 48.7
Other Liabilities and Deferred Credits 67.0 66.2
Stockholders' Equity
Preferred Stock, $.01 par value
Authorized shares - 25,000,000
Issued and outstanding shares -
1,725,000; 1,725,000 in 1993 0.0 0.0
Common Stock, $.01 par value
Authorized shares - 75,000,000
Issued shares - 29,014,711;
28,927,217 in 1993
Outstanding shares - 28,896,917;
28,903,468 in 1993 0.3 0.3
Paid-in Capital 447.3 444.8
ESOP Stock and Stock Held in Treasury (45.4) (47.9)
Retained Earnings 186.8 130.5
Total Stockholders' Equity 589.0 527.7
$1,620.8 $1,349.2
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) 1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 75.8 $ 18.4 $ 8.7
Adjustments to arrive at net cash provided
by operating activities:
Depreciation 70.9 64.3 56.8
Deferred income taxes 31.9 (9.9) (4.2)
Loss on sale of properties and equipment 0.9 3.0 1.3
Cumulative Effect of Accounting Changes - 23.6 25.8
Cash flow from futures activity - (3.0) (7.0)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (62.8) (7.2) 5.2
Decrease (increase) in inventories (105.0) 7.2 49.6
Decrease (increase) in prepaid expenses (1.8) (2.4) (1.7)
Increase (decrease) in accounts payable
and accrued liabilities 153.3 3.3 (28.9)
Other, net 13.0 12.0 14.7
NET CASH PROVIDED BY OPERATING ACTIVITIES 176.2 109.3 120.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of futures contracts - (133.3) (157.2)
Settlement of futures contracts - 136.3 164.2
Proceeds from sales of facilities 7.1 2.0 6.6
Purchase of properties and equipment (162.1) (131.8) (170.5)
Expenditures for investments (3.2) (1.3) (22.4)
NET CASH USED IN INVESTING ACTIVITIES (158.2) (128.1) (179.3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper - (108.5) 89.9
Increases in long-term debt 214.2 321.8 246.3
Repayments of long-term debt (190.8) (260.5) (245.4)
Payments of long-term liability (10.2) (11.3) (16.1)
Funds received from ESOP 5.1 4.3 3.7
Issuance of Common Stock 0.9 1.7 -
Purchase of Treasury Stock (3.4) (0.6) (2.8)
Issuance of Preferred Stock - 84.3 -
Sale of Common Stock held in treasury 0.5 0.1 0.1
Dividends paid (19.7) (17.2) (14.9)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3.4) 14.1 60.8
Net increase (decrease) in cash and cash equivalents 14.6 (4.7) 1.8
Cash and cash equivalents at beginning of period 12.8 17.5 15.7
Cash and cash equivalents at end of period $ 27.4 $ 12.8 $ 17.5
Excluded from the Consolidated Statement of Cash Flows for the year ended
December 31, 1993, 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.
The Notes to Consolidated Financial Statements are an integral part of this and
related Consolidated Financial Statements.
Notes to Consolidated Financial Statements
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 the refining and marketing of 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 accounted for 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.
Inventories
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.
The Company includes purchased items in inventory when the product has been
delivered and/or when title has passed to the Company. Imbalances in product
exchanges are also reflected in the inventory account balance. Products owed to
the Company are included in inventory and products owed to exchange partners are
excluded from inventory.
Financial Instruments
The Company acquires a major portion of its crude oil requirements through
the purchase of futures contracts on the New York Mercantile Exchange. The
Company also uses the futures market to manage the price risk inherent in
purchasing the crude oil in advance of the delivery date, and in maintaining the
inventories contained within its refinery and pipeline systems. The Company
defers the impact of changes in the market value of these contracts until such
time as the hedged transaction is completed.
The Company has not entered into any form of interest rate caps or swaps on
any of its fixed or variable rate debt in recent years.
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 carry forward.
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, in
addition to the adjustments for primary earnings (loss) per share for the year
ended December 31, 1994, assumes conversion of the Preferred Stock during the
time that the shares are outstanding. 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.
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
1997.
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 had 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, in 1993, 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 for the twelve months ended December 31,
1993. The amount of $14.2 million represented the unrecorded liability of $23.6
million at December 31, 1992, less related tax benefit of $9.4 million.
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.
1994 1993 1992
Pro forma Primary Earnings
(Loss) Per Share Before
Cumulative Effect of
Accounting Changes $ 2.45 $ 1.04 $ 1.03
Cumulative Effect of Adopting
FAS 106 and FAS 109 - - (0.62)
Total $ 2.45 $ 1.04 $ 0.41
Pro forma Fully Diluted Earnings
(Loss) Per Share Before
Cumulative Effect of
Accounting Changes $ 2.34 $ 1.04 $ 1.03
Cumulative Effect of Adopting
FAS 106 and FAS 109 - - (0.62)
Total $ 2.34 $ 1.04 $ 0.41
Earnings per share as currently reported:
1994 1993 1992
Primary Earnings (Loss)
Per Share Before
Cumulative Effect of
Accounting Changes $ 2.45 $ 1.04 $ 0.92
Cumulative Effect of
Accounting changes - (0.49) (0.62)
Total $ 2.45 $ 0.55 $ 0.30
Fully Diluted Earnings (Loss)
Per Share Before
Cumulative Effect of
Accounting Changes $ 2.34 $ 1.04 $ 0.92
Cumulative Effect of
Accounting changes - (0.49) (0.62)
Total $ 2.34 $ 0.55 $ 0.30
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 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 1, 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 transporting, storing and marketing natural gas liquids; upgrading
refinery grade propylene and selling polymer grade propylene; selling anhydrous
ammonia fertilizer; 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.
Refining
and Allied
Wholesale Retail Businesses Total
1994
Sales and operating
revenues $ 1,320.8 $ 974.3 $ 311.2 $2,606.3
Costs and expenses 1,174.0 915.4 285.2 2,374.6
Operating profit $ 146.8 $ 58.9 $ 26.0 $ 231.7
Interest expense 43.3
Administrative expense 62.6
Income before
tax provision $ 125.8
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 expense 53.5
Income before tax
provision and
cumulative effect of
accounting changes $ 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 expense 53.1
Income before tax
provision and
cumulative effect of
accounting changes $ 44.0
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 $502.7 million in 1994, $510.1 million in 1993, and $542.7 million in 1992.
Sales of natural gas liquids from the Allied Businesses segment to the Refining
and Wholesale segment amounted to $15.8 million in 1994, $23.4 million in 1993,
and $31.5 million in 1992.
Identifiable Assets
1994 1993 1992
Refining and Wholesale $1,048.2 $ 846.8 $ 760.9
Retail 333.0 281.2 265.0
Allied Businesses 159.0 142.7 194.4
Corporate 80.6 78.5 77.2
$1,620.8 $1,349.2 $1,297.5
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:
1994 1993 1992
Current
Federal $ 16.4 $ 21.8 $ 11.9
State and local 1.7 3.5 1.7
18.1 25.3 13.6
Deferred
Federal 29.1 (0.3) 3.0
State and local 2.8 (0.1) 1.0
31.9 (0.4) 4.0
$ 50.0 $ 24.9 $ 17.6
Federal income taxes paid (net of refunds) during 1994, 1993 and 1992 were:
$11.0 million, $21.5 million, and $10.0 million, respectively.
The principal reasons for the difference between the statutory federal
income tax rate and the Company's provision for income taxes were:
1994 1993 1992
Tax provision at
statutory federal rate
(35% in 1994 and 1993,
34% in 1992) $ 45.6 $ 20.1 $ 14.9
Effect of tax rate increase on
deferred taxes - 1.7 -
State income taxes, net of
federal tax benefit 3.3 2.2 1.7
Other, net 1.1 0.9 1.0
$ 50.0 $ 24.9 $ 17.6
The components of the net deferred tax liability are summarized as follows:
1994 1993 1992
Deferred tax assets
Inventory valuation reserves $ 10.5 $ 21.7 $ 9.7
Postretirement and
pension plan liabilities 13.0 13.1 12.2
Long-term shared costs
liability 7.1 10.5 6.8
Alternative minimum
tax credit 16.0 7.1 9.3
Allowance for doubtful
receivables 1.9 2.0 1.7
Miscellaneous other 13.1 8.1 6.2
61.6 62.5 45.9
Deferred tax liabilities
Properties and equipment (119.4) (111.0) (107.3)
Inventory valuation reserves (21.3) - -
Miscellaneous other (2.4) (0.2) -
(143.1) (111.2) (107.3)
$ (81.5) $(48.7) $(61.4)
For federal income tax purposes at December 31, 1994, the Company had $0.9
million of unused general business tax credits which expire in 2009 and $16.0
million of minimum tax credit available for carry forward with an indefinite
expiration.
Taxes other than income taxes were comprised of the following:
1994 1993 1992
Real and personal property $ 18.1 $ 15.8 $ 15.6
Payroll 11.6 11.2 10.5
Superfund 8.6 7.8 8.9
Other 1.6 1.9 1.4
$ 39.9 $ 36.7 $ 36.4
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.
The Company also maintains a retirement plan referred to as the Excess
Benefits Plan (the "Excess Benefits Plan"), which provides benefits in place of
reductions of qualified benefits resulting from various statutory limitations
imposed by the Internal Revenue Code and the deferral of compensation through
the Deferred Compensation Plan.
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:
1994 1993 1992
Service cost-benefits earned
during the period $ 3.4 $ 2.5 $ 2.3
Interest cost on projected
benefit obligation 2.8 2.2 1.9
Actual return on assets 0.2 (1.9) (1.2)
Net amortization and deferral (2.0) 0.5 (0.1)
Net periodic pension cost $ 4.4 $ 3.3 $ 2.9
Significant assumptions used in the actuarial calculations were:
1994 1993 1992
Discount rates 8.50% 7.25% 9.00%
Rates of increase in
compensation level 5.00% 4.50% 5.50%
Expected long-term rate of return
on assets 9.00% 9.00% 9.00%
The Company's trusteed plans are funded at amounts required by the Employee
Retirement Income Security Act. Effective December 31, 1994, the Company raised
its discount rate to 8.50% and its rates of increase in compensation level to
5.00%.
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:
1994 1993
Plans Plans Plan 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 $ 12.3 $ 14.6 $ 6.9 $ 16.5
Accumulated benefit
obligation 12.3 15.6 7.4 18.6
Projected benefit
obligation 17.2 18.2 11.5 21.5
Plan assets at fair
market value 13.9 12.3 8.5 14.9
Projected benefit obligation
in excess of plan assets 3.3 6.2 3.0 6.6
Unrecognized net loss (2.6) (5.3) (1.9) (7.0)
Unrecognized net obligation (0.3) (0.2) (0.1) (0.5)
Unrecognized prior
service cost 0.1 0.8 (0.2) 1.1
Adjustment to recognize
minimum liability 0.0 2.1 0.0 3.4
Pension liability recognized
in the Consolidated
Balance Sheet 0.4 3.5 0.8 3.6
In 1994, the plans where assets exceeded the accumulated benefit obligation
were the Bargaining Unit Plan and the SRP. In 1993, the plan where assets
exceeded the accumulated benefit obligation was the Bargaining Unit Plan.
At December 31, 1994, plan assets were invested in bonds (58%), equity
securities (33%), and other investments (9%). At December 31, 1993, plan assets
were invested in bonds (53%), cash equivalents (13%), 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 benefit 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.
The following table sets forth the plans' status and the amount recognized
in the Company's Consolidated Balance Sheet as of December 31, 1994 and 1993:
Accumulated postretirement benefit obligation attributable to:
Health Life
Care Insurance Total
1994 1993 1994 1993 1994 1993
Retirees $ 19.0 $ 16.6 $ 2.8 $ 3.2 $ 21.8 $ 19.8
Fully Eligible Active
Plan Participants 1.6 1.5 0.1 0.0 1.7 1.5
Other Active
Plan Participants 3.3 3.6 3.2 2.4 6.5 6.0
Unrecognized net loss (1.3) 0.0 (0.4) 0.0 (1.7) 0.0
Total Accumulated
Postretirement Benefit
Obligation $ 22.6 $ 21.7 $ 5.7 $ 5.6 $ 28.3 $ 27.3
Net Periodic Postretirement Benefit Cost:
Health Life
Care Insurance Total
1994 1993 1994 1993 1994 1993
Service Cost of
Benefits Earned $ 0.3 $ 0.3 $0.2 $ 0.1 $ 0.5 $ 0.4
Interest Cost on
Accumulated
Postretirement Benefit
Obligation 1.4 1.5 0.4 0.4 1.8 1.9
Net Periodic
Postretirement
Benefit Cost $ 1.7 $ 1.8 $0.6 $ 0.5 $ 2.3 $ 2.3
The discount rate used in the actuarial calculation was 8.50% and 7.25% in
1994 and 1993, respectively. The rate of increase in compensation level was
5.00% and 4.50% in 1994 and 1993, respectively.
For measuring the expected postretirement benefit obligation, the health
care cost trend rate ranged from 10.2% to 13.0% in 1994, 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 1994 net
periodic postretirement benefit cost by $0.2 million and the 1994 accumulated
postretirement benefit obligation by $1.4 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, 1994, 1993, and 1992, Common
Stock reserved for future grants under the Long-Term Incentive Plans were
966,213 shares, 1,195,868 shares, and 1,625,993 shares, respectively. In 1994,
all SARs were exercised and the Company discontinued any additional grants of
SARs.
Transactions in stock options are summarized as follows:
1994 1993 1992
Outstanding at January 1, 810,587 746,934 581,207
Granted 248,447 367,461 180,373
Exercised (172,533) (206,957) (5,231)
Cancelled upon exercise
of SARs (6,042) (84,979) (2,460)
Forfeited (2,040) (11,872) (6,955)
Outstanding at December 31, 878,419 810,587 746,934
Exercisable at December 31, 293,737 283,285 293,009
Range of exercise prices of
options outstanding
at December 31, $ 11.31 $ 11.31 $ 11.31
to 29.75 to 27.38 to 25.63
Range of exercise prices
of options exercised $ 11.31 $ 11.31 $ 11.31
to 25.63 to 22.57 to 19.45
Grants of restricted and performance restricted stock for 1994, 1993, and 1992
are summarized as follows:
Date Shares Performance
Granted Restricted Restricted
February 1992 20,835 -
May 1992 34,350 53,400
December 1992 30,150 -
February 1993 40,568 63,414
December 1993 24,235 -
February 1994 16,450 -
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 five years. On December 31, 1994, the first 25% of the
performance restricted stock granted in May 1992, and the second 25% of the
performance restricted stock granted in May 1991, 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 1994, 1993, and 1992 was $2.1
million, $2.1 million and $2.3 million, respectively. Unvested shares are
restricted as to transfer or sale.
In February 1994, the Company granted 1,629,000 Performance Units to key
employees instead of granting additional performance restricted stock. Each unit
has a target value of $1.00, but based on the Company's performance, each unit
may have an actual value ranging from $0.00 to $2.00 at the end of the three
year performance cycle. The performance period began on January 1, 1994 and will
end on December 31, 1996. Any distributions will occur during the first quarter
of 1997, and will be paid two thirds in the form of cash and one third in the
form of non-restricted stock. The amount accrued in 1994 was $0.5 million.
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 1994, 1993, and 1992, the Company paid $2.7 million, $2.3 million, and
$2.1 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 accordance with the success sharing
program, the Company accrued $2.8 million and $1.3 million for the purchase of
107,681 shares and 31,668 shares in 1994 and 1993, respectively.
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
1994, 1993, and 1992 were $7.4 million, $7.1 million, and $7.0 million,
respectively. Dividend and interest income reduced the amounts charged to
expense in 1994, 1993, and 1992 by $1.8 million, $1.8 million, and $1.8 million,
respectively.
The number of allocated shares held by ESOP I and ESOP II at December 31,
1994, were 1,534,965 shares and 304,268 shares, respectively. The number of
suspense shares held by ESOP I and ESOP II at December 31, 1994, were 539,400
shares and 1,129,869 shares, respectively.
Note 7 - RECEIVABLES
1994 1993
Notes and accounts receivable $ 217.4 $ 154.3
Less-Allowance for
doubtful receivables 5.8 5.5
$ 211.6 $ 148.8
The following is a summary of the changes in the allowance for doubtful
receivables :
1994 1993 1992
January 1, $ 5.5 $ 4.2 $ 4.0
Additions charged against
earnings 3.2 2.3 2.6
Write-offs, net of recoveries (2.9) (1.0) (2.4)
December 31, $ 5.8 $ 5.5 $ 4.2
Note 8 - INVENTORIES
1994 1993
Finished products $ 109.6 $114.0
Raw materials 148.3 47.9
Supplies 33.1 24.1
$ 291.0 $186.0
The cost of approximately 74% and 59% of total inventories was determined
under the LIFO method at December 31, 1994 and 1993, respectively. At December
31, 1994 and 1993, market was lower than LIFO cost by $27.1 million and $59.6
million, respectively.
The Company acquires a major portion of its crude oil requirements through
the purchase of futures contracts on the New York Mercantile Exchange. The
Company also uses the futures market to manage the price risk inherent in
purchasing the crude oil in advance of the delivery date, and in maintaining the
inventories contained within its refinery and pipeline systems.
Note 9 - PROPERTIES AND EQUIPMENT
1994 1993
Properties and Equipment
Refining and Wholesale $ 1,024.4 $ 949.1
Retail 369.5 326.5
Allied Businesses 206.8 182.5
Corporate 34.7 33.9
1,635.4 1,492.0
Less - Accumulated depreciation 609.3 550.9
$ 1,026.1 $ 941.1
The charge against earnings for maintenance and repairs was $41.1 million
in 1994, $29.3 million in 1993, and $26.9 million in 1992. Interest capitalized
was $2.3 million in 1994, $6.1 million in 1993, and $6.1 million in 1992.
Expenditures for
Properties and Equipment
1994 1993 1992
Refining and Wholesale $ 89.3 $100.1 $143.8
Retail 49.3 26.5 4.8
Allied Businesses 22.3 4.4 19.6
Corporate 1.2 0.8 2.3
$162.1 $131.8 $170.5
Depreciation
1994 1993 1992
Refining and Wholesale $ 38.3 $ 35.1 $ 29.5
Retail 16.3 14.6 13.7
Allied Businesses 13.1 11.7 10.9
Corporate 3.2 2.9 2.7
$ 70.9 $ 64.3 $ 56.8
Note 10 - ACCRUED LIABILITIES
1994 1993
Accrued Taxes $ 65.3 $ 56.9
Accrued Royalties 6.7 7.1
Current Portion of Long-term
Shared Costs Liability (see Note 16) 8.0 8.0
Other Liabilities 90.9 56.4
$170.9 $128.4
Note 11 - OTHER LIABILITIES AND DEFERRED CREDITS
1994 1993
Post Retirement Benefit Obligation $ 28.3 $ 27.3
Long-term Shared Costs
Liability (see Note 16) 13.4 23.6
Deferred Credits 11.8 5.1
Other Liabilities 13.5 10.2
$ 67.0 $ 66.2
Note 12 - LONG-TERM DEBT
1994 1993
Commercial Paper $ 0.0 $ 0.0
10.75% Senior Notes* 150.0 150.0
9% Senior Notes 8.4 11.3
8.77% Senior Notes 30.0 30.0
8.35% Senior Notes 1.9 2.5
Medium Term Notes 145.0 145.0
Term Loan Agreement 0.0 35.0
Pollution Control Financings 10.9 10.9
8% Debentures 100.0 100.0
Bank Money Market Facilities 66.9 5.0
Other Notes 0.0 0.0
513.1 489.7
Less - Due within one year 3.9 3.5
$509.2 $ 486.2
*Prior to 7/14/89 - 11% Senior Subordinated Notes.
The aggregate maturities of the long-term debt obligations at December 31,
1994 for the next five years will be as follows, assuming no prepayments: 1995-
$3.9 million; 1996-$34.2 million; 1997-$33.0 million; 1998-$31.6 million; 1999-
$31.7 million; and all future periods-$378.7 million.
On February 13, 1995, the Company issued $75.0 million in non-callable
8.75% debentures due June 15, 2015. The proceeds from the issuance of the
debentures will be used for general corporate purposes, possibly including
payment of a scheduled $30.0 million principal installment on the 10.75% Senior
Notes (as defined below), and to fund anticipated capital expenditures
in 1995.
On January 6, 1994, the Company prepaid the $35.0 million balance on its
$65.0 million Term Loan Agreement (the "Term Loan").
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.
In August 1993, the Company 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 as of December 31, 1994 enables the Company to issue up to
$100.0 million of debt securities with terms of up to 30 years.
The Company has two separate revolving credit facilities ("Agreement I" and
"Agreement II"). Agreement I has a face value of $200.0 million with a maturity
date of September 30, 1996. Agreement II matures on April 13, 1995, and has a
value of $100.0 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, 1994, the
Company had no borrowings outstanding under Agreement I or Agreement II.
Agreement I and Agreement II, and Senior Notes (as defined below) 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 current 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, 1994, under the most restrictive of these
covenants, $250.3 million was available for the payment of dividends.
During 1994 there were no commercial paper (the "Commercial Paper")
borrowings. Outstanding Commercial Paper is 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. Proceeds from this program are used for general
corporate purposes.
At December 31, 1994, the Company had outstanding $66.9 million of
borrowings under bank money market facilities provided by major money center
banks at a rate of 6.50%. The bank money market facilities are uncommitted lines
of credit under which banks extend unsecured short-term credit to the Company
from time to time at market rates.
Agreement I and Agreement II 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 Agreement I and
Agreement II.
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 December 1991, the Company issued $24.0 million in various notes with an
average rate of 8.45% and maturities of 12 years.
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. Since the Company
intends to refinance the $30.0 million repayment by the use of commercial paper
or other credit facilities which would be classified as long-term, and the
Company has the capacity and intent to do so, the current portion of the long-
term debt payable on April 30, 1995 has been classified as long-term debt.
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).
Cash payments of interest for 1994, 1993, and 1992 were $42.9 million,
$41.3 million, and $44.1 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 $511.4 million at December 31, 1994, 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 Preferred
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 Preferred 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.
Note 14 - STOCKHOLDERS' EQUITY
Common Paid-In Retained ESOP Treasury
Stock Capital Earnings Stock Stock
January 1, 1992 $ 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 of 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)
Net Income 75.8
Cash dividends:
Common ($0.53 per share) (15.4)
Convertible Preferred ($2.50 per share)
See Note 13 (4.3)
Issuance of Key Employees'
and Directors'stock 0.0 0.0 (0.1)
Payment on ESOP note 5.1
Purchase of treasury stock (3.4)
Adjustment of minimum liabilities
of pensions 0.8
Success sharing 0.0 0.9
Tax benefit of ESOP dividends 0.3
Tax benefit of stock
options 0.5
Options exercised 0.0 1.1 (0.9) 0.9
December 31, 1994 $ 0.3 $ 447.3 $186.8 $ (42.2) $ (3.2)
*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.
At December 31, 1994 and 1993, the Company held 117,794 shares and 23,749
shares, respectively, as treasury stock.
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 at December 31, 1994 were as follows:
Operating
Leases
1995 $ 26.2
1996 21.6
1997 18.5
1998 17.3
1999 7.4
2000 and thereafter 18.4
$ 109.4
Rental expense for operating leases was as follows:
1994 1993 1992
Total rentals $ 28.3 $ 21.1 $ 23.4
Less-Sublease rental income 0.7 0.7 0.5
Rental expense $ 27.6 $ 20.4 $ 22.9
The Company has an existing long-term lease arrangement (the "Brazos
Lease") to accommodate its continued retail outlet construction program. The
Brazos Lease had an initial lease term which expired in April 1997. In April
1994, the Company expanded the capacity of the lease by $25.0 million and
extended the primary term applicable to the properties under the lease by two
years, to April, 1999.
Rent payable under the Brazos 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, 1994, approximately $28.3 million of the $190.0 million
commitment remained available under the Brazos Lease to construct and/or
acquire retail outlets.
After the initial non-cancelable lease term, the Brazos Lease may be
extended by agreement of the parties, or the Company may purchase or arrange for
the sale of the retail outlets. If the Company were unable to extend the lease
or arrange for the sale of the properties to a third party in 1999, the amount
necessary to purchase properties under lease as of December 31, 1994 would be
approximately $160.0 million.
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 $63.6 million as of December 31, 1994, including $10.2 million paid
during 1994. 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
recorded as of January 1, 1992 (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. There are no long-term contracts with crude oil suppliers which would fix
the cost of future deliveries. The Company anticipates that it will sustain no
losses in fulfillment of existing sales contracts.
During 1994, the Company entered into a long-term lease of land owned by
the Port Authority of Corpus Christi, Texas. In addition, the Port Authority
agreed to construct a crude oil terminal, using the Company as a construction
contractor, and to sell the terminal to the Company pursuant to an installment
sale/purchase contract upon completion at an agreed upon price of $12.0 million.
The installment sale/purchase was consummated in January, 1995.
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)
1994 Quarter Ended March 31 June 30 Sept. 30 Dec. 31
Net sales $ 583.8 $ 646.5 $ 700.4 $ 675.6
Gross profit(1) 52.1 82.3 68.7 62.8
Net income 12.2 27.5 20.6 15.5
Primary earnings per common share 0.38 0.91 0.67 0.49
Fully diluted earnings per common share 0.38 0.85 0.64 0.47
Cash dividends per share
Common $ 0.13 $ 0.13 $ 0.13 $ 0.14
Preferred 0.625 0.625 0.625 0.625
Market price per common share
High 30 28 1/4 28 1/2 29 1/8
Low 24 1/8 23 3/8 23 7/8 23 5/8
1993 Quarter Ended March 31 June 30 Sept. 30 Dec. 31
Net sales $ 620.8 $ 656.9 $ 650.5 $ 627.1
Gross profit(1) 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 7/8 19 1/4 18 7/8 23 3/4
(1) 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)
1994 1993 1992 1991 1990
OPERATIONS
Sales and operating revenues:
Refining and Wholesale $1,320.8 $1,294.8 $1,290.4 $1,293.2 $1,457.3
Retail 974.3 958.1 970.7 908.1 856.6
Allied Businesses 311.2 302.4 341.5 374.6 394.0
Total $2,606.3 $2,555.3 $2,602.6 $2,575.9 $2,707.9
Operating profit:
Refining and Wholesale $ 146.8 $ 73.9 $ 68.1 $ 86.8 $ 152.8
Retail 58.9 62.7 46.6 26.1 17.8
Allied Businesses 26.0 15.0 22.9 32.5 29.0
Total $ 231.7 $ 151.6 $ 137.6 $ 145.4 $ 199.6
Income from continuing
operations $ 75.8 $ 32.6 $ 26.4 $ 37.1 $ 77.5
Net income $ 75.8 $ 18.4 $ 8.7 $ 37.1 $ 77.5
FINANCIAL POSITION
Current assets $ 540.4 $ 356.2 $ 358.5 $ 409.8 $ 448.8
Current liabilities 374.1 220.4 217.0 252.9 328.8
Properties and equipment,
less accumulated depreciation 1,026.1 941.1 897.6 791.2 668.9
Total assets $1,620.8 $1,349.2 $1,297.5 $1,222.3 $1,133.9
CAPITAL STRUCTURE
Long-term debt including portion due
within one year $ 513.1 $ 489.7 $ 536.9 $ 446.1 $ 372.2
Deferred income taxes 81.5 48.7 61.4 65.6 53.9
Stockholders' equity 589.0 527.7 435.7 437.6 337.8
Total $1,183.6 $1,066.1 $1,034.0 $ 949.3 $ 763.9
OTHER DATA
Capital expenditures $ 162.1 $ 131.8 $ 170.5 $ 180.1 $ 86.4
Depreciation 70.9 64.3 56.8 52.3 47.2
Book value per share* 18.45 16.40 16.50 16.76 15.45
PER COMMON SHARE
Primary earnings:
Continuing operations $ 2.45 $ 1.04 $ 0.92 $ 1.39 $ 3.04
Net income 2.45 0.55 0.30 1.39 3.04
Fully diluted earnings:
Continuing operations $ 2.34 $ 1.04 $ 0.92 $ 1.36 $ 2.78
Net income 2.34 0.55 0.30 1.36 2.78
CASH DIVIDENDS PER SHARE
Common Stock $ 0.53 $ 0.52 $ 0.52 $ 0.52 $ 0.48
Preferred Stock 2.50 1.28 - - 1.00
FINANCIAL RATIOS
Current ratio 1.4 1.6 1.7 1.6 1.4
Total debt as a percent of
total capital 43.4% 45.9% 51.9% 47.0% 48.7%
*Calculated excluding 1,669,264; 1,985,102; 2,286,705; 2,573,904; and 2,552,736
unallocated ESOP shares at December 31 of the respective years.
<PAGE>
Five Year Operating Information
(dollars in millions, except per share)
1994 1993 1992 1991 1990
OPERATIONS
Crude Oil Refining Capacity
(barrels per day at year-end)
McKee 135,000 125,000 120,000 110,000 110,000
Three Rivers 70,000 70,000 55,000 55,000 55,000
Total 205,000 195,000 175,000 165,000 165,000
Crude Oil Refined (barrels per day)
McKee 126,235 118,949 112,909 111,765 112,910
Three Rivers 69,428 61,280 51,775 48,238 48,620
Total 195,663 180,229 164,684 160,003 161,530
Capacity Utilization 95.4% 92.4% 94.1% 97.0% 97.9%
Total Inputs (barrels per day)
Domestic Crude Oil 139,099 137,672 145,687 140,244 144,765
Foreign Crude Oil 56,564 42,557 18,997 19,759 16,765
Other Feedstocks 13,888 16,528 16,034 19,003 18,583
Total 209,551 196,757 180,718 179,006 180,113
Crude Oil Purchase Cost
(dollars per barrel) 17.08 18.57 20.64 21.83 24.54
Inventory (thousands of
barrels at year-end)
Crude Oil 7,717 2,499 1,796 3,085 2,545
Petroleum Products 3,277 3,736 2,845 3,509 3,420
REFINED PRODUCT SPREAD (dollars per barrel)
Product Sales Prices 21.53 22.39 24.04 25.55 28.52
Raw Material Costs 17.13 18.63 20.83 21.76 24.30
Refined Product Spread 4.40 3.76 3.21 3.79 4.22
PRODUCTS MANUFACTURED (barrels per day)
Gasoline 120,377 112,974 104,220 103,271 104,596
Diesel Fuel 44,425 39,952 31,462 34,478 35,350
Aviation Fuel 18,921 17,602 18,900 16,382 16,210
Other 26,478 26,014 24,965 24,900 25,263
Total 210,201 196,542 179,547 179,031 181,419
WHOLESALE REFINED PRODUCT SALES (barrels per day)
Gasoline 142,016 134,954 128,507 122,831 116,335
Diesel Fuel 49,102 43,774 36,487 37,686 39,731
Aviation Fuel 21,206 20,437 21,043 15,944 16,028
Other 13,373 12,872 13,156 12,148 12,463
Total 225,697 212,037 199,193 188,609 184,557
WHOLESALE REFINED PRODUCT SALES (dollars per barrel)
Gasoline 23.06 24.15 26.54 28.09 31.41
Diesel Fuel 21.46 22.99 24.49 25.39 28.87
Aviation Fuel 22.05 23.78 25.07 26.95 31.75
Other 14.32 14.43 13.45 14.24 14.99
Five Year Operating Information (continued)
(dollars in millions, except per share)
1994 1993 1992 1991 1990
RETAIL
Number of Retail Outlets (at year-end)
Company Operated 810 776 761 763 677
Company Owned 496 504 518 529 482
Company Leased 314 272 243 234 195
RETAIL SALES
Gasoline (barrels per day) 56,410 55,473 53,931 50,876 47,101
Diesel (barrels per day) 1,795 1,606 1,455 1,164 914
Merchandise ($000/day) 872.9 820.7 792.6 710.5 566.8
OTHER DATA
Number of Jobber Outlets
(at year-end) 1,206 1,194 1,163 1,155 1,237
Miles of Products Pipelines
(at year-end) 2,484 2,291 2,290 2,275 2,172
Miles of Crude Oil Pipelines
(at year-end) 1,289 2,110 2,110 1,839 1,839
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, 1994
and 1993, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994,
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 LLP
/s/ Price Waterhouse
San Antonio, Texas
February 24, 1995
EXHIBIT 21.1
DIAMOND SHAMROCK, INC.
SIGNIFICANT SUBSIDIARIES
DECEMBER, 1994
DIAMOND SHAMROCK REFINING & MARKETING CO.
SIGMOR CORPORATION
D-S VENTURE COMPANY, LLC.
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. 33-67166 and 33-67556) filed on 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 24, 1995, 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.
PRICE WATERHOUSE LLP
/s/ Price Waterhouse LLP
San Antonio, Texas
March 27, 1995
W2866.TW
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, on behalf of Diamond
Shamrock, Inc., a Delaware corporation (the "Corporation"), hereby constitutes
and appoints Timothy J. Fretthold, Jerry D. King and Todd Walker attorneys-in-
fact and agents of the Corporation, with full power of substitution and
resubstitution, to do any and all acts and things in its name and on its behalf
and to execute any and all instruments in its name in such capacity which they
may deem appropriate or advisable to enable the Company to comply with the
Securities Exchange Act of 1934, as amended, and any rules and regulations of
the Securities and Exchange Commission, in connection with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, including,
without limitation, the power to sign such report on the Company's behalf and
to sign any amendments thereto, and to file the same, with all exhibits thereto,
and any other documents required in connection therewith, with the Securities
and Exchange Commission, granting to each and all of said attorneys-in-fact,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection with the filing of such report
as herein described.
DIAMOND SHAMROCK, INC.
/s/ R. R. HEMMINGHAUS
R. R. Hemminghaus
Chairman of the Board and
Chief Executive Officer
Dated: February 7, 1995
EXHIBIT 24.2
POWER OF ATTORNEY
The undersigned directors and/or officers of Diamond Shamrock, Inc., hereby
constitute and appoint Timothy J. Fretthold, Jerry D. King 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 fiscal year ended
December 31, 1994, 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
Chief Executive Officer
/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/ KATHERINE D. ORTEGA
Katherine D. Ortega
Director
Dated: February 7, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 27,400
<SECURITIES> 0
<RECEIVABLES> 217,400
<ALLOWANCES> 5,800
<INVENTORY> 291,000
<CURRENT-ASSETS> 540,400
<PP&E> 1,635,400
<DEPRECIATION> 609,300
<TOTAL-ASSETS> 1,620,800
<CURRENT-LIABILITIES> 374,100
<BONDS> 0
<COMMON> 300
0
0
<OTHER-SE> 588,700
<TOTAL-LIABILITY-AND-EQUITY> 1,620,800
<SALES> 2,606,300
<TOTAL-REVENUES> 2,606,300
<CGS> 2,269,500
<TOTAL-COSTS> 2,269,500
<OTHER-EXPENSES> 167,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,300
<INCOME-PRETAX> 125,800
<INCOME-TAX> 50,000
<INCOME-CONTINUING> 75,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,800
<EPS-PRIMARY> 2.45
<EPS-DILUTED> 2.34
</TABLE>
