SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission file number 001-12138
PDV America, Inc.
-----------------
(Exact name of registrant as specified in its charter)
Delaware 51-0297556
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
750 Lexington Avenue, New York, New York 10022
----------------------------------------------
(Address of principal executive office) (Zip Code)
(212) 753-5340
--------------
(Registrant's telephone number, including area code)
N.A.
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $1.00 par value 1,000
----------------------------- -----
(Class) (Outstanding at April 30, 1999)
Page 1 of 25 Pages
<PAGE>
PDV AMERICA, INC.
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999
Table of Contents
-----------------
Page
----
FACTORS AFFECTING FORWARD LOOKING STATEMENTS...................................3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets --
March 31, 1999 and December 31, 1998.............................4
Condensed Consolidated Statements of Income --
Three-Month Periods Ended March 31, 1999 and 1998................5
Condensed Consolidated Statement of Shareholder's Equity
Three-Month Period Ended March 31, 1999..........................6
Condensed Consolidated Statements of Cash Flows --
Three-Month Periods Ended March 31, 1999 and 1998................7
Notes to the Condensed Consolidated Financial Statements.........8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations................14
Item 3. Quantitative and Qualitative Disclosures About Market Risk......21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................23
Item 6. Exhibits and Reports on Form 8-K................................24
SIGNATURES....................................................................25
2
<PAGE>
FACTORS AFFECTING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Specifically, all statements under the caption "Item 2 -- Management's
Discussion and Analysis of Financial Condition and Results of Operations"
relating to Year 2000 matters, capital expenditures and investments related to
environmental compliance and strategic planning, purchasing patterns of refined
products and capital resources available to the Companies (as defined herein)
are forward looking statements. In addition, when used in this document, the
words "anticipate", "estimate", "prospect" and similar expressions are used to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, such as increased inflation, continued access to
capital markets and commercial bank financing on favorable terms, increases in
regulatory burdens, changes in prices or demand for the Companies' products as a
result of competitive actions or economic factors and changes in the cost of
crude oil, feedstocks, blending components or refined products. Such statements
are also subject to the risks of increased costs in related technologies and
such technologies producing anticipated results. Should one or more of these
risks or uncertainties, among others, materialize, actual results may vary
materially from those estimated, anticipated or projected. Although PDV America,
Inc. believes that the expectations reflected by such forward looking statements
are reasonable based on information currently available to the Companies, no
assurances can be given that such expectations will prove to have been correct.
3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
PDV AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 47,907 $ 34,822
Accounts receivable, net 567,525 592,315
Due from affiliates 44,762 52,666
Inventories 1,039,717 835,128
Prepaid expenses and other 48,298 85,571
------------- -------------
TOTAL CURRENT ASSETS 1,748,209 1,600,502
NOTES RECEIVABLE FROM PDVSA AND AFFILIATE 1,010,000 1,010,000
PROPERTY, PLANT AND EQUIPMENT - NET 3,411,248 3,420,053
RESTRICTED CASH 9,602 9,436
INVESTMENTS IN AFFILIATES 793,629 807,659
OTHER ASSETS 229,496 227,760
------------- -----------
TOTAL ASSETS $ 7,202,184 $ 7,075,410
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY:
CURRENT LIABILITIES
Short-term bank loans $ 40,000 $ 37,000
Accounts payable 433,748 492,090
Due to affiliates 272,983 158,956
Taxes other than income 277,493 219,642
Other current liabilities 222,464 247,966
Income taxes payable 1,294 1,607
Current portion of long-term debt 47,078 47,078
Current portion of capital lease obligation 14,660 14,660
------------- -------------
TOTAL CURRENT LIABILITIES 1,309,720 1,218,999
LONG-TERM DEBT 2,030,673 2,071,843
CAPITAL LEASE OBLIGATION 101,926 101,926
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 204,168 200,281
OTHER NONCURRENT LIABILITIES 221,517 230,007
DEFERRED INCOME TAXES 626,860 621,463
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 29,972 29,559
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY
Common stock, $1.00 par, 1,000 shares
authorized, issued and outstanding 1 1
Additional capital 1,532,435 1,532,435
Retained earnings 1,144,912 1,068,896
------------- -------------
TOTAL SHAREHOLDER'S EQUITY 2,677,348 2,601,332
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 7,202,184 $ 7,075,410
============= =============
</TABLE>
(See Notes to the Condensed Consolidated Financial Statements.)
4
<PAGE>
PDV AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
REVENUES:
Sales $ 2,231,389 $ 2,697,822
Sales to affiliates 27,721 51,124
------------- -------------
2,259,110 2,748,946
Equity in earnings (losses) of affiliates 10,425 27,117
Interest income from affiliates 20,345 19,431
Other income (expense) - net (9,547) 646
------------- -------------
2,280,333 2,796,140
------------- -------------
COST OF SALES AND EXPENSES:
Cost of sales and operating expenses 2,055,803 2,536,189
Selling, general and administrative expenses 58,010 60,282
Interest expense:
Capital leases 3,279 3,649
Other 37,547 43,374
Minority interest in earnings of
consolidated subsidiary 413 (42)
------------- -------------
2,155,052 2,643,452
------------- -------------
INCOME BEFORE INCOME TAXES 125,281 152,688
INCOME TAXES 46,968 57,350
------------- -------------
NET INCOME $ 78,313 $ 95,338
============= =============
</TABLE>
(See Notes to the Condensed Consolidated Financial Statements.)
5
<PAGE>
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Additional Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
RETAINED EARNINGS, DECEMBER 31, 1998 1 $ 1 $ 1,532,435 $ 1,068,896 $ 2,601,332
Dividend distribution -- -- -- (2,297) (2,297)
Net income -- -- -- 78,313 78,313
---------- ----- ------------- ------------- ----------
RETAINED EARNINGS, MARCH 31, 1999 1 $ 1 $ 1,532,435 $ 1,144,912 $ 2,677,348
========== ===== ============= ============= =============
</TABLE>
(See Notes to Condensed Financial Statements.)
6
<PAGE>
PDV AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 109,797 $ 222,233
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (59,340) (56,229)
Proceeds from sale of property 3,369 -
Decrease in restricted cash (166) 5,938
Loans to LYONDELL-CITGO Refining Company, Ltd. - (7,000)
Investments in and advances to affiliates - (1,493)
Proceeds from sale of investment - 7,160
Other - 7,831
------------- -------------
Net cash used in investing activities (56,137) (43,793)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings of revolving bank loans (39,500) (132,801)
Net proceeds from (repayments of) short-term bank loans 3,000 77,000
Payments on term bank loans - (7,353)
Dividend to parent (2,297) (110,000)
Repayments of other debt (1,778) (1,778)
------------- -------------
Net cash used in financing activities (40,575) (174,932)
------------- -------------
INCREASE IN CASH AND CASH EQUIVALENTS 13,085 3,508
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 34,822 35,268
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 47,907 $ 38,776
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 43,059 $ 52,121
============= =============
Income taxes, net of refunds received $ 456 $ 356
============= =============
</TABLE>
(See Notes to the Condensed Consolidated Financial Statements.)
7
<PAGE>
PDV AMERICA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND MARCH 31, 1998
1. Basis of Presentation
The financial information for PDV America, Inc. ("PDV America" or the
"Company") subsequent to December 31, 1998 and with respect to the
interim three-month periods ended March 31, 1999 and 1998 is unaudited.
In the opinion of management, such interim information contains all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results of such periods. The result of
operations for the three-month periods ended March 31, 1999 and 1998
are not necessarily indicative of the results to be expected for the
full year. Reference is made to PDV America's Annual Report for the
fiscal year ended December 31, 1998 on Form 10-K, dated March 30, 1999,
for additional information.
The condensed consolidated financial statements include the accounts of
PDV America, its wholly owned subsidiaries, CITGO Petroleum Corporation
("CITGO") and its wholly owned subsidiaries, Cit-Con Oil Corporation,
which is 65 percent owned by CITGO and VPHI Midwest, Inc. ("Midwest")
and its wholly owned subsidiary, PDV Midwest Refining, L.L.C. ("PDVMR")
(collectively, the "Companies").
2. Inventories
Inventories, primarily at LIFO, consist of the following:
March 31,
1999 December 31,
(Unaudited) 1998
------------------- -------------------
(000's omitted)
$ 706,595 $ 580,666
Refined products 261,195 186,503
Crude oil 71,927 67,959
----------- -----------
Materials and supplies $ 1,039,717 $ 835,128
=========== ===========
Inventories at December 31, 1998 were carried at estimated net market
value which was $172 million lower than historical cost. At March 31,
1999 estimated net market values exceeded historical cost, and
accordingly, no valuation reserve was necessary.
8
<PAGE>
3. Long-Term Debt
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------- -------------
(Unaudited)
(000's omitted)
<S> <C> <C>
Senior Notes:
7.75% Senior Notes $250 million face amount due 2000 $ 250,000 $ 250,000
7.875% Senior Notes $500 million face amount due 2003 497,831 497,723
Revolving bank loans 170,500 210,000
Shelf Registration:
7.875% Senior Notes $200 million face amount, due 2006 199,784 199,776
Private Placement:
9.03% Series B Senior Notes due 1998 to 2001 85,714 85,714
9.30% Series C Senior Notes due 1998 to 2006 90,909 90,909
Master Shelf Agreement:
8.55% Senior Notes due 2002 25,000 25,000
8.68% Senior Notes due 2003 50,000 50,000
7.29% Senior Notes due 2004 20,000 20,000
8.59% Senior Notes due 2006 40,000 40,000
8.94% Senior Notes due 2007 50,000 50,000
7.17% Senior Notes due 2008 25,000 25,000
7.22% Senior Notes due 2009 50,000 50,000
Tax Exempt Bonds:
Pollution control revenue bonds due 2004 15,800 15,800
Port facilities revenue bonds due 2007 11,800 11,800
Louisiana wastewater facility revenue bonds due 2023 3,020 3,020
Louisiana wastewater facility revenue bonds due 2024 20,000 20,000
Louisiana wastewater facility revenue bonds due 2025 40,700 40,700
Louisiana wastewater facility revenue bonds due 2026 12,000 12,000
Gulf Coast solid waste facility revenue bonds due 2025 50,000 50,000
Gulf Coast solid waste facility revenue bonds due 2026 50,000 50,000
Gulf Coast solid waste facility revenue bonds due 2028 25,000 25,000
Industrial development facilities revenue bonds due 2028 22,200 22,200
Port of Corpus Christi sewage and solid waste disposal
revenue bonds due 2026 25,000 25,000
Taxable Bonds:
Louisiana wastewater facility revenue bonds due 2026 108,000 108,000
Gulf Coast environmental facilities revenue bonds due 2028 100,000 100,000
PDVMR - Pollution control bonds due 2008 19,850 19,850
Cit-Con bank credit agreement 19,643 21,429
------------- -------------
2,077,751 2,118,821
Current portion of long-term debt (47,078) (47,078)
------------- -------------
$ 2,030,673 $ 2,071,843
============= =============
</TABLE>
9
<PAGE>
On April 15, 1999, CITGO issued $25 million of tax exempt revenue bonds
due 2029. The proceeds were used to redeem $25 million of the taxable Gulf Coast
environmental facilities revenue bonds due 2028.
4. Commitments and Contingencies
Litigation and Injury Claims - Various lawsuits and claims
arising in the ordinary course of business are pending against the Company. The
Company records accruals for potential losses when, in management's opinion,
such losses are probable and reasonably estimable. If known lawsuits and claims
were to be determined in a manner adverse to the Company, and in amounts greater
than the Company's accruals, then such determinations could have a material
adverse effect on the Company's results of operations in a given reporting
period. However, in management's opinion the ultimate resolution of these
lawsuits and claims will not exceed, by a material amount, the amount of the
accruals and the insurance coverage available to the Company. This opinion is
based upon management's and counsel's current assessment of these lawsuits and
claims. The most significant lawsuits and claims are discussed below.
The Oil Chemical and Atomic Workers, Local 7-517 (the "Union")
asserted claims in federal court against CITGO, PDVSA, PDV America, PDVMR,
UNO-VEN and Unocal pursuant to the Labor Management Relations Act. The Union
alleges that CITGO and the other defendants are bound by the terms of a
collective bargaining agreement between UNO-VEN and the Union covering certain
employees at a refinery in Lemont, Illinois. This refinery was acquired by PDVMR
on May 1, 1997 in a transaction involving the former partners of UNO-VEN.
Pursuant to an operating agreement with PDVMR, CITGO became the operator of this
refinery and employed the substantial majority of the employees previously
employed by UNO-VEN pursuant to its initial terms and conditions of employment,
but CITGO did not assume the existing labor agreement. The Union sought monetary
compensation for certain differences in employee benefits and reinstatement of
all of the UNO-VEN benefit plans and to require CITGO to abide by the terms of
the collective bargaining agreement between the Union and UNO-VEN. As an
alternative claim against all defendants but CITGO, the Union alleges that if
the labor agreement is not binding on CITGO, there was a violation of the
Federal Workers Adjustment Retraining and Notification Act by failure to give 60
days' written notice of termination to approximately 400 UNO-VEN employees; this
would allegedly entitle such workers to 60 days' pay and benefits, which is
estimated to be approximately $6 million. In March 1999, the federal appeals
court affirmed the trial court's grant of the motions for summary judgment filed
by CITGO and the other defendants. The Union has stated that it will not seek
review of this decision by the U.S. Supreme Court. This effectively terminated
this matter.
PDVMR and PDV America, jointly and severally, have agreed to
indemnify UNO-VEN and certain related entities against certain liabilities and
claims, including the preceding two matters.
In May 1997, an explosion and fire occurred at CITGO's Corpus
Christi refinery. No serious personal injuries were reported. CITGO received
approximately 7,500 individual
10
<PAGE>
claims for personal injury and property damage related to the above noted
incident. Approximately 1,300 of these claims have been resolved for amounts
which individually and collectively are not material. There are presently four
lawsuits pending against CITGO in federal and state courts alleging property
damages, personal injury and punitive damages. The Company expects that
additional lawsuits will be filed. A trial in one of the federal court lawsuits
in October 1998 involving ten bellwether plaintiffs, out of approximately 400
plaintiffs, resulted in a verdict for CITGO. The remaining plaintiffs in this
case have agreed to settle for an immaterial amount.
A class action lawsuit is pending in Corpus Christi, Texas
state court against CITGO and other operators and owners of nearby industrial
facilities which claims damages for reduced value of residential properties
located in the vicinity of the industrial facilities as a result of air, soil
and groundwater contamination. Trial is scheduled for January 2000. In 1997,
CITGO offered to purchase about 275 properties in a neighborhood adjacent to
CITGO's Corpus Christi refinery, which were included in the lawsuit. Related to
this offer, $15.7 million was expensed in 1997. To date, CITGO has reached
agreements to buy all but 15 of such properties, which include settlements of
property damage claims, and has offers open to purchase the remaining
properties. Two related personal injury and wrongful death lawsuits were filed
against the same defendants in 1996 and are scheduled for trial in 2000.
Litigation is pending in federal court in Lake Charles,
Louisiana, against CITGO by a number of current and former Lake Charles refinery
employees and applicants asserting claims of racial discrimination in connection
with CITGO's employment practices. Trials in this case are set to begin in the
fall of 1999.
CITGO is among defendants to lawsuits in California and North
Carolina alleging contamination of water supplies by methyl tertiary butyl ether
("MTBE"), a component of gasoline. The action in California was filed in
November 1998 by the South Tahoe Public Utility District and CITGO was added as
a defendant in February 1999. The North Carolina case, filed in January 1999, is
a putative class action on behalf of owners of water wells and other drinking
water supplies in the state. Both actions allege that MTBE poses public health
risks. Both actions seek damages as well as remediation of the alleged
contamination. These matters are in early stages and there has been no discovery
conducted against CITGO. CITGO has denied all of the allegations and is pursuing
its defenses.
Environmental Compliance and Remediation - The Companies are
subject to various federal, state and local environmental laws and regulations
which may require the Companies to take action to correct or improve the effects
on the environment of prior disposal or release of petroleum substances by the
Companies or other parties. Management believes the Companies are in compliance
with these laws and regulations in all material aspects. Maintaining compliance
with environmental laws and regulations in the future could require significant
capital expenditures and additional operating costs.
The Companies' accounting policy establishes environmental
reserves as probable site restoration and remediation obligations become
reasonably capable of estimation. Based on currently available information,
including the continuing participation of former owners in
11
<PAGE>
remediation actions and indemnification agreements with third parties, the
Companies believe that its accruals are sufficient to address its environmental
clean-up obligations.
Conditions which require additional expenditures may exist
with respect to various Companies' sites including, but not limited to, the
Companies' operating refinery complexes, closed refineries, service stations and
crude oil and petroleum product storage terminals. The amount of such future
expenditures, if any, is indeterminable.
Derivative Commodity and Financial Instruments - The Companies
enter into petroleum futures contracts, options and other over the counter
commodity derivatives, primarily to reduce their inventory exposure to market
risk. Such contracts are generally entered into through major brokerage houses
and traded on national exchanges and can be settled in cash or through delivery
of the commodity. Such contracts generally qualify for hedge accounting and
correlate to market price movements of crude oil and refined products. Resulting
gains and losses on such contracts, therefore, will generally be offset by gains
and losses on the Companies' hedged inventory or future purchases and sales. In
the three-month period ended March 31, 1999, there was no non-hedging activity.
The Companies have only limited involvement with other
derivative financial instruments and do not use them for trading purposes. The
Companies have entered into various interest rate swap and cap agreements to
manage their risk related to interest rate changes on their debt. The fair value
of the interest rate swap agreements in place at March 31, 1999, based on the
estimated amount that the Companies would receive or pay to terminate the
agreements as of that date and taking into account current interest rates, was
an unrealized loss of $3.6 million. In connection with the determination of fair
market value, the Companies consider the creditworthiness of the counterparties,
but no adjustment was determined to be necessary as a result.
The impact of these instruments on cost of sales and operating
expenses and pretax earnings was immaterial for all periods presented.
Management considers the market risk to the Companies related to these
instruments to be insignificant during the periods presented.
5. Related Party Transactions
As of February 1, 1999, PDVSA Petroleo y Gas, S. A. has
reduced deliveries of crude oil to CITGO by approximately 15 percent under the
force majeure clauses of its four long-term crude oil supply contracts with
CITGO. The Company has been required to obtain alternative sources of crude oil
supply in replacement. As a result, CITGO estimates that margins in the quarter
ended March 31, 1999 were reduced by an immaterial amount, but due to the
complexity of the factors effecting crude oil and refined product prices, it is
not possible to forecast future financial impacts of this reduction on CITGO
margins. CITGO has been advised by PDVSA Petroleo y Gas, S.A. that effective May
1, 1999, there will be further reductions of crude oil under the same force
majeure clauses. At this time, it is not possible to forecast the duration of
the force majeure.
12
<PAGE>
During 1999, PDV America has paid dividends to its parent, PDV
Holding, Inc. as follows: $2,297,000 in March, $5,944,000 in April and
$5,759,500 in May. The dividends paid in April and May 1999 were declared
subsequent to March 31, 1999.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion of the financial condition and
results of operations of the Company should be read in conjunction with the
unaudited condensed consolidated financial statements of the Company included
elsewhere herein. Reference is made to the Company's Annual Report for the
fiscal year ended December 31, 1998 on Form 10-K, dated March 30, 1999, for
additional information and a description of factors which may cause substantial
fluctuations in the earnings and cash flows of the Company.
In the first quarter ended March 31, 1999 the Company
generated net income of $78.3 million on revenue of $2.3 billion compared to net
income of $95.3 million on revenues of $2.8 billion for the same period last
year. Gross margin for the first quarter of 1999 benefitted from the sale of
inventories that were written down by $172 million at December 31, 1998, to
reflect market prices at that time. At March 31, 1999, estimated net market
value of inventories exceeded historical cost and, accordingly, no writedown of
inventories was required.
CITGO's revenue accounted for over 99% of PDV America's
consolidated revenues in the first three months of 1999 and 1998. PDVMR's sales
of $160 million for the three-month period ended March 31, 1999 were primarily
to CITGO and, accordingly, these were eliminated in consolidation.
Results of Operations
The following table summarizes the sources of PDV America's
sales revenues and sales volumes for the three-month periods ended March 31,
1999 and 1998:
PDV America Sales Revenues
and Volumes
<TABLE>
<CAPTION>
Three Months Three Months
Ended March 31, Ended March 31,
----------------------------- ------------------------------
1999 1998 1999 1998
------------- -------------- -------------- --------------
($ in millions) (MM gallons)
<S> <C> <C> <C> <C>
Gasoline $ 1,256 $ 1,580 3,101 3,159
Jet fuel 191 204 536 428
Diesel/#2 fuel 452 524 1,309 1,158
Asphalt 26 23 70 52
Petrochemicals and industrial products 196 255 577 516
Lubricants and waxes 119 108 68 55
------------ ------------ ------------ ------------
Total refined products sales 2,240 2,694 5,661 5,368
Other sales 19 55
------------ ------------ ------------ ------------
Total sales $ 2,259 $ 2,749 5,661 5,368
============ ============ ============ ============
</TABLE>
14
<PAGE>
The following table summarizes PDV America's cost of sales and
operating expenses for the three-month periods ended March 31, 1999 and 1998:
PDV America Cost of Sales and
Operating Expenses
Three Months
Ended March 31,
---------------
1999 1998
---- ----
($ in millions)
Crude oil $ 604 $ 659
Refined products 1,132 1,187
Intermediate feedstocks 137 264
Refining and manufacturing costs 248 234
Other operating costs, expenses
and inventory changes(1) (65) 192
--------- ---------
Total costs of sales and operating expenses $ 2,056 $ 2,536
========= =========
- ------------
(1) The three months ended March 31, 1999, includes the impact of the inventory
valuation reserve of $172 million recorded at December 31, 1998. See "Gross
Margin".
Sales revenues and volumes. Sales decreased $490 million, or
approximately 18%, in the three-month period ended March 31, 1999 as compared to
the same period in 1998. This was due to a decrease in average sales price of
22% partially offset by an increase in sales volume of 5%. (See PDV America
Sales Revenues and Volumes table above.)
Equity in earnings of affiliates. Equity in earnings of
affiliates decreased by $17 million for the three-month period ended March 31,
1999 as compared to the same period in 1998. The decrease was primarily due to
the change in the earnings of LYONDELL-CITGO Refining LP, ("LYONDELL-CITGO"),
CITGO's share of which decreased $15 million, from $19 million in the first
three months of 1998 to $4 million in the first three months of 1999. This
decrease is due primarily to a reduction of contract crude supply, lower margins
on spot purchases and a reduction of production rate due to low margins.
Other income (expense) - net. Other income (expense) - net was
$(9.5) million for the three-month period ended March 31, 1999 as compared to
$0.6 million for the same period in 1998. The difference is primarily due to the
fact that in 1998 various assets were sold at a gain of $5.1 million, while in
1999 losses on disposals of property were $4.8 million.
Cost of sales and operating expenses. Cost of sales and
operating expenses decreased by $480 million or 19%, in the quarter ended March
31, 1999 as compared to the same period in 1998. (See PDV America Cost of Sales
and Operating Expenses table above.)
The Companies purchase refined products to supplement the
production from their refineries to meet marketing demands and resolve
logistical issues. Refined product purchases represented 55% and 47% of total
cost of sales and operating expenses for the first quarters of 1999 and 1998.
The Companies estimate that margins on purchased products, on average, are
somewhat lower than margins on produced products due to the fact that the
Companies can only
15
<PAGE>
receive the marketing portion of the total wholesale margin received on the
produced refined products. However, purchased products are not segregated from
the Companies' produced products and margins may vary due to market conditions
and other factors beyond the Companies' control. As such, it is difficult to
measure the effects on profitability of changes in volumes of purchased
products. The Companies anticipate that their purchased refined product volume
requirements will continue to meet marketing demands.
Gross margin. The gross margin for the three-month period
ended March 31, 1999 was $203 million, or 9.0%, compared to $213 million, or
7.7%, for the same period in 1998. In the three-month period ended March 31,
1999, the revenue per gallon component declined approximately 22% while the cost
per gallon component declined approximately 23%. The gross margin decreased
approximately four-tenths of one cent on a per gallon basis in the quarter ended
March 31, 1999 compared to the same period in 1998. Inventories at December 31,
1998 had been revalued resulting in a charge of $172 million to the results of
operations for the year 1998. The sale of these revalued inventories during the
first quarter of 1999 is the principal factor in driving the cost of sales down
relative to sales revenue. At March 31, 1999 estimated net market values
exceeded historical cost, and accordingly, no valuation reserve was necessary.
Selling, general and administrative expenses. Selling, general
and administrative expenses decreased in the first quarter of 1999 by 3%, from
$60 million in the first quarter of 1998 to $58 million in the first quarter of
1999.
Interest expense. Interest expense decreased by $6.2 million
or 13% in the quarter ended March 31, 1999 as compared to the same period in
1998. The decrease was primarily due to the maturity of 7.25% Senior Notes in
the amount of $250 million on August 1, 1998.
Income taxes. Income taxes reported were based on an effective
tax rate of 37% and 38% for the three-month periods ended March 31, 1999 and
1998, respectively.
Liquidity and Capital Resources
For the three-month period ended March 31, 1999, the
Companies' consolidated net cash provided by operating activities totaled
approximately $110 million. Operating cash flows were derived from net income of
$78 million and depreciation and amortization of $66 million reduced by changes
in other assets and liabilities of $34 million.
Net cash used in investing activities totaled $56 million for
the three-month period ended March 31, 1999 consisting primarily of capital
expenditures of $59 million (compared to $56 million for the same period in
1998).
Net cash used in financing activities totaled $41 million for
the three-month period ended March 31, 1999 consisting primarily of a $40
million net repayment on revolving bank loans.
As of March 31, 1999, capital resources available to the
Companies include cash generated by operations, available borrowing capacity
under CITGO's committed bank facilities of
16
<PAGE>
$455 million, $135 million in unused availability under CITGO's uncommitted
short-term borrowing facilities with various banks and $50 million in unused
availability under PDVMR's revolving credit facility with various banks.
Additionally, the remaining $400 million from CITGO's shelf registration with
the Securities and Exchange Commission for $600 million of debt securities may
be offered and sold from time to time. The Companies' management believes that
they have sufficient capital resources to carry out planned capital spending
programs, including regulatory and environmental projects in the near term, and
to meet currently anticipated future obligations as they arise. The Companies
periodically evaluate other sources of capital in the marketplace and anticipate
that long-term capital requirements will be satisfied with current capital
resources and future financing arrangements, including the issuance of debt
securities. The Companies' ability to obtain such financing will depend on
numerous factors, including market conditions and the perceived creditworthiness
of the Companies at that time.
The Companies believe that they are in material compliance
with their obligations under their debt financing arrangements at March 31,
1999.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives, at fair value,
as either assets or liabilities in the statement of financial position with an
offset either to shareholder's equity and comprehensive income or income
depending upon the classification of the derivative. The company has not
determined the impact on its financial statements that may result from adoption
of SFAS No. 133, which is required no later than January 1, 2000.
Year 2000 Readiness
General. The inability of computers, software and other
equipment using microprocessors to recognize and properly process data fields
containing a two-digit year is commonly referred to as the Year 2000 issue. As
the Year 2000 approaches, such systems may be unable to accurately process
certain date-based information.
To mitigate any adverse impact this may cause, the Companies
have established a company-wide Year 2000 Project ("Project") to address the
issue of computer programs and embedded computer chips which may be unable to
correctly function with the Year 2000. The Project is proceeding on schedule. In
addition, CITGO is updating major elements of their information systems by
implementing programs purchased from SAP. The first phase of SAP implementation,
which included the financial reporting and materials management systems, was
brought into production on January 1, 1998. Additional SAP modules including
plant maintenance work order and cost tracking were implemented throughout 1998.
The implementation has continued in 1999. The total cost of the SAP
implementation is estimated to be approximately $120 million, which includes
software, hardware, reengineering and change management. Management has
determined that SAP is an appropriate solution to the Year 2000
17
<PAGE>
issue related to the systems for which SAP is implemented. Such systems comprise
approximately 80% of the Companies' total information systems. The
implementation of SAP is 75% complete, and is on schedule and on budget as
revised through March 31, 1999. Remaining business software systems are expected
to be made Year 2000 ready through the Year 2000 Project or they will be
replaced.
The Project. The Companies' Year 2000 Project Team is divided
into two groups. One group is working with Information Systems ("I.S.") and
Information Technology ("I.T.") related matters, while the other is analyzing
non-I.S. and non-I.T. business and asset integrity matters. A risk-based
approach toward Year 2000 readiness was applied to non-SAP systems and
processes, with most fix-or-replace decisions made by year-end 1998. The
strategy for achieving Year 2000 business and asset integrity is focused on
equipment, software and relationships that are critical to the Companies'
primary business operations, including refinery operations, terminal operations,
crude oil purchase and shipment operations, and refined product distribution
operations. The Companies engaged third party consultants to review and validate
the methodology and organization of the Project. The Project strategy involves a
number of phases: Inventory and Assessment of Critical Equipment, Software and
Relationships; Contingency Planning; Remediation; Testing; and Readiness.
The Inventory and Assessment of Critical Equipment and
Software phase of the Project has been completed. The Inventory and Assessment
of business relationships with customers and suppliers to assure continuity of
purchases, sales and intercompany communications began in June 1998. The
Companies now require that all new contracts with vendors, suppliers or business
partners include a clause covering Year 2000 readiness. The Companies also seek
evidence of Year 2000 readiness from service providers prior to procuring new
services.
While the Project is systematically assessing the Year 2000
readiness of third party suppliers and customers, there can be no guarantee that
third parties of business importance to the Companies will successfully and
timely reprogram, replace or test all of their own computer hardware, software
and process control systems. The Companies have therefore chosen to continue
assessment and reevaluation of third party relationships beyond the deadline for
completion of other aspects of Inventory and Assessment phases of the Project.
Reviews of third party Year 2000 readiness will continue through 1999.
The Companies have also established a Year 2000 Contingency
Planning Team. The strategy for Contingency Planning includes a review and
analysis of existing contingency plans for the Companies' refineries, terminals,
pipelines and other operations, in light of potential Year 2000 issues
discovered in the Inventory and Assessment phases of the Project. The
Contingency Planning phase will also evaluate and implement changes to the
existing contingency plans. Contingency plans based on this process are
scheduled to be written in phases, with completion scheduled for June 30, 1999.
Additional planning is under way for the Remediation phase of the Project.
Remediation has begun and includes technical analysis, testing and, if
necessary, retrofitting or replacement of systems and equipment determined to be
incapable of reliable operations in the Year 2000. Target for completion of the
Remediation phase is August 1, 1999. The final phase of the Project, Readiness,
is being conducted concurrently with other
18
<PAGE>
Project phases. As systems, equipment, processes and business relationships are
determined and documented as Year 2000 ready, Project resources are being
shifted to pursue Readiness in remaining areas of the enterprise.
The following is the Companies' definition of Year 2000
Readiness:
o Correctly and accurately handle date information before, during
and after midnight, December 31, 1999.
o Function correctly and accurately, and without disruption,
before, during and after January 1, 2000.
o Respond to two-digit year date input in a way that resolves
ambiguity as to the century in a disclosed, defined and
predetermined manner.
o Process all date data to reflect the year 2000 as a leap year.
o Correctly and accurately recognize and process any date with a
year specified as "99" and "00".
Costs. The estimated total cost of the Project is not expected
to exceed $28 million, down from an original estimate of $35 million. The
reduction is due to less than expected need for remediation of embedded systems
and refinements in expense estimates. This estimate does not include the
Companies' potential share of Year 2000 costs that may be incurred by
partnerships and joint ventures in which the Companies participate but are not
the managing partner or operator. The total amount expended through March 31,
1999 was approximately $8.4 million. Approximately 65% of these expenditures
were for internal costs to conduct the company-wide Inventory and Assessment
phases of the Project. The remaining 35% of the cost was for consultants in the
specialized areas of Project Management, Contingency Planning, Information
Technology, Database Administration and Operations Analysis, as well as fees
paid to third parties for Quality Assessment analysis of Project organization
and methodology.
The costs of the Project are being funded with cash from
operations. No existing or planned I.T. projects have been deferred or delayed
due to Year 2000 readiness initiatives. The cost of implementing SAP replacement
systems is not included in these estimates.
The majority of estimated future costs for completing the
Project are anticipated to be directed toward the replacement and repair of
systems and equipment found to be incapable of reliable operation in the Year
2000. Estimates for replacement and repair costs will be refined over time as
the Remediation phase progresses.
Risks. The failure to correct a material Year 2000 problem
could result in an interruption, or failure of, certain normal business
activities or operations. Because the Companies are dependent, to a very
substantial degree, upon the proper functioning of their computer systems and
their interaction with third parties, including vendors and customers and their
computer systems, a failure of any of these systems to be Year 2000 compliant
could have a
19
<PAGE>
material adverse effect on the Companies. Failure of this kind could, for
example, cause disruption in the supply of crude oil, cause disruption in
refinery operations, cause disruption in the distribution of refined products,
lead to incomplete or inaccurate accounting, recording, or processing of
purchases of supplies or sales of refined products, or result in generation of
erroneous results. If not remedied, potential risks include business
interruption, financial loss, regulatory actions, reputational harm, and legal
liability. Such failures could adversely affect the Companies' results of
operations, liquidity and financial condition. Unlike other business
interruption scenarios, Year 2000 implications could include multiple,
simultaneous events which could result in unpredictable outcomes.
Due to the general uncertainty inherent in the Year 2000
problem, resulting in part from the uncertainty of the Year 2000 readiness of
third party suppliers and customers, PDV America's management is unable to
determine at this time whether the consequences of Year 2000 failures will have
a material impact on the Companies' operations, liquidity or financial position.
The Project is expected to significantly reduce the Companies' level of
uncertainty about the Year 2000 impact. PDV America's management believes that,
with the implementation of new SAP business systems and completion of the
Project as scheduled, the possibility of significant interruptions of normal
operations should be minimized. See also "Factors Affecting Forward Looking
Statements".
20
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Introduction. The Companies have exposure to price
fluctuations of crude oil and refined products as well as fluctuations in
interest rates. To manage these exposures, the Companies have defined certain
benchmarks consistent with their preferred risk profile for the environment in
which the Companies operate and finance their assets. The Companies do not
attempt to manage the price risk related to all of their inventories of crude
oil and refined products. As a result, at March 31, 1999, the Companies were
exposed to the risk of broad market price declines with respect to a substantial
portion of their crude oil and refined product inventories. The following
disclosures do not attempt to quantify the price risk associated with such
commodity inventories.
Commodity Instruments. CITGO balances its crude oil and
petroleum product supply/demand and manages a portion of its price risk by
entering into petroleum futures contracts, options and other over-the-counter
commodity derivatives. Generally, CITGO's risk management strategies qualify as
hedges. However, certain strategies do not qualify as hedges. CITGO may take
commodity positions based on its views or expectations of specific commodity
prices or price differentials between commodity types.
Non-Trading Commodity Derivatives
Open Positions at March 31, 1999
<TABLE>
<CAPTION>
Maturity Volumes of Contract Market
Commodity Derivative Date Contracts Value(2) Value
- --------- ---------- -------- --------- -------- -----
($ in millions)
<S> <C> <C> <C> <C> <C>
No Lead Gasoline(1) Futures Purchased 1999 44 $1 $1
Futures Sold 1999 25 $1 $1
Heating Oil(1) Futures Purchased 1999 117 $2 $2
Futures Sold 1999 25 $0 $0
OTC Caps Purchased 1999 60 $0 $0
Natural Gas(3) Futures Purchased 1999 150 $3 $3
- ------------------------
<FN>
(1) 1000 barrels per contract
(2) Weighted average price
(3) 10,000 mmbtu per contract
</FN>
</TABLE>
Debt Related Instruments. The Companies have fixed and
floating U.S. currency denominated debt. The Companies use interest rate swaps
to manage its debt portfolio toward a benchmark of 40 to 60 percent fixed rate
debt to total fixed and floating rate debt. These instruments have the effect of
changing the interest rate with the objective of minimizing the Companies'
long-term costs. At March 31, 1999, the Companies' primary exposures were to
U.S. dollar LIBOR and U.S. Treasury rates.
21
<PAGE>
For interest rate swaps, the table below presents notional
amounts and interest rates by expected (contractual) maturity dates. Notional
amounts are used to calculate the contractual payments to be exchanged under the
contract.
Non-Trading Interest Rate Derivatives
Open Positions at March 31, 1999
Notional
Expiration Fixed Rate Principal
Variable Rate Index Date Paid Amount
- ------------------- ------ ------ ---------------
($ in millions)
One-month LIBOR May 2000 6.28% $ 25
J.J. Kenny May 2000 4.72% 25
J.J. Kenny February 2005 5.30% 12
J.J. Kenny February 2005 5.27% 15
J.J. Kenny February 2005 5.49% 15
------
$ 92
The fair value of the interest rate swap agreements in place
at March 31, 1999, based on the estimated amount that the Companies would
receive or pay to terminate the agreements as of that date and taking into
account current interest rates, was an unrealized loss of $3.6 million.
For debt obligations, the table below presents principal cash
flows and related weighted average interest rates by expected maturity dates.
Weighted average variable rates are based on implied forward rates in the yield
curve at the reporting date.
Debt At March 31, 1999
<TABLE>
<CAPTION>
Fixed Average Fixed Variable Average Variable
Expected Maturities Rate Debt Interest Rate Rate Debt Interest Rate
- ------------------- --------- ------------- --------- -------------
($ in millions) ($ in millions)
<S> <C> <C> <C> <C>
1999 $ 40 9.11% $ 45 5.11%
2000 290 7.94% 7 5.51%
2001 40 9.11% 7 5.78%
2002 36 8.78% 76 5.88%
2003 559 7.98% 95 5.98%
Thereafter 422 8.02% 600 6.15%
-------- ---- ------ ----
Total $ 1,387 8.07% $ 730 6.05%
======== ==== ====== ====
Fair Value $ 1,350 $ 730
======== ======
</TABLE>
22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Various lawsuits and claims arising in the ordinary course of
business are pending against the Companies. The Companies record accruals for
potential losses when, in management's opinion, such losses are probable and
reasonably estimable. If known lawsuits and claims were to be determined in a
manner adverse to the Companies, and in amounts greater than the Companies'
accruals, then such determinations could have a material adverse effect on the
Companies' results of operations in a given reporting period. However, in
management's opinion the ultimate resolution of these lawsuits and claims will
not exceed, by a material amount, the amount of the accruals and the insurance
coverage available to the Companies. This opinion is based upon management's and
counsel's current assessment of these lawsuits and claims. The most significant
lawsuits and claims are discussed below.
The Oil Chemical and Atomic Workers, Local 7-517 (the "Union")
asserted claims in federal court against CITGO, PDVSA, PDV America, PDVMR,
UNO-VEN and Unocal pursuant to the Labor Management Relations Act. The Union
alleges that CITGO and the other defendants are bound by the terms of a
collective bargaining agreement between UNO-VEN and the Union covering certain
employees at a refinery in Lemont, Illinois. This refinery was acquired by PDVMR
on May 1, 1997 in a transaction involving the former partners of UNO-VEN.
Pursuant to an operating agreement with PDVMR, CITGO became the operator of this
refinery and employed the substantial majority of the employees previously
employed by UNO-VEN pursuant to its initial terms and conditions of employment,
but CITGO did not assume the existing labor agreement. The Union sought monetary
compensation for certain differences in employee benefits and reinstatement of
all of the UNO-VEN benefit plans and to require CITGO to abide by the terms of
the collective bargaining agreement between the Union and UNO-VEN. As an
alternative claim against all defendants but CITGO, the Union alleges that if
the labor agreement is not binding on CITGO, there was violation of the Federal
Workers Adjustment Retraining and Notification Act by failure to give 60 days'
written notice of termination to approximately 400 UNO-VEN employees; this would
allegedly entitle such workers to 60 days' pay and benefits, which is estimated
to be approximately $6 million. In March 1999, the federal appeals court
affirmed the trial court's grant of the motions for summary judgment filed by
CITGO and the other defendants. The Union has stated that it will not seek
review of this decision by the U.S. Supreme Court. This effectively terminated
these matters.
PDVMR and PDV America, jointly and severally, have agreed to
indemnify UNO-VEN and certain related entities against certain liabilities and
claims, including the preceding two matters.
In May 1997, an explosion and fire occurred at CITGO's Corpus
Christi refinery. No serious personal injuries were reported. CITGO received
approximately 7,500 individual claims for personal injury and property damage
related to the above noted incident. Approximately 1,300 of these claims have
been resolved for amounts which individually and collectively are not material.
There are presently four lawsuits pending against CITGO in federal
23
<PAGE>
and state courts alleging property damages, personal injury and punitive
damages. The Company expects that additional lawsuits will be filed. A trial in
one of the federal court lawsuits in October 1998 involving ten bellwether
plaintiffs, out of approximately 400 plaintiffs, resulted in a verdict for
CITGO. The remaining plaintiffs in this case have agreed to settle for an
immaterial amount.
A class action lawsuit is pending in Corpus Christi, Texas
state court against CITGO and other operators and owners of nearby industrial
facilities which claims damages for reduced value of residential properties
located in the vicinity of the industrial facilities as a result of air, soil
and groundwater contamination. Trial is scheduled for January 2000. In 1997,
CITGO offered to purchase about 275 properties in a neighborhood adjacent to
CITGO's Corpus Christi refinery, which were included in the lawsuit. Related to
this offer, $15.7 million was expensed in 1997. To date, CITGO has reached
agreements to buy all but 15 of such properties, which include settlements of
property damage claims, and has offers open to purchase the remaining
properties. Two related personal injury and wrongful death lawsuits were filed
against the same defendants in 1996 and are scheduled for trial in 2000.
Litigation is pending in federal court in Lake Charles,
Louisiana, against CITGO by a number of current and former Lake Charles refinery
employees and applicants asserting claims of racial discrimination in connection
with CITGO's employment practices. Trials in this case are set to begin in the
fall of 1999.
CITGO is among defendants to lawsuits in California and North
Carolina alleging contamination of water supplies by methyl tertiary butyl ether
("MTBE"), a component of gasoline. The action in California was filed in
November 1998 by the South Tahoe Public Utility District and CITGO was added as
a defendant in February 1999. The North Carolina case, filed in January 1999, is
a putative class action on behalf of owners of water wells and other drinking
water supplies in the state. Both actions allege that MTBE poses public health
risks. Both actions seek damages as well as remediation of the alleged
contamination. These matters are in early stages and there has been no discovery
conducted against CITGO. CITGO has denied all of the allegations and is pursuing
its defenses.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K
None.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PDV AMERICA, INC.
Date: May 14, 1999 /s/ LUIS URDANETA
-------------------------------
Luis Urdaneta
President, Chief Executive and
Financial Officer
Date: May 14, 1999 /s/ JOSE I. MORENO
-------------------------------
Jose I. Moreno
Secretary
25
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000906422
<NAME> PDV America, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 47,907
<SECURITIES> 0
<RECEIVABLES> 631,619
<ALLOWANCES> 19,332
<INVENTORY> 1,039,717
<CURRENT-ASSETS> 1,748,209
<PP&E> 4,781,210
<DEPRECIATION> 1,369,962
<TOTAL-ASSETS> 7,202,184
<CURRENT-LIABILITIES> 1,309,720
<BONDS> 2,030,673
0
0
<COMMON> 1
<OTHER-SE> 2,677,347
<TOTAL-LIABILITY-AND-EQUITY> 7,202,184
<SALES> 2,259,110
<TOTAL-REVENUES> 2,280,333
<CGS> 2,055,803
<TOTAL-COSTS> 2,109,918
<OTHER-EXPENSES> 413
<LOSS-PROVISION> 3,895
<INTEREST-EXPENSE> 40,826
<INCOME-PRETAX> 125,281
<INCOME-TAX> 46,968
<INCOME-CONTINUING> 78,313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,313
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
