UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 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 October 31, 1999)
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The Registrant is filing this Amendment No. 1 to its Quarterly Report on Form
10-Q for the period ended September 30, 1999 filed with the Securities and
Exchange Commission on November 12, 1999 in order to revise the Financial
Statements and the Management's Discussion and Analysis of Financial Condition
and Results of Operations sections in that Report. This revision is primarily
the result of the correction of errors which occurred as the Registrant
implemented information systems enhancements. The corrections resulted in a
decrease in the Registrant's cost of sales and expenses, the net effect of which
resulted in an increase in net income of the Registrant compared to what was
previously reported. Pursuant to Rule 12b-5 under the Securities Exchange Act of
1934, the Registrant is including the complete text of the Report as revised.
2
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PDV AMERICA, INC.
Amendment No. 1 to the Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1999
Table of Contents
Page
FACTORS AFFECTING FORWARD LOOKING STATEMENTS..................................4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
September 30, 1999 (Restated) and December 31, 1998.................5
Condensed Consolidated Statements of Income --
Three-Month and Nine-Month Periods Ended
September 30, 1999 (Restated) and 1998..............................6
Condensed Consolidated Statement of Shareholder's Equity --
Nine-Month Period Ended September 30, 1999 (Restated)...............7
Condensed Consolidated Statements of Cash Flows --
Nine-Month Periods Ended September 30, 1999 (Restated) and 1998.....8
Notes to the Condensed Consolidated Financial Statements............9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations...................17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................27
Item 6. Exhibits and Reports on Form 8-K...................................27
SIGNATURES...................................................................28
3
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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 herein
defined) 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 be
correct.
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30,
1999
(As Restated -- DECEMBER 31,
See Note 8) 1998
------------- -----
(Unaudited)
ASSETS:
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .......................................... $ 38,619 $ 34,822
Accounts receivable - net .......................................... 899,016 592,315
Due from affiliates ................................................ 58,155 52,666
Inventories ........................................................ 1,205,542 835,128
Current portion of notes receivable from PDVSA ..................... 250,000 --
Prepaid expenses and other ......................................... 15,758 85,571
---------- ----------
Total current assets ........................................... 2,467,090 1,600,502
NOTES RECEIVABLES FROM PDVSA AND ........................................ 798,000 1,010,000
AFFILIATES
PROPERTY, PLANT AND EQUIPMENT - net ..................................... 3,414,110 3,420,053
RESTRICTED CASH ......................................................... 2,977 9,436
INVESTMENTS IN AFFILIATES ............................................... 739,618 807,659
OTHER ASSETS ............................................................ 236,198 227,760
---------- ----------
TOTAL ASSETS ............................................................ $7,657,993 $7,075,410
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY:
CURRENT LIABILITIES
Short-term bank loans .............................................. $ 92,000 $ 37,000
Accounts payable ................................................... 617,967 492,090
Payables to affiliates ............................................. 323,377 158,956
Taxes other than income ............................................ 179,591 219,642
Other current liabilities .......................................... 233,285 247,966
Income taxes payable ............................................... 7,941 1,607
Current portion of long-term debt .................................. 297,078 47,078
Current portion of capital lease obligation ........................ 15,484 14,660
---------- ----------
Total current liabilities ...................................... 1,766,723 1,218,999
LONG-TERM DEBT .......................................................... 1,997,827 2,071,843
CAPITAL LEASE OBLIGATION ................................................ 93,972 101,926
POSTRETIREMENT BENEFITS OTHER THAN ...................................... 211,206 200,281
PENSIONS
OTHER NONCURRENT LIABILITIES ............................................ 232,884 230,007
DEFERRED INCOME TAXES ................................................... 597,438 621,463
MINORITY INTEREST ....................................................... 29,911 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 .................................................. 1,195,596 1,068,896
---------- ----------
Total shareholder's equity ..................................... 2,728,032 2,601,332
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY .............................. $7,657,993 $7,075,410
========== ==========
(See Notes to the Condensed Consolidated Financial Statements.)
</TABLE>
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<TABLE>
<CAPTION>
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------------- ---------------------------------
1999 1998 1999 1998
(As restated -- (As-restated--
See Note 8) See Note 8)
----------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Net Sales $3,623,953 $2,681,613 $8,970,409 $8,292,442
Sales to affiliates 49,381 50,285 122,083 132,689
------------------------------------------------------------------
3,673,334 2,731,898 9,092,492 8,425,131
Equity in earnings of affiliates 13,274 25,533 10,794 66,991
Interest income from affiliates 21,697 16,369 62,566 55,232
Other income (expense) - net (4,853) (4,470) (17,999) (6,587)
------------------------------------------------------------------
3,703,452 2,769,330 9,147,853 8,540,767
COST OF SALES AND EXPENSES:
Cost of sales and operating expenses 3,542,097 2,523,825 8,630,047 7,812,545
Selling, general and administrative
expenses 53,411 63,456 171,633 185,430
Interest expense:
Capital leases 3,078 3,469 9,636 10,766
Other 39,183 41,368 113,723 128,182
Minority interest (42) 404 352 764
------------------------------------------------------------------
3,637,727 2,632,522 8,925,391 8,137,687
------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 65,725 136,808 222,462 403,080
INCOME TAXES 25,274 51,439 73,747 151,753
-----------------------------------------------------------------
NET INCOME $ 40,451 $85,369 $148,715 $251,327
=================================================================
(See Notes to the Condensed Consolidated Financial Statements.)
</TABLE>
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<TABLE>
<CAPTION>
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Unaudited)
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------
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 paid -- -- -- (22,015) (22,015)
Net income (As Restated-- See Note 8) -- -- -- 148,715 148,715
----------- ----------- ----------- ------------ -----------
RETAINED EARNINGS, SEPTEMBER 30, 1999
(As Restated-- See Note 8) 1 $1 $1,532,435 $1,195,596 $2,728,032
=========== =========== =========== ============ ===========
(See Notes to the Condensed Consolidated Financial Statements.)
</TABLE>
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<TABLE>
<CAPTION>
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30,
---------------------------------------------
1999
(As Restated --
See Note 8) 1998
---------------------------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $22,474 $806,183
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (181,191) (164,213)
Proceeds from notes receivable from PDVSA - 250,000
Proceeds from sale of property, plant and equipment 10,815 17,947
Notes receivables PDV Finance (38,000) -
Decrease (increase) in restricted cash 6,459 (2,516)
Proceeds from sale of investments 4,980 7,160
Loans to LYONDELL-CITGO Refining LP (19,700) (19,800)
Investments in and advances to affiliates (4,212) (5,030)
-------- ------
Net cash (used in) provided by investing activities (220,849) 83,548
-------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) revolving bank loans 181,000 (173,000)
Net proceeds from (repayments of) short-term bank loans 55,000 (3,000)
Proceeds from issuance of tax-exempt bonds 25,000 47,200
Repayments of (net proceeds from) taxable bonds (25,000) 100,000
Payments on term bank loans - (58,823)
Dividend paid (22,015) (224,500)
Payments on Senior Notes - (250,000)
Repayments of other debt (4,683) (5,334)
Payments of capital lease obligations (7,130) (6,390)
------- ---------
Net cash provided by (used in) financing activities 202,172 (573,847)
------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 3,797 315,884
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 34,822 35,268
------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $38,619 $351,152
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid (received) during the period for:
Interest (net of amount capitalized) $116,552 $141,582
========= ========
Income taxes, net of refunds of $30,052 in 1999 $(27,672) $47,097
========= ========
(See Notes to the Condensed Consolidated Financial Statements.)
</TABLE>
8
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PDV AMERICA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
THREE-MONTH AND NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND 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 and nine-month periods ended September 30, 1999 and 1998 is
unaudited. In the opinion of management, such interim information contains all
adjustments, consisting only of normal recurring adjustments, with the exception
of the tax matter described in Footnote 6, necessary for a fair presentation of
the results of such periods. The results of operations for the three-month and
nine-month periods ended September 30, 1999 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 and Cit-Con Oil
Corporation, which is 65 percent owned by CITGO, VPHI Midwest, Inc. ("Midwest")
and its wholly-owned subsidiary, PDV Midwest Refining, L.L.C. ("PDVMR"), and PDV
USA, Inc. ("PDV USA") (collectively, the "Companies").
2. Inventories
Inventories, primarily at LIFO, consist of the following:
September 30,
1999 December 31,
(Unaudited) 1998
------------------- -------------------
(000's omitted)
Refined products $ 886,767 $ 580,666
Crude oil 246,516 186,503
Materials and supplies 72,259 67,959
----------- -----------
$1,205,542 $ 835,128
========== ===========
Inventories at December 31, 1998 were carried at estimated net
market value which was $172 million lower than historical cost. At September 30,
1999 estimated net market values exceeded historical cost, and accordingly, no
write-down was necessary.
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3. Long-Term Debt
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
-------------- ----------------
(000's omitted)
<S> <C> <C>
Revolving bank loans $ 391,000 $ 210,000
Senior Notes due from 2000 to 2006 with interest rates from 7.75% to
7.875% 947,841 947,499
Private Placement Senior Notes, due from 1999 to 2006 with interest
rates from 9.03% to 9.30% 176,623 176,623
Master Shelf Agreement Senior Notes, due from 2002 to 2009 with
interest rates from 7.17% to 8.94% 260,000 260,000
Tax Exempt Bonds, due from 2004 to 2029 with variable interest rates 300,520 275,520
Taxable Bonds, due from 2008 to 2028 with variable interest rates 202,850 227,850
Cit-Con bank credit agreement 16,071 21,429
--------------------------
2,294,905 2,118,921
Current portion of long-term debt (297,078) (47,078)
--------------------------
$ 1,997,827 $ 2,071,843
--------------------------
</TABLE>
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. INVESTMENT IN LYONDELL-CITGO REFINING LP
LYONDELL-CITGO Refining LP ("LYONDELL-CITGO") owns and
operates a 265 MBPD refinery in Houston, Texas. LYONDELL-CITGO was formed in
1993 by subsidiaries of CITGO and Lyondell Chemical Company. The heavy crude oil
processed by the Houston refinery is supplied by a subsidiary of PDVSA under a
long-term crude oil supply contract that expires in 2017. CITGO purchases
substantially all of the refined products produced at the Houston refinery under
a long-term contract.
In April 1998, the crude oil supplier exercised its
contractual rights and reduced deliveries of crude oil to LYONDELL-CITGO.
LYONDELL-CITGO has been required to obtain alternative sources of crude oil
supply in replacement which has resulted in lower operating margins.
At September 30, 1999, CITGO had a 41.25% participation
interest in LYONDELL-CITGO. CITGO has a one-time option to increase, for an
additional investment, its
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participation interest to 50 percent. This option may be exercised after January
1, 2000 but not later than September 30, 2000.
CITGO has notes receivable from LYONDELL-CITGO which total $56
million and $36.3 million at September 30, 1999 and December 31, 1998,
respectively. The notes bear interest at market rates and are due July 1, 2003.
These notes are included in other assets in the accompanying consolidated
balance sheets.
CITGO accounts for its investment in LYONDELL-CITGO using the
equity method of accounting and records its share of the net earnings of
LYONDELL-CITGO based on allocations of income agreed to by the owners.
Information on CITGO's investment in LYONDELL-CITGO follows:
September 30,
1999 December 31,
(Unaudited) 1998
----------------- -------------------
(000's omitted)
Carrying value of investment $ 536,910 $ 597,373
Notes receivable 56,009 36,309
Participation interest 41% 41%
Equity in net (loss) income $ (7,639) $ 58,827
Cash distributions received 52,823 91,763
Summary of financial position:
Current assets $ 227,896 $ 197,000
Non current assets 1,410,599 1,440,000
Current liabilities 261,638 203,000
Non-current liabilities 826,771 785,000
Member's equity 550,086 649,000
Summary of operating results:
Revenue $ 1,694,386 $ 2,055,000
Gross profit 75,649 291,000
Net (loss) income (2,445) 169,000
5 Commitments and Contingencies
Litigation and Injury Claims - 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
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based upon management's and counsel's current assessment of these lawsuits and
claims. The most significant lawsuits and claims are discussed below.
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 were not material.
There are presently seventeen lawsuits filed on behalf of approximately 9,000
individuals arising out of this incident pending against CITGO in federal and
state courts in Corpus Christi alleging property damages, personal injury and
punitive damages. A trial of 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. CITGO has
contracted to purchase approximately 267 properties that were included in the
lawsuit and are in a neighborhood adjacent to CITGO's Corpus Christi refinery
and settle the property damage claims relating to these properties. CITGO has
offers open to purchase the remaining eight properties in the neighborhood.
Related to this purchase, $15.7 million was expensed in 1997. Two related
personal injury and wrongful death lawsuits were filed against the same
defendants in 1996, one of which is scheduled for trial in 2000.
A trial date for the other case has not been set.
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 began in October 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 the early stages of discovery. 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 that the Companies are in
compliance with these laws and regulations in all material aspects. Maintaining
compliance with
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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, or when the payment of fines or other
penalties proposed by regulatory authorities is considered probable and
reasonably estimable. Based on currently available information, including the
continuing participation of former owners in remediation actions and
indemnification agreements with third parties, the Companies' management believe
that their accruals are sufficient to address such obligations.
In July 1997, the Texas Natural Resources Conservation
Commission ("TNRCC") issued a Preliminary Report and Petition alleging that
CITGO violated TNRCC rules relating to the operation of a hazardous waste
management unit without a permit and recommended a penalty of $699,200. The
TNRCC later expanded the alleged violations to include alleged unauthorized
emissions to the atmosphere and alleged unauthorized discharges to waters of the
state. CITGO has settled all of these matters by entering into an Agreed Order
with the TNRCC, which required the payment of a penalty of $325,000,
implementation of an approved Supplemental Environmental Project at a cost of
$325,000 and compliance with terms and conditions of the order.
The TNRCC conducted an environmental compliance review at the
Corpus Christi refinery in the first and second quarters of 1998. In January
1999, the TNRCC issued the Companies a Notice of Violation (NOV) arising from
this review and in October 1999 proposed fines of approximately $1.6 million
related to the NOV. Most of the alleged violations refer to record keeping and
reporting issues, failure to keep proper records, failure to meet required
emission levels, and failure to properly monitor emissions. The Companies intend
to vigorously contest the proposed fines and allegations.
In June 1999, CITGO and numerous other industrial companies
received notice from the U.S. Environmental Protection Agency ("EPA"), that the
EPA believes these companies have contributed to contamination in the Calcasieu
Estuary, in the proximity of Lake Charles, Calcasieu Parish, Louisiana and are
Potentially Responsible Parties ("PRPs") under the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"). The EPA made a demand for
payment of its past investigation costs from CITGO and other PRPs and advised it
intends to conduct a Remedial Investigation/Feasibility Study ("RI/FS") under
its CERCLA authority. CITGO and other PRPs may be potentially responsible for
the costs of the RI/FS. CITGO disagrees with the EPA's allegations and intends
to contest this matter. CITGO does not believe its potential exposure in this
matter is material.
In October 1999, the EPA issued an NOV to CITGO for violations
of federal regulations regarding reformulated gasoline found during a May 1998
inspection at CITGO's Braintree, Massachusetts terminal and recommended a
penalty of $218,500. CITGO intends to vigorously contest the proposed fines and
allegations.
13
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On June 28, 1999, PDVMR received a Finding of Violation
("FOV") from the EPA (Region V) for alleged violations of the federal benzene
New Source Hazardous Air Pollutants regulations under the Federal Clean Air Act
at the Lemont refinery operated by CITGO. PDVMR is currently in negotiations
with the EPA concerning the FOV and anticipates resolving this matter by the end
of 1999. While PDVMR does not expect this matter to have a material financial
impact on the company, it can reasonably anticipate proposed penalties to exceed
$100,000.
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 station
sites 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 nine-month period ended September 30, 1999, there was no non-hedging
activity.
The Companies have only limited involvement with other
derivative financial instruments and do not currently use them for trading
purposes. The Companies have entered into various interest rate swap 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 September 30, 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 $2.0 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.
6. Income Taxes
The effective tax rate for the current year is unusually low
due to a favorable resolution in the second quarter of 1999 of a significant tax
issue in the last IRS audit. During the years under audit, deferred taxes were
recorded for certain environmental expenses deducted in the tax returns in the
event the deductions were denied on audit. The deductions were allowed on audit
and, accordingly, the deferred tax liability of approximately $11 million was
reversed with a corresponding benefit to tax expense.
14
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7. Related Party Transactions
As of September 30, 1999, PDVSA Petroleo y Gas, S.A. ("PDVSA
P&G") deliveries of crude oil to CITGO were less than contractual base volumes
due to PDVSA P&G's declaration of force majeure pursuant to four long-term crude
oil supply contracts related to CITGO's refineries. As a result, the Companies
have been required to obtain alternative sources of crude oil. As a result, the
Companies estimate the margins in three months and nine months ended September
30, 1999 were reduced by $11 million and $28 million, respectively, from what
would have otherwise been the case. It is not possible to forecast the future
financial impacts of these reductions in crude oil deliveries on CITGO's margins
because the correlation between crude oil and refined product prices is not
constant over time. Additionally, because of, among other things, changes in
crude oil economics, the duration of force majeure cannot be forecasted.
Additionally, during the third quarter of 1999, PDVSA P&G did
not deliver naphtha pursuant to one of the contracts and will make contractually
specified payments in lieu thereof. The financial impact to the three-month and
nine-month periods ended September 30, 1999 was immaterial.
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, $5,759,500
in May and $8,015,000 in June.
On July 2, 1999, PDV America loaned to PDVSA Finance, Ltd., a
wholly-owned subsidiary of Petroleos de Venezuela, S.A., $38,000,000. Interest
is payable in arrears quarterly commencing on August 15, 1999 at a rate per
annum equal to 10.395%. Principal is payable in eight equal quarterly
installments commencing August 15, 2012.
8. Restatement
Subsequent to the issuance of the Company's condensed
consolidated financial statements for the quarterly period ended September 30,
1999, the Company's management discovered certain errors which occurred as the
Company implemented information systems enhancements. As a result, the condensed
consolidated financial statements for the three and nine-month periods ended
September 30, 1999 have been restated to correct these errors. A summary of the
significant effects of the restatement is as follows:
15
<PAGE>
<TABLE>
<CAPTION>
As Previously Reported As Restated
(Dollars in thousands) (Dollars in thousands)
------------------------------- -------------------------------
<S> <C> <C>
At September 30, 1999:
Inventory 1,205,942 1,205,542
Total assets 7,658,393 7,657,993
Accounts payable 629,367 617,967
Income taxes payable 5,521 7,941
Deferred income taxes 595,788 597,438
Total liabilities 4,937,291 4,929,961
Retained earnings 1,188,666 1,195,596
For the three-months ended September 30, 1999:
Cost of sales and operating expenses 3,553,097 3,542,097
Income before income taxes 54,725 65,725
Income taxes 21,204 25,274
Net income 33,521 40,451
For the nine-months ended September 30, 1999:
Cost of sales and operating expenses 8,641,047 8,630,047
Income before income taxes 211,462 222,462
Income taxes 69,677 73,747
Net income 141,785 148,715
</TABLE>
16
<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 Companies should be read in conjunction with the
unaudited condensed consolidated financial statements of the Companies included
elsewhere herein. Reference is made to the Companies' 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 Companies.
In the quarter ended September 30, 1999, the Companies
generated net income of $40 million on revenue of $3.7 billion compared to the
net income of $85 million on revenue of $2.8 billion for the same period last
year. In the nine-month period ended September 30, 1999, the Companies generated
net income of $149 million on revenue of $9.1 billion compared to net income of
$251 million on revenue of $8.5 billion for the same period last year. Gross
margin for the first nine months of 1999 benefited from the sale of inventories
that were written down by $172 million at December 31, 1998, to reflect market
prices at that time. At September 30, 1999, estimated net market value of
inventories exceeded historical cost and, accordingly, no write down of
inventories was required. (See "Gross margin").
Results of Operations
The following table summarizes the sources of PDV America's
sales revenues and sales volumes for the three-month and nine-month periods
ended September 30, 1999 and 1998:
17
<PAGE>
<TABLE>
<CAPTION>
PDV America Sales Revenues and Volumes
- -------------------------------------------------------------------------------------------------------
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
---------------- ----------------- ---------------- -----------------
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
b ($ in millions) (MM gallons)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gasoline $2,172 $1,566 $5,306 $4,882 3,231 3,378 9,718 9,898
Jet fuel 297 186 726 600 520 463 1,591 1,347
Diesel/#2 fuel 637 449 1,649 1,473 1,136 1,142 3,738 3,512
Asphalt 124 113 243 223 271 286 568 566
Petrochemicals and industrial
products 217 239 649 711 448 774 1,494 1,851
Lubricants and waxes 129 111 370 336 77 57 220 172
----- ----- ----- ----- ---- ---- ----- -----
Total refined products
sales 3,576 2,664 8,943 8,225 5,683 6,100 17,329 17,346
Other sales 97 68 149 200
--------------- --------------- -------------- ---------------
Total sales $3,673 $2,732 $9,092 $8,425 5,683 6,100 17,329 17,346
=============== =============== ============== ===============
</TABLE>
The following table summarizes PDV America's cost of sales and operating
expenses for the three-month and nine-month periods ended September 30, 1999 and
1998:
PDV America Cost of Sales and Operating Expenses
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------------------------------------
1999 1998 1999(1) 1998
------------ ----------------------- -----------
($ in millions)
<S> <C> <C> <C> <C>
Crude oil $1,077 $676 $2,556 $1,983
Refined products 1,833 1,261 4,542 3,973
Intermediate feedstocks 340 217 682 714
Refining and manufacturing costs 242 234 735 711
Other operating costs, expenses and inventory changes(1) 50 136 115 432
------------------------------------------------
Total costs of sales and operating expenses $3,542 $2,524 $8,630 $7,813
----------------------------------------------==
</TABLE>
- ------------
(1) The nine months ended September 30, 1999, includes the impact of the
inventory write- down of $172 million recorded at December 31, 1998.
See "Gross Margin."
18
<PAGE>
Sales revenues and volumes. Sales increased $941 million, or
approximately 34%, in the three-month period ended September 30, 1999 as
compared to the same period in 1998. This was due to an increase in average
sales price of 45% offset by a decrease in sales volume of 7%. Sales increased
$667 million, or approximately 8%, in the nine-month period ended September 30,
1999 as compared to the same period in 1998. This was due to an increase in
average sales price of 8%. (See PDV America Sales Revenues and Volumes table
above).
Equity in earnings of affiliates. Equity in earnings of
affiliates decreased by $12 million for the three-month period and decreased by
$56 million for the nine-month period as compared to the same period in 1998.
The decrease was primarily due to the change in the earnings of LYONDELL-CITGO,
CITGO's share of which decreased $57 million, from $49 million in the first nine
months of 1998 to $(8) million in the first nine months of 1999. This decrease
was due primarily to a reduction of contract crude supply, lower margins on
crude purchased in the spot market and costs and lower operating rates related
to operating unit outages.
Other income (expense). Other income (expense) was $(18)
million for the nine-month period ended September 30, 1999 as compared to $(7)
million for the same period in 1998. The difference is primarily due to
disposals of property, plant and equipment which were sold at a loss in 1999,
but were sold at a gain in 1998.
Cost of sales and operating expenses. Cost of sales and
operating expenses increased by $1,018 million or 40%, in the quarter ended
September 30, 1999 and increased $817 million or 10% in the nine-month period
ended September 30, 1999 as compared to the same period in 1998. The average
cost of hydrocarbons increased by 50% in the three-month period ended September
30, 1999 as compared to the same period in 1998. In the nine-month period ended
September 30, 1999, the average cost of hydrocarbons increased by 13% as
compared to the same period in 1998. As a result of the invocation of the force
majeure clause in its crude oil supply contracts, the Companies estimate that
the cost of crude oil purchased in the three months and nine months ended
September 30, 1999, increased by $11 million and $28 million, respectively, from
what would have otherwise been the case. (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 52% and 50% of total
cost of sales and operating expenses for the third quarters of 1999 and 1998,
respectively, and 53% and 51% for the first nine months of 1999 and 1998,
respectively. 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 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.
Gross margin. The gross margin for the three-month period
ended September 30, 1999 was $131 million, or 3.6%, compared to $208 million, or
7.6%, for the same period in 1998. The gross margin for the nine-month period
ended September 30, 1999 was $462 million, or 5.1%, compared to $613 million, or
7.3%, for the same period in 1998. In the three-month period ended
19
<PAGE>
September 30, 1999, the revenue per gallon component increased approximately 44%
while the cost per gallon component increased approximately 51%. As a result,
the gross margin decreased approximately one cent on a per gallon basis in the
three-month period ended September 30, 1999 compared to the same period in 1998.
In the nine-month period ended September 30, 1999, the revenue per gallon
component increased approximately 8% and the cost per gallon component increased
approximately 11%. As a result, the gross margin decreased approximately
nine-tenths of one cent on a per gallon basis in the nine-month period ended
September 30, 1999 compared to the same period in 1998. (See also "Notes to the
Condensed Consolidated Financial Statements," Note 7.)
Income taxes. Income taxes reported were based on an effective
tax rate of 33% for the nine-month period ended September 30, 1999, as compared
to 38% for the comparable period in 1998. The effective tax rate for the current
year is unusually low due to a favorable resolution in the second quarter of
1999 of a significant tax issue in the last IRS audit. During the years under
audit, deferred taxes were recorded for certain environmental expenses deducted
in the tax returns in the event the deductions were denied on audit. The
deductions were allowed on audit and, accordingly, the deferred tax liability of
approximately $11 million was reversed with a corresponding benefit to tax
expense.
Liquidity and Capital Resources
For the nine-month period ended September 30, 1999, the
Companies' consolidated net cash provided by operating activities totaled
approximately $22 million. Operating cash flows were derived from net income of
$142 million and depreciation and amortization of $207 million reduced by
changes in other assets and liabilities of $327 million. The more significant
changes in other items included an increase in notes and accounts receivable
(including amounts due from affiliates) of $364 million and an increase in
inventories of $199 million, offset by an increase in current liabilities of
$278 million.
Net cash used in investing activities totaled $221 million for
the nine-month period ended September 30, 1999 consisting primarily of capital
expenditures of $181 million (compared to $164 million for the same period in
1998), loan to PDVSA Finance of $38 million and loans to LYONDELL-CITGO of $20
million.
Net cash provided by financing activities totaled $202 million
for the nine-month period ended September 30, 1999 consisting primarily of a
$181 million from revolving bank loans and $55 million from short-term
borrowings offset by a $22 million dividend to parent.
As of September 30, 1999, capital resources available to the
Companies include cash generated by operations, available borrowing capacity
under CITGO's committed bank facilities of $221 million and $93 million of
uncommitted short-term borrowing facilities with various banks and $63 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 the Companies have sufficient capital resources
20
<PAGE>
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 are in compliance with their obligations under
their debt financing arrangements at September 30, 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 Companies have not
determined the impact on their financial statements that may result from
adoption of SFAS No. 133, which is required no later than January 1, 2001.
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 (the "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 its information systems by
implementing programs purchased from SAP. The first phase of SAP implementation,
which included the financial reporting and materials management modules, was
brought into production on January 1, 1998. Additional SAP modules, including
plant maintenance work order and cost tracking, were implemented throughout
1998. The light oils product scheduling, inventory and billing module and the
human resources module were brought into production on June 1 and July 1, 1999,
respectively. The total cost of the SAP implementation is estimated to be
approximately $125 million, which includes software, hardware, reengineering and
change management. Management has determined that SAP is an appropriate solution
to the Year 2000 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 95% complete, and is on schedule and on budget as
revised through September 30, 1999. Remaining business
21
<PAGE>
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 operation, 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 Companies 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 established a Year 2000 Contingency
Planning Team. The strategy for Contingency Planning included 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 has also evaluated and implemented changes to the
existing contingency plans. Contingency plans based on this process were
completed for mission critical items and external providers as of June 30, 1999.
Remediation continues 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. As of August 1, 1999, the
Remediation phase was substantially complete. The final phase of the Project,
Readiness, is being completed.
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.
22
<PAGE>
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 $21 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 September
30, 1999 was approximately $15 million. Approximately 45% of these expenditures
were for internal costs to conduct the various phases of the Project.
Approximately 25% were primarily 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
remaining 30% were for actual remediation of critical items, systems, and
external providers, as well as contingency planning and testing.
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 remaining costs for completing the Project is
anticipated to be directed toward the replacement and repair of systems and
equipment found to be incapable of reliable operation in the Year 2000.
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 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.
23
<PAGE>
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, the Companies' 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 has significantly reduced the Companies' level of uncertainty about
the Year 2000 impact. The Companies' 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."
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, management has 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 September 30, 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. The Companies balance their crude oil
and petroleum product supply/demand and manage a portion of their price risk by
entering into petroleum futures contracts, options and other over-the-counter
commodity derivatives. Generally, the Companies' risk management strategies
qualify as hedges. However, certain strategies do not qualify as hedges. The
Companies may take commodity positions based on their views or expectations of
specific commodity prices or price differentials between commodity types.
24
<PAGE>
<TABLE>
<CAPTION>
Non Trading Commodity Derivatives
Open Positions at September 30, 1999
Maturity Number 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 225 $6.6 $6.5
Futures Sold 1999 75 $2.2 $2.2
Heating Oil(1) Futures Purchased 1999 192 $4.9 $5.0
Futures Purchased 2000 51 $1.2 $1.3
Futures Purchased 2001 6 $0.1 $0.1
Futures Sold 2000 325 $9.0 $8.6
Swaps 1999 20 $0.4 $0.5
Swaps 2000 34 $0.7 $0.8
Natural Gas(3) Futures Purchased 1999 33 $0.8 $0.9
</TABLE>
- ------------------------
(1) 1000 barrels per contract
(2) Weighted average price
(3) 10,000 mmbtu per contract
Debt Related Instruments. The Companies have fixed and
floating U.S. currency denominated debt. The Companies use interest rate swaps
to manage their debt portfolio toward a benchmark of 40 to 60 percent fixed rate
debt to total fixed and floating rate debt. These instruments have the effect of
changing the interest rate with the objective of minimizing the Companies'
long-term costs. At September 30, 1999, the Companies' primary exposures were to
U.S. dollar LIBOR and U.S. Treasury rates.
For interest rate swaps, the table below presents notional
amounts and interest rates by expected (contractual) maturity dates. Notional
amounts are used to calculate the contractual payments to be exchanged under the
contracts.
25
<PAGE>
Non Trading Interest Rate Derivatives
Open Positions at September 30, 1999
Notional
Expiration Fixed Rate Principal
Variable Rate Index Date Paid Amount
- ------------------- ------ ------ ------------
($ 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 September 30, 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 $2.0 million.
For debt obligations, the table below presents principal cash
flows and related weighted average interest rates by expected maturity dates.
Weighted average variable rates are based on implied forward rates in the yield
curve at the reporting date.
Debt Obligations at September 30, 1999
Expected
Fixed Average Fixed Variable Average Variable
Expected Maturities Rate Debt Interest Rate Rate Debt Interest Rate
- ------------------- --------- ------------- --------- -------------
($ in millions) ($ in millions)
1999 $ 40 9.11% $ 94 5.83%
2000 290 7.94% 7 6.32%
2001 40 9.11% 7 6.69%
2002 36 8.78% 62 6.82%
2003 559 7.98% 329 6.89%
Thereafter 422 8.02% 500 6.90%
------ ---- ---- ----
Total $1,387 8.07% $999 6.78%
====== ==== ==== ====
Fair Value $1,374 $999
====== ====
26
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The required information is incorporated by reference into
Part II of this Report from Note 5 of the Notes to the Condensed Consolidated
Financial Statements included in Part I of this Report.
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.
27
<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: January 24, 2000 /s/ Luis Centeno
------------------------------------
Luis Centeno
Chairman, President, Chief Executive
Officer and Chief Financial Officer
Date: January 24, 2000 /s/Jose I. Moreno
--------------------------------------
Jose I. Moreno
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from PDV America,
Inc.'s financial statements for the period ending September 30, 1999.
</LEGEND>
<CIK> 0000906422
<NAME> PDV America, Inc.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<EXCHANGE-RATE> 1
<CASH> 38,619
<SECURITIES> 0
<RECEIVABLES> 977,352
<ALLOWANCES> 20,181
<INVENTORY> 1,205,542
<CURRENT-ASSETS> 2,467,090
<PP&E> 4,493,733
<DEPRECIATION> 1,079,623
<TOTAL-ASSETS> 7,657,993
<CURRENT-LIABILITIES> 1,766,723
<BONDS> 1,997,827
0
0
<COMMON> 1
<OTHER-SE> 2,728,031
<TOTAL-LIABILITY-AND-EQUITY> 7,657,993
<SALES> 9,092,492
<TOTAL-REVENUES> 9,147,853
<CGS> 8,630,047
<TOTAL-COSTS> 8,790,869
<OTHER-EXPENSES> 352
<LOSS-PROVISION> 10,811
<INTEREST-EXPENSE> 123,359
<INCOME-PRETAX> 222,462
<INCOME-TAX> 73,747
<INCOME-CONTINUING> 148,715
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148,715
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
