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 June 30, 1995
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)
210-641-6800
(Registrant's telephone number, including area code)
______________________________________________________________________________
(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 July 31, 1995: 29,021,996
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 Six Months
Ended Ended
June 30, June 30,
1995 1994 1995 1994
REVENUES
Sales and operating revenues $ 789.7 $ 646.5 $ 1,466.4 $ 1,230.3
Other revenues, net 4.3 2.6 8.4 7.1
794.0 649.1 1,474.8 1,237.4
COSTS AND EXPENSES
Cost of products sold and
operating expenses 687.1 546.6 1,300.2 1,061.3
Depreciation 19.5 17.6 38.1 34.6
Selling and administrative 21.4 18.1 39.7 34.0
Taxes other than income taxes 10.4 10.4 20.7 19.9
Interest 11.4 10.8 22.8 21.3
749.8 603.5 1,421.5 1,171.1
Income Before Tax Provision 44.2 45.6 53.3 66.3
Provision for Income Taxes 16.2 18.1 19.9 26.6
Net Income 28.0 27.5 33.4 39.7
Dividend Requirement
on Preferred Stock 1.1 1.1 2.2 2.2
Earnings Applicable to
Common Shares $ 26.9 $ 26.4 $ 31.2 $ 37.5
Primary Earnings
Per Share $ 0.93 $ 0.91 $ 1.08 $ 1.29
Fully Diluted Earnings
Per Share $ 0.87 $ 0.85 $ 1.03 $ 1.23
Cash Dividends Per Share
Common $ 0.14 $ 0.13 $ 0.28 $ 0.26
Preferred $ 0.625 $ 0.625 $ 1.25 $ 1.25
Weighted Average Common Shares
Outstanding (thousands of shares)
Primary 29,153 29,122 29,089 29,132
Fully Diluted 32,409 32,376 32,372 32,389
See accompanying Notes to Consolidated Financial Statements.
DIAMOND SHAMROCK, INC.
CONSOLIDATED BALANCE SHEET
(dollars in millions, except per share data)
June 30, December 31,
1995 1994
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 16.7 $ 27.4
Receivables, less doubtful receivables
of $6.6; $5.8 in 1994 236.0 211.6
Inventories
Finished products 127.4 109.6
Raw materials 77.9 148.3
Supplies 35.7 33.1
241.0 291.0
Prepaid expenses 19.3 10.4
Total Current Assets 513.0 540.4
Properties and Equipment, less accumulated
depreciation of $648.1; $609.3 in 1994 1,106.9 1,026.1
Deferred Charges and Other Assets 52.3 54.3
$ 1,672.2 $ 1,620.8
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Long-term debt payable within one year $ 4.0 $ 3.9
Accounts payable 144.6 199.3
Accrued taxes 71.4 65.3
Accrued royalties 7.5 6.7
Current portion of Long-term Liability 8.0 8.0
Other accrued liabilities 73.0 90.9
Total Current Liabilities 308.5 374.1
Long-term Debt 581.3 509.2
Deferred Income Taxes 89.5 81.5
Other Liabilities and Deferred Credits 76.2 67.0
Stockholders' Equity
Preferred Stock, $.01 par value
Authorized shares - 25,000,000
Issued and Outstanding shares - 1,725,000;
1,725,000 in 1994 0.0 0.0
Common Stock, $.01 par value
Authorized shares - 75,000,000
Issued shares - 29,028,534; 29,014,711
in 1994
Outstanding shares - 29,020,442; 28,896,917
in 1994 0.3 0.3
Paid-in Capital 447.7 447.3
ESOP Stock and Stock Held in Treasury (39.6) (45.4)
Retained Earnings 208.3 186.8
Total Stockholders' Equity 616.7 589.0
$1,672.2 $1,620.8
See accompanying Notes to Consolidated Financial Statements.
DIAMOND SHAMROCK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(dollars in millions)
Six Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 33.4 $ 39.7
Adjustments to arrive at net cash provided
by operating activities:
Depreciation 38.1 34.6
Deferred income taxes 8.0 12.4
Loss on sale of properties and equipment 0.5 1.8
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (24.4) (34.0)
Decrease (increase) in inventories 50.0 (17.5)
Decrease (increase) in prepaid expenses (8.9) (3.3)
Increase (decrease) in accounts payable (54.7) 31.4
Increase (decrease) in taxes payable 6.1 12.6
Increase (decrease) in accrued liabilities (17.1) 17.8
Other, net 10.5 3.4
NET CASH PROVIDED BY OPERATING ACTIVITIES 41.5 98.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of properties and equipment 0.1 1.1
Purchase of properties and equipment (111.0) (58.9)
Expenditures for investments (1.1) (2.6)
NET CASH (USED IN) INVESTING ACTIVITIES (112.0) (60.4)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increases in long-term debt 233.7 92.5
Repayments of long-term debt (161.5) (114.7)
Payments of long-term liability (5.3) (4.8)
Funds received from ESOP 2.8 2.5
Issuance of Common Stock 0.2 0.9
Sale of Common Stock held in treasury 0.2 0.3
Dividends paid (10.3) (9.7)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 59.8 (33.0)
Net increase (decrease) in cash and cash equivalents (10.7) 5.5
Cash and cash equivalents at beginning of period 27.4 12.8
Cash and cash equivalents at end of period $ 16.7 $ 18.3
In January 1995, the Company acquired a portion of a crude oil import and
storage terminal in a non-cash transaction under an installment purchase
arrangement. The purchase price was $12.0 million.
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 June 30, 1995 and for the three
months ended June 30, 1995 and 1994 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 1994 Annual Report to Stockholders and incorporated by reference into the
Company's Annual Report on Form 10-K for the year ended December 31, 1994 (the
"1994 Form 10-K").
With respect to the unaudited consolidated financial information of the Company
as of June 30, 1995, and for the three months ended June 30, 1995 and 1994,
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. Inventories
Inventories are valued at the lower of cost or market with cost determined
primarily under the Last-in, First-out (LIFO) method. At June 30, 1995,
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. Costs of all other inventories are
determined on an average cost method.
3. Long-term Debt
The Company currently has outstanding $120.0 million of debt designated as the
10.75% Senior Notes. As of May 1, 1995, $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
ability to do so, the current portion of the long-term debt payable on April 30,
1996 has been classified as long-term debt.
4. 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 1994
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 $68.9 million as
of June 30, 1995, including $5.3 million paid during the six months ended June
30, 1995. See Note 3 of the 1994 Form 10-K for a discussion of the change in
the method of accounting for the liability during the year ended December 31,
1993.
REVIEW BY INDEPENDENT ACCOUNTANTS
With respect to the unaudited consolidated financial information of the Company
as of June 30, 1995 and the three months and six months ended June 30, 1995 and
1994, 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 August 10, 1995, 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 Securities Act of 1933.
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 (the
"Company") as of June 30, 1995 and for the quarters and six months ended June
30, 1995 and 1994. 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 of the Company as of December 31, 1994, 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 24, 1995,
which included an explanatory paragraph regarding the Company's change in
accounting for its long-term shared cost liability in 1993, and its changes in
accounting for income taxes and post-retirement benefits other than pensions in
1992, 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, 1994, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
/S/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
San Antonio, Texas
August 10, 1995
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 six months ended June 30, 1995 and 1994.
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 Six Months
Ended Ended
June 30, June 30,
1995 1994 1995 1994
Sales and Operating Revenues:
Refining and Wholesale $ 391.8 $ 335.2 $ 716.7 $ 639.2
Retail 291.3 242.1 538.6 454.5
Allied Businesses 106.6 69.2 211.1 136.6
Total Sales and
Operating Revenues $ 789.7 $ 646.5 $ 1,466.4 $ 1,230.3
Operating Profit:
Refining and Wholesale $ 46.1 $ 60.2 $ 54.6 $ 92.4
Retail 12.0 9.9 27.0 18.2
Allied Businesses 15.3 2.6 28.4 7.1
Total Operating Profit $ 73.4 $ 72.7 $ 110.0 $ 117.7
Consolidated Results Second Quarter 1995 vs Second Quarter 1994
Sales and operating revenues of $789.7 million for the second quarter of 1995
were 22.2% higher than in the same period of 1994, primarily due to a 12.3%
increase in wholesale refined products sales prices and a 14.3% and a 11.0%
increase in retail gasoline sales prices and volumes, respectively. Also
contributing to the increase in sales and operating revenues was a 54.0%
increase in sales in the Company's Allied Businesses segment, primarily due to
continued strong demand for polymer grade propylene.
During the second quarter of 1995, the Company had net income of $28.0 million
compared to net income of $27.5 million in the 1994 second quarter. An
improvement in the demand for polymer grade propylene in the Company's Allied
Businesses segment was partially offset by lower refinery margins compared to
the second quarter of 1994.
Inventories are valued at the lower of cost or market with cost determined
primarily under the Last-in, First-out (LIFO) method. At June 30, 1995,
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. All other inventories are
determined on an average cost method.
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 refinery
inventories on net income. The estimated after tax change in inventory values
was a positive $7.8 million and a positive $11.2 million in the second quarters
of 1995 and 1994, respectively.
Consolidated Results First Six Months 1995 vs First Six Months 1994
Sales and operating revenues of $1.5 billion for the first six months of 1995
were $236.1 million higher than for the same period of 1994. This increase was
primarily due to a 13.8% increase in retail gasoline prices and an 11.0%
increase in wholesale refined product sales prices. Also contributing to the
increase in sales and operating revenues was a 54.6% increase in sales in the
Allied Businesses segment, primarily due to an increase in polymer grade
propylene sales.
During the first six months of 1995, the Company had net income of $33.4 million
compared to net income of $39.7 million in the first six months of 1994. This
15.9% decrease is primarily due to lower refining margins, which was partially
offset by strong demand for polymer grade propylene in the Company's Allied
Businesses segment and an increase in the value of refinery inventories due
primarily to crude oil price increases during the first six months of 1995. The
estimated after-tax effect on net income from changes in inventory values was a
positive $9.7 million and a positive $5.9 million in the first six months of
1995 and 1994, respectively.
Segment Results Second Quarter 1995 vs Second Quarter 1994
During the second quarter of 1995 the Refining and Wholesale segment had sales
and operating revenues of $391.9 million compared to $335.2 million during the
second quarter of 1994. The increase in sales and operating revenues was
primarily due to a 12.3% increase in wholesale refined product sales prices.
Operating profit in the second quarter of 1995 decreased $14.0 million from the
second quarter of 1994, primarily due to a 9.5% decrease in refinery margins
from the same period a year ago.
The Retail segment in the second quarter of 1995 reflected a 20.3% increase in
sales and operating revenues. Such increase was primarily due to a 14.3% and a
11.0% increase in retail gasoline prices and volumes, respectively, reflecting
an 8.5% increase in retail stores compared to the second quarter of 1994.
Operating profit in the second quarter of 1995 was $12.0 million compared to
$9.9 million in the second quarter of 1994. The increased operating profit was
primarily due to increased retail gasoline volumes, partially offset by a 0.7%
and a 1.2% decrease in retail gasoline and merchandise margins, respectively.
During the second quarter of 1995, the Allied Businesses segment reflected an
increase in sales and operating revenues of 54.0%, primarily due to a $32.7
million increase in sales in the Company's propane/propylene business. This
increase was primarily due to increased sales volumes and prices, reflecting
continued strong demand for polymer grade propylene. Also contributing to the
increase in sales and operating revenues was a 25.7% increase from the Company's
natural gas liquids marketing business, reflecting a 22.1% increase in natural
gas liquids sales volumes. Operating profits were $15.3 million for the second
quarter of 1995 compared to $2.6 million in the second quarter of 1994.
Operating profits increased primarily due to an $11.0 million increase in
operating profit from the Company's propylene business.
Segment Results First Six Months 1995 vs First Six Months 1994
Sales and operating revenues from the Refining and Wholesale segment were $716.7
million in the first six months of 1995 compared to $639.2 million during the
first six months of 1994. The increase in sales and operating revenues was
primarily due to an 11.0% increase in wholesale refined product sales prices.
Operating profit in the first six months of 1995 was $54.6 million compared to
$92.4 million in the first six months of 1994. The decrease in operating profit
was primarily due to a 26.6% decrease in refinery margins. Industry refining
margins during the first quarter of 1995 were the weakest in recent years,
reflecting a surplus of heating oil because of the extremely mild winter and
confusion in the new reformulated gasoline ("RFG") market as several areas opted
out, or attempted to opt out, of the RFG requirements. Refinery margins
improved in the second quarter of 1995, reflecting strong gasoline demand and
tight gasoline inventories.
The Retail segment results in the first six months of 1995 reflected an 18.5%
increase in sales and operating revenues, primarily due to a 13.8% increase in
retail gasoline sales prices, reflecting a 7.5% increase in retail outlets
compared to the first six months of 1994. Operating profit in the first six
months of 1995 was $27.0 million compared to $18.2 million in the first six
months of 1994. The increase was primarily due to an 8.6% and a 2.3% increase
in retail gasoline and merchandise margins, respectively.
The Allied Businesses segment results reflected an increase in sales and
operating revenues of 54.6% to $211.1 million in the first six months of 1995 as
compared to the same period in 1994. This increase was primarily due to a $56.2
million increase in sales in the Company's propylene business, reflecting
increased sales volumes and prices, attributable to continued strong demand for
polymer grade propylene. Also contributing to the increase in sales and
operating revenues was a 27.3% increase from the Company's natural gas liquids
marketing business, reflecting a 19.1% and a 6.9% increase in natural gas
liquids sales volumes and prices, respectively. Operating profits were $28.4
million for the first six months of 1995 compared to $7.1 million in 1994.
Operating profits increased primarily due to a $17.1 million and a $4.1 million
increase in operating profit from the Company's propane/propylene and Nitromite
fertilizer businesses, respectively.
The outlook for the refining and marketing industry for the rest of 1995 is
positive. Even though the driving season is coming to an end, gasoline demand
remains strong and gasoline inventories are tight, which should benefit refining
margins. Distillate inventories that had built up due to the unseasonably warm
winter in 1994 have come back down to historically normal levels which is
positive as the Company enters into the winter season. The pipeline and new
product terminal in El Paso, planned for completion in October 1995, will give
the Company access to large and growing markets in the Southwest. Diamond
Shamrock's retail marketing continues its aggressive expansion of its Corner
Store network with the construction of 13 new stores and the acquisition of 21
stores thus far in 1995. Additionally, 13 properties in Arizona are now under
option, and the Company plans to begin construction of the first four of these
sites in September as its initial move into the Arizona market. Allied
Businesses continue to be strong contributors in the third quarter.
Liquidity and Capital Resources
Cash Flow and Working Capital
For the six months ended June 30, 1995, cash provided by operations was $41.5
million, compared with $98.9 million in the same period of 1994.
Working capital at June 30, 1995 was up $38.1 million from December 31, 1994,
and consisted of current assets of $513.0 million and current liabilities of
$308.5 million, or a current ratio of 1.7. At December 31, 1994, current assets
were $540.4 million and current liabilities were $374.1 million, or a current
ratio of 1.4. The increase in working capital in the first six months of 1995
was primarily due to a 27.4% decrease in accounts payable, partially offset by a
17.2% decrease in inventories. Crude oil inventories were higher than normal at
December 31, 1994, primarily due to the Company's decision to purchase
additional crude oil in December 1994 in order to overcome potential supply
disruptions caused by the implementation of the Oil Pollution Act of 1990. The
27.4% decrease in accounts payable reflected the payment in the first quarter of
1995 for the additional crude oil purchased in December 1994 and the return to
lower inventory levels.
Capital Expenditures
In recent years, capital expenditures have represented a variety of projects
designed to expand and maintain up-to-date refinery facilities, improve terminal
and distribution systems, modernize and expand retail outlets, comply with
environmental regulatory requirements, and pursue new ventures in related
businesses.
The Company's capital expenditures budget for 1995 has been increased to
approximately $250.0 million from an earlier estimate of $225.0 million. Such
increases are partly attributable to the recently announced plans to construct a
second 730 million pound per year propylene splitter at Mont Belvieu, with
construction that began in the second quarter of 1995 and completion slated for
the third quarter of 1996. Also included in the Company's 1995 increased
capital expenditures budget are amounts associated with the Company's decision
to own outright rather than lease more of the retail outlets to be built or
acquired in 1995.
The Company's capital and investment expenditures during 1994 were $162.1
million. The Company's capital and investment expenditures were $124.2 million
during the first six months of 1995, including a non-cash investment of $12.0
million for the crude oil import and storage terminal acquired under an
installment purchase arrangement.
The Company announced in June 1995 a BTX extraction project at its Three Rivers,
Texas refinery. This project will extract benzene, toluene, and xylene from
motor gasoline for sale into various petrochemical markets. The Company
announced in February 1995 plans to increase the capacity and efficiency of its
Three Rivers, Texas refinery with an expansion of the crude unit and
construction of a DeMetalized Oil (DMO) hydrotreater, a hydrogen plant, and a
sulfur recovery plant. The expansion will increase the capacity of the refinery
from 72,000 barrels per day to 85,000 barrels per day and allow heavy oils to be
upgraded to more profitable products. The project, which is scheduled for
completion in the third quarter of 1996, will increase the production of
gasoline and diesel at the refinery by approximately 10 percent. The Company
also announced in February 1995 that it is expanding operations at its Mont
Belvieu hydrocarbon facility. As part of the expansion project, the Company
recently completed drilling a brine production well at the facility's East
Terminal and purchased four underground storage wells at the facility's West
Terminal. In addition, the Company is installing additional pumping and
metering equipment at both terminals.
The Company continued to expand its retail marketing business in the first six
months of 1995 with the acquisition of 21 outlets in New Mexico. In addition,
the Company opened 13 new outlets through June 30, 1995. The newly opened
outlets are leased by the Company under a pre-existing long-term lease
arrangement. The Company has leased approximately $167.6 million in retail
outlets and related equipment under these arrangements. At June 30, 1995,
approximately $22.4 million of the $190.0 million commitment remained available
to construct and/or acquire retail outlets. The Company presently anticipates
leasing approximately 7 to 8 additional outlets during 1995.
Financing Activities
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.
In May, 1995 the Company registered $150.0 million of unallocated securities in
a Universal Shelf Registration. That registration, which was declared effective
by the Securities and Exchange Commission in June, 1995, allows the Company to
issue up to $150.0 million of debt, equity, or warrants, or any combination
thereof, to the public on terms to be set at the time of issuance. The Company
will issue the securities so registered from time to time, based upon the
Company's capital requirements and market conditions.
On June 1, 1995, the Company issued $25.0 million of 7 1/4% debentures due June
15, 2010, and on February 13, 1995, the Company issued $75.0 million in non-
callable debentures due June 15, 2015. The proceeds from the issuance of the
debentures were and will continue to be used for general corporate purposes,
including payment of a $30.0 million principal installment on the Company's
10.75% Senior Notes on May 1, 1995, and to fund anticipated capital expenditures
in 1995.
Regulatory Matters
It is expected that rules and regulations implementing the federal, state, and
local laws relating to health and environmental quality will continue to affect
the operations of the Company. The Company cannot predict what health 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 22, 1995, the Texas Natural Resource Conservation Commission ("TNRCC")
proposed to assess the Company a civil penalty of $2,085,600 based on the
allegation that the Company violated certain permitting requirements for
underground injection of waste water at the McKee Refinery. The Company will
make every effort to reduce the penalty to a level that bears a more reasonable
relationship to the alleged violations.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1995 Annual Meeting of Stockholders was held on May 2, 1995 in El
Paso, Texas. At that meeting, the Company's Stockholders elected three
directors to serve for a three-year term expiring in 1998, approved amendments
to the Company's Long Term Incentive Plan, and ratified the appointment of Price
Waterhouse LLP to serve as independent accountants for the Company and its
subsidiaries for 1995.
The number of votes cast for, against, or withheld, as well as the number of
abstentions as to each matter, is set forth below:
Election of Directors
Name Total Votes For Total Votes Withheld
E. Glenn Biggs 26,087,845 476,533
W.E. Bradford 26,252,311 312,067
Bob Marbut 26,250,355 314,023
Amendments to 1990 Long Term Incentive Plan
For Against Abstain
24,615,142 1,595,334 353,902
Ratification of Appointment of Independent Accountants
For Against Abstain
26,307,108 119,198 138,072
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15.1 Independent Accountants' Awareness Letter
99.1 Forms of Diamond Shamrock, Inc. Medium Term Notes, Series B
(b) Reports on Form 8-K
A Report on Form 8-K was filed by the Company in the second quarter of 1995 on
June 1, 1995.
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
Gary E. Johnson
Vice President and Controller
(Principal Accounting Officer)
August 10, 1995