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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission File Number 1-11154
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ULTRAMAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3663331
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Pickwick Plaza, Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 622-7000
--------------------------------------------------
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
--- ---
Common Stock, $.01 Par Value -- 44,781,908 shares outstanding as of November 11,
1996
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<PAGE>
ULTRAMAR CORPORATION
FORM 10-Q
September 30, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995 .......................................... 3
Consolidated Statements of Income for the Three and Nine Month
Periods Ended September 30, 1996 and 1995 .................. 4
Consolidated Statements of Cash Flows for the Nine Month
Periods Ended September 30, 1996 and 1995 .................. 5
Notes to Financial Statements ................................ 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations ........... 9
PART II - OTHER INFORMATION
Item 5 Other Information ............................................ 19
Item 6 Exhibits and Reports on Form 8-K.............................. 24
SIGNATURE................................................................. 25
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ULTRAMAR CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited) (Note)
(in thousands)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 190,905 $ 126,852
Accounts and notes receivable, net ........................ 215,100 181,222
Inventories ............................................... 260,804 288,251
Prepaid expenses and other current assets ................. 20,550 41,912
Deferred income taxes ..................................... 8,931 13,421
----------- -----------
Total current assets .................................... 696,290 651,658
Notes receivable and other assets, net ...................... 72,195 74,336
Property, plant and equipment, at cost ...................... 1,473,454 1,383,665
Less accumulated depreciation and amortization .............. (176,788) (138,324)
----------- -----------
1,296,666 1,245,341
Deferred income taxes ....................................... 17,802
----------- -----------
Total assets ............................................ $ 2,082,953 $ 1,971,335
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion of long-term debt ....... $ 165 $ 172
Accounts payable .......................................... 233,101 181,809
Accrued liabilities ....................................... 95,724 123,002
Taxes other than income taxes ............................. 104,071 124,999
Income taxes payable ...................................... 4,323 1,365
Deferred income taxes ..................................... 3,348
----------- -----------
Total current liabilities ............................... 440,732 431,347
Long-term debt, less current portion ........................ 669,453 600,253
Other long-term liabilities ................................. 161,528 174,832
Deferred income taxes ....................................... 94,106 61,548
Stockholders' equity:
Common Stock, par value $.01 per share:
Authorized - 100,000,000 shares, issued and outstanding -
44,591,412 and 44,414,469 shares, respectively ... 446 444
Additional paid-in capital ................................ 675,811 669,942
Unamortized restricted stock awards ....................... (195) (102)
Retained earnings ......................................... 95,557 88,722
Foreign currency translation adjustment ................... (54,485) (55,651)
----------- -----------
Total stockholders' equity .............................. 717,134 703,355
----------- -----------
Total liabilities and stockholders' equity .............. $ 2,082,953 $ 1,971,335
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
consolidated financial statements at that date.
See accompanying notes.
3
<PAGE>
ULTRAMAR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Sales and other revenues .......... $ 1,182,256 $ 958,058 $ 3,358,638 $ 2,787,189
Operating costs and expenses
Cost of products sold ........... 705,074 507,653 1,946,968 1,532,520
Operating expenses .............. 68,627 63,577 205,056 203,804
Selling, general and
administrative expenses ....... 51,405 37,440 145,836 128,184
Taxes other than income taxes ... 329,048 290,464 905,980 804,688
Depreciation and amortization ... 18,135 14,999 52,700 42,451
------------ ------------ ------------ ------------
Total operating costs and
expenses .................... 1,172,289 914,133 3,256,540 2,711,647
------------ ------------ ------------ ------------
Operating income .................. 9,967 43,925 102,098 75,542
Interest income ................... 3,257 601 7,755 2,660
Interest expense .................. (14,723) (11,258) (39,566) (34,577)
------------ ------------ ------------ ------------
(Loss) income before income taxes
and cumulative effect of
accounting change ............... (1,499) 33,268 70,287 43,625
(Benefit) provision for income
taxes ........................... (1,856) 12,862 26,714 17,003
------------ ------------ ------------ ------------
Income before cumulative effect
of accounting change ............ 357 20,406 43,573 26,622
Cumulative effect to December 31,
1994, of accounting change,
net of income taxes - Note 2 ... 22,024
------------ ------------ ------------ ------------
Net income ........................ $ 357 $ 20,406 $ 43,573 $ 48,646
============ ============ ============ ============
Earnings per share:
Income before cumulative
effect of accounting change .... $ .01 $ .52 $ .97 $ .69
Cumulative effect of accounting
change ......................... .56
------------ ------------ ------------ ------------
Net income ........................ $ .01 $ .52 $ .97 $ 1.25
============ ============ ============ ============
Weighted average number of
common and common equivalent
shares used in computation . 45,093,495 39,043,877 45,124,001 39,027,288
============ ============ ============ ============
Dividends per common share . $ .275 $ .275 $ .825 $ .825
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
ULTRAMAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
---------- ----------
(in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income .................................................... $ 43,573 $ 48,646
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ................................. 52,702 42,451
Amortization of debt discount and issuance costs .............. 1,088 1,330
Restricted stock award amortization ........................... 69 133
Provision for losses on receivables ........................... 1,893 3,585
Undistributed earnings of investees ........................... (133) (65)
Gain on sale of fixed assets .................................. (1,068) (148)
Provision for deferred income taxes ........................... 22,551 15,380
Cumulative effect of accounting change ........................ (22,024)
Changes in operating assets and liabilities:
(Increase) decrease in accounts and notes receivable ....... (31,441) 24,009
Decrease in inventories .................................... 28,095 32,533
Decrease in prepaid expenses and other current assets ...... 20,115 1,407
(Increase) decrease in notes receivable and other assets ... (1,188) 10,734
Increase (decrease) in accounts payable, accrued liabilities
and taxes other than income taxes ........................ 1,457 (71,164)
Increase in income taxes payable ........................... 2,902 116
Decrease in other long-term liabilities .................... (16,580) (14,086)
--------- ----------
Net cash provided by operating activities ..................... 124,035 72,837
Cash Flows from Investing Activities
Capital expenditures .......................................... (80,612) (131,072)
Increase in deferred refinery maintenance turnaround costs .... (10,368) (11,219)
Acquisitions of marketing operations .......................... (13,995)
Proceeds from sale of property, plant and equipment ........... 6,386 3,754
--------- ----------
Net cash used in investing activities ......................... (98,589) (138,537)
Cash Flows from Financing Activities
Proceeds from issuance of medium term notes ................... 149,229
Increase (decrease) in other long-term debt ................... 69,064 (30,852)
Proceeds from issuance of Common Stock ........................ 5,868 1,890
Payment of dividends .......................................... (36,738) (31,828)
--------- ----------
Net cash provided by financing activities ..................... 38,194 88,439
Effect of exchange rate changes on cash ....................... 413 1,347
--------- ----------
Net Increase in Cash and Cash Equivalents ..................... 64,053 24,086
Cash and Cash Equivalents at Beginning of Period .............. 126,852 55,053
--------- ----------
Cash and Cash Equivalents at End of Period .................... $ 190,905 $ 79,139
========= ==========
Cash flow information:
Interest paid ............................................... $ 54,010 $ 46,169
========= ==========
Income taxes refunded ....................................... $ (4,901) $ (905)
========= ==========
</TABLE>
See accompanying notes.
5
<PAGE>
ULTRAMAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine month periods ended September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. The results of operations may be affected by
company-specific factors, such as refinery utilization rates and refinery
maintenance turnarounds; seasonal factors, such as the demand for petroleum
products and working capital requirements in Eastern Canada, both of which vary
significantly during the year; or industry factors, such as movements in, and
the general level of, crude oil prices, the demand for and prices of refined
products and industry supply capacity. For further information, see the
financial statements and notes thereto included in the Ultramar Corporation
("Ultramar" or "the Company") annual report on Form 10-K for the year ended
December 31, 1995.
During the three months ended September 30, 1996, the Company changed its
presentation of sales and other revenues to include excise and state motor fuel
taxes and began reporting taxes other than income taxes apart from other expense
captions. The sales and other revenues and taxes other than income taxes
reported for the three and nine month periods ended September 30, 1995 reflect
the reclassification of such taxes to conform with the presentation used in
1996. Excise and state motor fuel taxes for the three and nine months ended
September 30, 1996 and 1995 were $320.3 million, $884.3 million, $283.7 million
and $784.4 million, respectively.
NOTE 2: Change in Accounting for Refinery Maintenance Turnaround Costs
During the second quarter of 1995, the Company changed its method of accounting
for refinery maintenance turnaround costs from an accrual method to a deferral
and amortization method to better match revenues and expenses. The change
resulted in a cumulative adjustment through December 31, 1994 of $22.0 million
(after income taxes of $13.4 million) or $.56 per share, which is included in
net income for the nine month period ended September 30, 1995. The effect of the
change on the three month period ended September 30, 1995 was to increase net
income by approximately $0.9 million ($.02 per share). The effect of the change
on the nine month period ended September 30, 1995 was to increase income before
cumulative effect of accounting change by approximately $3.6 million ($.09 per
share) and net income by $25.6 million ($.65 per share).
NOTE 3: Inventories
September 30, December 31,
1996 1995
------------- ------------
(in thousands)
Inventories consisted of the following:
Crude oil and other feedstocks .... $140,101 $138,317
Refined and other finished products 96,651 128,422
Materials and supplies ............ 24,052 21,512
-------- --------
$260,804 $288,251
======== ========
6
<PAGE>
ULTRAMAR CORPORATION
NOTES TO FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
Crude oil and refined product inventories are valued at the lower of cost or
market (net realizable value). Cost is determined on the last-in, first-out
("LIFO") basis. Materials and supplies are valued at average cost, not in excess
of market value. At September 30, 1996, the replacement cost of inventories was
$58.5 million higher than the LIFO cost. At December 31, 1995, the replacement
cost of inventories approximated the LIFO cost.
NOTE 4: Net Income per Common and Common Equivalent Share
Net income per common and common equivalent share is based on the weighted
average number of shares of Common Stock outstanding during each period,
including the common stock equivalents of dilutive stock options.
NOTE 5: Income Taxes
The consolidated income tax provisions for the three and nine month periods
ended September 30, 1996 and 1995 were determined based upon estimates of the
Company's U.S. and Canadian effective income tax rates for the years ending
December 31, 1996 and 1995, respectively. The differences between the
consolidated effective income tax rates and the U.S. Federal statutory rate are
primarily attributable to state income taxes and the effects of foreign
operations. During the quarter ended September 30, 1996, the Company adjusted
its estimate of its overall effective income tax rate for the year ended
December 31, 1996 from 39.8% to 38.0%, to reflect certain state tax credits
which became available during the quarter.
NOTE 6: Commitments and Contingencies
The Company's operations are subject to environmental laws and regulations
adopted by various governmental authorities. Site restoration and environmental
remediation and clean-up obligations are accrued either when known or when
considered probable and reasonably estimable. Total future environmental costs
cannot be reasonably estimated due to unknown factors such as the magnitude of
possible contamination, the timing and extent of remediation, the determination
of the Company's liability in proportion to other parties and the extent to
which environmental laws and regulations may change in the future. Although
environmental costs may have a significant impact on results of operations for
any single year, the Company believes that such costs will not have a material
adverse effect on the Company's financial position.
There are various legal proceedings and claims pending against the Company that
arise in the ordinary course of business. It is management's opinion, based upon
advice of legal counsel, that these matters will not, individually or in the
aggregate, have a material adverse effect on the Company's financial position.
NOTE 7: Nonrecurring Items
During the nine months ended September 30, 1995, the Company accrued $5.0
million for the estimated costs, net of anticipated insurance recoveries, of a
fire that damaged a storage tank and a fire and explosion that destroyed a crude
oil heater.
7
<PAGE>
ULTRAMAR CORPORATION
NOTES TO FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
During the three and nine month periods ended September 30, 1995, the Company
settled certain previously recorded liabilities for amounts less than originally
recorded, resulting in credits to selling, general and administrative expenses
of $7.7 million and $15.0 million, respectively.
NOTE 8: Subsequent Events
On September 22, 1996, Ultramar entered into an agreement and plan of merger
with Diamond Shamrock, pursuant to which, among other things, (i) Diamond
Shamrock will be merged with and into Ultramar, (ii) each issued and outstanding
share of Diamond Shamrock Common Stock will be converted into the right to
receive 1.02 shares of Ultramar Common Stock, (iii) each issued and outstanding
share of 5% Cumulative Convertible Preferred Stock of Diamond Shamrock will be
converted into the right to receive one share of a newly established series of
5% Cumulative Convertible Preferred Stock of Ultramar, and (iv) Ultramar's
certificate of incorporation will be amended to increase the authorized number
of shares of Ultramar Common Stock from 100 million to 250 million shares and to
change Ultramar's name to "Ultramar Diamond Shamrock Corporation." The
transaction is subject to approval by the shareholders of both companies and to
customary regulatory approvals. The Company expects to consummate the merger by
the end of 1996. See Part II. Other Information.
On October 22, 1996, the Company declared a dividend of $.275 per common share
payable on December 16, 1996, to holders of record on November 15, 1996
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On September 22, 1996, the Company entered into an agreement and plan of merger
pursuant to which Diamond Shamrock, Inc. ("Diamond Shamrock") will be merged
with and into the Company (the"Merger"). The transaction is subject to approval
by the shareholders of both companies, and to customary regulatory approvals.
The Company expects to consummate the Merger by the end of 1996. The following
discussion and analysis should be read in conjunction with the Company's
Registration Statement on Form S-4 (Registration No. 333-14807) filed with the
Securities and Exchange Commission on October 29, 1996, as amended, and its
annual report on Form 10-K for the year ended December 31, 1995. Also see Part
II. Other Information -- Item 5. Other Information
Results of Operations
The Company's operating results are affected by Company-specific factors,
primarily its refinery utilization rates and refinery maintenance turnarounds;
seasonal factors, such as the demand for petroleum products and working capital
requirements in eastern Canada, both of which vary significantly during the
year; and industry factors, such as movements in, and the general level, of
crude oil prices, the demand for and prices of refined products and industry
supply capacity. The effect of crude oil price changes on the Company's
operating results is determined, in part, by the rate at which refined product
prices adjust to reflect such changes. As a result, the Company's earnings have
been volatile in the past and may be volatile in the future.
Quarter Ended September 30, 1996 Compared to Quarter Ended September 30, 1995
Financial and operating data by geographic area for the three month periods
ended September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Financial Data:
Three Months Ended September 30,
------------------------------------------------------------------------------------
1996 1995(1)
--------------------------------------- --------------------------------------
West Coast North East(2) Total West Coast North East(2) Total
----------- ------------- ----- ----------- ------------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales and other revenues ...... $ 575,398 $ 606,858 $ 1,182,256 $ 435,729 $ 522,329 $ 958,058
Cost of products sold ......... 374,737 330,337 705,074 263,013 244,640 507,653
Operating expenses ............ 38,491 30,136 68,627 37,363 26,214 63,577
Selling, general and
administrative expense (3) .. 6,059 45,346 51,405 (2,240) 39,680 37,440
Taxes other than income taxes . 117,743 211,305 329,048 115,114 175,350 290,464
Depreciation and amortization . 11,585 6,550 18,135 8,855 6,144 14,999
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) ... 26,783 (16,816) 9,967 13,624 30,301 43,925
Interest expense, net ......... 7,801 3,665 11,466 4,854 5,803 10,657
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes ............... $ 18,982 $ (20,481) (1,499) $ 8,770 $ 24,498 33,268
=========== =========== =========== ===========
(Benefit) provision for income
taxes ..................... (1,856) 12,862
----------- -----------
Net income ................ $ 357 $ 20,406
=========== ===========
</TABLE>
(1) During the third quarter of 1996, the Company changed its presentation of
sales and other revenues to include excise and state motor fuel taxes and
began reporting taxes other than income taxes apart from other expense
captions. The sales and other revenues and taxes other than income taxes
for the third quarter of 1995 reflect the reclassification of such taxes to
conform to the presentation used in 1996.
(2) The North East results include the Company's operations in eastern Canada
and the northeast United States and the unallocated costs of the Company's
corporate office.
(3) Selling, general and administrative expenses for the West Coast for the
three months ended September 30, 1995, have been reduced by the settlement
of a liability for $7.7 million less than that previously recorded.
9
<PAGE>
Operating Data:
Three Months Ended
September 30
------------------
1996 1995
---- ----
Wilmington Refinery
Throughput (BPD) .................... 109,200 79,400
Margin (dollars per barrel) ......... 5.21 4.40
Retail Marketing
Sales volume (BPD) .................. 37,800 35,200
Overall margin (cents per gallon)(1) 14.3 12.6
Retail Marketing - Company-operated Only
Sales volume (BPD) .................. 18,800 18,600
Fuel margin (cents per gallon)(2) ... 18.5 12.8
Average number of retail outlets .... 151 145
North East
Quebec Refinery
Throughput (BPD) .................... 126,800 129,800
Margin (dollars per barrel)(3) ...... 1.53 2.52
Retail Marketing
Sales (BPD) ......................... 59,600 50,900
Fuel margin (cents per gallon)(1) (3) 17.4 28.8
(1) Overall retail marketing margin includes sales of petroleum products
through company and dealer-operated retail outlets as well as sales of
convenience store items at company-operated outlets. Overall retail
marketing margin excludes excise and state motor fuel taxes.
(2) Fuel margin at company-operated retail outlets consists of sales of
petroleum products only (excluding convenience store items and excise and
state motor fuel taxes).
(3) Effective January 1, 1996, the Company modified its policy for pricing
refined products transferred from its Quebec refinery to its North East
marketing operations to more closely reflect the spot market prices for
such refined products. To facilitate the comparison to the operating data
for the third quarter of 1996, the amounts reported for the third quarter
of 1995 have been adjusted to reflect the pricing policy change as if it
had occurred on January 1, 1995. The refining margin and retail marketing
margin originally reported for the three month period ended September 30,
1995 were $3.55 per barrel and 24.8 cents per gallon, respectively.
10
<PAGE>
General
Net income for the quarter ended September 30, 1996 totaled $0.4 million as
compared to $20.4 million for the quarter ended September 30, 1995. On the West
Coast, income before income taxes for the third quarter of 1996 of $19.0 million
was $10.0 million higher than for the third quarter of 1995, as a result of
improved refinery operations and higher refining and retail marketing margins.
In the North East, the Company reported a loss before income taxes for the third
quarter of 1996 of $20.5 million as compared to income before income taxes for
the third quarter of 1995 of $24.5 million, principally due to reduced refining
and marketing margins throughout the North East region.
During the quarter ended September 30, 1996, the Company adjusted its estimate
of its overall effective income tax rate for the year ending December 31, 1996
from 39.8% to 38.0%, to reflect certain state tax credits which became available
during the third quarter of 1996.
West Coast Operations
Sales and other revenues for the West Coast operations for the third quarter of
1996 of $575.4 million were $139.7 million or 32.1% higher than for the third
quarter of 1995, as a result of a 38.9% increase in overall product sales
volume, to 166,600 BPD, and a 4.4% increase in average product prices.
The cost of products sold during the third quarter of 1996 averaged 65.1% of
sales and other revenues as compared to 60.4% for the third quarter of 1995.
Refinery operating expenses before depreciation for the third quarter of 1996 of
$23.4 million were $4.7 million higher than that of the third quarter of 1995,
reflecting the operation of the Company's new gasoil hydrotreater during 1996
and, during 1995, a temporary reduction in refinery operating expenses caused by
the June 1995 explosion and fire at the Wilmington refinery. However, refinery
operating costs of $2.33 per barrel of throughput decreased by 8.9% as compared
to the third quarter of 1995 as a result of the increase in refinery throughput
attributable to the gasoil hydrotreater. Selling, general and administrative
expenses for the third quarter of 1996 totaled $6.1 million as compared to
$(2.2) million for the corresponding quarter of 1995, as expenses for the third
quarter of 1995 were completely offset by the settlement of a liability for $7.7
million less than that previously accrued. Depreciation expense for the third
quarter of 1996 was $11.6 million or $2.7 million higher than in the third
quarter of 1995, due to the completion of the gasoil hydrotreater during the
fourth quarter of 1995. Net interest charges for the quarter of $7.8 million
were $2.9 million higher than in the corresponding quarter in 1995 principally
due to the capitalization of interest attributable to the construction of the
gasoil hydrotreater during the third quarter of 1995.
During the third quarter of 1996, West Coast refining margin averaged $5.21 per
barrel of throughput or 18.4% higher than the corresponding quarter in 1995 as
wholesale prices increased in response to earlier increases in crude oil prices.
In addition, refining margins during the quarter ended September 30, 1995
suffered from a narrower price differential between heavy and light crude oils
and an oversupply of gasoline. Refinery throughput of 109,200 BPD during the
quarter was 37.5% higher than in the third quarter of 1995 as additional feed
and blendstocks were processed through the gasoil hydrotreater. Additionally,
refinery throughput during the third quarter of 1995 suffered due to unplanned
down time at several of the refinery's operating units and the June 1995 crude
oil heater explosion and fire.
11
<PAGE>
Retail marketing margins of 14.3 cents per gallon during the third quarter of
1996 were 1.7 cents per gallon higher than the third quarter of 1995. Overall
retail sales volume during the third quarter of 1996 averaged 37,800 BPD or 7.4%
higher than during the third quarter of 1995, principally due to the addition of
ten new retail outlets since the inception of the Company's retail growth
program in 1995. The company-operated retail network averaged 18,800 BPD during
the third quarter of 1996, which was comparable to that of the third quarter of
1995.
Company-operated convenience store sales of $16.1 million and gross margin of
28.9% during the third quarter of 1996 were comparable to that of the third
quarter of 1995. The profit contribution from convenience store sales offset
52.0% of the direct operating expenses of company-operated retail outlets. Net
operating costs at company-operated retail outlets averaged 4.9 cents per gallon
during the third quarter of 1996 compared to 4.6 cents per gallon in the
corresponding period of 1995.
North East Operations
Sales and other revenues for the North East operations for the third quarter of
1996 of $606.9 million increased by 16.2% over the corresponding quarter of 1995
due to a 7.1% increase in average product prices and a 5.3% increase in overall
product sales volume, to 153,000 BPD, during the third quarter of 1996 as
compared to the third quarter of 1995.
The cost of products sold during the third quarter of 1996 averaged 54.4% of
sales and other revenues as compared to 46.8% during the third quarter of 1995.
Refinery operating expenses before depreciation for the third quarter of 1996 of
$11.9 million were $2.2 million or 22.4% higher than in 1995 principally due to
additional additive and chemical costs associated with the processing of acidic
crude oils. As a result of the increase in refinery operating expenses and a
decrease in refinery throughput attributable to crude and platformer unit
turnarounds during the third quarter of 1996, refinery operating cost per barrel
of throughput increased by 21 cents to $1.02. Selling, general and
administrative expenses for the third quarter of 1996 of $45.3 million were $5.7
million higher than in the comparable quarter of 1995, principally due to $1.9
million of one-time costs associated with the proposed merger of Diamond
Shamrock, Inc. with and into the Company (See Part II -- Other Information) and
certain corporate office reorganization costs.
Net interest expense for the third quarter of 1996 of $3.7 million was $2.1
million lower than in the third quarter of 1995 reflecting the Company's
positive cash flow in the North East.
Refining margin of $1.53 per barrel of throughput during the third quarter of
1996 was $.99 below that of the corresponding quarter of 1995 as refining
margins were severely impacted by a sharp rise in crude oil costs during the
quarter. Refinery throughput during the third quarter of 1996 of 126,800 BPD was
slightly lower than in the third quarter of 1995 due to previously mentioned
crude and platformer unit turnarounds.
Retail marketing margin of 17.4 cents per gallon during the third quarter of
1996 decreased 11.4 cents from the corresponding quarter of 1995 as intense
competitive pressure prevented retail prices from keeping pace with rising crude
oil and wholesale product prices. As a result of the Company's retail growth and
"Value Plus" product pricing programs and its program to increase the number of
company operated sites, retail marketing volumes during the third quarter of
1996 increased to 59,600 BPD from 50,900 BPD during the same period of 1995.
12
<PAGE>
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
Financial and operating data by geographic area for the nine month periods ended
September 30, 1996 and 1995 is as follows:
Financial Data:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------------------
1996 1995(1)
------------------------------------- ------------------------------------------
West Coast North East(2) Total West Coast North East(2) Total
---------- ------------- ----- ---------- ------------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Sales and other revenues ........ $ 1,611,459 $ 1,747,179 $ 3,358,638 $ 1,243,637 $ 1,543,552 $ 2,787,189
Cost of products sold ........... 1,049,249 897,719 1,946,968 766,956 765,564 1,532,520
Operating expenses .............. 114,055 91,001 205,056 117,744 86,060 203,804
Selling, general and
administrative expenses(3) .... 21,458 124,378 145,836 4,785 123,399 128,184
Taxes other than income taxes ... 347,517 558,463 905,980 321,201 483,487 804,688
Depreciation and amortization ... 33,262 19,438 52,700 24,299 18,152 42,451
----------- ----------- ----------- ----------- ----------- -----------
Operating income ............ 45,918 56,180 102,098 8,652 66,890 75,542
Interest expense, net ........... 18,842 12,969 31,811 12,680 19,237 31,917
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes and cumulative effect
of accounting change ...... $ 27,076 $ 43,211 $ 70,287 $ (4,028) $ 47,653 43,625
=========== =========== =========== ===========
Provision for income taxes ...... 26,714 17,003
----------- -----------
Income before cumulative
effect of accounting
change .................... 43,573 26,622
Cumulative effect to December
31, 1994 of accounting change,
net of income taxes ........... 22,024
----------- -----------
Net income ................ $ 43,573 $ 48,646
=========== ===========
</TABLE>
(1) During the third quarter of 1996, the Company changed its presentation of
sales and other revenues to include excise and state motor fuel taxes and
began reporting taxes other than income taxes apart from other expense
captions. The sales and other revenues and taxes other than income taxes
for the third quarter of 1995 reflect the reclassification of such taxes to
conform to the presentation used in 1996.
(2) The North East results include the Company's operation in eastern Canada
and the northeast United States, as well as the unallocated costs of the
Corporate office.
(3) Selling, general and administrative expenses for the West Coast for the
nine months ended September 30, 1995, have been reduced by the settlement
of a liability for $15 million less than that previously recorded.
13
<PAGE>
Operating Data: Nine Months Ended
September 30,
1996 1995
------- ------
West Coast
Wilmington Refinery
Throughput (BPD) .................... 101,700 78,000
Margin (dollars per barrel) ......... 5.15 3.96
Retail Marketing
Sales volume (BPD) .................. 36,800 34,100
Overall margin (cents per gallon)(1) 11.3 12.5
Retail Marketing - Company-operated Only(2)
Sales volume (BPD) .................. 18,400 18,100
Fuel margin (cents per gallon) ...... 14.1 13.0
Average number of retail outlets .... 149 145
North East
Quebec Refinery
Throughput (BPD) .................... 139,500 137,700
Margin (dollars per barrel)(3) ...... 3.08 2.05
Retail Marketing
Sales (BPD) ......................... 59,000 55,400
Fuel margin (cents per gallon)(1) (3) 22.1 27.3
(1) Overall retail marketing margin includes sales of petroleum products
through company and dealer-operated retail outlets as well as sales of
convenience store items at company-operated outlets. Overall retail
marketing margin excludes excise and state motor fuel taxes.
(2) Fuel margin at company-operated retail outlets consists of sales of
petroleum products only (excluding convenience store items and excise and
state motor fuel taxes).
(3) Effective January 1, 1996, the Company modified its policy for pricing
refined products transferred from its Quebec refinery to its North East
marketing operations to more closely reflect the spot market prices for
such refined products. To facilitate the comparison to the operating data
for the nine months ended September 30, 1996, the amounts reported for the
nine months ended September 30, 1995 have been adjusted to reflect the
pricing policy change as if it had occurred on January 1, 1995. The
refining margin and retail marketing margin originally reported for the
nine month period ended September 30, 1995 were $3.32 per barrel and 22.8
cents per gallon, respectively.
14
<PAGE>
General
Net income for the nine month period ended September 30, 1996 totaled $43.6
million as compared to $48.6 million (including the cumulative effect of a
change in accounting for refinery maintenance turnaround costs of $22.0 million)
for the nine month period ended September 30, 1995. On the West Coast, income
before income taxes for the nine month period ended September 30, 1996 was $27.1
million as compared to a loss of $4.0 million for the corresponding period of
1995. This increase resulted from improved refining margin, refinery throughput
and retail marketing volume. In the North East, income before income taxes of
$43.2 million was $4.4 million below that of the corresponding period of 1995,
principally due to lower retail marketing margin and higher operating expenses
during the nine month period ended September 30, 1996.
During the quarter ended September 30, 1996, the Company adjusted its estimate
of its overall effective income tax rate for the year ending December 31, 1996
from 39.8% to 38.0% to reflect certain state tax credits which became available
during the third quarter of 1996.
West Coast Operations
Sales and other revenues for the West Coast operations for the first nine months
of 1996 of $1,611.5 million were $367.8 million or 29.6% higher than for the
first nine months of 1995, principally due to a 24.2% increase in overall
product sales volume, to 157,300 BPD, and an 11.5% increase in average product
prices.
The cost of products sold during the first nine months of 1996 averaged 65.1% of
sales and other revenues as compared to 61.7% during the nine months ended
September 30, 1995. Refinery operating expenses, before depreciation, of $67.4
million were 6.8% higher than in the corresponding period of 1995, principally
due to the operation of the Company's new gasoil hydrotreater. Selling, general
and administrative expenses for the first nine months of 1996 of $21.5 million
were $16.7 million above those of the corresponding period of 1995, principally
due to the favorable settlement of a liability during the first nine months of
1995 for $15.0 million less than that previously accrued. Depreciation for the
first nine months of 1996 was $33.3 million or $9.0 million higher than in the
first nine months of 1995, principally due to the completion of the gasoil
hydrotreater during the fourth quarter of 1995. Net interest charges for the
first nine months of 1996 of $18.8 million were $6.2 million higher than in the
corresponding period in 1995 due to the capitalization of interest attributable
to the construction of the gasoil hydrotreater during the first nine months of
1995.
During the nine month period ended September 30, 1996, refining margins at the
Wilmington refinery were $5.15 per barrel of throughput or 30.1% higher than
during the same period in 1995, due to sustained higher wholesale product prices
and expansion of the heavy to light crude oil price differential. Refinery
throughput of 101,700 BPD during the first nine months of 1996 was 23,700 BPD or
30.4% higher than the same period of 1995 as a result of the processing of
additional feed and blendstocks through the gasoil hydrotreater during 1996 and
unplanned downtime attributable to the previously mentioned explosion and fires
experienced during 1995.
Retail marketing margins of 11.3 cents per gallon during the nine month period
ended September 30, 1996 were 1.2 cents per gallon or 9.6% lower than the same
period in 1995 as retail product prices did not keep pace with the increase in
wholesale prices. Overall retail sales volume averaged 36,800 BPD during the
first nine months of 1996, an increase of 2,700 BPD or 7.9% from the same period
in 1995, while the company-operated network averaged 18,400 BPD, which was
comparable to the first nine months of 1995.
Both company-operated convenience store sales of $44.1 million and gross margin
of 28.7% for the nine month period ended September 30, 1996 were comparable to
the same period in 1995. The profit contribution from convenience store sales
offset 49.2% of the direct operating expenses of company-operated retail outlets
during 1996. Net operating costs at company-operated retail outlets averaged
6.4 cents per gallon during the first nine months of 1996 compared to 5.2 cents
per gallon in the corresponding period of 1995.
15
<PAGE>
North East Operations
Sales and other revenues for the North East operations for the nine month period
ended September 30, 1996 of $1,747.2 million were $203.6 million or 13.2% higher
than revenues in the corresponding period in 1995. The increase in revenues was
attributable to a 7.4% increase in average product prices and a 3.3% increase in
product sales volume to 152,200 BPD for the first nine months of 1996.
The cost of products sold for the first nine months of 1996 averaged 51.4% of
sales and other revenues as compared to 49.6% during the first nine months of
1995. Refinery operating expenses before depreciation for the first nine months
of 1996 of $34.5 million were $4.8 million or 16.3% higher than in 1995 due to
increased additive and chemical costs associated with the processing of acidic
crude oils and the cost of unscheduled storage tank repairs. As a result of the
increase in refinery operating expenses, refinery operating expense per barrel
of throughput increased 13.9% over the first nine months of 1995 to $.90 per
barrel. Selling, general and administrative expenses during the first nine
months of 1996 of $124.4 million increased by $1.0 million as compared to 1995
principally due to $1.9 million of one-time costs associated with the proposed
merger of Diamond Shamrock, Inc with and into the Company. (See Part II -- Other
Information) and certain corporate office reorganization costs recorded during
1996. Selling, general and administrative expenses for the nine month period
ended September 30, 1995 include a $3.0 million charge for the reorganization of
the North East marketing and supply operations. Net interest costs for the first
nine months of 1996 of $13.0 million were $6.3 million or 32.6% lower than the
first nine months of 1995 as positive cash flow in the North East eliminated the
need for short-term borrowings.
Refining margin of $3.08 per barrel of throughput during the first nine months
of 1996 increased by $1.03 as compared to that of the corresponding period of
1995, principally due to strong wholesale product prices and the benefit of
processing lower cost acidic crude oils. Refinery throughput for the first nine
months of 1996 of 139,500 BPD increased by 1,800 BPD as compared to 1995.
Retail marketing margin of 22.1 cents per gallon during the first nine months of
1996 was 19.0% lower than during the corresponding period of 1995 as crude oil
and wholesale product prices increased at a faster pace than retail prices.
Retail marketing volume of 59,000 BPD during the first nine months of 1996 was
slightly better than the volume for the corresponding period of 1995 of 55,400
BPD as a result of the Company's retail growth and "Value Plus" product pricing
programs and its program to increase the number of company-operated retail
sites.
Outlook
The Company's earnings depend largely on refining and retail marketing margins.
The petroleum refining and marketing industry has been, and continues to be,
volatile and highly competitive. The cost of crude oil purchased by the Company
and the price of refined products sold by the Company have fluctuated widely. As
a result of the historic volatility of refining and marketing margins and the
fact that they are affected by many diverse factors, it is impossible to predict
future margin levels.
During the third quarter of 1996, industry refining and marketing margins in the
North East were weak as crude oil prices rose rapidly, reaching post-Gulf war
highs, and intense competitive pressure kept retail prices down. On the West
Coast, refining and marketing margins were less affected by the increase in
crude oil costs. Through mid-November 1996, North East refining and retail
marketing margins have improved from the very low levels experienced in the
third quarter of 1996. However, West Coast refinery margins during the same
period have declined due to higher crude oil costs and reduced demand resulting
from the end of the summer driving season.
16
<PAGE>
Capital Expenditures
The refining and marketing of petroleum products is a capital intensive
business. The capital requirements of the Company's operations consist primarily
of (i) non-discretionary expenditures, such as those required to maintain
reliability and safety and to address environmental regulations; and (ii)
discretionary opportunity expenditures, such as those being currently made to
enhance retail marketing profitability.
During the nine month period ended September 30, 1996, capital expenditures
(excluding North East home heat business acquisitions) totaled $80.6 million, of
which $17.5 million related to the completion of the high-pressure gasoil
hydrotreater at the Wilmington refinery. The addition of the gasoil hydrotreater
increased the Wilmington refinery's ability to upgrade unfinished product into
finished product and to process lower cost heavy, sour crude oil and
less-expensive feedstocks. Capital expenditures also included $8.0 million for
modifications to the Quebec refinery to enhance its ability to process acidic
crude oils and $9.3 million for modifications to the refinery's facilities to
accommodate a unit train to transport product from the refinery to Montreal.
During the nine month period, the Company also spent $7.9 million and $3.7
million on retail growth projects on the West Coast and in the North East,
respectively.
In conjunction with its plans to expand and upgrade its retail marketing
operations in the northeast, the Company also spent $14.0 million during the
first nine months of 1996 to acquire the operating assets of a wholesale
distributor and a retail home heating operation in the northeast United States.
The Company is continually investigating strategic acquisitions and other
business opportunities that will complement its current business activities.
The Company expects to fund its capital expenditures over the next several years
from cash provided by operations and, to the extent necessary, from the proceeds
of borrowings under its bank credit facilities and its commercial paper and
medium-term note programs discussed below. In addition, depending upon its
future needs and the cost and availability of various financing alternatives,
the Company may from time to time seek additional debt or equity financing in
the public or private markets.
Liquidity and Capital Resources
At September 30, 1996, the Company had a cash position of $190.9 million. The
Company has committed, unsecured bank facilities which provide a maximum of $200
million and Cdn. $200 million of available credit to its subsidiaries, Ultramar
Inc. and Canadian Ultramar Limited, respectively, and a $200 million commercial
paper program supported by the unsecured bank facility of Ultramar Inc. The
Company's bank facilities require the maintenance of certain financial ratios
and contain covenants that must be complied with before its subsidiaries can pay
cash dividends and make loans to the Company. The Company believes these
covenants will not have a significant impact on the Company's liquidity or its
ability to pay dividends. At September 30, 1996, the Company had approximately
$278.5 million of remaining borrowing capacity under the committed bank
facilities and commercial paper program. The Company presently has an additional
$350.7 million of borrowing capacity under uncommitted, unsecured short-term
lines of credit with various financial institutions.
In addition to its credit facilities, the Company has $50.0 million available
under a debt shelf registration previously filed with the Securities and
Exchange Commission. The net proceeds from any offering under the existing shelf
registration would add to the Company's working capital and would also be
available for general corporate purposes.
In July 1996, the Company entered into a lease agreement pursuant to which the
lessor has agreed to finance the construction and/or acquisition of retail
marketing sites up to $100 million and to lease these sites to the Company at
lease rates based on site costs and current interest rates. Substantially all of
the $100 million commitment is presently available to the Company.
17
<PAGE>
The Company believes its current sources of funds will be sufficient to satisfy
its capital expenditure, working capital, debt service and dividend requirements
for at least the next twelve months.
In connection with the plan of Merger with Diamond Shamrock, the Company has
begun to negotiate new credit and lease facilities for the Combined Company.
On October 22, 1996, the Company declared a dividend of $.275 per common share
payable on December 16, 1996 to holders of record on November 15, 1996.
Cash Flows for the Nine Months Ended September 30, 1996
During the nine months ended September 30, 1996, the Company's cash position
increased $64.1 million to $190.9 million. Net cash provided by operating
activities before changes in non-cash operating assets and liabilities was
$120.7 million. Net cash provided by operating activities after changes in
non-cash operating assets and liabilities totaled $124.0 million.
Net cash used in investing activities during the nine month period ended
September 30, 1996 totaled $98.6 million and included the capital expenditures
and acquisitions of marketing operations previously mentioned, net of proceeds
from asset disposals, as well as an increase of deferred refinery maintenance
turnaround costs.
Financing activities during the nine month period ended September 30, 1996,
provided net cash of $38.2 million, consisting of borrowings under the Company's
commercial paper program ($69.1 million) and the issuance of Common Stock upon
the exercise of employee stock options ($5.9 million), partially offset by the
payment of dividends ($36.7 million).
Seasonality
In the North East, demand for petroleum products varies significantly during the
year. Distillate demand during the first and fourth quarters can range from 30%
to 40% above the average demand during the second and third quarters, resulting
in significantly higher accounts receivable and inventory levels. The Company's
operations on the West Coast are less affected by seasonal fluctuations in
demand than its operations in the North East. The working capital requirements
of the West Coast operations are less than for the North East due to lower
inventory requirements and show little fluctuation throughout the year.
Exchange Rates
The value of the Canadian dollar relative to the U.S. dollar remained relatively
stable during the first nine months of the year. However, the value at September
30, 1996 was substantially lower than that at the time of the Company's
investment in its Canadian operations in 1992. As a result, the Company's net
equity at September 30, 1996 has been reduced by $54.5 million.
With the exception of its crude oil costs, which are U.S. dollar denominated,
fluctuations in the Canadian dollar exchange rate will affect the U.S. dollar
amount of revenues and related costs and expenses reported by the Company's
operations in Canada. The potential impact on refining margin of fluctuating
exchange rates together with U.S. dollar denominated crude oil costs is
mitigated by the Company's pricing policies, which generally pass on any change
in the cost of crude oil. Marketing margins, on the other hand, have been
adversely affected by exchange rate fluctuations as competitive pressures have,
from time to time, limited the Company's ability to promptly pass through the
increased costs to the ultimate consumer.
The Company expects the Canadian to U.S. dollar exchange rate to continue to
fluctuate and thus cannot reasonably predict its future movement or the
resulting impact on the Company's equity or results of operations. The Company
18
<PAGE>
has considered various strategies to manage currency risk and hedges the
Canadian currency risk when such hedging is considered economically appropriate.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Pro Forma Condensed Financial Information of Ultramar Corporation and Diamond
Shamrock, Inc. (the "Combined Company")
On September 22, 1996, Ultramar entered into an agreement and plan of merger
with Diamond Shamrock, pursuant to which, among other things, (i) Diamond
Shamrock will be merged with and into Ultramar, (ii) each issued and outstanding
share of Diamond Shamrock Common Stock will be converted into the right to
receive 1.02 shares of Ultramar Common Stock, (iii) each issued and outstanding
share of 5% Cumulative Convertible Preferred Stock of Diamond Shamrock will be
converted into the right to receive one share of a newly established series of
5% Cumulative Convertible Preferred Stock of Ultramar, and (iv) Ultramar's
certificate of incorporation will be amended to increase the authorized number
of shares of Ultramar Common Stock from 100 million to 250 million shares and to
change Ultramar's name to "Ultramar Diamond Shamrock Corporation."
The following pro forma condensed financial information gives effect to the
merger of Ultramar and Diamond Shamrock which is expected to be accounted for as
a pooling of interests. The pro forma condensed balance sheet gives effect to
the Merger as if it had occurred on September 30, 1996. The pro forma condensed
statements of income give effect to the Merger as if it had occurred on January
1, 1995. In combining the financial information of Ultramar and Diamond
Shamrock, certain reclassifications of historical financial data have been made
to reflect the Merger and certain accounting policies that will be used by the
Combined Company. Following the Merger, management of the Combined Company will
conduct a complete review of the accounting policies employed by Ultramar and
Diamond Shamrock, including the methods used to apply such policies, in order to
identify the appropriate accounting practices to be applied by the Combined
Company; additionally, management of the Combined Company will review, and when
appropriate conform, the methods employed to develop and assess information used
to make accounting estimates. Any adjustments or changes that may result from
such reviews are expected to be recorded during the accounting period in which
the Merger occurs, and may have a material effect on the results reported during
such period.
The pro forma condensed balance sheet reflects an estimated $67.0 million charge
(of which $1.9 million had been incurred at September 30, 1996) for the
transaction and integration costs (a total of $47.0 million net of tax) expected
to be incurred in connection with the Merger; however, because these charges are
nonrecurring, they have not been reflected in the pro forma condensed statements
of income. The pro forma financial information does not give effect to the
anticipated cost savings expected to result from the Merger. The pro forma
financial information is not necessarily indicative of the results that actually
would have occurred had the Merger been consummated on the dates indicated or
that may be obtained in the future.
19
<PAGE>
The Combined Company
Unaudited Pro Forma Condensed Balance Sheet
September 30, 1996
(In Millions)
<TABLE>
<CAPTION>
Pro Forma
Adustments
Diamond Increase Pro Forma
Ultramar Shamrock (Decrease) Combined
-------- -------- ---------- --------
ASSETS
Current assets
<S> <C> <C> <C> <C>
Cash and cash equivalents .............. $ 190.9 $ 49.5 $ 240.4
Accounts and notes receivables, net .... 215.1 222.4 437.5
Inventories ............................ 260.8 326.4 587.2
Prepaid expenses and other
current assets ........................ 29.5 12.5 $ 16.9 (1) 58.9
---------- ---------- --------- ---------
Total current assets ................. 696.3 610.8 16.9 1,324.0
Other assets, net ........................ 90.0 224.2 314.2
Property, plant and equipment, net ....... 1,296.7 1,405.8 2,702.5
---------- ---------- --------- ----------
Total assets ............................. $ 2,083.0 $ 2,240.8 $ 16.9 $ 4,340.7
========== ========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable and current portion
of long-term debt ..................... $ .2 $ 4.5 $ 4.7
Accounts payable ....................... 233.1 179.9 413.0
Accrued liabilities .................... 95.7 123.5 $ 65.1 (1) 284.3
Accrued taxes .......................... 111.7 73.9 (3.1)(1) 182.5
---------- ---------- --------- ----------
Total current liabilities ............ 440.7 381.8 62.0 884.5
Long-term debt, less current portion ..... 669.6 1,014.2 1,683.8
Other long-term liabilities .............. 161.5 118.7 280.2
Deferred income taxes .................... 94.1 67.6 161.7
Stockholders' equity
Preferred stock, $.01 par value ........ .0 .0
Common stock, $.01 per share ........... .4 .3 .7
Additional paid-in capital ............. 675.8 457.4 1,133.2
ESOP stock and stock held in treasury .. (34.4) (34.4)
Unamortized restricted stock awards .... (.2) (.2)
Retained earnings ...................... 95.6 235.2 (45.1) 285.7
Foreign currency translation
adjustment ........................... (54.5) (54.5)
---------- ---------- ---------- ----------
Total stockholders' equity ......... 717.1 658.5 (45.1) 1,330.5
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $ 2,083.0 $ 2,240.8 $ 16.9 $ 4,340.7
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information
20
<PAGE>
The Combined Company
Unaudited Pro Forma Condensed Statement of Income
Nine Months Ended September 30, 1996
(In Millions, Except Per Share Data)
<TABLE>
<CAPTION>
Pro Forma
Adustments
Diamond Increase Pro Forma
Ultramar Shamrock (Decrease) Combined
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Sales and other revenues .............. $ 3,358.6 $ 3,660.7 $ (21.6)(2) $ 6,997.7
Operating costs and expenses
Cost of products sold ............... 1,946.9 2,325.3 4,272.2
Operating expenses .................. 205.1 460.2 665.3
Selling, general and
administrative expenses .......... 145.8 71.3 217.1
Taxes other than income taxes ....... 906.0 603.1 1,509.1
Depreciation and amortization ....... 52.7 78.2 130.9
----------- ----------- ------------
Total operating costs and expenses 3,256.5 3,538.1 6,794.6
----------- ----------- -------- ------------
Operating income ...................... 102.1 122.6 (21.6) 203.1
Interest income ....................... 7.8 21.6 (2) 29.4
Interest expense ...................... (39.6) (55.0) (94.6)
----------- ----------- -------- ------------
Income before income taxes ............ 70.3 67.6 .0 137.9
Provision for income taxes ............ 26.7 28.1 54.8
----------- ----------- ------------
Net income ............................ 43.6 39.5 83.1
Dividend requirement on preferred stock 3.2 3.2
----------- ----------- -------- ------------
Earnings applicable to common shares .. $ 43.6 $ 36.3 $ .0 $ 79.9
=========== =========== ======== ============
Income per common and common
equivalent share(3)
Primary ........................... $ .97 $ 1.23 $ 1.06
Fully diluted ..................... .96 1.21 1.06
Weighted average number of common
and common equivalent shares used in
computation(3)
Primary .......................... 45.1 29.4 75.1
Fully diluted .................... 45.2 32.7 78.5
</TABLE>
See accompanying notes to unaudited pro forma condensed financial information
21
<PAGE>
<TABLE>
<CAPTION>
The Combined Company
Unaudited Pro Forma Condensed Statement of Income
Nine Months Ended September 30, 1995
(In Millions, Except Per Share Data)
Pro Forma
Diamond Adjustments
Shamrock Increase Pro Forma
Ultramar Pro Forma (4) (Decrease) Combined
-------- --------- ---------- -------
<S> <C> <C> <C> <C>
Sales and other revenues................................ $2,787.2 $3,470.5 $(13.0) (2) $6,244.7
Operating costs and expenses
Cost of products sold.................................. 1,532.5 2,311.6 3,844.1
Operating expenses..................................... 203.8 304.7 508.5
Selling, general and
administrative expenses.............................. 128.2 91.0 219.2
Taxes other than income taxes.......................... 804.7 587.2 1,391.9
Depreciation and amortization.......................... 42.5 66.7 109.2
--------- ---------- --------
Total operating costs and expenses................... 2,711.7 3,361.2 6,072.9
-------- -------- ------- --------
Operating income........................................ 75.5 109.3 (13.0) 171.8
Interest income......................................... 2.7 13.0 (2) 15.7
Interest expense........................................ (34.6) (50.4) (85.0)
--------- ---------- ------- ---------
Income before income taxes and
cumulative effect of accounting change................. 43.6 58.9 .0 102.5
Provision for income taxes.............................. 17.0 23.7 40.7
--------- ---------- ---------
Income before cumulative
effect of accounting change........................... 26.6 35.2 61.8
Dividend requirement on preferred stock 3.2 3.2
------------ ----------- ------- ----------
Earnings applicable to common shares.................... $ 26.6 $ 32.0 $ .0 $ 58.6
========== ========== ======= ==========
Income per common and common
equivalent share before cumulative
effect of accounting change (3)
Primary............................................. $.69 $1.10 $.85
Fully diluted....................................... .69 1.08 .85
Weighted average number of common
and common equivalent shares used in
computation (3)
Primary............................................ 39.0 29.1 68.7
Fully diluted...................................... 39.1 32.4 72.1
See accompanying notes to unaudited pro forma condensed financial information
</TABLE>
22
<PAGE>
The Combined Company
Notes to Unaudited Pro Forma Condensed Financial Statements
1. A liability of $65.1 million has been recorded in the pro forma condensed
balance sheet to reflect management's estimate of additional transaction
and integration costs related to the Merger expected to be incurred
subsequent to September 30, 1996. The tax benefits associated with these
costs are reflected as adjustments to current deferred income taxes of
$16.9 million and accrued taxes of $3.1 million. The net effect of these
adjustments has been reflected as a reduction in retained earnings of $45.1
million.
2. Diamond Shamrock interest income has been reclassified from sales and other
revenues to interest income to conform to the financial presentation of the
Combined Company.
3. Income per common and common equivalent share for the Combined Company is
based on the historical weighted average number of common and common
equivalent shares outstanding for each Company during the respective period
adjusted to reflect the exchange ratio of 1.02 shares of Ultramar Common
Stock for each share of Diamond Shamrock Common Stock or common stock
equivalent.
4. The historical statements of income for the nine months ended September 30,
1995 of Diamond Shamrock have been adjusted to give pro forma effect to
Diamond Shamrock's acquisition of National Convenience Stores Incorporated
("NCS") on December 14, 1995 as if the transaction had occurred on January
1, 1995. The principal pro forma adjustments to Diamond Shamrock's
historical statements of income for the nine months ended September 30,
1995 related to the NCS acquisition are (i) an increase in amortization
expense of $5.2 million to reflect amortization of purchase price in excess
of the fair value of the acquired net assets, (ii) an increase in interest
expense of $9.7 million related to the net additional debt incurred to
finance the acquisition, and (iii) an additional income tax benefit of $
3.5 million to reflect the income tax effect of the additional interest
expense incurred.
23
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Incorporated by Reference to the
Number Description Following Documents
- ----- --------------------------------------------------- ----------------------------------
2.1 Agreement and Plan of Merger between Ultramar Current Report on Form 8-K dated
Corporation and Diamond Shamrock, Inc. as of September 25, 1996, Exhibit 2.1
September 22, 1996.
4.1 Amendment dated as of September 22, 1996, to the Current Report on Form 8-K dated
Rights Agreement dated as of June 25, 1992 September 25, 1996, Exhibit 4.1
between Ultramar Corporation and Registrar and
Transfer Company (as successor rights agent to First
City, Texas-Houston, National Association) as
amended by the First Amendment dated as of
October 26, 1992 and the Amendment dated as of
May 10, 1994.
4.2 Rights Agreement dated as of June 25, 1992 Current Report on Form 8-K dated
between Ultramar Corporation and Registrar and September 25, 1996, Exhibit 4.2
Transfer Company (as successor rights agent to First
City, Texas-Houston, National Association) as
amended by the First Amendment dated as of
October 26, 1992, and the Amendment dated as of
May 10, 1994 (incorporated by reference to
Registration Statement on Form S-1 (File No. 33-
47586), Exhibit 4.2; Quarterly Report on Form 10-
Q for the Quarter Ended September 30, 1992,
Exhibit 4.2; Annual Report on Form 10-K for the
Year Ended December 31, 1994, Exhibit 4.3).
10.1 Stock Option Agreement dated as of September 22, Current Report on Form 8-K dated
1996 between Diamond Shamrock, Inc., as Issuer, September 25, 1996, Exhibit 10.1
and Diamond Shamrock, Inc., as Grantee.
10.2 Stock Option Agreement dated as of September Current Report on Form 8-K dated
22, 1996 between Ultramar Corporation, as September 25, 1996, Exhibit 10.2
Issuer, and Diamond Shamrock, Inc., as Grantee.
11 Statement re: Computation of Earnings Per Share +
</TABLE>
- -------------------------------------
+ Filed herewith.
(b) Reports on Form 8-K
Current Report on Form 8-K dated September 25, 1996 (File No. 1-11154)
relating to the proposed merger of Diamond Shamrock, Inc. with and into
Ultramar.
24
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
ULTRAMAR CORPORATION
(REGISTRANT)
By: /S/ H. PETE SMITH
-----------------
H. PETE SMITH
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
NOVEMBER 12, 1996
25
Exhibit 11 - Statement re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30,
------------ -------------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding.................................. 44,612 38,610 44,535 38,610
Net effect of dilutive stock options - based on the
treasury stock method using average market price.......... 481 434 589 417
------- ------- ------- -------
Total .................................................... 45,093 39,044 45,124 39,027
====== ====== ====== ======
Income before cumulative effect of accounting change........ $357 $20,406 $43,573 $26,622
Cumulative effect of accounting change ..................... 22,024
------- ------- -------- --------
Net income ................................................. $357 $20,406 $43,573 $48,646
==== ======= ======= =======
Earnings per share:
Income before cumulative effect of accounting change...... $.01 $.52 $.97 $.69
Cumulative effect of accounting change ................... .56
------ ------ ------- -----
Net income................................................ $.01 $.52 $.97 $1.25
==== ==== ==== =====
Fully Diluted:
Average shares outstanding.................................. 44,612 38,610 44,535 38,610
Net effect of dilutive stock options -
based on the treasury stock method using
the period-end market
price, if higher than average market price ............... 646 434 664 441
------ ------ ------ ------
Total..................................................... 45,258 39,044 45,199 39,051
====== ====== ====== ======
Income before cumulative effect of accounting change........ $357 $20,406 $43,573 $26,622
Cumulative effect of accounting change ..................... 22,024
------- ---------- ------- --------
Net income ................................................. $357 $20,406 $43,573 $48,646
==== ======= ======= =======
Earnings per share:
Income before cumulative effect of accounting change...... $.01 $.52 $.96 $.69
Cumulative effect of accounting change ................... .56
------ ------ ------ -----
Net income................................................ $.01 $.52 $.96 $1.25
==== ==== ==== =====
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 190,905
<SECURITIES> 0
<RECEIVABLES> 223,237
<ALLOWANCES> 8,137
<INVENTORY> 260,804
<CURRENT-ASSETS> 696,290
<PP&E> 1,473,454
<DEPRECIATION> 176,788
<TOTAL-ASSETS> 2,082,953
<CURRENT-LIABILITIES> 440,732
<BONDS> 0
0
0
<COMMON> 446
<OTHER-SE> 716,688
<TOTAL-LIABILITY-AND-EQUITY> 2,082,953
<SALES> 3,358,638
<TOTAL-REVENUES> 3,358,638
<CGS> 1,946,968
<TOTAL-COSTS> 3,058,004
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,811
<INCOME-PRETAX> 70,287
<INCOME-TAX> 26,714
<INCOME-CONTINUING> 43,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,573
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
</TABLE>
