SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 25, 1997
ULTRAMAR DIAMOND SHAMROCK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-11154 13-3663331
(State or other (Commission (IRS employer
Jurisdiction of file number) identification no.)
incorporation)
9830 Colonnade Boulevard, San Antonio, Texas 78230
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 210-641-6800
ITEM 2. ACQUISITION OF ASSETS
Acquisition of Total
The acquisition of all outstanding common shares of Total Petroleum
(North America), Ltd. ("Total") by Ultramar Diamond Shamrock Corporation
("UDS") (the "Arrangement"), acting through 3007152 Nova Scotia Company
("Canco"), a wholly owned subsidiary of UDS, pursuant to an Arrangement
Agreement (the "Arrangement Agreement") dated as of April 15,1997,
between UDS, Total and Canco, was consummated on September 25, 1997. As
a result of the Arrangement, as of the effective time of the Arrangement
(the "Effective Time"), each share of common stock of Total was
converted into the right to receive .322 shares of UDS common stock,
with cash to be paid in lieu of fractional shares, and UDS became
responsible for payment of the outstanding debt of Total. 39,354,700
shares of Total common stock were outstanding at the Effective Time,
resulting in the issuance of 12,672,213 shares of UDS common stock. UDS
repaid approximately $396,000,000 in indebtedness of Total and its
subsidiaries on September 25, 1997, and left one Total credit facility,
under which approximately $50,000,000 was outstanding, in place. The
common stock of Total ceased trading on the American Stock Exchange and
the Pacific Stock Exchange at the close of business on September 24,
1997. Total has approximately 6,000 employees and operates refineries
in Ardmore, Oklahoma, Alma, Michigan, and Denver, Colorado. The three
refineries have a combined throughput capacity of approximately 150,000
barrels of crude oil per day. Total distributes gasoline and
merchandise through approximately 2,100 branded outlets in the central
United States, of which approximately 560 are company owned. UDS has no
immediate plans to discontinue any of Total's operations.
Standstill Arrangement
21,893,955 shares of Total common stock were owned by Total S.A., a French
corporation, and its subsidiaries at the Effective Time. Total S.A. and
UDS have entered into an agreement (the "Stockholder Agreement") whose term
ends on the earlier of the fifth anniversary of the Effective Time or the
date on which the board of directors of UDS (the "UDS Board") recommends
a transaction which would result in a third party beneficially owning 50%
or more of the then-outstanding UDS common shares. Under the terms of the
Stockholder Agreement, neither Total S.A., nor its subsidiaries will,
subject to certain limited exceptions, (a) acquire, agree to acquire, or
make any offer to acquire any securities, business, or material asset of
UDS, (b) make any proposal to enter into any merger or business combination
involving UDS, (c) participate in any solicitation of proxies with respect
to any voting securities of UDS or seek to influence any person with
respect to any such voting securities in any manner which has not been
recommended by the UDS Board, (d) form, join, or participate in a "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) with respect to any voting
securities of UDS, (e) otherwise act, alone or in concert with others, to
seek to control or influence the management policies or actions of UDS, (f)
disclose any intention, plan, or arrangement inconsistent with the
foregoing clauses (a) through (e), (g) advise, assist or encourage any
other persons to take any action described in any of the foregoing clauses
(a) through (e), or (h) transfer any of its UDS common stock, other voting
stock of UDS or securities exercisable or exchangeable for UDS common stock
or other voting shares of UDS other than (1) pursuant to an underwritten
public offering in accordance with the terms of the Stockholder Agreement,
(2) after the period ending 180 days after the Effective Time, pursuant to
a private sale to a person who, after giving effect to such sale, would not
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act)
4% or more of the outstanding UDS common stock, (3) any transfer pursuant
to Rule 144 or 145, if applicable, or any similar rule under the Securities
Act of 1933, as amended (the "Securities Act"), provided that, during such
180-day period, such transfer has been previously approved by UDS, (4)
pursuant to a tender offer or other transaction recommended by the UDS
Board, or (5) any transfer to any wholly owned subsidiary of Total S.A..
Certain Financing Arrangements
On September 25, 1997, approximately $396,000,000 in outstanding
indebtedness of Total and its subsidiaries was repaid by UDS with the
proceeds of the issuance of commercial paper by UDS, the proceeds of
borrowings by UDS under uncommitted bank credit lines, the application of
available Total cash and cash equivalents, and the proceeds of a loan to
UDS in the amount of $150,000,000 under a credit agreement (the "Credit
Agreement") dated effective September 25, 1997, between UDS and Morgan
Guaranty Trust Company of New York, acting as agent for itself and certain
other banks party to the Credit Agreement. The Credit Agreement terminates
on March 25, 1998, does not permit loans to be readvanced after they are
repaid, and provides for interest on outstanding loans at variable rates
based on eurodollar rates, certificate of deposit rates, and the prime
rate. The Credit Agreement contains requirements for the prepayment of
loans outstanding under it to the extent cash becomes available to UDS
through the issuance of debt or equity, the disposition of assets, or the
realization of proceeds under insurance policies because of a significant
casualty occurance (with certain limited exceptions in each case). The
provisions of the Credit Agreement are substantially similar in other
respects to those of other committed credit facilities of UDS. UDS intends
to refinance a significant portion of the indebtedness incurred in
connection with the acquisition of Total through the public issuance of
debt securities from its existing universal shelf registration.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of the Businesses Acquired.
Audited financial statements of Total and Subsidiaries:
Reports of Independent Accountants*
Consolidated Statement of Income -- Year Ended
December 31, 1996 **
Consolidated Balance Sheet -- December 31, 1996**
Consolidated Statement of Cash Flows -- Year Ended
December 31, 1996**
Consolidated Statement of Shareholders' Equity
-- Year Ended December 31, 1996**
Notes to Consolidated Financial Statements**
Unaudited Interim Condensed Consolidated Financial Statements of Total and
Subsidiaries:
Consolidated Statement of Income -- Six Months Ended June 30, 1997***
Consolidated Balance Sheet -- June 30, 1997***
Consolidated Statement of Cash Flows -- Six Months Ended June 30, 1997***
Notes to Consolidated Financial Statements***
_____________
* The Reports of Independent Accountants of Arthur Andersen LLP
on page 17 and Price Waterhouse LLP on page 18 of the Annual
Report on Form 10-K for the year ended December 31, 1996 of
Total (Commission File No. 1-6184) are incorporated herein by
reference.
** The Audited Financial Statements of Total and Subsidiaries,
including the notes thereto, are incorporated herein by
reference to pages 19 through 33 of the Annual Report on Form
10-K for the year ended December 31, 1996 of Total.
*** The unaudited interim condensed consolidated financial
statements of Total and Subsidiaries, including the notes
thereto, are incorporated herein by reference to pages 3
through 7 of the Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997 of Total.
(b) Pro Forma Financial Information.
The following pro forma combined financial data for UDS gives effect to
the Arrangement as if it occurred on June 30, 1997, in the case of the pro
forma balance sheet data, and on January 1, 1996 and 1997, in the case of
the pro forma income statement data.
The Arrangement will be accounted for by UDS using the purchase method
of accounting. In connection therewith, the purchase price will be
allocated to the assets and liabilities of Total as of the Effective Time,
and the results of operations of Total will be included in UDS's results
of operations thereafter. The purchase price has been allocated in the pro
forma entries based on management's estimates of the fair values of the
assets and liabilities of Total available as of the date of this Current
Report on Form 8-K and, in some instances, the effects of conforming
Total's accounting practices to those of UDS. Following the consummation
of the Arrangement, such allocation will be reflected in the consolidated
balance sheet of UDS in accordance with information then available, which
could be materially different from the estimates reflected herein. As
additional information becomes available, adjustments to UDS's consolidated
financial statements may be necessary which could, among other things,
result in an increased allocation of costs to assets acquired in the
Arrangement, including goodwill.
The pro forma financial data should be read in conjunction with the
historical financial statements of Total and UDS, including the notes
thereto. The pro forma financial data is based on various assumptions and
are not necessarily indicative of the results that actually would have
occurred had the Arrangement been consummated on the dates indicated or
that may occur in the future.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(Unaudited, in millions)
Pro Forma
Adjustments
UDS Total Increase Pro Forma
Historical Historical (Decrease) Combined
ASSETS
Cash and cash
equivalents $ 93.0 $ 16.2 $ - $ 109.2
Accounts and notes
receivable 446.0 196.8 - 642.8
Inventories 562.7 176.8 14.7(a) 754.2
Deferred income
taxes 32.0 - 29.1(b,c) 61.1
Prepaid expenses
and other cur-
rent assets 38.8 39.8 (17.3)(c,d) 61.3
Total current
assets 1,172.5 429.6 26.5 1,628.6
Property, plant
and equipment,
net 2,719.0 827.9 (12.6)(c,d) 3,534.3
Other assets 304.3 32.0 111.5(e,d) 447.8
Total assets $ 4,195.8 $ 1,289.5 $ 125.4 $ 5,610.7
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and
current portion
of long-term debt $ 7.1 $ - $ - $ 7.1
Accounts payable 258.7 265.5 - 524.2
Accrued liabilities 282.5 21.8 73.2(d,h,j) 377.5
Taxes other than
income taxes 205.3 49.6 - 254.9
Income taxes 24.7 - - 24.7
Total current
liabilities 778.3 336.9 73.2 1,188.4
Long-term debt 1,527.6 497.1 - 2,024.7
Other long-term
liabilities 306.4 69.5 62.5(d,h, 438.4
i,j)
Deferred income
taxes 109.0 12.9 (33.2)(d) 88.7
Company obligated
Preferred Stock
of subsidiary 200.0 - - 200.0
Stockholders' Equity:
Common Stock 0.7 355.0 (354.9)(f,g) 0.8
Additional paid-in
capital 1,140.2 79.7 316.2(f,g) 1,536.1
ESOP, treasury
stock and other (30.0) - - (30.0)
Retained earnings 224.5 (61.6) 61.6(g) 224.5
Foreign currency
translation ad-
justment (60.9) - - (60.9)
Total stockholders'
equity 1,274.5 373.1 22.9 1,670.5
$ 4,195.8 $ 1,289.5 $ 125.4 $ 5,610.7
(a) To record the adjustment of crude oil and products inventories from the
lower of cost as determined by the last-in, first-out method of accounting
or net realizable value to fair market value.
(b) To record a deferred tax benefit ($25.7 million) representing the
income tax effect on the pro forma adjustments, calculated at a combined
federal and state rate of 38%.
(c) To reclassify certain prepaid expenses to deferred income taxes and
property, plant and equipment to conform to UDS's presentation.
(d) To adjust Total's assets and liabilities to fair market value,
including valuation reductions to capitalized costs based on anticipated
changes in operations and brands.
(e) To record the excess of the acquisition cost of Total over the fair
value of net assets acquired ($119.1 million).
(f) To record the acquisition of each issued and outstanding Total share
in exchange for 0.322 of a share of UDS common stock.
(g) To eliminate Total's equity at June 30, 1997 to include Total in the
consolidated balance sheet of UDS.
(h) To record the incremental costs and expenses directly resulting from
the Acquisition. These costs primarily consist of financial advisory fees;
outside legal, accounting and professional fees; and severance and other
benefit payments to employees of Total that will result from the
elimination of certain operational and administrative functions.
(i) To establish additional reserves ($54.2 million), principally relating
to environmental costs of the acquired properties to conform to the
financial presentation of UDS.
(j) To account for refinery maintenance turnaround costs under the deferral
and amortization method versus the accrual method, to conform to the
financial presentation of UDS.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(Unaudited, in millions, except per share data)
Pro Forma
Adjustments
UDS Total Increase Pro Forma
Historical Historical (Decrease) Combined
Sales and other
revenues $ 4,964.6 $ 1,141.9 $ 349.5(a) $ 6,456.0
Operating costs
and expenses:
Costs of products
sold and
operating
expenses - 1,085.8 (1,085.8)(b) -
Costs of products
sold 3,135.5 - 918.9(b,c,d) 4,054.4
Operating expenses 402.4 - 139.8(b,c,d) 542.2
Selling, general
and administra-
tive expenses 141.7 24.7 8.7(c,d) 175.1
Taxes other than
income taxes 1,029.8 - 360.3(a,d) 1,390.1
Depreciation and
amortization 89.7 31.8 7.2(e) 128.7
Total operating
costs and
expenses 4,799.1 1,142.3 349.1 6,290.5
Operating income 165.5 (0.4) 0.4 165.5
Interest income 7.9 - - 7.9
Interest expense (62.1) (14.9) - (77.0)
Gain on sale of
assets 11.0 - - 11.0
Income (loss)
before income
taxes 122.3 (15.3) 0.4 107.4
Income tax
(benefit)
expense 48.4 (7.2) 0.1(f) 41.3
Net income (loss) 73.9 (8.1) 0.3 66.1
Dividend require-
ment on preferred
stock 2.2 - - 2.2
Net income (loss)
applicable to
common shares $ 71.7 $ (8.1) $ 0.3 $ 63.9
Primary Earnings
Per Share $ 0.95 $ (0.20) $ 0.72
Fully Diluted
Earnings Per
Share $ 0.93 $ (0.20) $ 0.72
Weighted Average Common Shares
Outstanding
(thousands of shares)
Primary 75,677 39,216 (26,588)(g) 88,305
Fully Diluted 79,151 39,216 (26,588)(g) 91,779
(a) To conform to UDS's practice of reporting sales by including federal
excise and state motor fuel taxes in sales and taxes other than income
taxes.
(b) To conform to UDS's practice of reporting costs of products sold
separate from operating expenses.
(c) To conform to UDS's practice of reporting certain expenses relating to
wholesale marketing, product distribution, credit card and fleet fueling
as selling, general and administrative expenses.
(d) To conform to UDS's practice of reporting taxes other than income taxes
separate from costs of products sold, operating expenses and selling,
general and administrative expenses.
(e) To reflect amortization of the acquisition cost of Total in excess of
the fair value of the net assets acquired, as well as to reflect changes
in depreciation and amortization due to changes in asset values.
(f) To reflect the income tax effect on the pro forma adjustments,
calculated at a combined federal and state statutory rate of 38%.
(g) To reflect the changes in shares as a result of the Arrangement.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
DECEMBER 31, 1996
(Unaudited, in millions, except per share data)
Pro Forma
Adjustments
UDS Total Increase Pro Forma
Historical Historical (Decrease) Combined
Sales and other
revenues $10,208.4 $ 2,614.3 $ 719.1(a) $13,541.8
Operating costs
and expenses:
Cost of products
sold and
operating
expenses - 2,486.8 (2,486.8)(b) -
Costs of products
sold 6,550.0 - 2,143.0(b,c,d) 8,693.0
Operating ex-
penses 928.1 - 290.8(b,c,d) 1,218.9
Selling, general
and administra-
tive expenses 302.0 52.3 17.2(c,d) 371.5
Taxes other than
income taxes 2,101.1 - 738.1(a,d) 2,839.2
Depreciation and
amortization 179.9 60.8 8.5(e) 249.2
Merger and inte-
gration costs 77.4 - - 77.4
Total operating
costs and ex-
penses 10,138.5 2,599.9 710.8 13,449.2
Operating income 69.9 14.4 8.3 92.6
Interest income 18.4 - - 18.4
Interest expense (128.5) (26.6) - (155.1)
Income (loss)
before income
taxes (40.2) (12.2) 8.3 (44.1)
Income tax
(benefit) ex-
pense (4.3) (6.8) 3.1(f) (8.0)
Net income(loss) (35.9) (5.4) 5.2 (36.1)
Dividend require-
ment on prefer-
red stock 4.3 - - 4.3
Net income (loss)
applicable to
common shares $ (40.2) $ (5.4) $ 5.2 $ (40.4)
Primary Earnings
Per Share $ (0.54) $ (0.14) $ (0.46)
Fully Diluted
Earnings Per
Share $ (0.54) $ (0.14) $ (0.46)
Weighted Average
Common Shares
Outstanding
(thousands of
shares)
Primary 74,427 38,913 (26,383)(g) 86,957
Fully Diluted 74,427 38,913 (26,383)(g) 86,957
(a) To conform to UDS's practice of reporting federal excise and state
motor fuel taxes in sales and taxes other than income taxes.
(b) To conform to UDS's practice of reporting costs of products sold
separate from operating expenses.
(c) To conform to UDS's practice of reporting certain expenses relating to
wholesale marketing, product distribution, credit card and fleet fueling
as selling, general and administrative expenses.
(d) To conform to UDS's practice of reporting taxes other than income taxes
separate from costs of products sold, operating expenses and selling,
general and administrative expenses.
(e) To reflect amortization of the acquisition cost of Total in excess of
the fair value of net assets acquired, as well as to reflect changes in
depreciation and amortization due to changes in asset values.
(f) To reflect the income tax effect on the pro forma adjustments,
calculated at a combined federal and state statutory rate of 38%.
(g) To reflect the changes in shares as a result of the Arrangement.
(c) Exhibits.
2.1 Arrangement Agreement (incorporated by reference to
Exhibit 10.1 to the Report on Form 10-Q for the quarter ended
March 31, 1997 of UDS)
10.1 Stockholder Agreement (incorporated by reference to
Exhibit 10.2 to the Report on Form 10-Q for the quarter ended
March 31, 1997 of UDS)
10.2 Loan Agreement
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Price Waterhouse LLP
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Ultramar Diamond Shamrock Corporation has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
(REGISTRANT)
By: /s/ H. Pete Smith
H. PETE SMITH
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
October 3, 1997
EXHIBIT INDEX
Exhibit
Number
2.1 Arrangement Agreement (incorporated by reference to Exhibit 10.1 to
the Report on Form 10-Q for the quarter ended March 31, 1997 of UDS)
10.1 Stockholder Agreement (incorporated by reference to Exhibit 10.2 to
the Report on Form 10-Q for the quarter ended March 31, 1997 of UDS)
10.2 Loan Agreement
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Price Waterhouse LLP