<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
Commission File Number 1-11154
-------------------------------
ULTRAMAR DIAMOND SHAMROCK CORPORATION
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification No. 13-3663331
6000 North Loop 1604 West
San Antonio, Texas 78249-1112
Telephone number: (210) 592-2000
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
As of April 28, 2000, 86,751,000 shares of Common Stock, $0.01 par value, were
outstanding and the aggregate market value of such stock was $2,147,075,000.
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
FORM 10-Q
MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999...................... 3
Consolidated Statements of Income
for the Three Months Ended March 31, 2000 and 1999...................................... 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000 and 1999...................................... 5
Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 2000 and 1999...................................... 6
Notes to Consolidated Financial Statements.................................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......................................... 23
Item 6. Exhibits and Reports on Form 8-K............................................................ 24
SIGNATURE................................................................................... 25
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------- ------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 96.3 $ 92.8
Accounts and notes receivable, net ...................... 838.1 616.5
Inventories ............................................. 608.4 556.8
Prepaid expenses and other current assets ............... 21.8 20.3
Deferred income taxes ................................... 110.3 110.4
-------- --------
TOTAL CURRENT ASSETS ................................. 1,674.9 1,396.8
-------- --------
Property, plant and equipment .............................. 4,369.8 4,345.8
Less accumulated depreciation and amortization ............. (1,361.0) (1,315.9)
-------- --------
Property, plant and equipment, net ...................... 3,008.8 3,029.9
Other assets, net .......................................... 498.7 509.3
-------- --------
TOTAL ASSETS ......................................... $5,182.4 $4,936.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt ..... $ 14.6 $ 14.0
Accounts payable ........................................ 630.8 489.2
Accrued liabilities ..................................... 344.0 392.4
Taxes other than income taxes ........................... 210.3 293.8
Income taxes payable .................................... 32.9 68.7
-------- --------
TOTAL CURRENT LIABILITIES ............................ 1,232.6 1,258.1
-------- --------
Long-term debt, less current portion ....................... 1,532.0 1,327.6
Other long-term liabilities ................................ 367.2 372.8
Deferred income taxes ...................................... 313.6 284.2
Commitments and contingencies
Company obligated preferred stock of subsidiary ............ 200.0 200.0
STOCKHOLDERS' EQUITY:
Common Stock, par value $0.01 per share:
250,000,000 shares authorized, 86,878,000 and
86,700,000 shares issued and outstanding as of
March 31, 2000 and December 31, 1999 .................. 0.9 0.9
Additional paid-in capital .............................. 1,513.1 1,516.3
Treasury stock .......................................... (1.0) (0.7)
Grantor trust stock ownership program ................... (96.1) (100.0)
Retained earnings ....................................... 205.6 160.4
Accumulated other comprehensive loss .................... (85.5) (83.6)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ........................... 1,537.0 1,493.3
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........... $5,182.4 $4,936.0
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except share and per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
SALES AND OTHER REVENUES ................................... $ 3,639.4 $ 2,720.2
----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of products sold ................................... 2,461.1 1,553.4
Operating expenses ...................................... 231.7 249.1
Selling, general and administrative expenses ............ 74.6 75.6
Taxes other than income taxes ........................... 671.5 712.6
Depreciation and amortization ........................... 62.1 57.2
Restructuring and other expenses, net ................... (0.7) 7.4
----------- -----------
TOTAL OPERATING COSTS AND EXPENSES ................... 3,500.3 2,655.3
----------- -----------
OPERATING INCOME ........................................... 139.1 64.9
Interest income .......................................... 2.9 2.9
Interest expense ......................................... (29.5) (38.6)
Equity income from joint ventures ........................ 6.2 2.1
----------- -----------
INCOME BEFORE INCOME TAXES AND DIVIDENDS OF SUBSIDIARY ..... 118.7 31.3
Provision for income taxes ............................... 47.0 12.7
Dividends on preferred stock of subsidiary ............... 2.6 2.6
----------- -----------
NET INCOME ................................................. $ 69.1 $ 16.0
=========== ===========
NET INCOME PER SHARE:
Basic ................................................... $ 0.80 $ 0.18
Diluted ................................................. $ 0.80 $ 0.18
WEIGHTED AVERAGE NUMBER OF SHARES (IN THOUSANDS):
Basic ................................................... 86,713 86,557
Diluted ................................................. 86,814 86,643
DIVIDENDS PER COMMON SHARE ................................. $ 0.275 $ 0.275
</TABLE>
See accompanying notes to consolidated financial statements.
4
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 69.1 $ 16.0
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization ..................................... 62.1 57.2
Provision for losses on receivables ............................... 3.2 1.7
Equity income from joint ventures ................................. (6.2) (2.1)
Loss (gain) on sale of property, plant and equipment .............. (0.7) 0.1
Deferred income tax provision ..................................... 29.7 6.0
Other, net ........................................................ 0.6 1.0
Changes in operating assets and liabilities:
Decrease (increase) in accounts and notes receivable ............ (220.6) 249.3
Decrease (increase) in inventories .............................. (52.3) 56.8
Decrease (increase) in prepaid expenses and
other current assets .......................................... (2.0) 2.7
Decrease in accounts payable and other current liabilities ...... (25.4) (195.4)
Decrease (increase) in other long-term assets ........................ 0.1 (8.8)
Decrease in other long-term liabilities .............................. (5.6) (13.0)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ........... (148.0) 171.5
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (26.6) (35.3)
Deferred refinery maintenance turnaround costs ...................... (8.7) (18.3)
Proceeds from sales of property, plant and equipment ................ 5.0 2.2
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ......................... (30.3) (51.4)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in commercial paper and short-term borrowings ............ 207.2 (162.6)
Repayment of long-term debt ......................................... (2.2) (2.7)
Payment of cash dividends ........................................... (23.9) (23.8)
Other, net .......................................................... 0.7 0.1
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ........... 181.8 (189.0)
-------- --------
Effect of exchange rate changes on cash .............................. -- 1.2
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. 3.5 (67.7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 92.8 176.1
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 96.3 $ 108.4
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
-------- --------
<S> <C> <C>
NET INCOME ........................................................... $ 69.1 $ 16.0
Other comprehensive income (loss):
Foreign currency translation adjustment ........................... (1.9) 7.2
Minimum pension liability adjustment, net of income tax benefit ... -- (1.1)
-------- --------
COMPREHENSIVE INCOME ................................................. $ 67.2 $ 22.1
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Ultramar Diamond Shamrock Corporation (the Company) in accordance with United
States' generally accepted accounting principles for interim financial reporting
and with Securities and Exchange Commission rules and regulations for Form 10-Q.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. These
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. The results of operations may be affected by seasonal factors, such as the
demand for refined products and working capital requirements in the Northeast
System, which vary significantly during the year; or industry factors that may
be specific to a particular period, such as movements in and the general level
of crude oil prices, the demand for and prices of refined products, industry
supply capacity and maintenance turnarounds.
Certain previously reported amounts have been reclassified to conform to the
2000 presentation.
NOTE 2: INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------- -----------
(in millions)
<S> <C> <C>
Crude oil and other feedstocks ....................................... $ 184.5 $ 155.4
Refined and other finished products and convenience store items ...... 365.9 346.9
Materials and supplies ............................................... 58.0 54.5
-------- --------
TOTAL INVENTORIES ............................................... $ 608.4 $ 556.8
======== ========
</TABLE>
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3: COMPUTATION OF NET INCOME PER SHARE
Basic net income per share is calculated as net income divided by the weighted
average number of common shares outstanding. Diluted net income per share
assumes, when dilutive, issuance of the net incremental shares from stock
options and restricted shares. The following table reconciles the net income
amounts and share numbers used in the computation of net income per share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---------- ----------
(in millions, except per share data)
<S> <C> <C>
BASIC NET INCOME PER SHARE:
Weighted average common shares outstanding (in thousands) ...... 86,713 86,557
========== ==========
Net income applicable to Common Stock .......................... $ 69.1 $ 16.0
========== ==========
Basic net income per share ..................................... $ 0.80 $ 0.18
========== ==========
DILUTED NET INCOME PER SHARE:
Weighted average common shares outstanding (in thousands) ...... 86,713 86,557
Net effect of dilutive stock options based on the treasury stock
method using the average market price ..................... 101 86
---------- ----------
Weighted average common equivalent shares ...................... 86,814 86,643
========== ==========
Net income ..................................................... $ 69.1 $ 16.0
========== ==========
Diluted net income per share ................................... $ 0.80 $ 0.18
========== ==========
</TABLE>
NOTE 4: RESTRUCTURING AND OTHER EXPENSES
Restructuring and other expenses consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
-------- --------
(in millions)
<S> <C> <C>
Gain on sale of property, plant and equipment .... $ (0.7) $ --
Transaction costs related to the terminated
Diamond 66 joint venture ....................... -- 11.0
Restructuring reserve reductions ................. -- (3.6)
-------- --------
Restructuring and other expenses, net ....... $ (0.7) $ 7.4
======== ========
</TABLE>
In March 1999, the Company and Phillips Petroleum Company terminated discussions
related to the formation of a proposed joint venture (Diamond 66) between the
two companies. During the first quarter of 1999, the Company expensed $11.0
million of transaction costs related to the formation of Diamond 66.
8
<PAGE> 9
ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In June 1998, the Company adopted a three-year restructuring plan to reduce its
retail cost structure by eliminating 251 positions to improve operating
efficiencies and to close and sell 316 under-performing convenience stores. In
addition, the Company restructured certain pipeline and terminal operations and
support infrastructure resulting in the elimination of 62 positions. During the
three months ended March 31, 2000, nine convenience stores were sold or closed
and six employees were terminated under the retail and pipeline and terminal
restructuring plans. From June 1998 through December 1999, 227 convenience
stores were sold or closed and 235 retail employees and 62 pipeline and terminal
employees were terminated.
Changes in accrued restructuring costs for the quarter ended March 31, 2000 were
as follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
DECEMBER 31, 1999 PAYMENTS MARCH 31, 2000
----------------- -------- --------------
(in millions)
<S> <C> <C> <C>
Severance and related costs $ 5.1 $ (1.2) $ 3.9
Lease buyout costs 6.0 -- 6.0
Fuel system removal costs 2.5 (0.1) 2.4
-------- -------- --------
$ 13.6 $ (1.3) $ 12.3
======== ======== ========
</TABLE>
NOTE 5: 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
are difficult to assess and estimate 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,
improvements in cleanup technologies 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, individually or in the aggregate,
will not have a material adverse effect on the Company's financial position or
results of operations.
NOTE 6: BUSINESS SEGMENTS
The Company has three reportable segments: Refining, Retail and
Petrochemical/NGL. The Refining segment includes refinery, wholesale, product
supply and distribution, and transportation operations. The Retail segment
includes Company-operated convenience stores, dealers/jobbers and truckstop
facilities, cardlock and home heating oil operations. The Petrochemical/NGL
segment includes earnings from Nitromite fertilizer, NGL marketing and certain
NGL pipeline operations. Equity income from Diamond-Koch and Skelly-Belvieu are
not included in operating income. Operations that are not included in any of the
three reportable segments are included in the Corporate category and consist
primarily of corporate office expenditures.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately as each business
requires unique technology and marketing strategies. The Company evaluates
performance based on earnings before interest, taxes and depreciation and
amortization (EBITDA). Intersegment sales are generally derived from
transactions made at prevailing market rates.
9
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
PETROCHEMICAL/
REFINING RETAIL NGL CORPORATE TOTAL
-------- ------ ------------- --------- -----
(in millions)
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 2000:
Sales and other revenues from
external customers ............... $2,449.2 $1,150.1 $ 40.1 $ -- $3,639.4
Intersegment sales .................. 791.3 -- 1.4 -- 792.7
EBITDA .............................. 166.1 59.1 8.9 (26.7) 207.4
Depreciation and amortization ....... 41.0 18.2 0.2 2.7 62.1
Operating income (loss) ............. 125.1 40.9 2.5 (29.4) 139.1
Total assets ........................ 3,510.5 1,257.5 159.5 254.9 5,182.4
THREE MONTHS ENDED MARCH 31, 1999:
Sales and other revenues from
external customers ............... $1,429.7 $1,266.0 $ 24.5 $ -- $2,720.2
Intersegment sales .................. 488.2 2.1 -- -- 490.3
EBITDA .............................. 110.4 52.9 2.5 (41.6) 124.2
Depreciation and amortization ....... 39.9 16.2 0.3 0.8 57.2
Operating income (loss) ............. 70.5 36.7 0.1 (42.4) 64.9
Total assets ........................ 3,458.2 1,265.7 167.6 71.9 4,963.4
</TABLE>
The following summarizes the reconciliation of reportable segment operating
income to consolidated operating income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
-------- --------
(in millions)
<S> <C> <C>
OPERATING INCOME:
Total operating income for reportable segments ...... $ 168.4 $ 107.3
Other income (loss) ................................. (29.3) (42.4)
-------- --------
Consolidated operating income .................... $ 139.1 $ 64.9
======== ========
</TABLE>
NOTE 7: SUBSEQUENT EVENTS
On April 10, 2000, the Company signed a seven-year agreement with Sonatrach, the
Algerian national oil company, to supply the Company's Quebec Refinery with an
additional 35,000 barrels per day of light, low-sulfur crude oil. This
additional supply of crude oil is expected to begin arriving by mid-2001.
On May 2, 2000, the Board of Directors declared a quarterly dividend of $0.275
per Common Share payable on June 1, 2000 to holders of record on May 18, 2000.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE COMPANY
Ultramar Diamond Shamrock Corporation (the Company) is a leading independent
refiner and marketer of high-quality refined products and convenience store
merchandise in the central and southwest regions of the United States (the US
System), and the northeast United States and eastern Canada (the Northeast
System). Its operations consist of six refineries with a combined throughput
capacity of 649,000 barrels per day, approximately 5,000 convenience stores,
pipelines, a home heating oil business, and related petrochemical 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 refined products and working capital
requirements; and industry factors, such as movements in and the 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.
SEASONALITY
In the Northeast System, demand for refined 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. The
substantial increase in demand for home heating oil during the winter months
results in the Company's Northeast System having significantly higher accounts
receivable and inventory levels during the first and fourth quarters of each
year. The Company's US System is less affected by seasonal fluctuations in
demand than its operations in the Northeast System. The working capital
requirements of the US System, though substantial, show little fluctuation
throughout the year. Both the US and Northeast Systems are impacted by the
increased demand for gasoline during the summer driving season.
11
<PAGE> 12
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Financial and operating data by geographic area for the three months ended March
31, 2000 and 1999 are as follows:
FINANCIAL DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------
2000 1999
----------------------------------- ----------------------------------
US NORTHEAST TOTAL US NORTHEAST TOTAL
-------- -------- -------- -------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Sales and other revenues ............... $2,605.1 $1,034.3 $3,639.4 $2,146.0 $ 574.2 $2,720.2
Cost of products sold .................. 1,746.9 714.2 2,461.1 1,245.4 308.0 1,553.4
Operating expenses(1) .................. 207.5 24.2 231.7 227.5 21.6 249.1
Selling, general and
administrative expenses .............. 32.2 42.4 74.6 37.0 38.6 75.6
Taxes other than income taxes(2) ....... 488.7 182.8 671.5 543.4 169.2 712.6
Depreciation and amortization .......... 51.1 11.0 62.1 47.9 9.3 57.2
Restructuring and other expenses(3) .... (0.8) 0.1 (0.7) 7.4 -- 7.4
-------- -------- -------- -------- -------- --------
Operating income ....................... $ 79.5 $ 59.6 139.1 $ 37.4 $ 27.5 64.9
======== ======== ======== ========
Interest income ........................ 2.9 2.9
Interest expense ....................... (29.5) (38.6)
Equity income from joint ventures ...... 6.2 2.1
-------- --------
Income before income taxes and dividends
of subsidiary ........................ 118.7 31.3
Provision for income taxes ............. 47.0 12.7
Dividends on subsidiary stock .......... 2.6 2.6
-------- --------
Net income ............................. $ 69.1 $ 16.0
======== ========
</TABLE>
(1)Operating expenses in the US System decreased due to lower retail operating
expenses as a result of the sale of 416 convenience stores during 1999 and the
closure of the Alma Refinery in December 1999.
(2)Taxes other than income taxes decreased in the US System as sales volumes
declined from 1999 levels (see note 1 above). Taxes other than income taxes for
the Northeast System increased in conjunction with the increased fuel sales
volume especially in the motorist and home heating oil businesses.
(3)In March 1999, the Company expensed $11.0 million of transaction costs
associated with the termination of the proposed Diamond 66 joint venture.
12
<PAGE> 13
OPERATING DATA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
US SYSTEM
Mid-Continent Refineries(1):
Throughput (barrels per day) ............. 353,000 390,600
Margin ($/barrel) ........................ $ 4.73 $ 3.27
Operating cost ($/barrel) ................ $ 1.92 $ 1.87
Wilmington Refinery:
Throughput (barrels per day) ............. 142,200 131,800
Margin ($/barrel) ........................ $ 5.86 $ 5.53
Operating cost ($/barrel) ................ $ 1.65 $ 1.70
Retail:
Fuel volume (barrels per day) ............ 152,900 170,900
Fuel margin (cents per gallon) ........... 8.5 10.9
Merchandise sales ($1,000/day) ........... $ 2,768 $ 3,307
Merchandise margin (%) ................... 28.2% 26.6%
NORTHEAST SYSTEM
Quebec Refinery:
Throughput (barrels per day) ............. 162,600 158,200
Margin ($/barrel) ........................ $ 4.98 $ 1.68
Operating cost ($/per barrel) ............ $ 0.87 $ 0.86
Retail:
Fuel volume (barrels per day) ............ 77,900 73,500
Overall margin (cents per gallon)(2) ..... 23.8 25.8
</TABLE>
(1)In December 1999, the Alma Refinery was permanently shutdown and ceased
operations. Excluding the Alma Refinery operations from the Mid-Continent
Refineries' first quarter 1999 amounts would have resulted in the following:
<TABLE>
<S> <C>
Throughput (barrels per day) ..................340,400
Margin ($/barrel)...............................$ 3.26
Operating cost ($/barrel).......................$ 1.76
</TABLE>
(2)Retail overall margin reported for the Northeast System represents a blend of
gross margin for Company and dealer-operated retail outlets and convenience
stores, home heating oil sales and cardlock operations.
13
<PAGE> 14
GENERAL
Net income for the quarter ended March 31, 2000, was $69.1 million as compared
to $16.0 million for the quarter ended March 31, 1999. On a per share basis,
basic and diluted net income per share for the first quarter of 2000 and 1999
was $0.80 per share and $0.18 per share, respectively.
US SYSTEM
Sales and other revenues in the US system increased $459.1 million or 21.4 % to
$2,605.1 million in the first quarter of 2000 as compared to the first quarter
of 1999 as a result of higher refined product sales prices. Sales volumes in the
US refining operations declined 14% due to the closure of the Alma Refinery in
December 1999, and sales volumes in the US retail operations declined 10% due to
the sale of 416 convenience stores during 1999.
The US System had operating income of $79.5 million for the first quarter of
2000 as compared to $37.4 million for the first quarter of 1999. The increase in
operating income was primarily due to improved refinery margins and lower
operating expenses.
During the first quarter of 2000, refining margins improved dramatically from
the first quarter of 1999, when refining margins reached ten year lows, except
on the West Coast. Refining margins have improved since 1999 due to the steady
decline in crude oil and refined product inventories as a result of crude oil
producers limiting production.
The Mid-Continent refining margin increased $1.46 per barrel, or 44.6%, to $4.73
per barrel as all three Mid-Continent Refineries operated at high throughput
levels when wholesale gasoline and distillate prices climbed to four-year highs.
The decrease in refining throughput for the Mid-Continent Refineries from
390,600 barrels per day in the first quarter of 1999 to 353,000 barrels per day
in the first quarter of 2000 was due to the permanent shutdown of the Alma
Refinery in December 1999. During the first quarter of 1999, the Alma Refinery
contributed approximately 50,200 barrels per day of throughput.
The Wilmington Refinery margin improved 6.0% from $5.53 per barrel in 1999 to
$5.86 per barrel in 2000 as the Company benefited from increased demand and
maintenance turnarounds at competitor refineries during the first quarter of
2000. In addition, throughput at the Wilmington Refinery increased 7.9% to
142,200 barrels per day from 131,800 barrels per day in 1999.
The US retail operations continued to be impacted negatively by the sharp
increase in wholesale gasoline prices, which increased faster than retail pump
prices. As a result, the retail fuel margin declined from 10.9 cents per gallon
in 1999 to 8.5 cents per gallon in 2000. Beginning in late March, retail fuel
margins began to recover as wholesale gasoline prices started to decline and
retail pump prices remained stable. Partially offsetting the negative 2000 fuel
margin was the increase in the merchandise margin from 26.6% in 1999 to 28.2% in
2000. Also positively impacting the US retail operations were increases in
merchandise sales per store and fuel volumes per store as a result of selling
less profitable convenience stores during 1999. On a same store basis,
merchandise sales increased 5% and fuel volumes increased 12%.
Selling, general and administrative expenses for the first quarter of 2000 were
$4.8 million lower than in the first quarter of 1999 due to lower selling
expenses as a result of selling 416 convenience stores during 1999.
Restructuring and other expenses for the three months ended March 31, 1999
included $11.0 million of transaction costs associated with the termination of
the proposed Diamond 66 joint venture and $3.6 million of restructuring reserve
reductions.
14
<PAGE> 15
NORTHEAST SYSTEM
Sales and other revenues in the Northeast System increased $460.1 million from
$574.2 million in the first quarter of 1999 to $1,034.3 million in the first
quarter of 2000. The increase in sales was due to higher selling prices of
refined products as a result of higher crude oil prices compared to 1999 coupled
with a 2.5% increase in sales volume.
Refining throughput for the first quarter of 2000 increased 4,400 barrels per
day over the first quarter of 1999. The refinery margins improved significantly
during the first quarter of 2000 as compared to the first quarter of 1999 due to
reduced industry inventory levels and increased demand.
Retail operations benefited from a 6.0% increase in fuel volumes as a result of
site upgrades at motorist business locations. The overall retail margin declined
to 23.8 cents per gallon in 2000 as the increased sales were generated from the
motorist business which has a lower margin as compared to the home heating oil
business.
Selling, general and administrative expenses for the first quarter of 2000
increased $3.8 million over the first quarter of 1999 due to higher selling
expenses incurred to support the higher sales volume, especially in the home
heating oil and motorist businesses.
CORPORATE
Interest expense of $29.5 million in the first quarter of 2000 was $9.1 million
lower than in the corresponding quarter of 1999 due to the repayment of $602.8
million of debt during 1999.
The consolidated income tax provisions for the first quarter of 2000 and 1999
were based upon the Company's estimated effective income tax rates for the years
ending December 31, 2000 and 1999 of 39.6% and 41.7%, respectively. The
consolidated effective income tax rates exceed the U.S. Federal statutory income
tax rate primarily due to state income taxes, the effects of foreign operations
and the amortization of nondeductible goodwill.
OUTLOOK
The Company's earnings depend largely on refining and retail 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 as well
as the price of refined products sold by the Company have fluctuated widely in
the past. As a result of the historic volatility of refining and retail margins
and the fact that they are affected by numerous diverse factors, it is
impossible to predict future margin levels.
Industry-wide refining margins during the first quarter of 2000 increased by 70%
from year-ago levels due to lower crude oil and refined product inventories
coupled with increased demand and competitor refinery outages and maintenance
problems. Higher distillate demand, especially for home heating oil, was due
mainly to an acquisition which occurred in late 1999. Also, gasoline demand was
higher for the first quarter of 2000 than 1999. Lower production helped draw
inventory levels in the United States to near four-year lows. While refining
margins moved higher, retail fuel margins eroded as retail pump prices could not
keep pace with the escalation in wholesale prices. In March 2000, OPEC announced
an increase in crude oil production of just under two million barrels per day.
In response to this announcement, crude oil prices fell and subsequently so did
wholesale prices. Retail pump prices toward the end of the first quarter of 2000
and into April 2000 remained stable resulting in improved retail margins.
Operating results early in the second quarter of 2000 have continued at the
strong levels experienced in March 2000. Continued strong industry fundamentals
are keeping refining margins above average first quarter levels as the industry
moves into the summer driving season. Low gasoline inventories and strong demand
are helping to stabilize refined product prices, and both refining and retail
margins should show improvements when compared to
15
<PAGE> 16
the second quarter of 1999. In addition, per store volumes for both fuel and
merchandise are trending higher than last year.
The Company is on track to achieve the targeted $100.0 million of EBIT
improvements for 2000. These improvements include continued expense reductions,
yield and volume improvements in refining, increased merchandise contributions
from retail, and revenue benefits resulting from capital spending. The
improvements are expected to help the Company achieve its goal of increasing
return on capital employed (ROCE) in a "low-margin" environment.
See "Certain Forward-Looking Statements."
CAPITAL EXPENDITURES
The petroleum refining and marketing industry is a capital-intensive business.
Significant capital requirements include expenditures to upgrade or enhance
refinery operations to meet environmental regulations and maintain the Company's
competitive position, as well as to acquire, build and maintain broad-based
retail networks. The capital requirements of the Company's operations consist
primarily of:
o maintenance expenditures, such as those required to maintain equipment
reliability and safety and to address environmental regulations; and
o growth opportunity expenditures, such as those planned to expand and
upgrade its retail business, to increase the capacity of certain
refinery processing units and pipelines and to construct additional
petrochemical processing units.
During the quarter ended March 31, 2000, capital expenditures totaled $26.6
million of which $12.9 million related to maintenance expenditures and $13.7
million related to growth opportunity expenditures. Approximately $6.4 million
and $4.4 million of costs have been incurred at the refineries and at the retail
level, respectively, for various maintenance expenditures. During the quarter
ended March 31, 2000, the Company also incurred $8.7 million in refinery
maintenance turnaround costs primarily at the Three Rivers and McKee Refineries.
The Company plans to invest $40.0 million to expand its Quebec Refinery from
160,000 barrels per day to 190,000 barrels per day to meet the growing demand in
eastern Canada. The expansion, which is still subject to permitting approvals,
is expected to further reduce operating and feedstock costs. The project is
included in the capital expenditures budget for 2000 and is slated for
completion in the latter part of 2001.
The Company is continually investigating strategic acquisitions and other
business opportunities, some of which may be material, that will complement its
current business activities.
The Company expects to fund its capital expenditures from cash provided by
operations and, to the extent necessary, from the proceeds of borrowings under
its bank credit facilities and its commercial paper program 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
FINANCING
As of March 31, 2000, the Company had cash and cash equivalents of $96.3
million. The Company currently has two committed, unsecured bank facilities
which provide a maximum of $700.0 million U.S. and $200.0 million Cdn. of
available credit, and a $700.0 million commercial paper program supported by the
committed, unsecured U.S. bank facility.
16
<PAGE> 17
As of March 31, 2000, the Company had borrowing capacity of approximately $663.5
million remaining under its committed bank facilities and commercial paper
program and had approximately $602.5 million under uncommitted, unsecured
short-term lines of credit with various financial institutions.
In addition to its bank credit facilities, the Company has $1.0 billion
available under universal shelf registrations previously filed with the
Securities and Exchange Commission. The net proceeds from any debt or equity
offering under the universal shelf registrations would add to the Company's
working capital and would be available for general corporate purposes.
The Company also has $75.7 million available pursuant to committed lease
facilities aggregating $355.0 million under which the lessors will construct or
acquire and lease convenience stores to the Company.
The bank facilities and other debt agreements require that the Company maintain
certain financial ratios and other restrictive covenants. The Company is in
compliance with such covenants and believes that such covenants will not have a
significant impact on the Company's liquidity or its ability to pay dividends.
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.
Effective March 29, 1999, the Company established a revolving accounts
receivable securitization facility (Securitization Facility) which provides the
Company with the ability to sell up to $250.0 million of accounts receivable on
an ongoing basis. In connection with the Securitization Facility, the Company
sells, on a revolving basis, an undivided interest in certain of its trade and
credit card receivables. The proceeds from the sale of accounts receivable,
which totaled $237.6 million during 1999, were used to reduce the Company's
outstanding indebtedness under its commercial paper program. At December 31,
1999 and March 31, 2000, the balance of receivables sold was $39.8 million. The
remaining availability under the Securitization Facility can be used should the
Company decide to sell additional receivables in the future.
As an alternative financing vehicle, the Company is considering the formation of
a master limited partnership (MLP), which would operate most of the Company's
pipeline and terminal assets. A wholly-owned subsidiary of the Company would be
the general partner of the MLP and operate the assets on its behalf. It is
contemplated that the MLP, through an initial public offering, would sell
limited partnership units to the public representing a minority of the ownership
interest. Management expects to form the MLP and complete the initial public
offering during the second half of 2000, subject to approval by the Board of
Directors, acceptable market conditions and other considerations.
EQUITY
On May 2, 2000, the Board of Directors declared a quarterly dividend of $0.275
per Common Share payable on June 1, 2000 to holders of record on May 18, 2000.
CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000
During the first quarter ended March 31, 2000, the Company's cash position
increased $3.5 million to $96.3 million. Net cash used in operating activities
was $148.0 million due to an increased investment in accounts and notes
receivable of $220.6 million resulting primarily from higher product prices in
the first quarter of 2000.
Net cash used in investing activities during the quarter ended March 31, 2000
totaled $30.3 million which included $26.6 million for capital expenditures and
$8.7 million for refinery maintenance turnaround costs.
Net cash provided by financing activities during the quarter ended March 31,
2000, totaled $181.8 million. During the quarter ended March 31, 2000, the
Company's commercial paper and short-term borrowings increased $207.2 million to
fund the higher investment in accounts and notes receivable explained above. The
Company also paid cash dividends totaling $23.9 million during the first quarter
of 2000.
17
<PAGE> 18
CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999
During the first quarter ended March 31, 1999, the Company's cash position
decreased $67.7 million to $108.4 million. Net cash provided by operating
activities was $171.5 million including the receipt of $222.0 million from the
sale of trade and credit card receivables under the Company's Securitization
Facility.
Net cash used in investing activities during the quarter ended March 31, 1999,
totaled $51.4 million including $35.3 million for capital expenditures and $18.3
million for refinery maintenance turnaround costs.
Net cash used in financing activities during the quarter ended March 31, 1999,
totaled $189.0 million, including payments to reduce short-term borrowings of
$162.6 million and for cash dividends totaling $23.8 million.
EXCHANGE RATES
The value of the Canadian dollar relative to the U.S. dollar has weakened
substantially since the acquisition of the Canadian operations in 1992. As the
Company's Canadian operations are in a net asset position, the weaker Canadian
dollar has reduced, in U.S. dollars, the Company's net equity at March 31, 2000,
by $84.2 million. Although the Company expects the exchange rate to fluctuate
during 2000, it cannot reasonably predict its future movement.
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 Canadian
operations. The potential impact on the refining margin of fluctuating exchange
rates together with U.S. dollar denominated crude oil costs is mitigated by the
Company's pricing policies in the Northeast System, which generally pass on any
change in the cost of crude oil. Retail 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 on the
increased costs to the ultimate consumer. The Company has considered various
strategies to manage currency risk, and it hedges the Canadian currency risk
when such hedging is considered economically appropriate.
See "Certain Forward-Looking Statements."
YEAR 2000 ISSUE
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, the Company does not expect any significant
impact to its ongoing business as a result of the Year 2000 issue.
See "Certain Forward-Looking Statements."
CERTAIN FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain "forward-looking" statements
as such term is defined in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Act of 1934, and information relating to the Company and
its subsidiaries that are based on the beliefs of management as well as
assumptions made by and information currently available to management. When used
in this report, the words "anticipate," "believe," "estimate," "expect," and
"intend" and words or phrases of similar expressions, as they relate to the
Company or its subsidiaries or management, identify forward-looking statements.
Such statements reflect the current views of management with respect to future
events and are subject to certain risks, uncertainties and assumptions relating
to the operations and results of operations, including as a result of
competitive factors and pricing pressures, shifts in market demand and general
economic conditions and other factors.
18
<PAGE> 19
Should one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in interest
rates, foreign currency rates and commodity prices related to crude oil, refined
products and natural gas. To manage or reduce these market risks, the Company
uses interest rate swaps, foreign exchange contracts, and commodity futures and
price swap contracts. The Company's policies allow using derivatives for the
purchase of physical quantities of crude oil and refined products as wells as
for the management of crude oil costs. Generally, the derivatives relate to an
underlying, offsetting position, anticipated transaction or firm commitment.
During 1999 and 2000, as part of the Company's crude oil procurement activities,
commodity futures contracts were used to manage the price of crude oil supplied
to its refineries. The Company has from time to time, on a very limited basis,
used derivative instruments for trading purposes; however, the gains and losses
from such activities have been immaterial. A discussion of the Company's primary
market risk exposures in derivative financial instruments is presented below.
INTEREST RATE RISK
The Company is subject to interest rate risk on its long-term fixed interest
rate debt. Commercial paper borrowings and borrowings under revolving credit
facilities do not give rise to significant interest rate risk because these
borrowings have maturities of less than three months. The carrying amount of the
Company's floating interest rate debt approximates fair value. Generally, the
fair market value of debt with a fixed interest rate will increase as interest
rates fall, and the fair market value will decrease as interest rates rise. This
exposure to interest rate risk is managed by obtaining debt that has a floating
interest rate or using interest rate swaps to change fixed interest rate debt to
floating interest rate debt. Since mid-1999, the Federal Reserve has raised
interest rates 0.25% on five different occasions and is biased towards continued
rate increases as long as the economy remains in an expansion mode. As a result,
the fair value of the Company's fixed rate debt is declining as shown in the
following tables.
The following table provides information about the Company's long-term debt and
interest rate swaps, both of which are sensitive to changes in interest rates.
For long-term debt, principal cash flows and related weighted average interest
rates by expected maturity dates, after consideration of refinancing, are
presented. For interest rate swaps, the table presents notional amounts and
weighted average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contract. Weighted average floating rates are based on implied forward
rates in the yield curve at March 31, 2000.
19
<PAGE> 20
<TABLE>
<CAPTION>
MARCH 31, 2000
--------------------------------------------------------------------------------------------------
EXPECTED MATURITY - YEAR ENDING DECEMBER 31,
--------------------------------------------------------------------------------------------------
THERE- FAIR
2000 2001 2002 2003 2004 AFTER TOTAL VALUE
--------- --------- --------- --------- --------- --------- --------- ---------
(in millions, except interest rates)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT:
Fixed rate ................ $ 12.6 $ 84.3 $ 284.7 $ 33.3 $ 0.5 $ 911.3 $ 1,326.7 $ 1,247.9
Average interest rate ... 8.9% 9.5% 8.7% 8.7% 7.7 7.6% 8.0% N/A
Floating rate ............. $ -- $ -- $ 219.9 $ -- $ -- $ -- $ 219.9 $ 219.9
Average interest rate ... --% --% 6.5% --% --% --% 6.5% N/A
INTEREST RATE SWAPS:
Fixed to floating ......... $ -- $ -- $ 200.0 $ -- $ -- $ 250.0 $ 450.0 $ 450.0
Average pay rate ........ 6.09% 6.73% 6.49% 6.82% 6.79% 7.06% 6.81% N/A
Average receive rate .... 6.43% 6.43% 6.43% 6.59% 6.59% 6.88% 6.69% N/A
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------------------------------------
EXPECTED MATURITY - YEAR ENDING DECEMBER 31,
------------------------------------------------------------------------------------------------
THERE- FAIR
2000 2001 2002 2003 2004 AFTER TOTAL VALUE
--------- --------- --------- ------- ------ ------- --------- ---------
(in millions, except interest rates)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT:
Fixed rate ................ $ 14.0 $ 84.5 $ 285.0 $ 33.5 $ 0.6 $ 911.4 $ 1,329.0 $ 1,295.2
Average interest rate ... 8.8% 9.6% 8.7% 8.8% 7.7% 7.6% 8.0% N/A
Floating rate ............. $ -- $ -- $ 12.6 $ -- $ -- $ -- $ 12.6 $ 12.6
Average interest rate ... --% --% 5.7% --% --% --% 5.7% N/A
INTEREST RATE SWAPS:
Fixed to floating ......... $ -- $ -- $ 200.0 $ -- $ -- $ 250.0 $ 450.0 $ 450.0
Average pay rate ........ 6.22% 6.91% 7.00% 7.09% 7.13% 7.50% 7.18% N/A
Average receive rate .... 6.43% 6.43% 6.43% 6.59% 6.59% 6.88% 6.69% N/A
</TABLE>
FOREIGN CURRENCY RISK
The Company periodically enters into short-term foreign exchange contracts to
manage its exposure to exchange rate fluctuations on the trade payables of its
Canadian operations that are denominated in U.S. dollars. These contracts
involve the exchange of Canadian and U.S. currency at future dates. Gains and
losses on these contracts generally offset losses and gains on the U.S. dollar
denominated trade payables. At March 31, 2000, the Company had commitments to
purchase $3.0 million of U.S. dollars. The Company's exposure to market risk is
minimal on these contracts as they matured on April 3, 2000.
The Company generally does not hedge for the effects of foreign exchange rate
fluctuations on the translation of its foreign results of operations or
financial position.
20
<PAGE> 21
COMMODITY PRICE RISK
The Company is subject to the market risk associated with changes in market
prices of its underlying crude oil, refined products and natural gas; however,
such changes in values are generally offset by changes in the sales price of the
Company's refined products. Price swaps are price hedges for which gains and
losses are recognized when the hedged transactions occur; however, losses are
recognized when future prices are not expected to recover.
During the quarter ended March 31, 2000, the Company purchased $1.1 billion of
crude oil to supply its various refineries. In conjunction with these purchases,
the Company entered into commodity futures contracts. The commodity futures
contracts are generally satisfied by the Company taking physical delivery of the
underlying crude oil or refined product; however, there are contracts which are
closed without taking physical delivery of the underlying barrels.
As of March 31, 2000, the Company did not hold any commodity futures contracts
not designated as hedges. However during the three months ended March 31, 2000,
the Company incurred a loss of $0.2 million associated with such contracts not
designated as hedges which are marked to market value and recognized currently
in cost of products sold.
As of March 31, 2000, the Company had outstanding commodity futures and price
swap contracts to buy $294.5 million and sell $281.7 million of crude oil and
refined products or to settle differences between a fixed price and market price
on aggregate notional quantities of 6.4 million barrels of crude oil and refined
products which will mature on various dates through June 2002. As of December
31, 1999, the Company had outstanding commodity futures and price swap contracts
to buy $351.8 million and sell $194.0 million of crude oil and refined products
or to settle differences between a fixed price and market price on aggregate
notional quantities of 6.4 million barrels of crude oil and refined products
which mature on various dates through June 2002. The fair value of commodity
futures contracts designated as hedges is based on quoted market prices. The
fair value of price swap contracts is determined by comparing the contract price
with current broker quotes for futures contracts corresponding to the period
that the anticipated transactions are expected to occur.
The information below reflects the Company's futures contracts and price swaps
that are sensitive to changes in crude oil or refined product commodity prices.
The tables present the notional amounts in barrels for crude oil and refined
product, the weighted average contract prices and the total contract amount by
expected maturity dates. Contract amounts are used to calculate the contractual
payments and quantity of barrels of crude oil or refined product to be exchanged
under the futures contract.
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------------------------------
FAIR
CARRYING VALUE WEIGHTED
AMOUNT AMOUNT CONTRACT CONTRACT AVERAGE
GAIN (LOSS) GAIN (LOSS) AMOUNT VOLUMES PRICE
----------- ----------- -------- ------- --------
(mbbl)
(in millions, except weighted average price)
<S> <C> <C> <C> <C> <C>
PROCUREMENT:
FUTURES CONTRACTS - LONG:
2000 ................... $ (3.1) $ (3.2) $154.5 6.4 $24.12
FUTURES CONTRACTS - SHORT:
2000 ................... 0.3 11.0 281.7 11.3 24.97
PRICE SWAPS:
2002 ................... (9.1) (8.0) 140.0 6.4 22.00
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------
FAIR
CARRYING VALUE WEIGHTED
AMOUNT AMOUNT CONTRACT CONTRACT AVERAGE
GAIN (LOSS) GAIN (LOSS) AMOUNT VOLUMES PRICE
----------- ----------- -------- -------- --------
(mbbl)
(in millions, except weighted average price)
<S> <C> <C> <C> <C> <C>
PROCUREMENT:
FUTURES CONTRACTS - LONG:
2000 ................... $ 0.9 $ 2.3 $ 211.8 9.5 $ 22.26
FUTURES CONTRACTS - SHORT:
2000 ................... 0.1 0.4 194.0 8.8 22.02
PRICE SWAPS:
2002 ................... (9.1) (19.9) 140.0 6.4 22.00
</TABLE>
22
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
EPA Region V v. Total Petroleum, Inc. (Alma Refinery) In April, 2000 the Company
settled an enforcement action that had been filed by Environmental Protection
Agency (EPA) Region V, in which the EPA alleged violations of the Clean Air Act
and Resource Conservation and Recovery Act in connection with the Company's
refinery in Alma, Michigan. The settlement agreement requires the Company to
fund $9.9 million of specific environmental and economic development projects
and to pay penalties of $4.0 million. These settlement amounts are fully
accrued.
Unocal Patent Infringement Action (Update) On March 29, 2000 the U. S. Court of
Appeals upheld a California trial court's decision that Unocal Corporation holds
a valid patent with respect to certain reformulated gasoline compositions, and
assessed damages of 5.75 cents per gallon for gasoline infringing on the patent.
The defendants in the suit, Arco, Chevron, Exxon Mobil, Shell, and Texaco, have
filed a petition for rehearing with the U.S. Court of Appeals. The Company is
not a party to the suit, and its exposure, if any, depends on numerous factors,
including the availability of alternate gasoline formulations and its ability to
recover any additional costs in the marketplace.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2000 Annual Meeting of Stockholders was held on May 2, 2000, in
Houston, Texas. At the meeting, the Company's stockholders elected four
directors to serve three-year terms expiring in 2003, approved the amendments to
the Company's Non-Employer Director Equity Plan, and ratified the appointment of
Arthur Andersen LLP to serve as independent accountants for the Company and its
subsidiaries for 2000.
The following tables summarize the number of votes cast for, against or
withheld, and number of abstentions as to each matter:
ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
Name Total Votes For Total Votes Withheld
<S> <C> <C>
Byron Allumbaugh 80,103,843 392,200
E. Glenn Biggs 80,108,518 387,525
Katherine D. Ortega 80,101,715 394,328
Madeleine Saint-Jacques 80,102,034 394,009
</TABLE>
APPROVAL OF AMENDMENTS TO THE COMPANY'S NON-EMPLOYER DIRECTOR EQUITY PLAN
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
78,121,904 2,205,926 168,213
</TABLE>
RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
80,342,583 81,057 72,403
</TABLE>
23
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Form of Ultramar Diamond Shamrock Corporation Intermediate Incentive
and Performance-Based Restricted Stock Plan
10.2 Form of Ultramar Diamond Shamrock Corporation Intermediate Incentive
and Performance-Based Restricted Stock Award Agreement
10.3 Form of Amendment to Ultramar Corporation Supplemental Executive
Retirement Plan
10.4 Form of Amendment to Diamond Shamrock, Inc. Supplemental Executive
Retirement Plan
10.5 Ultramar Diamond Shamrock Corporation Non-Employee Director Equity
Plan, as amended effective January 1, 2000 (incorporated by reference
to the Company's Definitive Schedule 14A Information filed March 21,
2000)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
24
<PAGE> 25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
BY: /s/ H. PETE SMITH
---------------------------------
H. PETE SMITH
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
MAY 12, 2000
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION
- ------- -----------
<S> <C>
10.1 Form of Ultramar Diamond Shamrock Corporation Intermediate
Incentive and Performance-Based Restricted Stock Plan
10.2 Form of Ultramar Diamond Shamrock Corporation Intermediate
Incentive and Performance-Based Restricted Stock Award Agreement
10.3 Form of Amendment to Ultramar Corporation Supplemental Executive
Retirement Plan
10.4 Form of Amendment to Diamond Shamrock, Inc. Supplemental
Executive Retirement Plan
10.5 Ultramar Diamond Shamrock Corporation Non-Employee Director
Equity Plan, as amended effective January 1, 2000 (incorporated
by reference to the Company's Definitive Schedule 14A Information
filed March 21, 2000)
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.1
ULTRAMAR DIAMOND SHAMROCK CORPORATION
INTERMEDIATE INCENTIVE AND
PERFORMANCE-BASED RESTRICTED STOCK PLAN
I. Purpose
The purpose of the Plan is to establish a program of incentive
compensation for certain designated executives, officers and other key employees
of the Company and its subsidiaries and divisions that is directly related to
the performance results of the Company and such employees. The Plan provides
"Intermediate Incentive Awards," "Performance-Based Restricted Stock Awards"
granted pursuant to the LTIP and "Excess Performance-Based Stock Awards," all
contingent upon continued employment and the Company meeting certain corporate
performance goals, to certain executives, officers and other key employees
selected by the Committee.
II. Definitions
"Affiliate" means (i) any entity that directly or indirectly is
controlled by, or is under common control with, the Company, and (ii) any entity
in which the Company has a significant equity interest, in either case as
determined by the Committee.
"Award Agreement" means the agreement between the Company and a
Participant reflecting the terms of the Participant's Intermediate Incentive
Award, Performance-Based Restricted Stock Award and Excess Performance-Based
Stock Award.
"Board" means the Board of Directors of the Company.
"Change in Control" means the occurrence of any of the following
events:
(a) the Company is merged, consolidated or reorganized with another
corporation or legal person, and as a result, less than 50% of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
voting stock of the Company immediately prior to such transaction;
(b) the Company sells or transfers all or substantially all of its
assets to any other corporation or other legal person, and as a result, less
than 50% of the combined voting power of the then-outstanding securities of such
corporation or person are held in the aggregate by the holders of voting stock
of the Company immediately prior to such sale;
(c) there is a report filed with the Securities and Exchange Commission
on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the Exchange Act, disclosing that any person (as
the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of securities representing 20% or more of the combined voting
power of the then-outstanding securities of the Company entitled to vote
generally in the election of directors of the Company;
<PAGE> 2
2
(d) the Company files a report or proxy statement with the Securities
and Exchange Commission pursuant to the Exchange Act disclosing in response to
Form 8-K or Schedule 14A (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have occurred or
will or may occur in the future pursuant to any then-existing contract or
transaction; or
(e) if during the period of two consecutive years individuals who at
the beginning of any such period constitute the directors of the Company cease
for any reason to constitute at least a majority thereof unless the election, or
the nomination for election by the Company's shareholders, of each director of
the Company first elected during such period was approved by a vote of at least
two-thirds of the directors of the Company then still in office who were
directors of the Company at the beginning of any such period (excluding for this
purpose the election of any new director in connection with an actual or
threatened election or proxy contest).
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board.
"Common Stock" means the common stock of the Company, par value $.01
per share.
"Company" means the Ultramar Diamond Shamrock Corporation, a Delaware
corporation, or any successor corporation.
"Designated Beneficiary" means the beneficiary or beneficiaries
designated in accordance with Article XI hereof to receive the amount, if any,
payable under the Plan upon a Participant's death.
"Effective Date" shall have the meaning set forth in Article XIX.
"Excess Performance-Based Stock Award" means the award of cash or
stock, as determined by the Committee, granted to a Participant based on the
Company's attainment of the Restricted Stock Performance Criteria established by
the Committee in accordance with Articles IV and VI in a manner which produces a
percentage of the Participant's Target Restricted Stock Award of greater than
100%, as further described in Article VI.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Intermediate Award Performance Criteria" means (i) annual percentage
growth in the Company's earnings before interest and taxes, excluding major
acquisitions and divestitures, and (ii) the Company's annual return on capital
employed, in each case as determined by the Committee.
"Intermediate Incentive Award" means a cash award, as determined by the
Committee, granted to a Participant based on the Company's attainment of the
<PAGE> 3
3
Performance Criteria established by the Committee in accordance with Articles IV
and V, as further described in Article IV.
"ITI Target Payout" means the amount of the target cash award
established by the Committee for each Participant granted an Intermediate
Incentive Award.
"LTIP" means the Ultramar Diamond Shamrock Corporation 1996 Long-Term
Incentive Plan.
"Participant" means any executive, officer or other key employee
designated by the Committee to participate in the Plan.
"Performance-Based Restricted Stock Award" means an award of restricted
stock, as determined by the Committee, granted to a Participant under and
pursuant to the terms and conditions of the LTIP, the vesting of which is based
on the Company's attainment of the Restricted Stock Performance Criteria
established by the Committee in accordance with Section 8 of the LTIP and
Articles IV and VI, as further described in Article VI.
"Performance Period" means the period during which performance is
measured to determine the level of attainment of an Intermediate Incentive
Award, a Performance-Based Restricted Stock Award or an Excess Performance-Based
Stock Award.
"Person" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
"Plan" means the Ultramar Diamond Shamrock Corporation Intermediate
Incentive and Performance-Based Restricted Stock Plan.
"Restricted Shares" means the shares of restricted Common Stock granted
to a Participant in accordance with Article VI.
"Restricted Stock Performance Criteria" means the total shareholder
return on the Common Stock, including dividends and price appreciation, as
determined by the Committee. "Restricted Stock Vesting Percentage" means the
percentage of a Participant's Target Restricted Stock Award which vests based
upon the level of attainment of Restricted Stock Performance Criteria.
"Target Restricted Stock Award" means number of Restricted Shares
granted under the Plan to a Participant at the beginning of a Performance Period
in the form of a Performance-Based Restricted Stock Award.
"Year" means the calendar year.
<PAGE> 4
4
III. Eligibility
Participants in the Plan shall be selected by the Committee from those
executives, officers and other key employees of the Company and its subsidiaries
whose efforts contribute materially to the success of the Company, as determined
by the Committee. No person shall be a Participant unless he or she is selected
by the Committee, in its sole discretion. No person shall at any time have the
right to be selected as a Participant or, having been selected as a Participant
for one Performance Period or one type of award, to be selected as a Participant
for any other Performance Period or for any other type of award.
IV. Administration
The Committee, in its sole discretion, will determine eligibility for
participation, establish the ITI Target Payout, Target Restricted Award, maximum
Intermediate Incentive Award and maximum Excess Performance-Based Stock Award
for each Participant, establish the level of Intermediate Award Performance
Criteria and Restricted Stock Performance Criteria resulting in the payment of
Intermediate Incentive Awards and Excess Performance-Based Stock Awards, and in
the vesting of Performance-Based Restricted Stock Awards, certify each
Participant's level of attainment of such performance criteria, the amount of
Intermediate Incentive Awards, Excess Performance-Based Stock Awards and
Restricted Stock Vesting Percentage for each Participant based upon such level
of attainment, and determine the portion of any Excess Performance-Based Stock
Award which shall be payable in the form of cash or Common Stock.
Except as otherwise herein expressly provided, full power and authority
to construe, interpret, and administer the Plan shall be vested in the
Committee, including the power to amend or terminate the Plan as further
described in Article XIV. Moreover, the Committee shall have, in respect of
Performance-Based Restricted Stock Awards, all of the power and authority
granted to it under the LTIP. The Committee may at any time adopt such rules,
regulations, policies or practices as, in its sole discretion, it shall
determine to be necessary or appropriate for the administration or performance
of its responsibilities under the Plan. The Committee may at any time amend,
modify, suspend, or terminate such rules, regulations, policies, or practices.
<PAGE> 5
5
V. Intermediate Incentive Awards
For each Participant granted an Intermediate Incentive Award, the
Committee shall establish (i) the Performance Period, (ii) the ITI Target Payout
for the Performance Period, (iii) the maximum amount of the Intermediate
Incentive Award for the Performance Period, and (iv) the level of Intermediate
Award Performance Criteria used to determine such ITI Target Payout and maximum
amount. Each of those items, as well as any other terms and conditions of a
Participant's Intermediate Incentive Award, shall be described in detail in the
Participant's Award Agreement. Intermediate Incentive Awards will be earned by
each Participant based upon the level of attainment of the Intermediate Award
Performance Criteria during the Performance Period. As soon as practicable after
the end of each period during the Performance Period for which any payment in
respect of Intermediate Incentive Awards may be made (generally after the end of
a calendar year or Company fiscal year, if different), the Committee shall
determine the level of attainment of the Intermediate Award Performance Criteria
for each Participant and the amount, if any, of the Intermediate Incentive Award
to be paid to each Participant. Intermediate Incentive Award amounts earned but
not yet paid shall not accrue interest.
If a Change in Control occurs during a Performance Period, each
Participant shall be entitled to receive, immediately prior to, upon the
consummation of or immediately following the Change in Control (as determined by
the Committee), in respect of each Intermediate Incentive Award, a lump sum cash
payment equal to 100 percent of the ITI Target Payout for such award, minus the
lesser of (i) any amount previously paid in respect of such award and (ii) the
amount which would have been previously paid in respect of such award had such
previous payments been at 100% of the ITI Target Payout. For purposes of
clarification, the meaning of the prior sentence is that any payment made in
respect of an Intermediate Incentive Award prior to a Change in Control shall be
ignored in determining the payment in respect of such award in connection with
the Change in Control to the extent that such prior payment represented more
than 100% of the ITI Target Payment for the period for which the payment was
made.
<PAGE> 6
6
VI. Performance-Based Restricted Stock Awards and Excess
Performance-Based Stock Awards
Each Performance-Based Restricted Stock Award shall be comprised of
that number of actual shares of restricted Common Stock equal to the
Participant's Target Restricted Stock Award, and shall be awarded pursuant to
the LTIP and subject to the terms and conditions thereof, as well as of this
Plan. For each Participant granted a Performance-Based Restricted Stock Award,
the Committee shall establish (i) the Performance Period, (ii) the Target
Restricted Stock Award, (iii) the level of Restricted Stock Performance Criteria
used to determine the Restricted Stock Vesting Percentage and (iv) the level of
the Restricted Stock Vesting Percentage determined by the attainment of the
Restricted Stock Performance Criteria. Each of these items, as well as any other
terms and conditions of a Participant's Performance-Based Restricted Stock
Award, shall be described in detail in the Participant's Award Agreement.
Performance-Based Restricted Stock Awards shall vest based upon the level of
attainment of the Restricted Stock Performance Criteria during the Performance
Period, and the resulting Restricted Stock Vesting Percentage. As soon as
practicable after the end of each period during the Performance Period for which
any portion of a Performance-Based Restricted Stock Award may vest (generally
after the end of a calendar year or Company fiscal year, if different), the
Committee shall determine the level of attainment of the Restricted Stock
Performance Criteria for each Participant, the associated Restricted Stock
Vesting Percentage and the number of Restricted Shares, if any, as to which the
restrictions thereon shall lapse.
At the discretion of the Committee, each Participant who is granted a
Performance-Based Restricted Stock Award may also be granted an Excess
Performance-Based Stock Award in respect of such Performance-Based Restricted
Stock Award. An Excess Performance-Based Stock Award shall entitle the
Participant to receive a payment based on the attainment of Restricted Stock
Performance Criteria resulting in a Restricted Stock Vesting Percentage of
greater than 100%. For each Participant granted an Excess Performance-Based
Stock Award, the Committee shall determine the Excess Performance-Based Stock
Award earned upon the attainment of various levels of the Restricted Stock
Performance Criteria at various times during the Performance Period. Such
determination, as well as any other terms and conditions of a Participant's
Excess Performance-Based Stock Award, shall be described in detail in the
Participant's Award Agreement. Such award shall be expressed in terms of shares
of Common Stock, based on a percentage of the Participant's Target Restricted
Stock Award. Payment of an Excess Performance-Based Stock Award shall be made in
the form of Common Stock or cash having a value equal to the shares of Common
Stock otherwise payable, in the discretion of the Committee.
If a Change in Control occurs during a Performance Period, all
restrictions on any Restricted Shares awarded to a Participant (i.e., the shares
comprising the Target Restricted Stock Award in respect of any outstanding
Performance-Based Restricted Stock Award) shall lapse immediately prior to the
Change in Control.
<PAGE> 7
7
If determined by the Committee and set forth in an Award Agreement, a
Participant shall be entitled to payment of dividends on the Restricted Shares
comprising his Performance-Based Restricted Stock Award, whether or not such
Restricted Shares have vested.
VII. Reorganization or Discontinuance
The obligations of the Company under the Plan shall be binding upon any
successor corporation or organization resulting from a merger, consolidation or
other reorganization of the Company, or upon any successor corporation or
organization succeeding to substantially all of the assets and business of the
Company. The Company will make appropriate provision for the preservation of
Participants' rights under the Plan in any agreement or plan which it may enter
into or adopt to effect any such merger, consolidation, reorganization or
transfer of assets.
VIII. Non-Alienation of Benefits
A Participant may not assign, sell, encumber, transfer or otherwise
dispose of any rights or interests under the Plan except by will or the laws of
descent and distribution. Any attempted disposition in contravention of the
preceding sentence shall be null and void.
IX. No Claim or Right to Plan Participation
No employee or other person shall have any claim or right to be
selected as a Participant under the Plan. Neither the Plan nor any action taken
pursuant to the Plan shall be construed as giving any employee any right to be
retained in the employ of the Company.
X. Taxes
The Company shall deduct from all amounts paid under the Plan all
federal, state, local and other taxes required by law to be withheld with
respect to such payments.
Performance-Based Restricted Stock Awards granted under the Plan are
intended to constitute "performance-based compensation" for purposes of Section
162(m) of the Code, by virtue of being granted under the LTIP, specifically
including Section 8 thereof.
<PAGE> 8
8
XI. Designation and Change of Beneficiary
Upon notice to a Participant by the Committee of his or her right to
receive an Intermediate Incentive Award, a Performance-Based Restricted Stock
Award and/or an Excess Performance-Based Stock Award, he or she may indicate a
designation of one or more persons as the Designated Beneficiary who shall be
entitled to receive the amount, if any, payable under the Plan upon the death of
the Participant. Such designation shall be in writing to the Committee. A
Participant may, from time to time, revoke or change his or her Designated
Beneficiary without the consent of any prior Designated Beneficiary by filing a
written designation with the Committee. The last such designation received by
the Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Participant's death, and in no event shall it be
effective as of a date prior to such receipt.
XII. Payments to Persons Other Than the Participant
If the Committee shall find that any person to whom any amount is
payable under the Plan is unable to care for his or her affairs because of
illness or accident, or is a minor, or has died, then any payment due to such
person or his or her estate (unless a prior claim therefor has been made by a
duly appointed legal representative) may, if the Committee so directs, be paid
to his or her spouse, a child, a relative, an institution maintaining or having
custody of such person, or any other person deemed by the Committee, in its sole
discretion, to be a proper recipient on behalf of such person otherwise entitled
to payment. Any such payment shall be a complete discharge of the liability of
the Company therefor.
XIII. No Liability of Committee Members
No member of the Committee shall be personally liable by reason of any
contract or other instrument related to the Plan executed by such member or on
his or her behalf in his or her capacity as a member of the Committee, nor for
any mistake of judgment made in good faith, and the Company shall indemnify and
hold harmless each employee, officer, or director of the Company to whom any
duty or power relating to the administration or interpretation of the Plan may
be allocated or delegated, against any cost or expense (including legal fees,
disbursements and other related charges) or liability (including any sum paid in
settlement of a claim with the approval of the Board of Directors) arising out
of any act or omission to act in connection with the Plan unless arising out of
such person's own fraud or bad faith.
XIV. Termination or Amendment of the Plan
The Committee may amend, suspend or terminate the Plan at any time;
provided, however, that no amendment or alteration shall be made that impairs
the rights of any Participant as to any outstanding Intermediate Incentive
Award, Performance-Based Restricted Stock Award or Excess Performance-Based
Stock Award without the Participant's consent.
<PAGE> 9
9
XV. Unfunded Plan
Participants shall have no right, title, or interest whatsoever in or
to any investments which the Company may make to aid it in meeting its
obligations under the Plan. Nothing contained in the Plan, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship between the Company and any Participant,
Beneficiary, legal representative or any other person. To the extent that any
person acquires a right to receive payments from the Company under the Plan,
such right shall be no greater than the right of an unsecured general creditor
of the Company. All payments to be made hereunder shall be paid from the general
funds of the Company and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such amounts except as
expressly set forth in the Plan.
The Plan is not intended to be subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
XVI. Governing Law
The terms of the Plan and all rights thereunder shall be governed by
and construed in accordance with the laws of the State of Delaware, without
reference to its principles of conflict of laws or such principles of any other
jurisdiction which could cause the application of the laws of any jurisdiction
other than the State of Delaware.
XVII. Severability
If any provision of the Plan or any award made hereunder is, becomes or
is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to
any Person or award, or would disqualify the Plan or any award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the award, such provision shall be stricken
as to such jurisdiction, Person or award and the remainder of the Plan and any
such award shall remain in full force and effect.
XVIII. Headings
Headings are used herein solely as a convenience to facilitate
reference and shall not be deemed in any way material or relevant to the
construction or interpretation of the Plan or any provision thereof.
<PAGE> 10
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XIX. Effective Date
The Plan shall be effective as of January 1, 2000 (the "Effective
Date").
XX. Expiration Date
No award shall be made under the Plan after the tenth anniversary of
the Effective Date.
As adopted by the Company pursuant to action of the Compensation Committee of
its Board of Directors at a meeting held on November 30, 1999.
By:
---------------------------------
<PAGE> 1
EXHIBIT 10.2
ULTRAMAR DIAMOND SHAMROCK CORPORATION
INTERMEDIATE INCENTIVE AND PERFORMANCE-BASED
RESTRICTED STOCK AWARD AGREEMENT
THIS AGREEMENT (the "Agreement") is made, effective as of February 7,
2000 (hereinafter the "date of grant"), between Ultramar Diamond Shamrock
Corporation (the "Company") and ____________ (the "Participant").
R E C I T A L S
WHEREAS, the Company maintains the Ultramar Diamond Shamrock
Corporation Intermediate Incentive and Performance-Based Restricted Stock Plan
(the "Plan"), which is incorporated into and forms a part of this Agreement; and
WHEREAS, the Committee has determined that it would be in the best
interests of the Company and the stockholders to grant the Intermediate
Incentive Award, Performance-Based Restricted Stock Award and Excess
Performance-Based Stock Award provided for herein to the Participant pursuant to
the Plan, the LTIP (as to the Performance-Based Restricted Stock Award) and the
terms set forth herein.
NOW, THEREFORE, IT IS AGREED, in consideration of the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms not otherwise defined herein
shall have the same meanings as in the Plan. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Disability" shall mean the Participant's incapacity due to physical or
mental illness to substantially perform his duties on a full-time basis for six
consecutive months or for 180 days in any 210 consecutive day period.
"Retirement" shall mean a Participant's (i) early retirement (retirement
from active employment with the Company or a subsidiary in accordance with the
early retirement provisions of a pension plan maintained by the Company or such
subsidiary); or (ii) normal retirement (retirement from active employment with
the Company or a subsidiary in accordance with the normal retirement provisions
of a pension plan maintained by the Company or such subsidiary).
Section 2. Terms of Intermediate Incentive Award.
(a) Performance Period. The Performance Period is the period beginning
on January 1, 2000 and ending on December 31, 2002.
(b) ITI Target Payout. The ITI Target Payout for the Performance Period
is $_____________.
<PAGE> 2
(c) Maximum Amount of Intermediate Incentive Award. The maximum amount
of the Intermediate Incentive Award for the Performance Period is 200% of
the ITI Target Payout, as further described herein.
(d) Intermediate Award Performance Criteria. The level of Intermediate
Award Performance Criteria used to determine the portion of the ITI Target
Payout earned by the Participant is set forth on Schedule A attached hereto
and made part of this Agreement.
(e) Intermediate Incentive Award.
(i) Except as otherwise provided herein, if the Total Company
Performance Percentage (determined in accordance with the Year 2 Matrix
on Schedule A) for the second year in the Performance Period (i.e.,
2001) is zero percent (0%), the Participant shall receive an
Intermediate Incentive Award for the Performance Period equal to the
product of (A) ITI Target Payout, multiplied by (B) the Total Company
Performance Percentage (determined in accordance with the Year 3 Matrix
on Schedule A); provided, that, in no event shall the maximum
Intermediate Incentive Award payable to the Participant for the
Performance Period exceed two hundred percent (200%) of the ITI Target
Payout. Such payment shall be made in cash as soon as practicable
following the end of the third year in the Performance Period (i.e,
2002) and the Committee's determination of the applicable Total Company
Performance Percentage.
(ii) Except as otherwise provided herein, if the Total Company
Performance Percentage (determined in accordance with the Year 2 Matrix
on Schedule A) for the second Year in the Performance Period (i.e.,
2001) is greater than zero percent (0%), the Participant shall receive
an Intermediate Incentive Award in respect of the second Year in the
Performance Period equal to fifty percent (50%) of the product of (A)
the ITI Target Payout, multiplied by (B) the Total Company Performance
Percentage (determined in accordance with the Year 2 Matrix on Schedule
A); and the Participant shall receive an Intermediate Incentive Award
for the third Year in the Performance Period equal to the product of
(C) the ITI Target Payout, multiplied by (D) the Total Company
Performance Percentage (determined in accordance with the Year 3 Matrix
on Schedule A), minus the amount of the Intermediate Incentive Award
earned for the second Year in the Performance Period, but in no event
shall the Intermediate Incentive Award for the third Year in the
Performance Period be less than $0. The payment referenced in the first
clause of the preceding sentence shall be made in cash as soon as
practicable following the end of the second year in the Performance
Period (i.e, 2001) and the Committee's determination of the applicable
Total Company Performance Percentage, and the payment referenced in the
second clause of the preceding sentence shall be made in cash as soon
as practicable following the end of the third year in the Performance
Period (i.e, 2002) and the
<PAGE> 3
Committee's determination of the applicable Total Company Performance
Percentage.
(f) Termination of Employment. If the Participant's employment with
the Company or any of its Affiliates terminates after the first quarter of
the second year of the Performance Period on account of the Participant's
Retirement, Disability or death, the Participant (or his estate or
Designated Beneficiary, if applicable) shall be entitled to a pro-rata
portion of the remaining Intermediate Incentive Award earned in accordance
with Section 2(e) of this Agreement, determined at the end of the
Performance Period, and based on the ratio of the number of whole calendar
months the Participant was employed during the Performance Period and the
total number of calendar months in the Performance Period through the end
of the year in which the Participant's employment with the Company
terminated. If the Participant's employment with the Company or any of its
Affiliates terminates under any other circumstances, any unpaid
Intermediate Incentive Award will be forfeited on the date of such
termination of employment; provided, however, the Committee may, in its
sole discretion, determine that the Participant will be entitled to receive
a pro-rata or other portion of the Intermediate Incentive Award.
(g) Change in Control. Notwithstanding any provision of this Agreement
to the contrary, if a Change in Control occurs during the Performance
Period, the Performance Period will be deemed to end on the effective date
of the Change in Control and the Participant shall be entitled to receive a
lump sum cash payment determined in accordance with the second paragraph of
Article V of the Plan.
Section 3. Performance-Based Restricted Stock Award.
(a) Performance Period. The Performance Period is the period beginning
on January 1, 2000 and ending on December 31, 2002.
(b) Target Restricted Stock Award. The Target Restricted Stock Award
for the Performance Period is __________ Restricted Shares.
(c) Restricted Stock Performance Criteria. The level of Restricted
Stock Performance Criteria used to determine the Restricted Stock Vesting
Percentage, and the Restricted Stock Vesting Percentage determined by the
attainment of the Restricted Stock Performance Criteria, is set forth on
Schedule B attached hereto and made part of this Agreement.
(d) Performance-Based Restrictive Stock Award. The Participant is
hereby granted a number of Restricted Shares equal to the Target Restricted
Stock Award pursuant to and subject to the terms and conditions of the
LTIP, this Agreement and the Plan. The purchase price to the Participant of
such Restricted Shares is zero. Any Restricted Shares which have not become
vested in accordance with such terms and conditions shall remain subject to
the restrictions on transferability described in Section 3(j) of this
Agreement, and the forfeiture conditions described in Section 3(f) and (g)
of this Agreement.
<PAGE> 4
(e) Vesting of Restricted Shares. For each of the three calendar years
in the Performance Period, the Participant shall become contingently vested
in a number of Restricted Shares equal to the product of (i) the Restricted
Stock Vesting Percentage for such year (determined by the TSR Percentage
Point Spread for such year in accordance with the "Total Shareholder Return
Incentive Scale" set forth on Schedule B), but not greater than 100%,
multiplied by (ii) one-third (1/3) of the Target Restricted Stock Award.
Other than as described in Section 3(f) below, such contingently vested
Restricted Shares shall become actually vested as of the last day of the
Performance Period, provided that the Participant remains actively employed
with the Company and its Affiliates through the last day of the Performance
Period.
In addition, at the end of the Performance Period the Participant shall
have the opportunity to become vested in those Restricted Shares which have
not become vested in accordance with the preceding paragraph, by applying
the following formula:
A = (B x C) - D
where:
A = the number of additional Restricted Shares vesting at the end of
the Performance Period in accordance with this paragraph, but not
less than zero or greater than the number of unvested Restricted
Shares at the end of the Performance Period.
B = the Restricted Stock Vesting Percentage based on the TSR Percentage
Point Spread for the entire Performance Period in accordance with
the "Total Shareholder Return Incentive Scale" set forth on
Schedule B (with no cap other than as set forth in Schedule B).
C = the number of Restricted Shares in the Target Restricted Stock
Award.
D = the number of Restricted Shares which would have become vested
during the Performance Period in accordance with the first
paragraph of this Section 3(e) if the 100% cap had not applied to
the Restricted Stock Vesting Percentage during the Performance
Period. For example, if one-third of the Participant's Restricted
Shares for 2001 was 200, and the Restricted Stock Vesting
Percentage would have been 120% but for the 100% cap, the
Participant will be deemed to have vested in 240 Restricted Shares
for that year for purposes of this clause.
(f) Termination of Employment. If the Participant's employment with
the Company and its Affiliates terminates during the Performance Period on
account of the Participant's Retirement, Disability or death, the
Participant (or his estate or Designated Beneficiary, if applicable) shall
actually vest in any Restricted Shares
<PAGE> 5
which are contingently vested in accordance with the first paragraph of
Section 3(e) as soon as practicable following the end of the calendar year
of such termination. In addition, if the Participant's employment is
terminated on account of Retirement, Disability or death after the first
quarter of a calendar year, the Participant (or his estate or Designated
Beneficiary, if applicable) shall become vested in a pro-rata portion of
the Restricted Shares which otherwise would become contingently vested in
accordance with the first paragraph of Section 3(e) of this Agreement for
such year, based on the ratio of the number of whole calendar months the
Participant was employed during such year to the total number of months in
such year (which is 12) (the "Termination Year Restricted Shares"). The
Termination Year Restricted Shares shall either (i) vest in accordance with
the first paragraph of Section 3(e) as soon as practicable following the
end of the calendar year of such termination, or (ii) to the extent such
vesting is not attained, forfeit and be returned to the Company as of the
last day of the calendar year of such termination. Any Restricted Shares
which are not (X) Termination Year Restricted Shares or (Y) contingently
vested in the case of a termination on account of Retirement, Disability or
death, shall forfeit and be returned to the Company on the date of the
Participant's termination of employment; provided, however, the Committee
may, in its sole discretion, determine that the Participant will become
vested in a pro-rata or other portion of the Restricted Shares upon his
termination of employment.
(g) Forfeiture of Restricted Shares at the End of the Performance
Period. If the Participant remains employed with the Company or an
Affiliate through the Performance Period, all Restricted Shares which have
not vested in accordance with Section 3(e) as of the last day of the
Performance Period shall be forfeited and returned to the Company as of
such day.
(h) Certificates. Certificates evidencing the Restricted Shares shall
be issued by the Company and shall be registered in the Participant's name
on the stock transfer books of the Company on or as soon as practicable
following the date hereof, but shall remain in the physical custody of the
Company or its designee at all times prior to the vesting of such
Restricted Shares, following which such certificates shall be delivered to
the Participant. Notwithstanding any provision of this Agreement to the
contrary, cash, rather than certificates, shall be issued for fractional
Shares.
(i) Legend on Certificates. The certificates representing the vested
Restricted Shares delivered to the Participant in accordance with Section
3(h) shall be subject to such stop transfer orders and other restrictions
as the Committee may deem advisable under the Plan, the LTIP or the rules,
regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions.
(j) Transferability. The Restricted Shares may not, at any time prior
to becoming vested hereunder, be assigned, alienated, pledged, attached,
sold or
<PAGE> 6
otherwise transferred or encumbered by the Participant and any such
purported assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate; provided that the designation of a Designated Beneficiary shall
not constitute an assignment, alienation, pledge, attachment, sale,
transfer or encumbrance.
(k) Securities Laws. Upon the vesting of any Restricted Shares, the
Participant will make or enter into such written representations,
warranties and agreements as the Committee may reasonably request in order
to comply with applicable securities laws or with this Agreement.
(l) Change in Control. Notwithstanding any provision of this Agreement
to the contrary, if a Change in Control occurs during the Performance
Period, the Performance Period will be deemed to end on the effective date
of the Change in Control and the Participant shall become vested in all
unvested Restricted Shares immediately prior to the Change in Control.
(m) Rights of a Stockholder. Except as otherwise provided in this
Agreement, the Participant shall have, with respect to all Restricted
Shares granted pursuant to this Agreement (whether or not vested), all of
the rights of a stockholder of the Company, including the right to vote the
Restricted Shares and to receive any cash dividends.
Section 4. Excess Performance-Based Stock Award. In the event the
Restricted Stock Vesting Percentage for any of the first, second or third
calendar year in the Performance Period exceeds one hundred percent (100%), the
Participant shall be entitled to receive an Excess Performance-Based Stock Award
in the form of a lump sum payment in respect of such calendar year, payable in
the form of either shares of Common Stock or cash equal to the fair market value
(as determined by the Committee) at the time of payment of a number of shares of
Common Stock, determined by multiplying one-third (1/3) of the Target Restricted
Stock Award by the excess of (i) the actual Restricted Stock Vesting Percentage
for the year, minus (ii) one hundred percent (100%). Such payment in respect of
all calendar years in the Performance Period shall be made as soon as
practicable after the end of the Performance Period. The terms and conditions of
the payment of an Excess Performance-Based Stock Award, including the conditions
under which it may be paid or forfeited upon termination of employment, shall be
as close as is practicable to those pursuant to which the Performance-Based
Restricted Stock Award becomes vested or forfeits in accordance with Section 3,
as determined in good faith by the Committee.
Section 5. No Right to Continued Employment. Neither the Plan nor this
Agreement shall be construed as giving the Participant the right to be retained
in the employ of the Company or any Affiliate. Further, the Company or an
Affiliate may at any time dismiss the Participant, free from any liability or
any claim under the Plan or this Agreement, except as otherwise expressly
provided herein.
Section 6. Withholding. The Participant agrees to make appropriate
arrangements with the Company for satisfaction of any applicable federal, state
or local
<PAGE> 7
income tax, withholding requirements or like requirements, including the payment
to the Company upon the vesting of the Restricted Shares (or such later date as
may be applicable under Section 83 of the Code), or other settlement in respect
of, the Restricted Shares of all such taxes and requirements and the Company
shall be authorized to take such action as may be necessary in the opinion of
the Company's counsel (including, without limitation, withholding vested
Restricted Shares or cash otherwise deliverable to Participant hereunder and/or
withholding amounts from any compensation or other amount owing from the Company
to the Participant) to satisfy all obligations for the payment of such taxes.
Section 7. Notices. Any notice necessary under this Agreement shall be
addressed to the Company in care of its Secretary at the principal executive
office of the Company and to the Participant at the address appearing in the
personnel records of the Company for such Participant or to either party at such
other address as either party hereto may hereafter designate in writing to the
other. Any such notice shall be deemed effective upon receipt thereof by the
addressee.
Section 8. Choice of Law. THE INTERPRETATION, PERFORMANCE AND ENFORCEMENT
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT
REGARD TO IT PRINCIPLES OF CONFLICTS OF LAW, OR SUCH PRINCIPLES OF ANY OTHER
JURISDICTION WHICH COULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF DELAWARE.
Section 9. Awards Subject to Plan, Etc. By entering into this Agreement the
Participant agrees and acknowledges that the Participant has received and read a
copy of the Plan. The Intermediate Incentive Award, the Performance-Based
Restricted Stock Award and the Excess Performance-Based Stock Award are subject
to the Plan, and the Performance-Based Restricted Stock Award is further subject
to the LTIP. The terms and provisions of the Plan, and the LTIP to the extent
applicable, as each may be amended from time to time are hereby incorporated
herein by reference. In the event of a conflict between any term or provision
contained herein and a term or provision of the Plan or the LTIP, the applicable
terms and provisions of the Plan or the LTIP will govern and prevail.
Section 10. Signature in Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
By:
Title:
[Name of Participant]
<PAGE> 1
Exhibit 10.3
AMENDMENT TO ULTRAMAR CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Ultramar Diamond Shamrock Corporation, a Delaware corporation, pursuant
to authority granted by its Board of Directors, hereby adopts the following
amendments to the Ultramar Corporation Supplemental Executive Retirement Plan.
Such amendments shall be effective as of May 1, 2000, subject to such further
limitations and restrictions as are set forth below.
1. The first sentence of Section 4.1(c) (defining "Average Annual Compensation")
is amended and restated in its entirety, effective for any person who remains
employed by Ultramar Diamond Shamrock Corporation on the date set forth above,
as follows:
"AVERAGE ANNUAL COMPENSATION" shall be determined in the same manner as
under the Pension Plan except as otherwise set forth herein, and
provided that, Average Annual Compensation shall also include an
"average bonus" if (i) the Participant's employment with a
Participating Employer is terminated for any reason other than Cause on
or after the first day of the month in which he attains age fifty-five
(55) or (ii) the Participant remains employed with the Company (or any
subsidiary or affiliate of the Company) upon the occurrence of a Change
in Control.
2. Clause (i) of Section 4.1(m) (defining "SERP Interest Rate"), is amended and
restated, in its entirety, as follows:
(i) with respect to the computation of the amount of a lump sum benefit
upon a Change in Control under Section 4.2(e), the interest rate issued
by the Pension Benefit Guaranty Corporation for private sector lump sum
payments, as such rate is in effect on the first day of the calendar
year that contains the date of the distribution.
3. Section 4.1(q)(defining "Trust") is amended and restated in its entirety, as
follows:
(q) "TRUST" shall mean the Ultramar Diamond Shamrock
Corporation Benefits Trust between the Company and Sterling National
Bank and Trust Company of New York, as it may be amended from time to
time.
4. The first sentence of Section 4.2(b) is amended and restated, in its
entirety, as follows:
A Participant who retires from employment with a Participating Employer
(other than on account of a termination for Cause) on or after the
first day of the month following his attainment of age sixty-two (62)
(with the determination of such Participant's then age calculated by
taking into account any additional years considered added to such
Participant's actual age pursuant to the terms of any separate
agreement between the Participant and the Company pertaining to such
person's participation in the SERP) and who is entitled to a benefit
under the Pension Plan shall be entitled to receive the greater of the
Supplemental Pension determined under Section 4.2(a) or this Section
4.2(b).
<PAGE> 2
2
5. The first sentence of clause (ii) of Section 4.2(e) is amended and restated,
in its entirety, effective for any person who remains employed by Ultramar
Diamond Shamrock Corporation on the date set forth above, as follows:
If there is a Change in Control, each Participant who remains employed
by the Company (or any subsidiary or affiliate) on the Change in
Control Date shall be (i) one hundred percent (100%) vested in his
Supplemental Pension and (ii) paid a single lump sum payment in cash
equal to the Actuarial Equivalent lump sum value of his Supplemental
Pension, determined as of the date of the Change in Control using the
SERP Interest Rate and SERP Mortality Table, in lieu of all other
benefits under the SERP; provided that any amendment of the SERP made
within the six-month period ending on the effective date of the Change
in Control shall be ignored for purposes of computing the amount of the
lump sum payment under this clause (ii) to the extent that the
application of such amendment would cause the amount of the lump sum to
be less than that computed without application of such amendment.
6. Section 4.4(a) is amended and restated, in its entirety, as follows:
(a) Any benefit payable to a Participant or Spouse hereunder
shall be paid by the Company. Notwithstanding the foregoing, such
benefits shall instead be paid from the Trust, under such circumstances
(including a Change in Control) as are specified under the terms of the
Trust. To the extent that the Trust does not pay the benefits under the
SERP to which any Participant (or Spouse) is entitled, the Company
remains responsible to do so. Moreover, all assets of the Trust remain,
at all times, subject to the claims of the Company's creditors in the
event of the Company's insolvency, and no Participant (or any Spouse
thereof) shall, at any time, have a prior claim to any Trust assets.
7. Section 4.5 is amended and restated, in its entirety, effective for any
person who remains employed by Ultramar Diamond Shamrock Corporation on the date
set forth above, as follows:
4.5 ADDITIONAL TERMS. A Participant shall, subject only to the
provisions of Section 15, which shall govern in the event of any
conflict, receive such additional terms (including, but not limited to,
years of age and/or service for vesting and/or benefit accrual purposes
under the SERP) as determined by the Committee, in its sole discretion.
8. A new Section 15 is added, effective for any person who remains employed by
Ultramar Diamond Shamrock Corporation on the date set forth above, as follows:
15. Special Change in Control Provisions.
(a) The provisions of this Section 15 shall apply
with respect to each Participant in the group listed in
subsection (b) hereof (each, hereafter, a "Covered
Participant") who, except as otherwise provided in this
Section 15, remains employed by the Company (or any subsidiary
or affiliate of the Corporation) (collectively, "UDS") upon
the occurrence of a Change in Control. The provisions of this
Section 15 shall apply, notwithstanding any other provision of
the SERP to the contrary.
<PAGE> 3
3
(b)The Covered Participants, identified by social security number, are as
follows:
[Jean Gaulin]
[Christopher Havens]
[H. Pete Smith]
(c) For purposes of this Section 15, the term "SERP Side Letter" means,
with respect to any Covered Participant, that separate agreement between such
person and the Company pertaining to such person's participation in the SERP, as
such agreement may be amended from time to time.
(d) Notwithstanding any provisions of the SERP (or of any particular
Covered Participant's SERP Side Letter) to the contrary, the amount of any lump
sum otherwise payable to such person under the SERP on account of being employed
by UDS upon the occurrence of a Change in Control shall be determined in the
following steps, with the lump sum being the amount determined under the
following clause (ii):
(ii) Determine the amount of the annual SERP benefit which would
otherwise be immediately payable to such person, starting on the
Change in Control Date, and determined as if such person
terminated employment on the Change in Control Date, and after
taking into account the foregoing provisions of the SERP, as well
as such person's SERP Side Letter (other than any provision
thereof relating to the conversion of such annual SERP benefit
into a lump sum amount); provided, however, that in making such
determination, in the event that such person is under age
sixty-two (62) on the Change in Control Date, (A) the Pension
Plan benefit and the Other Pension Benefits otherwise taken into
account in such determination shall be the amount of such
respective benefits otherwise payable to such person at age
sixty-two (62) , but with such benefit amounts determined as if
such person terminated employment on the Change in Control Date,
and (B) there shall be no reduction on account of early payment
of the SERP benefit pursuant to the provisions of Section 4.2(c)
(or otherwise).
(ii) Determine the immediate present value, based upon such Covered
Participant's actual age on the Change in Control Date, of the
annual benefit amount, calculated under the foregoing clause (i),
which would otherwise be paid to such person, starting on the
Change in Control Date, with such present value being determined
using the interest rate and mortality table set forth in Section
4.1(m)(i) and Section 4.1(n)(i), respectively (except to the
extent that a larger lump sum would result from using the
interest rate and mortality table set forth in Section 4.1(m)(ii)
and Section 4.1(n)(ii), respectively, in which event the interest
rate and mortality table set forth in Section 4.1(m)(ii) and
Section 4.1(n)(ii), respectively, shall instead apply).)
<PAGE> 4
4
(e) Attached to the SERP, as Exhibit A, is a separate schedule for each
Covered Participant illustrating the manner, in accordance with the forgoing
provisions of this Section 15 and the other provisions of the SERP (and the
terms of such person's SERP Side Letter, as such agreement may be modified
pursuant to the foregoing provisions of this Section 15), in which the lump sum
payment to such person with respect to the SERP would, in the event that such
person remains employed by UDS upon the occurrence of a Change in Control, be
calculated for such person, assuming that (I) the Change in Control Date occurs
on December 31, 2000, (II) such lump sum distribution also occurs on that date
and (III) such person remains employed by UDS on that date. In the event of a
Change in Control occurring on December 31, 2000, the amount of the lump sum
payable to any Covered Participant who remains employed by UDS on such date
shall (assuming such lump sum is also paid on that same date) be the amount set
forth with respect to such person in the relevant attached schedule. In the
event that a Change in Control Date occurs on some other date, the methodology
set out in such schedules shall be dispositive in resolving any issues which may
arise in connection with determining the amount of the lump sum otherwise
payable to any such Covered Participant who so remains employed by UDS upon the
occurrence of such other Change in Control Date.
(f) If a Covered Participant who receives a lump sum distribution on
account of being employed by UDS on a Change in Control Date continues to be
employed by UDS and thereafter becomes entitled to a subsequent distribution
with respect to the SERP, the amount of such subsequent SERP benefit, expressed
as an annual benefit, which annual benefit is the starting point in determining
the amount of such subsequent distribution, shall be equal to the excess of:
(i) the amount of the annual SERP benefit, otherwise payable at that
time (or, at age sixty-two (62), in the event that such person is
then under age sixty-two (62), determined under the SERP and after
taking into account the provisions of such person's SERP Side
Letter, over
(ii) the amount of the annual SERP benefit which was taken into account
under clause (i) of the subsection (d) of this Section 15 as the
starting point in determining the amount of such prior lump sum
distribution.
In all other respects, the amount of any subsequent distribution shall
be determined in accordance with such rules of uniform application as may be
established by the Compensation Committee.
(g) Notwithstanding any other provision of the SERP (or of the Covered
Participant's SERP Side Letter) to the contrary, in the event of such person's
"involuntary termination, other than for Cause" (as those terms are defined
under such person's employment agreement with the Company), in anticipation of a
Change in Control:
<PAGE> 5
5
(i) the foregoing provisions of this Section 15, and all other
provisions of the SERP (and of such person's SERP Side Letter)
shall apply to such person to the same extent as if a Change in
Control had, solely with respect to such person, occurred on the
date immediately preceding the date on which such person is so
terminated from employment, and
(ii) such Participant's benefit under the Pension Plan, for purposes of
determining the offset under Section 4.2(a), Section 4.2(b) and
such person's SERP Side Letter for such person's Pension Plan
benefit, to the extent otherwise applicable, shall be computed by
including the additional years of age and service credit which
were (or will be) taken into account, pursuant to the provisions
of Section 5.5(i)(a)(3) of such Participant's employment agreement
with the Company, in computing the amount of the lump sum payment
made (or to be made) to such Participant in lieu of an actual
increase in such Participant's benefit under the Pension Plan.
(h) If that Covered Participant whose social security number is
[Christopher Havens] remains employed with UDS on the Change in Control Date,
determined without regard to the foregoing subsection (e), such person shall
receive a lump sum payment of $500,000 upon the earlier of:
(i) such person's "involuntary termination, other than for Cause," as
those terms are defined under the employment agreement between
such person and the Company; provided, however, that an
"involuntary termination" shall not be deemed to have occurred for
purposes of this clause (i) in the event that such person
voluntarily terminates employment on account of a significant
reduction, occurring not later than the Change in Control Date, in
such person's duties or the addition, occurring not later than the
Change in Control Date, of duties which, in either case, are
materially inconsistent with such person's then title or position,
such that no amount shall be paid pursuant to this subsection (h)
to such person; and further, provided, however, that an
"involuntary termination" shall be deemed to have occurred for
purposes of this clause (i) in the event that such person
voluntarily terminates employment on account of a significant
reduction, occurring subsequent to the Change in Control Date, in
such person's duties or the addition, occurring subsequent to the
Change in Control Date, of duties which, in either case, are
materially inconsistent with such person's title or position as in
effect on the Change in Control Date, such that an amount shall be
paid pursuant to this subsection (h) to such person, or
(ii) twelve months following the Change in Control Date, provided such
person is still employed by UDS on such date.
No amount shall be payable pursuant to this subsection (h) in the event that
such Covered Participant terminates employment prior to the date set forth in
the foregoing clause (ii) for any reason not described in the foregoing clause
(i).
<PAGE> 6
6
Any amount otherwise payable pursuant to this subsection (h) to such
Covered Participant (i) shall not be reduced by any amounts previously paid to
such person pursuant to any other provision of the SERP and (ii) shall be
disregarded in determining the amount of any future benefits otherwise payable
to such person pursuant to any other provision of the SERP.
(i) Notwithstanding any other provision of the SERP to the contrary, to
the extent that any subsequent amendment to this Section 15 would adversely
affect the determination of any particular Covered Participant's SERP benefit,
such amendment shall be effective with respect to such person only if such
person consents, in writing, to the application of such amendment, other than an
amendment to subsection (f) of this Section 15, as to which the consent of
Covered Participants shall not be required.
Ultramar Diamond Shamrock Corporation
By:
Accepted and agreed to with respect to the
calculation of their benefits under the
Ultramar Corporation Supplemental Retirement
Plan
By:
---------------------------------
Jean Gaulin
By:
---------------------------------
Christopher Havens
By:
---------------------------------
H. Pete Smith
<PAGE> 1
Exhibit 10.4
AMENDMENT TO DIAMOND SHAMROCK, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Ultramar Diamond Shamrock Corporation, a Delaware corporation, pursuant
to authority granted by its Board of Directors, hereby adopts the following
amendments to the Diamond Shamrock, Inc. Supplemental Executive Retirement Plan
(the "DS SERP"). Such amendments shall be effective as of May 1, 2000, subject
to such further limitations and restrictions as are set forth below.
1. The version of Section 2(a) (defining "Average Monthly Compensation") which
applies to any employee who was designed a Participant in the Plan on or after
December 5, 1995 shall similarly apply to each employee who (i) was designed a
Participant in the Plan prior to December 5, 1995 and (ii) remains employed by
Ultramar Diamond Shamrock Corporation on the date set forth above.
2. The version of Section 2(b) (defining "Basic Compensation") which applies to
any employee who was designed a Participant in the Plan on or after December 5,
1995 still similarly apply to each employee who (i) was designed a Participant
in the Plan prior to December 5, 1995 and (ii) remains employed by Ultramar
Diamond Shamrock Corporation on the date set forth above.
3. Section 2(f) is amended and restated, in its entirety, effective for any
person who remains employed by Ultramar Diamond Shamrock Corporation on the date
set forth above, as follows:
(f) "Change in Control" shall mean the occurrence of any event which
constitutes a "Change in Control" under the Ultramar Corporation
Supplemental Executive Retirement Plan.
4. Section 2(g) is amended and restated, in its entirety, as follows:
(g) "Corporation" means Ultramar Diamond Shamrock Corporation, a
Delaware corporation.
5. Section 4(b) is amended and restated, in its entirety, as follows:
Notwithstanding the provisions of Section 4(a) hereof, the Corporation
has established a trust to provide for the payment of benefits due
under the Plan (hereafter, the "Trust"), under such circumstances
(including a Change in Control) as are specified under the terms of the
Trust. The trustee of the Trust is Sterling National Bank and Trust
Company of New York. To the extent that the Trust does not pay the
benefits under the Plan to which any Participant (or beneficiary
thereof) is entitled, the Corporation remains responsible to do so.
Moreover, all
<PAGE> 2
2
assets of the Trust remain, at all times, subject to the claims of the
Corporation's creditors in the event of the Corporation's insolvency,
and no Participant (or any beneficiary thereof) shall, at any time,
have a prior claim to any Trust assets.
6. A new final sentence is added to Section 9(d), as follows:
Notwithstanding any other provision of the Plan to the contrary, the
foregoing provisions of this subsection (d) shall so apply with respect
to any Participant (or any beneficiary thereof) only if such
Participant otherwise consents, in a writing in accordance with the
requirements of Section 12.11 of such Participant's employment
agreement with the Corporation, to such application of Dialogue.
7. A new Section 14 is added, effective for any person who remains employed by
Ultramar Diamond Shamrock Corporation on the date set forth above, as follows:
14. Special Change in Control Provisions.
(a) The provisions of this Section 14 shall apply with respect
to each Participant in the group listed in subsection (b) hereof (each,
hereafter, a "Covered Participant") who, except as otherwise provided
in this Section 14, remains employed by the Corporation (or any
subsidiary or affiliate of the Corporation) (collectively, "UDS") upon
the occurrence of a Change in Control (with the date on which such
Change of Control occurs being hereafter referred to as the "Change in
Control Date"). The provisions of this Section 14 shall apply,
notwithstanding any other provision of the Plan to the contrary.
(b) The Covered Participants, identified by social security
number, are as follows:
[William R. Klesse]
[R. S. Beadle]
[Timothy J. Fretthold]
[W. Paul Eisman]
[H. Pete Smith]
(c) Each Covered Participant who remains employed with UDS on
the Change in Control Date shall, within thirty (30) days following
such date, receive a lump sum distribution on account of such person's
participation in the Plan, in an amount determined under whichever of
the following subsections (f), (g) or (h) shall apply with respect to
such person.
(d) The Average Monthly Compensation of each Covered
Participant who remains employed with UDS on the Change in Control Date
shall, for all purposes of the Plan, be determined with the following
modifications:
(i) the "considered period" (as that phrase is otherwise used in
the definition of Average Monthly Compensation) shall
include the calendar year in which the Change in Control
Date occurs, as well as each of the two immediately
succeeding years,
(ii) such Covered Participant's Basic Compensation for each of
these three calendar years shall be deemed equal to the
Basic Compensation paid to such Participant during the
calendar year
<PAGE> 3
3
immediately preceding the calendar year in which the
Change in Control Date occurs, and
(iii) such Covered Participant's Incentive Compensation earned
with respect to each of these three calendar years shall
be deemed equal to such Participant's Incentive
Compensation earned with respect to the calendar year
immediately preceding the calendar year in which the
Change in Control Date occurs.
The aforementioned provisions of this subsection (d) shall also apply
in determining the amount of any subsequent distribution to which such
person may otherwise be entitled, except to the extent that such person
would receive a larger such distribution in the absence of the
application of this subsection (d) to such subsequent distribution.
(e) The following definitions shall apply for purposes of this
Section 14:
(i) "PBGC Factors" shall, with respect to any Covered
Participant, mean (I) the interest rate issued by the
Pension Benefit Guaranty Corporation for private sector
lump sum payments, as such rate is in effect on the first
day of the calendar year in which the Change in Control
Date occurs and (II) the Unisex Pension 1984 (1, -3)
mortality table.
(ii) "GATT Factors" shall, with respect to any Covered
Participant, mean the annual interest rate on 30-year
United States Treasury securities, as specified by the
Commissioner of Internal Revenue, for the month of
December in the calendar year preceding the calendar year
in which the Change in Control Date occurs and (II) the
prevailing commissioners' standard table (described in
Section 807(d)(5)(A) of the Code) used to determine
reserves for group annuity contracts issued on the Change
in Control Date, as set forth in Revenue Ruling 95-6, or
any subsequent guidance thereto.
(f) For a Covered Participant described in the foregoing
subsection (c) who, on the Change in Control Date, is at least age 59,
the lump sum payable to such person under the foregoing subsection (c)
shall be determined in the following steps, with the lump sum being the
amount determined under the following clause (ii):
(i) Determine the amount of the monthly Normal Retirement
Benefit which would otherwise be immediately payable to
such person under Section 6(a), after taking into account
the provisions of the foregoing subsection (d), with such
benefit calculated as if (A) such person was three years
older than such person's then actual age, (B) such person
terminated employment on the Change in Control Date and
(C) such person's Normal Retirement Date was
<PAGE> 4
4
also the Change in Control Date; provided, however, that
in making such determination, in calculating such Covered
Participant's Section 6(a) monthly Normal Retirement
Benefit (which is the starting point in calculating such
Covered Participant's Early Retirement Benefit), the
amount of any particular Other Retirement Benefit taken
into account in determining "the sum of his Other
Retirement Benefits" (as that phrase is used in Section
6(a)) shall be determined with reference to the amount of
such particular Other Retirement Benefit which would
otherwise be payable to such Covered Participant,
starting on the Change in Control Date, had such person
both terminated employment and commenced to receive such
benefit, as of such date.
(ii) Determine the immediate present value, based upon such
Covered Participant's then actual age, of the monthly
benefit amount, calculated under the foregoing clause
(i), which would otherwise be paid to such person,
starting on the Change in Control Date, with such present
value determined using the PBGC Factors; provided,
however, that such present value shall instead be
determined using the GATT Factors, to the extent that
doing so would result in a larger such immediate present
value.
(g) For a Covered Participant described in the forgoing
subsection (c) who, on the Change in Control Date, is less than age 59,
but no less than three years younger than the age corresponding to such
person's Early Retirement Date, the lump sum payable to such person
under the foregoing subsection (c) shall be determined in the following
steps, with the lump sum being the amount determined under the
following clause (ii):
(i) Determine the amount of the monthly Early Retirement
Benefit which would otherwise be immediately payable to
such person under Section 6(b), after taking into account
the provisions of the foregoing subsection (d), with such
benefit calculated as if (A) such person was three years
older than such person's then actual age, (B) such person
terminated employment on the Change in Control Date and
(C) such person's Early Retirement Date was also the
Change in Control Date; provided, however, that in making
such determination, in calculating such Covered
Participant's Section 6(a) monthly Normal Retirement
Benefit:
(I) to the extent such Covered Participant is at
least age 55 on the Change in Control Date, the
amount of such particular Other Retirement
Benefit taken into account in determining "the
sum of his Other Retirement Benefits" shall be
determined with reference to the amount of such
particular Other Retirement Benefit which would
otherwise be payable to such Covered Participant,
starting on the Change in Control Date, had such
person both terminated
<PAGE> 5
5
employment and commenced to receive such
benefit, as of such date, and
(II) to the extent such Covered Participant is less
than age 55 on the Change in Control Date, the
amount of such particular Other Retirement
Benefit taken into account in determining "the
sum of his Other Retirement Benefits" shall be
determined with reference to the amount of such
particular Other Retirement Benefit which would
otherwise be payable to such Covered
Participant, starting at age 55, but with the
amount otherwise payable at age 55 determined,
to the extent otherwise relevant under the plan
or program under, or with respect to, which such
particular Other Retirement Benefit is otherwise
paid, based upon such person's actual age on the
Change in Control Date.
(ii) Determine the immediate present value, based upon such
Covered Participant's then actual age, of the monthly
benefit amount, calculated under the foregoing clause
(i), which would otherwise be paid to such person,
starting on the Change in Control Date, with such present
value determined using the PBGC Factors; provided,
however, that such present value shall instead be
determined using the GATT Factors, to the extent that
doing so would result in a larger such immediate present
value.
(h) For a Covered Participant described in the foregoing
subsection (c) who, on the Change in Control Date, is more than three
years younger than the age corresponding to such person's Early
Retirement Date, the lump sum payable to such person under the
foregoing subsection (c) shall be determined in the following steps,
with the lump sum being the amount determined under the following
clause (iii):
(i) Determine the amount of the monthly Early Retirement
Benefit which would otherwise be payable to such person
under Section 6(b), after taking into account the
provisions of the foregoing subsection (d), commencing
with such person's attainment of the age corresponding to
such person's Early Retirement Date, calculated as if
such person had terminated employment on the Change in
Control Date and with the amount of the reduction for
early benefit payment under Section 6(b) being determined
as of such person were, on the Change in Control Date,
exactly the age corresponding to such person's Early
Retirement Date; provided, however, that in making such
determination, in calculating such Covered Participant's
Section 6(a) monthly Normal Retirement Benefit, the
amount of any particular Other Retirement Benefit taken
into account in determining "the sum of his Other
Retirement Benefits" shall be determined with reference
to the amount of such particular Other Retirement Benefit
which would otherwise be payable to such Covered
Participant, starting at age 55, but with the amount
otherwise payable at age 55 determined, to the extent
<PAGE> 6
6
otherwise relevant under the plan or program under, or
with respect to, which such particular Other Retirement
Benefit is otherwise paid, based upon such person's
actual age on the Change in Control Date.
(ii) Determine the actuarial equivalent monthly benefit
commencing on the Change in Control Date, and treating
such Covered Participant, for this purpose, as if such
person was three years older than such person's then
actual age, of the monthly benefit amount, calculated
under the foregoing clause (i), which would otherwise
commence to be paid to such person when such person
attains the age corresponding to such person's Early
Retirement Date, with such actuarial equivalence
determined using the PBGC Factors.
(iii) Determine the immediate present value, based upon such
Covered Participant's then actual age, of the monthly
benefit amount calculated under the foregoing clause
(ii), with such present value determined using the PBGC
Factors.
Notwithstanding the foregoing clauses (ii) and (iii), actuarial
equivalence, for purposes of such clause (ii), and present value, for
purposes of such clause (iii), shall instead be determined using the
GATT Factors, but only to the extent that using the GATT Factors under
both such clauses (ii) and (iii) would result in a larger lump sum
amount being determined under such clause (iii).
(i) Attached to the Plan, as Exhibit A, is a separate schedule
for each Covered Participant (together with certain supporting
schedules) illustrating the manner, in accordance with the methodology
set out in the foregoing provisions of this Section 14, in which the
lump sum payment described in the foregoing subsection (c) would be
calculated for such person, assuming that (I) the Change in Control
Date occurs on December 31, 2000 and (II) such person remains employed
by UDS on that date. In the event of a Change in Control occurring on
December 31, 2000, the amount of the lump sum payable under such
subsection (c) to any Covered Participant who remains employed by UDS
on such date shall be the amount set forth with respect to such person
in the relevant attached schedule. In the event that a Change in
Control Date occurs on some other date, the methodology set out in such
schedules (including such supporting schedules) shall be dispositive in
resolving any issues which may arise in connection with determining the
amount of the lump sum provided under the foregoing subsection (c) and
otherwise payable to any such Covered Participant with respect to such
other Change in Control Date. Notwithstanding the foregoing, in the
case of that Covered Participant identified under subsection (l) of
this Section 14, the amount set forth in such person's schedule shall
be reduced in accordance with the provisions of such subsection (l).
(j) If a Covered Participant who receives a lump sum
distribution pursuant to the provisions of the foregoing subsection
(f), (g) or (h), as the case may be, continues to be employed by UDS
and thereafter becomes entitled to a subsequent distribution with
respect to the Plan, such person's
<PAGE> 7
7
monthly Normal Retirement Benefit, for purposes of determining the
amount, if any, of such subsequent distribution, shall be equal to the
excess of:
(i) the amount of such monthly Normal Retirement Benefit,
determined by disregarding the prior lump sum
distribution pursuant to the foregoing subsections (f),
(g) or (h), as the case may be, over,
(ii) the amount of the monthly Normal Retirement Benefit
which was taken into account under the foregoing
subsection (f), (g) or (h), as the starting point in
determining the amount of such prior lump sum determined
under such respective subsection.
Additionally, for purposes of applying the provisions of Section 6(b)
with respect to such subsequent distribution, such person shall be
treated as being three years older than such person's actual age. In
all other respects, the amount of any subsequent distribution shall be
determined in accordance with such rules of uniform application as may
be established by the Employee Benefits Committee.
(k) Notwithstanding any of the foregoing provisions of this
Section 14 to the contrary, in the event of a Covered Participant's
"involuntary termination, other than for Cause" (as those terms are
defined under such person's employment agreement with the Corporation),
in anticipation of a Change in Control:
(i) the foregoing provisions of this Section 14 shall apply
to such person,
(ii) pursuant thereto, a Change in Control so triggering the
application of the foregoing provisions of this Section
14 with respect to such person shall, solely with
respect to such person, be considered to have occurred
on the date immediately preceding the date on which such
person is so terminated from employment, and
(iii) such person's benefit under the UDS Pension Plan, for
purposes of determining "the sum of his Other Retirement
Benefits", shall be computed by including the additional
years of age and service credit which were (or will be)
taken into account, pursuant to the provisions of
Section 5.5(i)(a)(3) of such person's employment
agreement with the Corporation, in computing the amount
of the lump sum payment made (or to be made) to such
person in lieu of an actual increase in such person's
benefit under the UDS Pension Plan.
(l) Notwithstanding the foregoing provisions of this Section
14, any lump sum distribution otherwise payable to that Covered
Participant whose social security number is [H. Pete Smith], as
otherwise determined under the foregoing provisions of this Section 14,
shall be reduced by the amount of any lump sum distribution otherwise
paid (or payable) to such person under the Ultramar Corporation
Supplemental Executive Retirement Plan.
<PAGE> 8
8
(m) Each Covered Participant who remains employed with UDS on
the Change in Control Date, determined without regard to the foregoing
subsection (k), shall receive a lump sum payment in the amount
specified below, upon the earlier of:
(i) such person's "involuntary termination, other than for
Cause," as those terms are defined under the employment
agreement between such person and the Corporation;
provided, however, that an "involuntary termination"
shall not be deemed to have occurred for purposes of this
clause (i) in the event that such person voluntarily
terminates employment on account of a significant
reduction, occurring not later than the Change in Control
Date, in such person's duties or the addition, occurring
not later than the Change in Control Date, of duties
which, in either case, are materially inconsistent with
such person's then title or position, such that no amount
shall be paid pursuant to this subsection (m) to such
person; and further, provided, however, that an
"involuntary termination" shall be deemed to have
occurred for purposes of this clause (i) in the event
that such person voluntarily terminates employment on
account of a significant reduction, occurring subsequent
to the Change in Control Date, in such person's duties or
the addition, occurring subsequent to the Change in
Control Date, of duties which, in either case, are
materially inconsistent with such person's title or
position as in effect on the Change in Control Date, such
that an amount shall be paid pursuant to this subsection
(m) to such person, or
(ii) twelve months following the Change in Control Date,
provided such person is still employed by UDS on such
date.
No amount shall be payable pursuant to this subsection (m) in the case
of any Covered Participant who terminates employment prior to the date
set forth in the foregoing clause (ii) for any reason not described in
the foregoing clause (i).
Any amount otherwise payable pursuant to this subsection (m)
to any Covered Participant (i) shall not be reduced by any amounts
previously paid to such person pursuant to any other provision of the
Plan and (ii) shall be disregarded in determining the amount of any
future benefits otherwise payable to such person pursuant to any other
provision of the Plan.
The amount payable to each such Covered Participant, assuming
such person otherwise meets the requirements of the foregoing
provisions of this subsection (m) is the amount set forth opposite such
person's social security number, as follows:
[William R. Klesse $500,000]
[R. S. Beadle $250,000]
[Timothy J. Fretthold $500,000]
[W. Paul Eisman $250,000]
Ultramar Diamond Shamrock Corporation
By: _______________________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 96,300
<SECURITIES> 0
<RECEIVABLES> 841,700
<ALLOWANCES> (3,600)
<INVENTORY> 608,400
<CURRENT-ASSETS> 1,674,900
<PP&E> 4,369,800
<DEPRECIATION> (1,361,000)
<TOTAL-ASSETS> 5,182,400
<CURRENT-LIABILITIES> 1,232,600
<BONDS> 1,532,000
200,000
0
<COMMON> 900
<OTHER-SE> 1,536,100
<TOTAL-LIABILITY-AND-EQUITY> 5,182,400
<SALES> 3,639,400
<TOTAL-REVENUES> 3,639,400
<CGS> 2,461,100
<TOTAL-COSTS> 2,461,100
<OTHER-EXPENSES> 1,036,000
<LOSS-PROVISION> 3,200
<INTEREST-EXPENSE> 29,500
<INCOME-PRETAX> 118,700
<INCOME-TAX> 47,000
<INCOME-CONTINUING> 69,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,100
<EPS-BASIC> 0.80
<EPS-DILUTED> 0.80
</TABLE>
