EXHIBIT 13.2
Consolidated Statement of Operations
(dollars in millions, except per share) 1995 1994 1993
REVENUES
Sales and operating revenues(a) $ 3,683.1 $ 3,297.3 $3,100.0
Other revenues, net 19.9 14.8 10.2
3,703.0 3,312.1 3,110.2
COSTS AND EXPENSES
Cost of products sold(a) 2,233.5 1,880.7 1,965.5
Operating expenses 403.3 388.8 340.0
Depreciation and amortization 77.7 70.9 64.3
Selling and administrative 81.4 71.7 60.9
Taxes other than income taxes(a) 786.0 730.9 581.4
Interest 47.4 43.3 40.6
3,629.3 3,186.3 3,052.7
Income before Tax Provision and
Cumulative Effect of Accounting Changes 73.7 125.8 57.5
Provision for Income Taxes 26.4 50.0 24.9
Income before Cumulative Effect of
Accounting Changes 47.3 75.8 32.6
Cumulative Effect of Accounting Changes
(net of income taxes) - - (14.2)
Net Income 47.3 75.8 18.4
Dividend Requirement on Preferred Stock 4.3 4.3 2.4
Earnings Applicable to Common Shares $ 43.0 $ 71.5 $ 16.0
Primary Earnings (Loss) Per Common Share
Before Cumulative Effect of
Accounting Changes $ 1.48 $ 2.45 $ 1.04
Cumulative Effect of Accounting Changes - - (0.49)
Total $ 1.48 $ 2.45 $ 0.55
Fully Diluted Earnings (Loss) Per Common Share
Before Cumulative Effect of Accounting
Changes $ 1.46 $ 2.34 $ 1.04
Cumulative Effect of Accounting Changes - - (0.49)
Total $ 1.46 $ 2.34 $ 0.55
Cash Dividends Per Share
Common $ 0.56 $ 0.53 $ 0.52
Preferred $ 2.50 $ 2.50 $ 1.28
Weighted Average Common Shares Outstanding
(thousands of shares)
Primary 29,102 29,128 28,871
Fully Diluted 32,375 32,383 28,968
Pro forma amounts assuming the effect of
the 1993 change in accounting principle
is applied retroactively: 1995 1994 1993
Income before Cumulative Effect of
Accounting Changes $47.3 $75.8 $32.6
Cumulative Effect of Accounting Changes - - -
Net Income $47.3 $75.8 $32.6
(a) Reclassified to conform to 1996 presentation, to include excise taxes as a
component of sales: The amount of such taxes for the years ended December 31,
is $746.3 million, $691.0 million and $544.7 million in 1995, 1994 and 1993,
respectively.
The Notes to Consolidated Financial Statements are an integral part of this
and related Consolidated Financial Statements.
Consolidated Balance Sheet December 31,
(dollars in millions, except per share) 1995 1994
ASSETS
Current Assets
Cash and cash equivalents $ 48.6 $ 27.4
Receivables, less doubtful receivables 213.0 211.6
Inventories 376.0 291.0
Prepaid expenses and other current assets 17.3 10.4
Total Current Assets 654.9 540.4
Properties and Equipment, less accumulated
depreciation 1,357.1 1,026.1
Excess of Cost over Acquired Net Assets, net
of amortization 160.1 -
Deferred Charges and Other Assets 73.3 54.3
$2,245.4 $1,620.8
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Long-term debt payable within one year $ 7.2 $ 3.9
Accounts payable 274.3 199.3
Accrued liabilities 208.0 170.9
Total Current Liabilities 489.5 374.1
Long-term Debt 957.5 509.2
Deferred Income Taxes 58.6 81.5
Other Liabilities and Deferred Credits 115.1 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 - 29,035,853; 29,014,667
in 1994
Outstanding shares - 28,994,715;
28,896,917 in 1994 0.3 0.3
Paid-in Capital 447.8 447.3
ESOP Stock and Stock Held in Treasury (37.4) (45.4)
Retained Earnings 214.0 186.8
Total Stockholders' Equity 624.7 589.0
$2,245.4 $1,620.8
See Note 17 - Commitments and Contingencies
The Notes to Consolidated Financial Statements are an integral part of this
and related Consolidated Financial Statements.
Consolidated Statement of Cash Flows
(dollars in millions) 1995 1994 1993
<S
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 47.3 $ 75.8 $ 18.4
Adjustments to arrive at net cash
provided by operating activities:
Depreciation and amortization 77.7 70.9 64.3
Deferred income taxes 8.9 31.9 (9.9)
Loss on sale of properties and
equipment 1.0 0.9 3.0
Cumulative Effect of Accounting
Changes - - 23.6
Cash flow from futures activity - - (3.0)
Changes in operating assets and
liabilities:*
Decrease (increase) in
accounts receivable 4.0 (62.8) (7.2)
Decrease (increase) in
inventories (49.8) (105.0) 7.2
Decrease (increase) in
prepaid expenses 1.4 (1.8) (2.4)
Increase (decrease) in
accounts payable and
accrued liabilities 28.9 153.3 3.3
Other, net (1.8) 13.0 12.0
NET CASH PROVIDED BY OPERATING ACTIVITIES 117.6 176.2 109.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of futures contracts - - (133.3)
Settlement of futures contracts - - 136.3
Proceeds from sales of facilities 4.6 7.1 2.0
Purchase of properties and equipment (258.4) (162.1) (131.8)
Purchase of NCS, net of cash acquired (163.5) - -
Expenditures for investments (2.7) (3.2) (1.3)
NET CASH USED IN INVESTING ACTIVITIES (420.0) (158.2) (128.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in commercial
paper - - (108.5)
Increases in long-term debt 640.8 214.2 321.8
Repayments of long-term debt (291.6) (190.8) (260.5)
Payments of long-term liability (11.4) (10.2) (11.3)
Funds received from ESOP 5.8 5.1 4.3
Issuance of Common Stock 0.3 0.9 1.7
Purchase of Treasury Stock 0.0 (3.4) (0.6)
Issuance of Preferred Stock - - 84.3
Sale of Common Stock held in treasury 0.3 0.5 0.1
Dividends paid (20.6) (19.7) (17.2)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 323.6 (3.4) 14.1
Net increase (decrease) in cash and cash
equivalents 21.2 14.6 (4.7)
Cash and cash equivalents at beginning
of period 27.4 12.8 17.5
Cash and cash equivalents at end of
period $ 48.6 $ 27.4 $ 12.8
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.
*Does not include the changes resulting from the NCS acquisition reflected
below.
Excluded from the Consolidated Statement of Cash Flows for the year ended
December 31, 1993, was the effect of certain non-cash activities in which
the Company exchanged an undivided interest in certain properties and
equipment for an equity ownership interest in a limited liability company.
This transaction increased investments by $19.2 million and decreased
properties and equipment by $19.2 million.
The Notes to Consolidated Financial Statements are an integral part of this
and related Consolidated Financial Statements.
Note 1 - ORGANIZATION
Diamond Shamrock, Inc. (the "Company") was organized in February 1987, as a
wholly-owned subsidiary of Maxus Energy Corporation, formerly Diamond Shamrock
Corporation ("Maxus"), to engage in the business of refining and marketing of
petroleum products and related businesses.
Effective April 30, 1987, the shares of the Company's common stock, $0.01 par
value (the "Common Stock") were distributed to the shareholders of Maxus in a
spin-off transaction (the "Spin-off") approved by the Maxus Board of Directors
on February 1, 1987. As a result, the Company became an independent entity
which is primarily engaged in the refining and marketing of petroleum products.
Note 2 SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements have been prepared in conformity with
generally accepted accounting principles. The preparation of financial state-
ments in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates. The most significant accounting principles used are
described below.
Consolidation
The Consolidated Financial Statements include the accounts of the Company and
its subsidiaries. Investments in other companies which are at least 20% owned
are accounted for on the equity method. All significant intercompany accounts
and transactions have been eliminated.
Cash and Cash Equivalents
It is the Company's policy to invest cash in excess of operating requirements
in highly liquid income producing investments. The Company considers such
investments with a maturity of three months or less at the time of purchase to
be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market. The last-in, first-out
(LIFO) method is used to determine cost for inventories of crude oil and
refined products of the Refining and Wholesale segment, motor fuel products of
the Retail segment, and propylene products in the Allied Businesses segment.
Costs of all other inventories are determined on an average cost method.
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.
Financial Instruments
The Company acquires a major portion of its crude oil requirements through
the purchase of futures contracts on the New York Mercantile Exchange. The
Company also uses the futures market to manage the price risk inherent in
purchasing the crude oil in advance of the delivery date, and in maintaining
the inventories contained within its refinery and pipeline systems. The Company
defers the impact of changes in the market value of these contracts until such
time as the hedged transaction is completed.
The Company has not entered into any form of interest rate caps or swaps on
any of its fixed or variable rate debt in recent years.
Properties and Equipment
Properties and equipment are carried at cost. Major additions are
capitalized; expenditures for repairs and maintenance are charged against
earnings. Properties and equipment are depreciated generally on the
straight-line basis over their estimated useful lives.
The Company capitalizes the interest cost associated with major property
additions while in progress, such amounts being amortized over the useful lives
of the related assets.
Income Taxes
Deferred income taxes are provided for the differences in the financial
reporting and tax bases of assets and liabilities, for acquired net operating
loss and tax credits available for carryforward.
Earnings per Share
The computation of primary earnings (loss) per share is based on the weighted
average number of common shares outstanding during the year plus common stock
equivalents consisting of stock options, stock awards subject to restrictions,
and stock appreciation rights. In June 1993, the Company issued 1.725 million
shares of 5% Cumulative Convertible Preferred Stock (the "Preferred Stock") in
a private transaction for an aggregate of $86.3 million, before discounts and
transaction costs. Each share of Preferred Stock is convertible into
approximately 1.8868 shares of Common Stock. Primary earnings (loss) per common
share have been adjusted for dividend requirements on Preferred Stock. The
computation of fully diluted earnings (loss) per share, in addition to the
adjustments for primary earnings (loss) per share for the years ended December
31, 1995 and 1994, assumes conversion of the Preferred Stock during the time
that the shares are outstanding. The computation of fully diluted earnings
(loss) per share for the year ended December 31, 1993, did not assume
conversion of the Preferred Stock because the effect would have been
antidilutive.
Other Postemployment Benefits
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 112 ("FAS 112"), "Employers' Accounting for Post-
employment Benefits, an Amendment of FASB Statements No. 5 and 43." FAS 112
addresses the accounting for compensation for future absences and postemploy-
ment benefits provided to former or inactive employees that are not provided as
part of a pension or postretirement plan. The adoption of the new standard had
no material effect on the results of operations and did not require recording
any cumulative effect of adoption of a change of accounting method.
Classification of Excise Taxes
During the first quarter of 1996 the Company began classifying federal excise
taxes and state motor fuel taxes in Sales and operating revenues and in Costs
and expenses for financial reporting purposes. The Company believes this
method of classification better reflects the nature of such taxes and is
consistent with current industry practice. The results of operations for the
three years ended December 31, 1995, 1994 and 1993 have been reclassified to
conform to the 1996 presentation. The amount of such taxes for the three years
ended December 31 is $746.3 million, $691.0 million and $544.7 million in 1995,
1994 and 1993, respectively. Neither operating profits nor net income are
affected by this reclassification.
Note 3 CHANGES IN ACCOUNTING PRINCIPLES
At December 31, 1989, the Company recorded a liability for payments to be
made pursuant to the Distribution Agreement (the "Distribution Agreement") with
Maxus, the Company's former parent, for certain liabilities relating to
businesses of Maxus discontinued or disposed of prior to the date on which the
Company was spun off to Maxus shareholders. The Company's total liability under
the Distribution Agreement is limited to $85.0 million. At December 31, 1989,
the Company believed that it would be required to make payments under the
Distribution Agreement beginning in 1991 and continuing for approximately ten
or more years. The Company did, in fact, begin to make payments in 1991, and,
based on current levels of payments, it is expected that payments will continue
until 1997.
Inasmuch as the total amount of the liability was known ($85.0 million) and
the Company believed the timing and amount of the payments could be estimated
with reasonable accuracy, the liability at December 31, 1989 was recorded on a
discounted basis, in accordance with the accounting rules in existence at the
time. Annual additions to the liability had been recorded as interest through
December 31, 1992.
During June 1993, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board ("FASB") released the minutes of its May 20, 1993
meeting during which the EITF announced a consensus with regard to certain
issues of "Accounting for Environmental Liabilities" (Issue 93-5). The
consensus effectively changed the criteria for determining when a liability may
be recorded on a discounted method. Consequently, in 1993, the Company changed
the accounting method for recording its liability under the Distribution
Agreement to reflect the entire unpaid amount rather than the discounted amount
of the liability.
The change of method was recorded as if the change had occurred on January 1,
1993 and is reflected in the Consolidated Statement of Operations as the
Cumulative Effect of Accounting Changes for the twelve months ended December
31, 1993. The amount of $14.2 million represented the unrecorded liability of
$23.6 million at December 31, 1992, less related tax benefit of $9.4 million.
The following pro forma information is provided to reflect the earnings per
share amounts which would have been reported had the undiscounted accounting
method for recording the liability been adopted in the year the liability was
originally recorded.
1995 1994 1993
Pro forma Primary Earnings
(Loss) Per Share Before
Cumulative Effect of
Accounting Changes $ 1.48 $ 2.45 $ 1.04
Cumulative Effect of
Accounting Changes - - -
Total $ 1.48 $ 2.45 $ 1.04
Pro forma Fully Diluted Earnings
(Loss) Per Share Before
Cumulative Effect of
Accounting Changes $ 1.46 $ 2.34 $ 1.04
Cumulative Effect of
Accounting Changes - - -
Total $ 1.46 $ 2.34 $ 1.04
Earnings per share as currently reported:
1995 1994 1993
Primary Earnings (Loss)
Per Share Before
Cumulative Effect of
Accounting Changes $ 1.48 $ 2.45 $ 1.04
Cumulative Effect of
Accounting Changes - - (0.49)
Total $ 1.48 $ 2.45 $ 0.55
Fully Diluted Earnings (Loss)
Per Share Before
Cumulative Effect of
Accounting Changes $ 1.46 $ 2.34 $ 1.04
Cumulative Effect of
Accounting Changes - - (0.49)
Total $ 1.46 $ 2.34 $ 0.55
Effective January 1, 1993, the Company adopted FAS 112, "Employers'
Accounting for Postemployment Benefits, an Amendment of FASB Statements No. 5
and 43." FAS 112 addresses the accounting for compensation for future absences
and for postemployment benefits provided to former or inactive employees that
are not provided as part of a pension or postretirement plan. The adoption of
the new standard had no material effect on the results of operations and did
not require recording any cumulative effect of adoption of a change of
accounting method.
The Company plans to adopt Statement of Financial Accounting Standards No.
121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," in 1996. While the Company has not
completed its calculations on the effects of FAS 121, it does not expect
adoption of FAS 121 will have a material impact on its results of operations or
financial position.
The Company plans to adopt Statement of Financial Accounting Standards No.
123 ("FAS 123"), "Accounting for Stock-Based Compensation," in 1996, and plans
to elect to adopt FAS 123 by providing the disclosure information regarding its
stock-based compensation plans as allowed by FAS 123. Accordingly, adoption of
FAS 123 is not expected to have a significant effect on the Company's results
of operations or financial position.
Note 4 - ACQUISITION
On December 14, 1995, the Company completed the acquisition of National
Convenience Stores Incorporated ("NCS"). NCS operates 661 "Stop N Go"
convenience stores located in Texas, of which 600 sell gasoline. The total
value of the transaction, including transaction costs and the assumption of
NCS's debt, is approximately $280.0 million. The acquisition has been accounted
for under the purchase method and, accordingly, the operating results of NCS
have been included in the consolidated operating results since the date of
the acquisition.
The funds used to acquire NCS were arranged through Bank of America
National Trust and Savings Association. The purchase price exceeded the
estimated fair value of net assets acquired by approximately $160.5 million,
which is included in the accompanying consolidated balance sheet as excess of
cost over acquired net assets, net of amortization. This asset is being
amortized over its estimated useful life of 20 years.
In arriving at the purchase cost of the acquisition and, consequently, the
excess cost over acquired net assets, the company evaluated, among other
things, various analyses of cash flow and profitability projections including,
as applicable, the impact on existing Company businesses. Such analyses
necessarily involve significant management judgment to evaluate the capacity of
the acquired business to perform within projections.
The pro forma statements listed below combining the results of operations
of the Company and NCS are unaudited and reflect purchase price accounting
adjustments assuming the acquisition occurred at the beginning of each year
presented.
1995 1994
Revenues(a) $ 4,566.1 $ 4,200.3
Income before tax provision 67.8 115.3
Net Income 40.6 $ 66.2
Primary Earnings Per
Common Share $ 1.25 $ 2.13
Fully Diluted Earnings Per
Common Share $ 1.25 $ 2.04
(a) Reclassified to conform to 1996 presentation, to include excise taxes as a
component of sales: The amount of such taxes for the years ended December 31,
is $746.3 million and $691.0 million, respectively.
Note 5 - BUSINESS SEGMENTS
The Company's revenues from continuing operations are principally derived
from three business segments: Refining and Wholesale, Retail, and Allied
Businesses. Refining and Wholesale is engaged in crude oil refining and
wholesale marketing of refined petroleum products. Retail is engaged in selling
refined petroleum products and other merchandise. Allied Businesses is engaged
in transporting, storing, and marketing natural gas liquids; upgrading refinery
grade propylene and selling polymer grade propylene; selling ammonia
fertilizer; selling specialized telephone services; selling environmental
testing and related services; and investing in petroleum related opportunities.
The Company's business segments operate primarily in the Southwest region
of the United States with particular emphasis in Texas, Colorado, Louisiana,
New Mexico, and Oklahoma.
Refining
and Allied
Wholesale Retail Businesses Total
1995
Sales and operating
revenues(a) $1,796.0 $1,511.7 $ 375.4 $ 3,683.1
Costs and expenses(a) 1,710.2 1,456.1 327.3 3,493.6
Operating profit $ 85.8 55.6 $ 48.1 189.5
Interest expense 47.4
Administrative expense 68.4
Income before
tax provision $ 73.7
1994
Sales and operating
revenues(a) $1,661.3 $1,324.8 $ 311.2 $ 3,297.3
Costs and expenses(a) 1,514.5 1,265.9 285.2 3,065.6
Operating profit $ 146.8 $ 58.9 $ 26.0 $ 231.7
Interest expense 43.3
Administrative expense 62.6
Income before tax
provision $ 125.8
1993
Sales and operating
revenues(a) $ 1,522.6 $1,275.0 $ 302.4 $ 3,100.0
Costs and expenses(a) 1,448.7 1,212.3 287.4 2,948.4
Operating profit $ 73.9 $ 62.7 $ 15.0 $ 151.6
Interest expense 40.6
Administrative expense 53.5
Income before tax
provision and
cumulative effect of
accounting changes $ 57.5
(a) Reclassified to conform to 1996 presentation, to include excise taxes
as a component of sales: The amount of such taxes for the years ended December
31, is $360.2 million, $340.5 million, and $227.8 million in 1995, 1994, and
1993, respectively in the Refining and Wholesale segment. The amount of such
taxes for the years ended December 31 is $386.1 million, $350.5 million, and
$316.9 million in 1995, 1994, and 1993, respectively in the Retail segment.
Intersegment sales and operating revenues are generally derived from
transactions made at prevailing market rates. Sales of refined petroleum
products from the Refining and Wholesale segment to the Retail segment amounted
to $592.4 million in 1995, $502.7 million in 1994, and $510.1 million in 1993.
Sales of natural gas liquids from the Allied Businesses segment to the Refining
and Wholesale segment amounted to $21.5 million in 1995, $15.8 million in 1994,
and $23.4 million in 1993.
Identifiable Assets
1995 1994 1993
Refining and Wholesale $1,227.3 $1,048.2 $ 846.8
Retail 754.3 333.0 281.2
Allied Businesses 188.0 159.0 142.7
Corporate 75.8 80.6 78.5
$2,245.4 $1,620.8 $1,349.2
Identifiable assets are those assets that are utilized by the respective
business segment. Corporate assets are principally cash, investments, and other
assets that cannot be directly associated with the operations or activities of
a business segment.
Note 6 - TAXES
The Company's provision for income taxes was comprised of the following:
1995 1994 1993
Current
Federal $ 16.2 $ 16.4 $ 21.8
State and local 1.3 1.7 3.5
17.5 18.1 25.3
Deferred
Federal 7.9 29.1 (0.3)
State and local 1.0 2.8 (0.1)
8.9 31.9 (0.4)
$ 26.4 $ 50.0 $24.9
Federal income taxes paid (net of refunds) during 1995, 1994, and 1993
were: $20.1 million, $11.0 million, and $21.5 million, respectively.
The principal reasons for the difference between the statutory federal
income tax rate and the Company's provision for income taxes were:
1995 1994 1993
Tax provision at
statutory federal rate
(35%) $ 26.0 $ 45.6 $ 20.1
Effect of tax rate increase on
deferred taxes - - 1.7
State income taxes, net of
federal tax benefit 1.9 3.3 2.2
General business credit (3.7) (0.6) (0.7)
Other, net 2.2 1.7 1.6
$ 26.4 $ 50.0 $ 24.9
The components of the net deferred tax liability are summarized as follows:
1995 1994
Deferred tax assets
Inventory valuation reserves $ 6.4 $ 10.5
Postretirement and
pension plan liabilities 12.1 13.0
Long-term shared costs liability 2.8 7.1
Alternative minimum tax credit 19.2 16.0
Nonrecurring expenses in connection
with acquisition 7.3 -
Environmental reserve 6.4 -
Insurance reserve 6.6 -
Operating loss carryforward 10.0 -
General business credit carryforward 13.6 0.9
Allowance for doubtful receivables 2.2 1.9
Miscellaneous other 24.7 12.2
111.3 61.6
Deferred tax liabilities
Properties and equipment (133.1) (119.4)
Inventory valuation reserve (20.0) (21.3)
Section 382 basis adjustment (7.5) -
Miscellaneous other (2.7) (2.4)
(163.3) (143.1)
Deferred tax asset
valuation allowance (5.0) -
Net deferred tax liability $ (57.0) $(81.5)
At December 31, 1995 the net deferred tax liability is reflected as $1.6
million in Current deferred tax assets and $58.6 million in Noncurrent deferred
tax liabilities. At December 31, 1994, the entire amount of the net deferred
tax liability was reflected as Noncurrent deferred tax liabilities.
In accordance with the provisions of SFAS No. 109, a valuation allowance of
$5.0 million at December 31, 1995 is deemed appropriate by management in view
of the expiration dates of the acquired net operating loss carryforwards and
credit carryforwards and the amount of future taxable income necessary to
utilize such losses and credits. The acquired net operating loss carryforwards
and credit carryforwards are subject to the separate return limitation year
(SRLY) rules. These rules limit the use of the acquired NCS operating loss
carryforwards and credit carryforwards to offset the taxable income of NCS. In
addition, the ownership change limitations under section 382 of the Internal
Revenue Code further limit the utilization of the acquired loss carryforwards
and credit carryforwards.
For federal income tax purposes at December 31, 1995, the Company estimated
that it had $13.6 million of unused general business tax credits including an
acquired general business tax credit of $7.4 million which expires in varying
amounts if unused by the years 1998 to 2010. The remaining $6.2 million expires
in 2009 and 2010. The Company also had an estimated $19.2 million of minimum
tax credit available for carryforward with an indefinite expiration. There is
an estimated $28.3 million of SRLY net operating loss carryforward from the NCS
acquisition that expires in varying amounts if unused by the years 2001 to
2005. Some of the estimates may be affected by the federal income tax return of
NCS for the fiscal year ended June 30, 1995 that will be filed during March of
1996.
Taxes other than income taxes were comprised of the following:
1995 1994 1993
Excise taxes $746.3 $691.0 $544.7
Real and personal property 20.2 18.1 15.8
Payroll 10.6 11.6 11.2
Superfund 7.3 8.6 7.8
Other 1.6 1.6 1.9
$786.0 $730.9 $581.4
Note 7 - EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
The Company maintains a retirement plan known as the Career Average
Retirement Income Plan (the "CARIP"). Under the CARIP, eligible employees
acquire a right upon retirement to an annual amount equal to 2% of the
employee's eligible earnings from February 1, 1987 to May 31, 1989, and 1%
of the employee's eligible earnings from June 1, 1989 forward, plus a
potential supplement under certain circumstances.
The Company also maintains a retirement plan for its collective bargaining
groups (the "Bargaining Unit Plan"). The Bargaining Unit Plan generally
provides benefits that are based on the union member's monthly base pay during
the five years before retirement.
The Company also maintains a retirement plan referred to as the Retirement
Income Plan (the "RIP") to cover certain employees not eligible for coverage
under the CARIP or the Bargaining Unit Plan. Under the RIP, eligible employees
acquire a right upon retirement to a monthly amount equal to $5 for each year
of plan service from January 1, 1989 forward.
The Company also maintains a retirement plan referred to as the Excess
Benefits Plan (the "Excess Benefits Plan"), which provides benefits in place
of reductions of qualified benefits resulting from various statutory
limitations imposed by the Internal Revenue Code and the deferral of
compensation through the Deferred Compensation Plan.
In addition, the Company has adopted a Supplemental Retirement Plan (the
"SRP"). The SRP provides additional benefits for executive officers in excess
of amounts payable under the defined benefit plans of the Company or any
predecessor employer.
The Company also provides a retirement plan for its non-employee Directors
(the "Directors Retirement Plan"). The Directors Retirement Plan provides an
annual retirement benefit for a period of time equal to the shorter of (a)
length of service as a non-employee Director or (b) life of Director.
Net periodic pension cost included the following components:
1995 1994 1993
Service cost-benefits earned
during the period $3.2 $3.4 $2.5
Interest cost on projected
benefit obligation 3.2 2.8 2.2
Actual return on assets (6.6) 0.2 (1.9)
Net amortization and deferral 4.7 (2.0) 0.5
Net periodic pension cost $4.5 $4.4 $3.3
Significant assumptions used in the actuarial calculations were:
1995 1994 1993
Discount rates 7.25% 8.50% 7.25%
Rates of increase in
compensation level 4.50% 5.00% 4.50%
Expected long-term rate
of return on assets 9.00% 9.00% 9.00%
The Company's trusteed plans are funded at amounts required by the Employee
Retirement Income Security Act. Effective December 31, 1995, the Company
lowered its discount rate to 7.25% and its rates of increase in compensation
level to 4.50%.
The following table summarizes the funded status of the Company's defined
benefit pension plans and the related amounts recognized in the Company's
Consolidated Balance Sheet:
1995 1994
Plans Plans Plans Plans
Where Where Where Where
Assets Benefits Assets Benefits
Exceed Exceed Exceed Exceed
Benefits Assets Benefits Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation $27.5 $7.1 $12.3 $14.6
Accumulated benefit
obligation 28.9 7.2 12.3 15.6
Projected benefit
obligation 37.0 8.2 17.2 18.5
Plan assets at fair
market value 32.4 6.2 13.9 12.3
Projected benefit obligation
in excess of plan assets 4.6 2.0 3.3 6.2
Unrecognized net loss (6.9) (1.7) (2.7) (5.3)
Unrecognized net obligation (0.3) (0.2) (0.3) (0.2)
Unrecognized prior
service cost 0.5 0.2 0.1 0.7
Adjustment to recognize
minimum liability 0.0 0.6 0.0 2.1
Pension liability (Prepaid
pension cost) recognized
in the Consolidated
Balance Sheet (2.1) 0.9 0.4 3.5
In 1995, the plans where assets exceeded the accumulated benefit obligation
were the Bargaining Unit Plan, the Retirement Income Plan, the Career Average
Retirement Income Plan, and the Excess Benefits Plan. In 1994, the plans where
assets exceeded the accumulated benefit obligation were the Bargaining Unit
Plan and the SRP.
At December 31, 1995, Plan assets were invested in equity securities (58%),
bonds (34%), and other investments (8%). At December 31, 1994, Plan assets were
invested in bonds (58%), equity securities (33%), and other investments (9%).
Retiree Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits to
eligible retirees. Employees who participate in the CARIP are eligible for
retiree health care and life insurance benefits if they satisfy certain age and
service requirements. The Company also shares in the cost of providing similar
benefits to former Maxus employees pursuant to the Distribution Agreement
(see Note 17).
Generally, the health care plans pay a stated percentage of most medical
expenses reduced for any deductibles, payments made by government programs, and
other group coverage. The cost of providing most of these benefits is shared
with retirees. The plans are unfunded.
The following table sets forth the plans' status and the amount recognized
in the Company's Consolidated Balance Sheet as of December 31, 1995 and 1994:
Accumulated postretirement benefit obligation attributable to:
Health Life
Care Insurance Total
1995 1994 1995 1994 1995 1994
Retirees $20.9 $19.0 $3.2 $2.8 $24.1 $21.8
Fully Eligible Active
Plan Participants 2.2 1.6 0.1 0.1 2.3 1.7
Other Active
Plan Participants 5.6 3.3 2.7 3.2 8.3 6.5
Unrecognized net loss (5.0) (1.3) (0.1) (0.4) (5.1) (1.7)
Total Accumulated
Postretirement Benefit
Obligation $23.7 $22.6 $5.9 $5.7 $29.6 $28.3
Net Periodic Postretirement Benefit Cost:
Health Life
Care Insurance Total
1995 1994 1995 1994 1995 1994
Service Cost of
Benefits Earned $0.3 $0.3 $0.1 $0.2 $0.4 $0.5
Interest Cost on
Accumulated
Postretirement Benefit
Obligation 1.9 1.4 0.4 0.4 2.3 1.8
Net Periodic
Postretirement
Benefit Cost $2.2 $1.7 $0.5 $0.6 $2.7 $2.3
The discount rate used in the actuarial calculation was 7.25% and 8.50% in
1995 and 1994, respectively. The rate of increase in compensation level was
4.50% and 5.00% in 1995 and 1994, respectively.
For measuring the expected postretirement benefit obligation, the health
care cost trend rate ranged from 9.2% to 12.0% in 1995, grading down to an
ultimate rate of 6.0% in the year 2000.
A one percentage point increase in the assumed health care cost trend would
increase the aggregate of the service and interest components of 1995 net
periodic postretirement benefit cost by $0.3 million and the 1995 accumulated
postretirement benefit obligation by $3.4 million.
Long-Term Incentive Plans
In 1987 and 1990, and as amended in 1995, the Company adopted Long-Term
Incentive Plans which are administered by the Compensation Committee of the
Board of Directors to provide officers and key employees with stock options,
stock appreciation rights ("SARs"), performance units, and securities awards.
In May 1995, upon shareholder approval, the shares of Common Stock that may be
issued under the plans were increased from 3,500,000 shares to 4,500,000
shares. The number of common shares issued or transferred as restricted shares
that become non-forfeitable solely contingent upon the participant having a
certain length of service with the Company shall not, in aggregate, exceed
314,000 Common Shares. At December 31, 1995, 1994, and 1993, Common Stock
reserved for future grants under the Long-Term Incentive Plans were 1,601,425
shares, 966,213 shares, and 1,195,868 shares, respectively. In 1994 all SARs
were exercised and no SARs have been granted since that time.
Transactions in stock options are summarized as follows:
1995 1994 1993
Outstanding at January 1, 878,419 810,587 746,934
Granted 277,500 248,447 367,461
Exercised (66,651) (172,533) (206,957)
Cancelled upon exercise
of SARs - (6,042) (84,979)
Forfeited (1,876) (2,040) (11,872)
Outstanding at
December 31, 1,087,392 878,419 810,587
Exercisable at December 31, 572,662 293,737 283,285
Range of exercise prices of
options outstanding
at December 31, $ 11.31 $ 11.31 $ 11.31
to 29.75 to 29.75 to 27.38
Range of exercise prices
of options exercised $ 11.31 $ 11.31 $ 11.31
to 23.75 to 25.63 to 22.57
Grants of restricted, performance restricted stock and performance units
for 1995, 1994, and 1993 are summarized as follows:
Shares
Date Shares Performance Performance
Granted Restricted Restricted Units
February 1993 40,568 63,414
December 1993 24,235 -
February 1994 16,450 - 1,639,000
February 1995 44,715 - 1,694,000
July 1995 - - 456,800
All shares of performance restricted stock granted became non-restricted on
October 1, 1995 when certain financial goals were met.
The restricted stock vests over a four-year period through 1999. Deferred
compensation equivalent to market value at the date of grant is recorded to
additional paid-in capital and is amortized to compensation expense over the
vesting period. The amount amortized in 1995, 1994, and 1993 was $1.6 million,
$2.1 million, and $2.1 million, respectively. Unvested shares are restricted
as to transfer or sale.
Performance Units have a target value of $1.00, but based on the Company's
performance, each unit may have an actual value ranging from $0.00 to $2.00
at the end of the three year performance cycle. The cycles begin on January 1,
and end on December 31. Any distributions will occur during the first quarter
following the three year performance cycle. Performance units granted in 1994
will be paid two thirds in the form of cash and one third in the form of non-
restricted stock. Performance units granted in 1995 will be paid in cash. The
amount accrued in 1995 and 1994 was $1.2 million and $0.5 million,
respectively.
Performance Incentive Plan
A Performance Incentive Plan has been adopted by the Company, under which
the Compensation Committee may grant cash awards to eligible employees. For
Plan years 1995, 1994, and 1993, the Company paid $2.4 million, $2.7 million,
and $2.3 million, respectively.
Employee Stock Ownership Plans (ESOPs)
The Company maintains two Employee Stock Ownership Plans. ESOP I was
formed in June 1987, and ESOP II was formed in April 1989 (ESOP I and ESOP II
are collectively referred to as the "ESOPs"). Between 1987 and 1991, the
Company loaned ESOP I $34.5 million which it used to purchase 2,052,207
shares of Common Stock.
Between 1989 and 1991, $31.3 million was loaned by the Company to ESOP II
which it used to purchase 1,466,957 shares of Common Stock.
In 1992 and 1991, the Company contributed 37,400, and 45,000 treasury
shares of Common Stock, respectively, to ESOP I as part of special award
programs and a success sharing program. In accordance with the success sharing
program, the Company accrued $1.5 million, $2.8 million and $1.3 million for
the purchase of 55,523 shares, 107,681 shares and 31,668 shares in 1995, 1994
and 1993, respectively.
All employees of the Company who have attained a minimum length of service
and satisfied other plan requirements are eligible to participate in the ESOPs,
except that ESOP II excludes employees covered by any collective bargaining
agreement with the Company.
The Company will make contributions to ESOP I and ESOP II in sufficient
amounts, when combined with dividends on the Common Stock, to retire the
principal and interest on the loans used to fund the ESOPs (see Note 13).
Common shares will be allocated to participants as the payments of principal
and interest are made on the loan. Contributions to the ESOPs charged to
expense for 1995, 1994, and 1993 were $7.5 million, $7.4 million, and $7.1
million, respectively. Dividend and interest income reduced the amounts charged
to expense in 1995, 1994, and 1993 by $1.5 million, $1.8 million, and $1.8
million, respectively.
The number of allocated shares held by ESOP I and ESOP II at December 31,
1995, were 1,822,383 shares and 360,226 shares, respectively. The number of
suspense shares held by ESOP I and ESOP II at December 31, 1995, were 284,489
shares and 1,056,497 shares, respectively.
Note 8 - RECEIVABLES
1995 1994
Notes and accounts receivable $220.1 $217.4
Less-Allowance for
doubtful receivables 7.1 5.8
$213.0 $211.6
The following is a summary of the changes in the allowance for doubtful
receivables:
1995 1994 1993
January 1, $ 5.8 $ 5.5 $ 4.2
Additions charged against
earnings 9.6 3.2 2.3
Write-offs, net of recoveries (8.3) (2.9) (1.0)
December 31, $ 7.1 $ 5.8 $ 5.5
Note 9 - INVENTORIES
1995 1994
Finished products $ 204.1 $ 109.6
Raw materials 137.4 148.3
Supplies 34.5 33.1
$ 376.0 $ 291.0
The cost of approximately 64% and 74% of total inventories was determined
under the LIFO method at December 31, 1995 and 1994, respectively. At December
31, 1995 and 1994, market was lower than LIFO cost by $16.0 million and $27.1
million, respectively.
The Company acquires a major portion of its crude oil requirements through
the purchase of futures contracts on the New York Mercantile Exchange. The
Company also uses the futures market to manage the price risk inherent in
purchasing the crude oil in advance of the delivery date, and in maintaining
the inventories contained within its refinery and pipeline systems.
Note 10 - PROPERTIES AND EQUIPMENT
1995 1994
Properties and Equipment
Refining and Wholesale $ 1,238.5 $ 1,024.4
Retail 562.5 369.5
Allied Businesses 203.4 206.8
Corporate 36.9 34.7
2,041.3 1,635.4
Less-Accumulated depreciation 684.2 609.3
$ 1,357.1 $ 1,026.1
The charge against earnings for maintenance and repairs was $40.1 million
in 1995, $41.1 million in 1994, and $29.3 million in 1993.nterest capitalized
was $6.8 million in 1995, $2.3 million in 1994, and $6.1 million in 1993.
Expenditures for
Properties and Equipment
1995 1994 1993
Refining and Wholesale $193.0 $ 89.3 $100.1
Retail 362.4 49.3 26.5
Allied Businesses 21.2 22.3 4.4
Corporate 1.5 1.2 0.8
$578.1 $162.1 $131.8
The amount in the table above in the Retail segment for 1995, includes
expenditures for the acquisition of NCS.
Depreciation
1995 1994 1993
Refining and Wholesale $43.3 $38.3 $35.1
Retail 20.4 16.3 14.6
Allied Businesses 11.4 13.1 11.7
Corporate 2.6 3.2 2.9
$77.7 $70.9 $64.3
Note 11 - ACCRUED LIABILITIES
1995 1994
Accrued Taxes $ 71.0 $ 65.3
Accrued Insurance 6.8 -
Accrued Royalties 6.6 6.7
Current Portion of Long-term
Shared Costs Liability (see Note 17) 8.0 8.0
Other Liabilities 115.6 90.9
$208.0 $170.9
Note 12 - OTHER LIABILITIES AND DEFERRED CREDITS
1995 1994
Post Retirement Benefit $ 28.3 $28.3
Long-term Shared Costs
Liability (see Note 17) 2.1 13.4
Deferred Credits 10.3 11.8
Environmental Reserve 18.9 -
Insurance Reserve 10.8 -
Other Liabilities 44.7 13.5
$115.1 $67.0
Note 13 - LONG-TERM DEBT
1995 1994
Commercial Paper $ 0.0 $ 0.0
10.75% Senior Notes 120.0 150.0
9% Senior Notes 5.3 8.4
8.77% Senior Notes 30.0 30.0
8.35% Senior Notes 1.2 1.9
Medium Term Notes 145.0 145.0
Shamrock Pipeline Note 6.2 -
Pollution Control Financings 10.9 10.9
7.25% Debentures 25.0 -
Credit Facility 220.0 -
8% Debentures 100.0 100.0
8.75% Debentures 75.0 -
Bank Money Market Facilities 163.0 66.9
Mortgages 59.3 -
Other Notes 3.8 0.0
964.7 513.1
Less-Due within one year 7.2 3.9
$957.5 $509.2
The aggregate maturities of the long-term debt obligations at December 31,
1995 for the next five years will be as follows, assuming no prepayments:
1996-$7.2 million; 1997-$37.9 million; 1998-$36.2 million; 1999-$145.4 million;
2000-$120.9 million; and all future periods-$611.1 million.
On February 29, 1996, the Company exercised an early redemption option to
redeem 11.75% $4.4 million in Palo Duro River Authority Revenue Bonds at par
value.
On February 13, 1995, the Company issued $75.0 million in non-callable
8.75% debentures due June 15, 2015.
In March and December 1995, the Company renegotiated its two separate
revolving credit facilities ("Agreement I" and "Agreement II"). Agreement I has
a face value of $200.0 million with a maturity date of March 31, 2000.
Agreement II matures on March 29, 1996, and has a value of $100.0 million.
Interest under Agreement I and Agreement II varies depending on specified
lending options available to the Company. Generally, the variable conditions
relate to the prime rate, certificates of deposit, and London Interbank Offered
Rates, as adjusted upward by specified percentages. As of December 31, 1995,
the Company had no borrowings outstanding under Agreement I or Agreement II.
Agreement I and Agreement II, the Senior Notes and the B of A Credit
Facility (as defined below) all contain various restrictive covenants relating
to the Company and its financial condition, operations, and properties. Under
these covenants, the Company is required to maintain a minimum current ratio
and net worth. These covenants also include restrictions on the payment of
dividends. However, it is not anticipated that such limitations will affect
the Company's present ability to pay dividends. At December 31, 1995, under the
most restrictive of these covenants, $205.7 million was available for the
payment of dividends.
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 on the Company's capital requirements and market conditions.
On June 8, 1995, the Company issued $25.0 million in non-callable 7.25%
debentures due June 15, 2010. The proceeds from the issuance of the debentures
were used for general corporate purposes.
On October 17, 1995, $6.2 million (the "Shamrock P/L Note") was assumed
when the Company purchased the lessor's interest in the Southlake Products
Pipeline extending from the McKee Refinery to the Dallas/Fort Worth area. The
Shamrock P/L Note is currently being amortized semiannually at 9.75% with a
maturity date of January 15, 1999.
During December 1995, the Company entered into a Revolving Credit Agreement
(the "B of A Credit Facility") with a syndication of banks to finance the
acquisition of NCS. The Credit Facility is a revolving facility under which up
to $220.0 million may be advanced and readvanced from time to time for general
corporate purposes. Credit available under the B of A Credit Facility is
reduced by equal amounts on four reduction dates: June 11, 1999, December 11,
1999, June 11, 2000 and at maturity on December 11, 2000. Interest under the B
of A Credit Facility is structured similar to Agreement I and Agreement II. As
of December 31, 1995, the Company had $220.0 million outstanding under the B of
A Credit Facility.
On December 14, 1995, the Company assumed $53.3 million in mortgages (the
"Mortgages") as part of the NCS acquisition. The Mortages currently carry an
annual interest rate of 9.5% with average maturities of 7 years and are
recorded at their net present value of $59.3 million. The mortgages are secured
by retail properties owned by the Company.
Outstanding bank money market facilities are reflected as long-term debt
because the Company has the intent and ability either to roll over the debt as
it becomes due or to convert such borrowings into long-term debt through
revolving credit borrowings.
At December 31, 1995, the Company had outstanding $163.0 million of
borrowings under bank money market facilities provided by major money center
banks at a weighted average annual rate of 6.05%. The bank money market
facilities are uncommitted lines of credit under which banks extend unsecured
short-term credit to the Company from time to time at market rates.
Agreement I and Agreement II, the Senior Notes, and the B of A Credit
Facility are unsecured. Certain subsidiaries of the Company have
unconditionally guaranteed the repayment of all indebtedness and the
performance of all obligations incurred by the Company under Agreement I and
Agreement II, the Senior Notes, and the B of A Credit Facility.
On January 6, 1994, the Company prepaid the $35.0 million balance on its
$65.0 million Term Loan Agreement (the "Term Loan").
During February 1993, the Company issued $46.0 million in medium-term notes
with an average rate of 7.44% and average maturities of 12 years.
On April 1, 1993, the Company issued $100.0 of 8% Debentures due April 1,
2023.
On February 27, 1991, the Company issued $75.0 million of 9-3/8% Notes due
March 1, 2001 (the "Notes") under its medium-term note program.
In December 1991, the Company issued $24.0 million in various notes with an
average rate of 8.45% and maturities of 12 years.
In connection with the Spin-off, the Company sold $150.0 million of 11%
Subordinated Notes due April 30, 1999, (the "11% Subordinated Notes") to
institutional investors. On July 14, 1989, the original 11% Subordinated Notes
became 10.75% Senior Notes (the "10.75% Senior Notes") after certain
contractual conditions were met. On May 1, 1995, the Company repaid $30.0
million of its 10.75% Senior Notes in a scheduled installment, leaving an
outstanding balance of $120.0 million. Of this balance, $30.0 million is
payable within one year. Since the Company intends to refinance the scheduled
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, 1996 has been
classified as long-term debt.
Subsequent to the Spin-off, the Company placed $25.0 million of 9% Senior
Notes due 1987-1997 (the "9% Senior Notes") and $5.0 million of 8.35% Senior
Notes due 1989-1997 (the "8.35% Senior Notes") with an institutional investor
and loaned the proceeds to the ESOP I (see Note 7). In 1989, the Company placed
$30.0 million of 8.77% Senior Notes due 1997-2009 (the "8.77% Senior Notes")
with the same institutional investor and loaned the proceeds to the ESOP II
(see Note 7).
Cash payments of interest for 1995, 1994, and 1993 were $49.6 million,
$42.9 million, and $41.3 million, respectively.
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt is estimated to be $1,028.2 million at December 31, 1995, including
amounts payable within one year.
Note 14 - PREFERRED STOCK
In June 1993, the Company issued 1.725 million shares of 5% Cumulative
Convertible Preferred Stock (the "Preferred Stock") in a private placement
for an aggregate of $86.3 million, before discounts and transaction costs. The
issue was priced at $50 per share with a dividend rate of 5 percent. The
Preferred stock became convertible into the Company's Common Stock on September
8, 1993, at an initial conversion price of $26.50 per share. After June 15,
1996, the Preferred Stock is redeemable at the Company's option, subject to
certain conditions, for Common Stock, and after June 15, 2000, it is redeemable
at par for cash, at the Company's option.
Note 15 - STOCKHOLDERS' EQUITY
Common Paid-In Retained ESOP Treasury
Stock Capital Earnings Stock Stock
January 1, 1993 $0.3 $356.8 $131.5 $(51.6) $(1.3)
Net Income 18.4
Cash dividends:
Common ($0.52 per share) (15.0)
Convertible Preferred
($1.28 per share)
(See Note 14) (2.2)
Issuance of Key
Employees' and
Directors' stoc 0.0 1.4 0.9
Payment on ESOP note 4.3
Purchase of treasury
stock (0.6)
Issuance of
Convertible Preferred
stock* 84.3
Adjustment of minimum
liabilities of
pensions (1.8)
Tax benefit of ESOP
dividends 0.4
Tax benefit of stock
options 0.4
Options exercised 0.0 1.9 (0.8) 0.4
December 31, 1993 0.3 444.8 130.5 (47.3) (0.6)
Net Income 75.8
Cash dividends:
Common ($0.53 per
share) (15.4)
Convertible Preferred
($2.50 per share)
(See Note 14) (4.3)
Issuance of Key
Employees' and
Directors' stock 0.0 0.0 (0.1)
Payment on ESOP note 5.1
Purchase of treasury
stock (3.4)
Adjustment of minimum
liabilities of
pensions 0.8
Success sharing 0.0 0.9
Tax benefit of ESOP
dividends 0.3
Tax benefit of stock
options 0.5
Options exercised 0.0 1.1 (0.9) 0.9
December 31, 1994 0.3 447.3 186.8 (42.2) (3.2)
Net Income 47.3
Cash dividends:
Common ($0.56
per share) (16.3)
Convertible
Preferred
($2.50 per
share) (See
Note 14) (4.3)
Issuance of Key
Employees' and
Directors' stock 0.0 0.0 (0.5)
Payment on ESOP note 5.8
Purchase of treasury
stock 0.1
Adjustment of minimum
liabilities of
pensions 1.2
Success sharing (0.3) 2.9
Tax benefit of ESOP
dividends 0.3
Tax benefit of stock
options 0.1
Stock forfeitures 0.0 0.0 (0.7)
Options exercised 0.0 0.4 (0.3) 0.4
Other (0.4)
December 31, 1995 $0.3 $447.8 $214.0 $(36.4) $(1.0)
*The Preferred Stock that was issued in 1993 has a par value of $17,250 which
is not reflected above since it does not round to the nearest $100,000. At
December 31, 1995 and 1994, the Company held 41,138 shares and 117,794 shares,
respectively, as treasury stock.
Note 16 - LEASE COMMITMENTS
The Company leases certain machinery and equipment, transportation and
marketing facilities, and office space under cancelable and non-cancelable
leases, most of which expire within 20 years unless renewed.
Minimum annual rentals at December 31, 1995 were as follows:
(DOES NOT INCLUDE NCS AT THIS TIME)
Operating
Leases
1996 $ 49.3
1997 41.2
1998 35.7
1999 23.1
2000 15.8
2001 and thereafter 112.3
$277.4
Rental expense for operating leases was as follows:
1995 1994 1993
Total rentals $34.5 $28.3 $21.1
Less-Sublease rental income 0.8 0.7 0.7
Rental expense $33.7 $27.6 $20.4
The Company has an existing long-term lease arrangement (the "Brazos
Lease") to accommodate its continued retail outlet construction program. The
Brazos Lease has an initial lease term which will expire in April 1999.
Rent payable under the Brazos Lease is based upon the amounts spent to
acquire or construct the outlets and the lessor's cost of funds from time to
time. At December 31, 1995, approximately $15.3 million of the $190.0 million
commitment remained available under the Brazos Lease to construct retail
outlets.
After the non-cancelable lease term, the Brazos Lease may be extended by
agreement of the parties, or the Company may purchase or arrange for the sale
of the retail outlets. If the Company were unable to extend the lease or
arrange for the sale of the properties to a third party in 1999, the amount
necessary to purchase properties under the lease as of December 31, 1995 would
be approximately $175.0 million.
Note 17 - COMMITMENTS AND CONTINGENCIES
In connection with the Spin-off, the Company and Maxus entered into a
Distribution Agreement which, among other things, provides for the sharing by
the Company and Maxus of certain liabilities relating to businesses of Maxus
discontinued or disposed of prior to the Spin-off date. The Company's total
liability for such shared costs is limited to $85.0 million. Payments with
respect to the shared costs are made by Maxus and the Company is obligated to
reimburse Maxus for the Company's share promptly after receipt of Maxus'
invoice accompanied by appropriate supporting data. Inasmuch as the Company
has already reimbursed Maxus for more than $37.5 million, the Company's share
of remaining shared costs is one-third of the amounts paid by Maxus. Although
some expenditures are still subject to audit, the Company has reimbursed Maxus
for a total of $75.0 million as of December 31, 1995, including $11.4 million
paid during 1995. See Note 3 for a change in the method of accounting for the
liability.
Pursuant to the Distribution Agreement, the Company will also reimburse
Maxus for one-third of all payments for the cost of certain medical and life
insurance benefits for eligible retired employees made by Maxus after the
Spin-off date with respect to persons who retired on or before the Spin-off
date (see Note 7). The actuarial cost of these expected payments under the
Distribution Agreement is included in the Accumulated Postretirement Benefit
Obligation recorded as of January 1, 1992 (see Note 3).
The Company's commitments for future purchases are for quantities not in
excess of anticipated requirements and at prices which will not result in a
loss. There are no long-term contracts with crude oil suppliers which would
fix the cost of future deliveries. The Company anticipates that it will sustain
no losses in fulfillment of existing sales contracts.
The Company purchases its crude oil and other feedstocks from both domestic
and foreign sources. During 1995, approximately 32% of the total feedstocks
processed in the refineries was foreign crude oil. The Company does not
anticipate any disruption in the availability of crude oil or other feedstocks,
but the price of such commodities is beyond the Company's control, being
affected by many factors including the supply and demand for crude oil, changes
in domestic and foreign economies and political affairs, and the extent of
governmental regulation.
The Company is a party to a number of lawsuits, the outcomes of which are
not expected to have a material effect on the Company's financial position or
results of operations.
Federal, state and local laws and regulations establishing various health
and environmental quality standards affect nearly all of the operations of the
Company. Included among such statutes are the Clean Air Act of 1955, as
amended; the Clean Water Act of 1977, as amended; the Resource Conservation
and Recovery Act of 1976, as amended; and the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended.
Regulations issued by the EPA in 1988 with respect to underground storage
tanks require the Company, over a period up to ten years, to install, where not
already in place, spill prevention manholes, tank overfill protection devices,
leak detection devices, and corrosion protection on all underground tanks and
piping at retail gasoline outlets. The regulations also require periodic
tightness testing of underground tanks and piping. Commencing in 1998,
operators will be required under these regulations to install continuous
monitoring systems for underground tanks.
The Company has in effect policies, practices, and procedures in the areas
of pollution control, product safety, occupational health, the production,
handling, storage, use, and disposal of hazardous materials to prevent an
unreasonable risk of material environmental or other damage, and the material
financial liability which could result from such events. However, some risk of
environmental or other damage is inherent in the business of the Company, as
it is with other companies engaged in similar businesses.
None of the estimated costs or liabilities associated with individual
locations identified as being in need of environmental remediation at December
31, 1995 is material to the results of operations of the Company. The
environmental reserve of $18.9 million listed under Other Liabilities and
Deferred Credits (see Note 12) is the fair value of a reserve established by
NCS prior to its emergence from bankruptcy in March of 1993 for the cleanup of
contaminated soil and groundwater caused by releases from underground gasoline
storage tanks and underground piping systems and claims for third party
damages relating to such releases. The actual costs may be higher or lower
than that accrued due to the difficulty in estimating such costs and due to the
potential changes in the status of regulations and state reimbursement
programs.
Supplementary Financial Information (unaudited)
QUARTERLY FINANCIAL DATA
CAPTION>
(dollars in millions,
except per share) 1995 Quarter Ended March 31 June 30 Sept. 30 Dec. 31
Net sales (1) $845.7 $981.9 $941.7 $913.8
Gross profit(2) 44.9 83.2 46.1 48.1
Net income 5.4 28.0 5.7 8.2
Primary earnings per common share 0.15 0.93 0.16 0.24
Fully diluted earnings per common
share 0.15 0.87 0.16 0.24
Cash dividends per share
Common $ 0.14 $ 0.14 $ 0.14 $ 0.14
Preferred 0.625 0.625 0.625 0.625
Market price per common share
High 26 1/2 28 7/8 27 3/8 26 7/8
Low 23 1/8 25 1/2 23 3/4 23 3/8
1994 Quarter Ended March 31 June 30 Sept. 30 Dec. 31
Net sales (1) $753.5 $824.4 $868.6 $850.8
Gross profit(2) 52.1 82.3 68.7 62.8
Net income 12.2 27.5 20.6 15.5
Primary earnings per common share 0.38 0.9 0.67 0.49
Fully diluted earnings per common
share 0.38 0.85 0.64 0.48
Cash dividends per share
Common $ 0.13 $ 0.13 $ 0.13 $ 0.14
Preferred 0.625 0.625 0.625 0.625
Market price per common share
High 30 28 1/4 28 1/2 29 1/8
Low 24 1/8 23 3/8 23 7/8 23 5/8
(1) Reclassified to conform to 1996 presentation to include excise taxes as a
component of sales.
(2) Gross profit is sales and operating revenues less cost of products sold and
operating expenses and depreciation.
Selected Historical Financial Information (unaudited)
(dollars in millions, except
per share) 1995 1994 1993 1992 1991
OPERATIONS
Sales and operating revenues:
Refining and Wholesale(a) $1,796.0 $1,661.3 $1,522.6 $1,444.9 $1,457.5
Retail(a) 1,511.7 1,324.8 1,275.0 1,275.3 1,158.9
Allied Businesses 375.4 311.2 302.4 341.5 374.6
Total(a) $3,683.1 $3,297.3 $3,100.0 $3,061.7 $2,991.0
Operating profit:
Refining and Wholesale $ 85.8 $ 146.8 $ 73.9 $ 68.1 $ 86.8
Retail 55.6 58.9 62.7 46.6 26.1
Allied Businesses 48.1 26.0 15.0 22.9 32.5
Total $ 189.5 $ 231.7 $ 151.6 $ 137.6 $ 145.4
Income from continuing
operations $ 47.3 $ 75.8 $ 32.6 $ 26.4 $ 37.1
Net income $ 47.3 $ 75.8 $ 18.4 $ 8.7 $ 37.1
FINANCIAL POSITION
Current assets $ 654.9 $ 540.4 $ 356.2 $ 358.5 $ 409.8
Current liabilities 489.5 374.1 220.4 217.0 252.9
Properties and equipment,
less accumulated
depreciation 1,357.1 1,026.1 941.1 897.6 791.2
Total assets $2,245.4 $1,620.8 $1,349.2 $1,297.5 $1,222.3
CAPITAL STRUCTURE
Long-term debt including
portion due within one
year $ 964.7 $ 513.1 $ 489.7 $ 536.9 $ 446.1
Deferred income taxes 57.0 81.5 48.7 61.4 65.6
Stockholders' equity 624.7 589.0 527.7 435.7 437.6
Total $1,646.4 $1,183.6 $1,066.1 $1,034.0 $ 949.3
OTHER DATA
Capital expenditures $ 556.6 $ 162.1 $ 131.8 $ 170.5 $ 180.1
Depreciation and amortization 77.7 70.9 64.3 56.8 52.3
Book value per share* 19.47 18.45 16.40 16.50 16.76
PER COMMON SHARE
Primary earnings:
Continuing operations $ 1.48 $ 2.45 $ 1.04 $ 0.92 $ 1.39
Net income 1.48 2.45 0.55 0.30 1.39
Fully diluted earnings:
Continuing operations $ 1.46 2.34 $ 1.04 $ 0.92 $ 1.36
Net income 1.46 2.34 0.55 0.30 1.36
CASH DIVIDENDS PER SHARE
Common Stock $ 0.56 $ 0.53 $ 0.52 $ 0.52 $ 0.52
Preferred Stock 2.50 2.50 1.28 __
__
FINANCIAL RATIOS
Current ratio $ 1.3 1.4 1.6 1.7 1.6
Total debt as a percent
of total capital 58.6% 43.4% 45.9% 51.9% 47.0%
(a) Reclassified to conform to 1996 presentation, to include excise taxes as a
component of sales: The amount of such taxes for the years ended December 31,
is $360.2 million, $340.5 million, $227.8 million, $154.5 million, and $164.3
million in 1995, 1994, 1993, 1992, and 1991, respectively in the Refining and
Wholesale segment. The amount of such taxes for the years ended December 31,
is $386.1 million, $350.5 million, $316.9 million, $304.6 million, and $250.8
million in 1995, 1994, 1993, 1992, and 1991, respectively in the Retail
segment.
* Calculated excluding 1,340,983; 1,669,264; 1,985,102; 2,286,705; and
2,573,904 unallocated ESOP shares at December 31 of the respective years.
Five Year Operating Information (unaudited)
1995 1994 1993 1992 1991
OPERATIONS
Crude Oil Refining Capacity
(barrels per day at year-end)
McKee 140,000 135,000 125,000 120,000 110,000
Three Rivers 75,000 70,000 70,000 55,000 55,000
Total 215,000 205,000 195,000 175,000 165,000
Crude Oil Refined (barrels per day)
McKee 130,439 126,235 118,949 112,909 111,765
Three Rivers 74,499 69,428 61,280 51,775 48,238
Total 204,938 195,663 180,229 164,684 160,003
Capacity Utilization 95.3% 95.4% 92.4% 94.1% 97.0%
Total Inputs (barrels per day)
Domestic Crude Oil 135,418 139,099 137,672 145,687 140,244
Foreign Crude Oil 69,520 56,564 42,557 18,997 19,759
Other Feedstocks 14,238 13,888 16,528 16,034 19,003
Total 219,176 209,551 196,757 180,718 179,006
Crude Oil Purchase Cost
(dollars per barrel) 18.58 17.08 18.57 20.64 21.83
Inventory (thousands of barrels at year-end)
Crude Oil 7,210 7,717 2,499 1,796 3,085
Petroleum Products 3,794 3,277 3,736 2,845 3,509
REFINED PRODUCT SPREAD (dollars per barrel)
Product Sales Prices 22.31 21.53 22.39 24.04 25.55
Raw Material Costs 18.82 17.13 18.63 20.83 21.76
Refined Product Spread 3.49 4.40 3.76 3.21 3.79
PRODUCTS MANUFACTURED (barrels per day)
Gasoline 124,573 120,377 112,974 104,220 103,271
Diesel Fuel 47,663 44,425 39,952 31,462 34,478
Aviation Fuel 17,946 18,921 17,602 18,900 16,382
Other 30,751 26,478 26,014 24,965 24,900
Total 220,933 210,201 196,542 179,547 179,031
WHOLESALE REFINED PRODUCT SALES (barrels per day)
Gasoline 153,140 142,016 134,954 128,507 122,831
Diesel Fuel 52,484 49,102 43,774 36,487 37,686
Aviation Fuel 18,705 21,206 20,437 21,043 15,944
Other 13,817 13,373 12,872 13,156 12,148
Total 238,146 225,697 212,037 199,193 188,609
WHOLESALE REFINED PRODUCT SALES (dollars per barrel)
Gasoline 24.37 23.06 24.15 26.54 28.09
Diesel Fuel 22.04 21.46 22.99 24.49 25.39
Aviation Fuel 22.50 22.05 23.78 25.07 26.95
Other 14.96 14.32 14.43 13.45 14.24
RETAIL
Number of Retail Outlets (at year-end)
Company Operated 1,506 810 776 761 763
Company Owned 715 496 504 518 529
Company Leased 791 314 272 243 234
RETAIL SALES
Gasoline (barrels per day) 61,766 56,410 55,473 53,931 50,876
Diesel (barrels per day) 2,216 1,795 1,606 1,455 1,164
Merchandise ($000/day) 957.9 872.9 820.7 792.6 710.5
OTHER DATA
Number of Jobber Outlets
(at year-end) 1,203 1,206 1,194 1,163 1,155
Miles of Products Pipelines
(at year-end) 2,959 2,484 2,291 2,290 2,275
Miles of Crude Oil Pipelines
(at year-end) 1,268 1,289 2,110 2,110 1,839
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