UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended September 30, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934
For the transition period from _____________________to____________________
Commission file number: 1-9409
DIAMOND SHAMROCK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2456753
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9830 Colonnade Boulevard, San Antonio, Texas 78230
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code:(210) 641-6800)
____________________________________________________________________________
(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. (X)YES ( )NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court.
( )YES ( )NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares of Common Stock outstanding at October 31, 1994: 29,013,673
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DIAMOND SHAMROCK, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(dollars in millions, except per share data)
Three Months Nine Months
Ended Ended
September 30, September 30,
1994 1993 1994 1993
REVENUES
Sales and operating revenues $ 700.4 $ 650.5 $ 1,930.7 $ 1,928.2
Other revenues, net 3.8 3.1 10.9 7.8
704.2 653.6 1,941.6 1,936.0
COSTS AND EXPENSES
Cost of products sold and
operating expenses 613.8 582.2 1,675.2 1,730.6
Depreciation 17.9 17.4 52.5 47.4
Selling and administrative 18.2 15.0 52.2 44.4
Taxes other than income taxes 10.6 9.3 30.4 29.5
Interest 10.8 11.0 32.1 29.6
671.3 634.9 1,842.4 1,881.5
Income Before
Tax Provision and
Cumulative Effect of
Accounting Changes 32.9 18.7 99.2 54.5
Provision for Income Taxes 12.3 9.4 38.9 23.7
Income Before
Cumulative Effect of
Accounting Changes 20.6 9.3 60.3 30.8
Cumulative Effect of
Accounting Changes - - - (14.2)
Net Income 20.6 9.3 60.3 16.6
Dividend Requirement
on Preferred Stock 1.1 1.1 3.2 1.3
Earnings Applicable to
Common Shares $ 19.5 $ 8.2 $ 57.1 $ 15.3
Primary Earnings (Loss)
Per Share
Before Accounting Changes $ 0.67 $ 0.28 $ 1.96 $ 1.02
Cumulative Effect
of Accounting Changes - - - (0.49)
Total $ 0.67 $ 0.28 $ 1.96 $ 0.53
Fully Diluted Earnings (Loss)
Per Share
Before Accounting Changes $ 0.64 $ 0.28 $ 1.86 $ 1.02
Cumulative Effect
of Accounting Changes - - - (0.49)
Total $ 0.64 $ 0.28 $ 1.86 $ 0.53
Cash Dividends Per Share
Common $ 0.13 $ 0.13 $ 0.39 $ 0.39
Preferred $ 0.625 $ 0.655 $ 1.875 $ -
Weighted Average Common Shares
Outstanding (thousands of shares)
Primary 29,142 28,893 29,135 28,845
Fully Diluted 32,397 32,233 32,391 30,289
See accompanying Notes to Consolidated Financial Statements.
DIAMOND SHAMROCK, INC.
CONSOLIDATED BALANCE SHEET
(dollars in millions, except per share data)
September 30, December 31,
1994 1993
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 14.8 $ 12.8
Receivables, less doubtful receivables
of $5.5; $5.5 in 1993 194.9 148.8
Inventories
Finished products 128.3 114.0
Raw materials 71.1 47.9
Supplies 32.5 24.1
231.9 186.0
Prepaid expenses 10.5 8.6
Total Current Assets 452.1 356.2
Properties and Equipment, less accumulated
depreciation of $598.6; $550.9 in 1993 980.9 941.1
Deferred Charges and Other Assets 48.7 51.9
$1,481.7 $1,349.2
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Long-term debt payable within one year $ 3.7 $ 3.5
Accounts payable 104.4 88.5
Accrued taxes 62.1 56.9
Accrued royalties 7.2 7.1
Current portion of Long-term Liability 8.0 8.0
Other accrued liabilities 86.0 56.4
Total Current Liabilities 271.4 220.4
Long-term Debt 501.6 486.2
Deferred Income Taxes 65.3 48.7
Other Liabilities and Deferred Credits 65.0 66.2
Stockholders' Equity
Preferred Stock, $.01 par value
Authorized shares - 25,000,000
Issued and Outstanding shares 1,725,000;
1,725,000 in 1993 0.0 0.0
Common Stock, $.01 par value
Authorized shares - 75,000,000
Issued shares - 29,014,706; 28,927,217
in 1993
Outstanding shares - 29,013,163; 28,903,468
in 1993 0.3 0.3
Paid-in Capital 447.2 444.8
ESOP Stock and Stock Held in Treasury (44.8) (47.9)
Retained Earnings 175.7 130.5
Total Stockholders' Equity 578.4 527.7
$1,481.7 $1,349.2
See accompanying Notes to Consolidated Financial Statements.
DIAMOND SHAMROCK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(dollars in millions)
Nine Months Ended
September 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 60.3 $ 16.6
Adjustments to arrive at net cash provided
by operating activities:
Depreciation 52.5 47.4
Deferred income taxes 16.8 (6.4)
Loss on sale of properties and equipment 2.0 1.6
Cumulative Effect of Accounting Changes - 23.6
Cash flow from futures activity 8.9 1.9
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (46.1) (15.5)
Decrease (increase) in inventories (45.9) (61.6)
Decrease (increase) in prepaid expenses (1.9) (4.2)
Increase (decrease) in accounts payable 15.9 28.5
Increase (decrease) in taxes payable 5.2 8.7
Increase (decrease) in accrued liabilities 29.7 1.0
Other, net 11.9 12.8
NET CASH PROVIDED BY OPERATING ACTIVITIES 109.3 54.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of futures contracts (115.9) (113.5)
Settlement of futures contracts 107.0 111.6
Proceeds from sales of facilities 4.1 1.5
Purchase of properties and equipment (95.8) (92.6)
Expenditures for investments (3.8) (1.0)
NET CASH (USED IN) INVESTING ACTIVITIES (104.4) (94.0)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) in commercial paper - (108.6)
Increases in long-term debt 162.3 316.8
Repayments of long-term debt (146.7) (228.7)
Payments of long-term liability (7.8) (8.4)
Funds received from ESOP 2.5 2.1
Issuance of Common Stock 0.9 1.5
Sale of Preferred Stock - 84.3
Sale of Common Stock held in treasury 0.4 0.2
Dividends paid (14.5) (12.4)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2.9) 46.8
Net increase in cash and cash equivalents 2.0 7.2
Cash and cash equivalents at beginning of period 12.8 17.5
Cash and cash equivalents at end of period $ 14.8 $ 24.7
See accompanying Notes to Consolidated Financial Statements.
DIAMOND SHAMROCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements
The consolidated financial statements as of September 30, 1994 and for the
three months and nine months ended September 30, 1994 and 1993 are unaudited,
but in the opinion of Diamond Shamrock, Inc. (the "Company"), all adjustments
(consisting only of normal accruals) necessary for a fair presentation of
consolidated results of operations, consolidated financial position, and
consolidated cash flows at the date and for the periods indicated have been
included.
The consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto included in the 1993 Annual Report to Stockholders and incorporated
by reference into the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 Form 10-K").
With respect to the unaudited consolidated financial information of the
Company as of September 30, 1994, and for the three months and nine months
ended September 30, 1994 and 1993, Price Waterhouse LLP has made a review
(based on procedures adopted by the American Institute of Certified Public
Accountants) and not an audit, as set forth in their separate report
appearing herein. Such a report is not a "report" or "part of a
Registration Statement" within the meaning of Sections 7 and 11 of the
Securities Act of 1933 and the liability provisions of Section 11 of such Act
do not apply.
2. Significant Accounting Policies
The Company includes purchased items in inventory when the product has been
delivered and/or when title has passed to the Company. Imbalances in product
exchanges are also reflected in the inventory account balance. Products owed
to the Company are included in inventory and products owed to exchange
partners are excluded from inventory.
3. Inventories
Inventories are valued at the lower of cost or market with cost determined
primarily under the Last-in, First-out (LIFO) method. At September 30, 1994,
inventories of crude oil and refined products of the Refining and Wholesale
segment were valued at market values (lower than LIFO cost). Motor fuel
products of the Retail segment and propylene products in the Allied
Businesses segment were recorded at their LIFO costs.
4. Long-term Debt
The Company currently has outstanding $150.0 million of debt which is
designated as the 10.75% Senior Notes. As of May 1, 1994, $30.0 million of
the long-term debt became payable within one year. Since the Company intends
to refinance the $30.0 million repayment by the use of commercial paper or
other credit facilities which would be classified as long-term, and the
Company has the capacity to do so, the current portion of the long-term debt
payable on April 30, 1995 has been classified as long-term debt.
5. Commitments and Contingencies
In connection with the 1987 Spin-off from Maxus Energy Corporation ("Maxus"),
the Company agreed to assume a share of certain liabilities of Maxus'
businesses discontinued or disposed of prior to the Spin-off date (see Note
16 of the 1993 Form 10-K). The Company's total liability for such shared
costs is limited to $85.0 million. The Company has reimbursed Maxus for a
total of $61.2 million as of September 30, 1994, including $3.0 million and
$7.8 million paid during the three months and nine months ended September 30,
1994, respectively (see Note 3 of the 1993 Form 10-K for a discussion of the
change in the method of accounting for the liability).
REVIEW BY INDEPENDENT ACCOUNTANTS
With respect to the unaudited consolidated financial information of the
Company as of September 30, 1994 and for the quarters and nine months ended
September 30, 1994 and 1993, Price Waterhouse LLP reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report dated November
11, 1994 appearing below, states that they did not audit and they do not
express an opinion on that unaudited consolidated financial information.
Price Waterhouse LLP has not carried out any significant or additional audit
tests beyond those which would have been necessary if their report had not
been included. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. Price Waterhouse LLP is not subject to the liability
provisions of Section 11 of the Securities Act of 1933 for their report on
the unaudited consolidated financial information because that report is not a
"report" or "part of a Registration Statement" prepared or certified by Price
Waterhouse LLP within the meaning of Sections 7 and 11 of the Act.
REPORT ON REVIEW BY INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Diamond Shamrock, Inc.
We have reviewed the consolidated interim financial information included in
the Report on Form 10-Q of Diamond Shamrock, Inc. and its subsidiaries as of
September 30, 1994 and for the quarters and nine months ended September 30,
1994 and 1993. This financial information is the responsibility of the
management of Diamond Shamrock, Inc.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1993, and the
related consolidated statements of operations and of cash flows for the year
then ended (not presented herein), and in our report dated February 25, 1994,
which included an explanatory paragraph regarding the Company's changes in
accounting for its long-term shared cost liability, income taxes and post-
retirement benefits other than pensions, we expressed an unqualified opinion
on those consolidated financial statements. In our opinion, the information
set forth in the accompanying consolidated balance sheet information as of
December 31, 1993, is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
PRICE WATERHOUSE LLP
San Antonio, Texas
November 11, 1994
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The following are the Company's sales and operating revenues and operating
profit for the three months and nine months ended September 30, 1994 and
1993. Business segment operating profit is sales and operating revenues less
applicable segment operating expense. In determining the operating profit of
the three business segments, neither interest expense nor administrative
expenses are included.
Three Months Nine Months
Ended Ended
September 30, September 30,
1994 1993 1994 1993
Sales and Operating Revenues:
Refining and Wholesale $ 357.5 $ 336.0 $ 996.7 $ 975.1
Retail 267.1 253.5 721.6 732.9
Allied Businesses 75.8 61.0 212.4 220.2
Total Sales and
Operating Revenues $ 700.4 $ 650.5 $1,930.7 $1,928.2
Operating Profit:
Refining and Wholesale $ 37.9 $ 19.2 $ 130.4 $ 64.7
Retail 16.0 21.0 34.2 45.9
Allied Businesses 5.4 2.6 12.4 12.9
Total Operating Profit $ 59.3 $ 42.8 $ 177.0 $ 123.5
Consolidated Results Third Quarter 1994 vs Third Quarter 1993
Sales and operating revenues of $700.4 million for the third quarter of 1994
were 7.7% higher than for the same period of 1993, primarily due to a 4.8%
increase in refined product sales prices, a 1.9% increase in refined product
sales volumes, a 3.8% increase in retail gasoline prices, and a 5.8% increase
in retail merchandise sales. In addition there was a 68.7% increase in sales
from the propane/propylene splitter, primarily due to a 41.1% and a 32.1%
increase in polymer grade propylene prices and volumes, respectively.
During the third quarter of 1994, the Company had net income of $20.6 million
compared to net income of $9.3 million in the 1993 third quarter. The
Company's third quarter 1994 results were positively impacted by an increase
in the value of refinery inventories due primarily to crude oil price
increases during the period. This increase in net income was also
attributable to increased operating profits from the Company's
propane/propylene splitter and Nitromite anhydrous ammonia fertilizer
businesses, primarily due to increased sales volumes and margins. These
increases in net income were partially offset by a decrease in operating
profit from the Company's Retail segment, primarily due to a 11.3% decrease
in retail gasoline margins.
Inventories are valued at the lower of cost or market with cost determined
primarily under the Last-in, First-out (LIFO) method. At September 30, 1994,
inventories of crude oil and refined products of the Refining and Wholesale
segment were valued at market values (lower than LIFO cost). Motor fuel
product inventories of the Retail segment and propylene products in the
Allied Businesses segment were recorded at their LIFO costs.
Estimating the financial impact of changes in the valuation of refinery
inventories due to such inventories being valued at market is difficult
because of the number of variables that must be considered. For operating
purposes, management attempts to estimate the impact of changes in valuation
of inventories on net income. The estimated after-tax effect on net income
from changes in inventory values was a positive $2.9 million and a negative
$5.6 million in the third quarters of 1994 and 1993, respectively.
Consolidated Results First Nine Months 1994 vs First Nine Months 1993
Sales and operating revenues of $1.9 billion for the first nine months of
1994 were $2.5 million higher than for the same period of 1993. This
increase was primarily due to a 10.6% increase in refined product sales
volumes and a 4.1% increase in sales from the Company's Nitromite anhydrous
ammonia fertilizer business, reflecting increased sales volumes and prices.
Partially offsetting this increase was a 6.6% decrease in retail gasoline
prices, a 13.8% and a 7.2% decrease in natural gas liquids sales prices and
volumes, respectively, and a 7.7% decrease in refined product sales prices.
During the first nine months of 1994, the Company had net income of $60.3
million compared to net income (before cumulative effect of accounting
changes) of $30.8 million in the first nine months of 1993 reflecting higher
refinery margins and an increase in the value of refinery inventories due
primarily to crude oil price increases during the first nine months of 1994.
The estimated after-tax effect on net income from changes in inventory values
was a positive $8.1 million and a negative $7.8 million in the first nine
months of 1994 and 1993, respectively.
Segment Results Third Quarter 1994 vs Third Quarter 1993
During the third quarter of 1994, the Refining and Wholesale segment had
sales and operating revenues of $357.5 million compared to $336.0 million
during the third quarter of 1993. The increase in sales and operating
revenues was primarily due to a 5.4% increase in refined product sales prices
and a 1.5% increase in refined products sales volumes reflecting the
completion of the expansion of the Three Rivers refinery. Operating profit
in the third quarter of 1994 increased $18.7 million over that for the third
quarter of 1993, primarily due to a 1.5% increase in refined product sales
volumes over the same period a year ago, and an increase in the value of
refinery inventories due primarily to crude oil price increases during the
third quarter of 1994. The estimated after-tax effect on net income from
changes in inventory values was a positive $2.9 million and a negative $5.6
million in the third quarter of 1994 and 1993, respectively.
The Retail segment in the third quarter of 1994 experienced a 5.4% increase
in sales and operating revenues compared to the third quarter of 1993. Such
increase was primarily due to a 3.8% increase in retail gasoline prices and a
5.8% increase in retail merchandise sales. Operating profit in the third
quarter of 1994 was $16.0 million compared to $21.0 million in the third
quarter of 1993. The decrease was primarily due to an 11.3% decrease in
retail gasoline margins.
During the third quarter of 1994, the Allied Businesses segment results
reflected an increase in sales and operating revenues of 24.3%, primarily due
to a 68.7% increase in propane/propylene revenue, reflecting a 41.1% and a
32.1% increase in polymer grade propylene prices and volumes, respectively.
Also contributing to the increase in sales and operating revenues was a 23.1%
increase in telephone services revenue, and a 36.6% improvement in the
Nitromite anhydrous ammonia fertilizer revenue reflecting increased sales
volumes and prices during the period. Operating profits were $5.4 million
for the third quarter of 1994 compared to $2.6 million in the third quarter
of 1993. Operating profits for this segment increased primarily due to an
increase of $2.4 million and $1.4 million in propane/propylene splitter and
Nitromite anhydrous ammonia fertilizer businesses operating profits,
respectively, reflecting improved sales volumes and margins.
Segment Results First Nine Months 1994 vs First Nine Months 1993
Sales and operating revenues from the Refining and Wholesale segment were
$996.7 million in the first nine months of 1994 compared to $975.1 million
during the first nine months of 1993. A 10.6% increase in refined product
sales volumes was partially offset by a 7.5% decrease in refined product
sales prices. Operating profit in this segment for the period more than
doubled that for the first nine months of 1993, primarily due to a 19.2%
increase in refinery margins over the first nine months of 1993.
The Retail segment results in the first nine months of 1994 reflected a 1.5%
decrease in sales and operating revenues, primarily due to a 6.6% decrease in
retail gasoline prices, partially offset by a 1.7% increase in retail
gasoline sales volumes. Operating profit in the first nine months of 1994
was $34.2 million compared to $45.9 million in the first nine months of 1993.
The decrease was primarily due to a 7.3% decrease in retail gasoline margins,
partially offset by a 3.7% increase in gross merchandise margins and a $0.9
million increase in gross profit from lottery sales.
The Allied Businesses segment results reflected a decrease in sales and
operating revenues of 3.5% to $212.4 million in the first nine months of 1994
as compared to the same period in 1993. This decrease was primarily due to a
13.8% and a 7.2% decrease in natural gas liquids sales prices and volumes,
respectively, reflecting the cancellation during the second quarter of 1993
of a contract to process natural gas. This decrease in sales and operating
revenues was partially offset by a $12.2 million increase in the Nitromite
anhydrous ammonia fertilizer sales and operating revenue and an improvement
of $5.5 million in telephone services sales and operating revenue. Operating
profit in the first nine months of 1994 was $12.4 million compared to $12.9
million in the first nine months of 1993. The decrease in operating profit
was primarily due to an increase in international operations operating
expenses and a decrease in natural gas processing operating profit,
reflecting the shutdown of the Company's natural gas processing facility in
the second quarter of 1993. This decrease was offset by a $4.2 million and a
$2.2 million increase in operating profit in the Company s Nitromite
anhydrous ammonia fertilizer and natural gas liquids pipeline businesses,
respectively.
Outlook
Early in the third quarter, product prices strengthened and helped to improve
industry-wide refining margins. With the end of the driving season and the
effective reduction of inventories of regular gasoline by refiners in order
to start reformulated fuel production, refining margins rapidly weakened in
September. Refining margins have since improved somewhat. Partially
offsetting the weakness in refining margins were strong marketing margins and
volumes in the third quarter as compared to earlier periods. While marketing
margins have decreased slightly since the end of the third quarter, they
remain higher than all of the quarterly average margins for 1994.
Longer term, although demand for gasoline is expected to grow only modestly
as fuel efficiency improves and alternative fuels are introduced, industry
refining capacity is expected to remain constrained due to the impact of
regulatory restrictions. The current regulatory restrictions ultimately are
expected to contribute to the shutdown of smaller, less efficient refineries
and to discourage the construction of new refineries in the United States.
Management continues to believe that the Company is well-positioned to
benefit from these conditions due to its efficient and strategically located
refining, distribution, and marketing system.
Liquidity and Capital Resources
Cash Flow and Working Capital
For the nine months ended September 30, 1994, cash provided by operations was
$109.3 million, compared with $54.4 million in the same period of 1993.
Working capital at September 30, 1994 was up $44.9 million from December 31,
1993, and consisted of current assets of $452.1 million and current
liabilities of $271.4 million, or a current ratio of 1.7. At December 31,
1993, current assets were $356.2 million and current liabilities were $220.4
million, or a current ratio of 1.6. Accounts Receivable at September 30,
1994 were up $46.1 million from December 31, 1993, primarily due to higher
refined product sales volumes.
Capital Expenditures
The Company's capital and investment expenditures estimate for 1994 is
approximately $140.0 million. The 1994 capital expenditures include
approximately $88.0 million for the recently completed refined products
pipeline from the McKee refinery to Colorado Springs, and for projects
currently underway, namely the Colorado Springs to Denver products pipeline,
a 400-mile pipeline to El Paso from McKee, and a crude oil storage terminal
at Corpus Christi and pipeline to Three Rivers. The Company's capital and
investment expenditures during 1993 were $131.8 million. The Company's 1994
capital expenditures were $95.8 million during the first nine months of the
year, compared with $92.6 million for the same period of 1993. Included in
the first nine months of 1993 capital expenditures was the major expansion of
the Three Rivers refinery, completed in June 1993. The Company's 1995
capital budget is estimated to be $190.0 million and includes carryover
spending from projects currently underway such as the pipeline to El Paso,
the Colorado Springs to Denver pipeline, the Corpus Christi crude oil
terminal and pipeline, and the TAME unit at the McKee refinery.
The Company anticipates that its capital expenditures, as well as
expenditures for debt service, lease obligations, working capital, and
dividend requirements might at times exceed cash generated by operations. To
the extent that the Company's requirements exceed cash generated by
operations, the Company anticipates that it may access its commercial paper
and bank money market facilities or issue medium- to long-term notes. The
Company may also consider other alternatives depending upon various factors,
including changes in its capital requirements, results of operations, and
developments in the capital markets.
The Company continued to enhance its retail marketing business in the first
nine months of 1994 with the acquisition of 8 outlets in El Paso, Texas and
the announcement in June that the Company had signed an agreement to acquire
18 outlets in Colorado. The acquisition of the 18 Colorado outlets was
completed on November 10, 1994. In addition, the Company opened 10 new
outlets and closed 4 marginal units through September 30, 1994. The newly
opened outlets and some of the newly acquired outlets are or will be leased
by the Company under a pre-existing long-term lease arrangement. The Company
has leased approximately $154.0 million in retail outlets and related
equipment under these arrangements. The Company has entered into agreements
to extend the primary term applicable to the properties under the lease by
two years, to April, 1999. At September 30, 1994, approximately $36.0
million remained available under the lease. The Company presently
anticipates constructing or acquiring a total of approximately 45 to 50
outlets during 1994.
Regulatory Matters
It is expected that rules and regulations implementing the federal, state,
and local laws relating to health, safety and environmental quality will
continue to affect the operations of the Company. The Company cannot predict
what health, safety or environmental legislation, rules or regulations will
be enacted in the future or how existing or future laws, rules or regulations
will be administered or enforced with respect to products or activities of
the Company. However, compliance with more stringent laws or regulations, as
well as more expansive interpretation of existing laws and their more
vigorous enforcement by the regulatory agencies could have an adverse effect
on the operations of the Company and could require substantial additional
expenditures by the Company, such as for the installation and operation of
pollution control systems and equipment and for the manufacture and
distribution of reformulated fuel.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 First Amendment to Agreement for Ground Lease between Brazos River
Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated
as of June 1, 1994.
10.2 First Amendment to Ground Lease Agreement between Brazos River Leasing
L.P. and Diamond Shamrock Refining and Marketing Company, dated as of
June 1, 1994.
10.3 First Amendment to Agreement for Facilities Lease between Brazos River
Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated
as of June 1, 1994.
10.4 First Amendment to Facilities Lease Agreement between Brazos River
Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated
as of June 1, 1994.
10.5 Third Amendment to Agreement for Ground Lease between Brazos River
Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated
as of September 16, 1994.
10.6 Third Amendment to Ground Lease Agreement between Brazos River Leasing
L.P. and Diamond Shamrock Refining and Marketing Company, dated as of
September 16, 1994.
10.7 Third Amendment to Agreement for Facilities Lease between Brazos River
Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated
as of September 16, 1994.
10.8 Third Amendment to Facilities Lease Agreement between Brazos River
Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated
as of September 16, 1994.
15.1 Independent Accountants' Awareness Letter.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company in the third quarter of
1994.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIAMOND SHAMROCK, INC.
By /S/ GARY E. JOHNSON
Vice President and Controller
(Principal Accounting Officer)
November 11, 1994