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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 001-12138
PDV America, Inc.
(Exact name of registrant as specified in its charter)
Delaware 51-0297556
(State or other jurisdiction of (I. R. S. Employer Identification No.)
incorporation or organization)
750 Lexington Avenue, New York, New York 10022
(Address of principal executive office) (Zip Code)
(212) 753-5340
(Registrant's telephone number, including area code)
N.A.
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $1.00 par value 1,000
------------------------------ -----
(Class) (outstanding at July 31, 2001)
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PDV AMERICA, INC.
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2001
TABLE OF CONTENTS
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Page
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS......................................................................1
PART I. FINANCIAL INFORMATION....................................................................................2
Item 1. Financial Statements (Unaudited)................................................................2
Condensed Consolidated Balance Sheets - June 30, 2001 and December 31, 2000.....................2
Condensed Consolidated Statements of Income and Comprehensive Income
- Three and Six-Month Periods Ended June 30, 2001 and 2000......................................3
Condensed Consolidated Statement of Shareholder's Equity - Six-Month Period
Ended June 30, 2001.............................................................................4
Condensed Consolidated Statements of Cash Flows - Six-Month Periods Ended
June 30, 2001 and 2000..........................................................................5
Notes to the Condensed Consolidated Financial Statements........................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..........................................................................13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................19
PART II. OTHER INFORMATION.......................................................................................22
Item 1. Legal Proceedings..............................................................................22
Item 5. Other Information..............................................................................22
Item 6. Exhibits and Reports on Form 8-K...............................................................22
SIGNATURES ......................................................................................................23
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Specifically, all statements under the caption "Item 2 - Management's Discussion
and Analysis of Financial Condition and Results of Operations" relating to
capital expenditures and investments related to environmental compliance and
strategic planning, purchasing patterns of refined products and capital
resources available to PDV America and its subsidiaries are forward-looking
statements. In addition, when used in this document, the words "anticipate,"
"estimate," "prospect" and similar expressions are used to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, such as increased inflation, continued access to capital markets
and commercial bank financing on favorable terms, increases in regulatory
burdens, changes in prices or demand for the products of PDV America and its
subsidiaries as a result of competitive actions or economic factors and changes
in the cost of crude oil, feedstocks, blending components or refined products.
Such statements are also subject to the risks of increased costs in related
technologies and such technologies producing anticipated results. Should one or
more of these risks or uncertainties materialize, actual results may vary
materially from those estimated, anticipated or projected. Although PDV America
believes that the expectations reflected by such forward-looking statements are
reasonable based on information currently available to PDV America and its
subsidiaries, no assurances can be given that such expectations will prove to
have been correct.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------------
June 30, 2001 December 31,
(Unaudited) 2000
---------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 304,186 $ 20,751
Accounts receivable, net 1,194,534 1,372,712
Due from affiliates 49,631 59,519
Inventories 1,197,184 1,156,065
Prepaid expenses and other 15,454 16,439
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Total current assets 2,760,989 2,625,486
NOTES RECEIVABLES FROM PDVSA AND AFFILIATE 798,000 798,000
PROPERTY, PLANT AND EQUIPMENT - NET 3,255,272 3,287,277
INVESTMENTS IN AFFILIATES 718,471 712,560
OTHER ASSETS 218,779 211,855
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TOTAL ASSETS $ 7,751,511 $ 7,635,178
===================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Short-term bank loans $ -- $ 37,500
Accounts payable 864,077 1,039,756
Payables to affiliates 371,688 452,026
Taxes other than income 238,053 210,986
Other current liabilities 212,231 245,864
Income taxes payable 72,086 74,152
Current portion of deferred income taxes 37,468 43,950
Current portion of long-term debt 84,506 47,078
Current portion of capital lease obligation 19,274 26,649
---------------------------------------------------
Total current liabilities 1,899,383 2,177,961
LONG-TERM DEBT 1,493,901 1,518,639
CAPITAL LEASE OBLIGATION 57,421 67,322
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 213,275 206,339
OTHER NONCURRENT LIABILITIES 222,840 215,030
DEFERRED INCOME TAXES 671,497 629,163
MINORITY INTEREST 31,589 31,518
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDER'S EQUITY
Common stock, $1.00 par, 1,000 shares authorized, issued and
outstanding 1 1
Additional capital 1,532,435 1,532,435
Retained earnings 1,632,670 1,259,135
Accumulated other comprehensive loss (3,501) (2,365)
---------------------------------------------------
Total shareholder's equity 3,161,605 2,789,206
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TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 7,751,511 $ 7,635,178
===================================================
(See Notes to the Condensed Consolidated Financial Statements.)
2
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
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2001 2000 2001 2000
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REVENUES:
Sales $ 5,689,901 $ 5,637,271 $ 10,585,533 $ 10,416,545
Sales to affiliates 66,070 48,013 131,989 100,284
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5,755,971 5,685,284 10,717,522 10,516,829
Equity in earnings (losses) of affiliates 37,190 (7,262) 60,821 3,565
Interest income from affiliates 16,544 21,387 33,088 42,703
Other income (expense) - net 1,100 (2,453) 2,091 (5,333)
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5,810,805 5,696,956 10,813,522 10,557,764
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COST OF SALES AND EXPENSES:
Cost of sales and operating expenses 5,308,280 5,473,083 10,065,326 10,177,668
Selling, general and administrative expenses 71,509 56,362 122,701 102,708
Interest expense, excluding capital lease 28,230 37,427 56,843 75,130
Capital lease interest charge 2,406 2,866 4,813 5,733
Minority interest 37 701 71 1,392
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5,410,462 5,570,439 10,249,754 10,362,631
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INCOME BEFORE INCOME TAXES 400,343 126,517 563,768 195,133
INCOME TAXES 144,878 46,857 203,833 71,744
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN -----------------------------------------------------------------------------------
ACCOUNTING PRINCIPLE 255,465 79,660 359,935 123,389
===================================================================================
CUMULATIVE EFFECT, ACCOUNTING FOR DERIVATIVES,
NET OF RELATED INCOME TAXES OF $7,977 -- -- 13,600 --
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NET INCOME 255,465 79,660 373,535 123,389
OTHER COMPREHENSIVE INCOME (LOSS):
Cash flow hedges:
Cumulative effect, accounting for
derivatives, net of related income
taxes of $(850) -- -- (1,450) --
Less: reclassification adjustment for
derivative losses included in net
income, net of related income taxes of
$45 and $184 77 -- 314 --
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OTHER COMPREHENSIVE INCOME (LOSS) 77 -- (1,136) --
-----------------------------------------------------------------------------------
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COMPREHENSIVE INCOME $ 255,542 $ 79,660 $ 372,399 $ 123,389
===================================================================================
(See Notes to the Condensed Consolidated Financial Statements.)
3
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (Unaudited)
(Dollars and Shares in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Accumulated
Other
Common Stock Additional Retained Comprehensive
Shares Amount Capital Earnings Loss Total
--------------------------------------------------------------------------------
BALANCE, JANUARY 1, 2001 1 $ 1 $ 1,532,435 $ 1,259,135 $ (2,365) $ 2,789,206
Net income - - - 373,535 - 373,535
Other comprehensive loss - - - - (1,136) (1,136)
--------------------------------------------------------------------------------
BALANCE, JUNE 30, 2001 1 $ 1 $ 1,532,435 $ 1,632,670 $ (3,501) $ 3,161,605
================================================================================
(See Notes to the Condensed Consolidated Financial Statements.)
4
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------------------
Six Months
Ended June 30,
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2001 2000
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CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 419,869 $ 489,194
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (81,113) (61,847)
Proceeds from sale of property, plant and equipment 1,036 4,028
Decrease in restricted cash -- 3,015
Loans to LYONDELL-CITGO Refining LP -- (25,130)
Investments in LYONDELL-CITGO Refining LP (5,700) (4,700)
Investments in and advances to other affiliates (304) (8,000)
----------------------------------------------
Net cash used in investing activities (86,081) (92,634)
----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) revolving bank loans 16,000 (462,000)
Net (repayments of) proceeds from short-term bank loans (37,500) 18,000
Proceeds from issuance of tax-exempt bonds 25,000 --
Payment on taxable bonds (25,000) --
Payments of capital lease obligations (17,276) (7,954)
Repayments of other debt (11,577) (3,556)
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Net cash used in financing activities (50,353) (455,510)
----------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 283,435 (58,950)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,751 113,414
----------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 304,186 $ 54,464
==============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 65,627 $ 81,015
==============================================
Income taxes, net of refund of $15,008 in 2000 $ 184,300 $ (12,776)
==============================================
(See Notes to the Condensed Consolidated Financial Statements.)
5
PDV AMERICA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The financial information for PDV America, Inc. ("PDV America")
subsequent to December 31, 2000 and with respect to the interim
three-month and six-month periods ended June 30, 2001 and 2000 is
unaudited. In the opinion of PDV America's management, such interim
information contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results
of such periods. The results of operations for the three-month and
six-month periods ended June 30, 2001 and 2000 are not necessarily
indicative of the results to be expected for the full year. Reference
is made to PDV America's Annual Report for the fiscal year ended
December 31, 2000 on Form 10-K, dated March 30, 2001, for additional
information.
The condensed consolidated financial statements include the accounts of
PDV America and its wholly owned subsidiaries, CITGO Petroleum
Corporation ("CITGO"), VPHI Midwest, Inc. ("Midwest") and PDV USA, Inc.
("PDV USA"), as well as CITGO's 65%-owned subsidiary, Cit-Con Oil
Corporation and Midwest's wholly owned subsidiary, PDV Midwest
Refining, L.L.C. ("PDVMR"). Each of these subsidiaries, together with
PDV America, are herein referred to collectively as, the "Companies."
2. CHANGE IN ACCOUNTING PRINCIPLE
On January 1, 2001 the Companies adopted the Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). The statement, as amended,
establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognizes all derivatives, at fair value, as either assets or
liabilities in the statement of financial position with an offset
either to shareholder's equity and comprehensive income or income
depending upon the classification of the derivative. Certain of the
derivative instruments identified at January 1, 2001 under the
provisions of SFAS No. 133 had been previously designated in hedging
relationships that addressed the variable cash flow exposure of
forecasted transactions. Under the transition provisions of SFAS No.
133, on January 1, 2001, the Companies recorded an after-tax,
cumulative-effect-type transition charge of $1.5 million to accumulated
other comprehensive income related to these derivatives. Certain of the
derivative instruments identified at January 1, 2001 under the
provisions of SFAS No. 133 had been previously designated in hedging
relationships that addressed the fair value of certain forward purchase
and sale commitments. Under the transition provisions of SFAS No. 133,
on January 1, 2001, the Companies recorded fair value adjustments to
the subject derivatives and related commitments resulting in the
recording of a net after-tax, cumulative-effect-type transition charge
of $0.2 million to net income. The remaining derivatives identified at
January 1, 2001 under the provisions of SFAS No. 133, consisting of
certain forward purchases and sales, had not previously been considered
derivatives under accounting principles generally accepted in the
United States of America. Under the transition provisions of SFAS No.
133, on January 1, 2001, the Companies recorded an after-tax,
cumulative-effect-type benefit of $13.8 million to net income related
to these derivatives.
The Companies did not elect subsequent hedge accounting for derivatives
existing at January 1, 2001. Accordingly, all changes in the fair value
of those derivatives have been recorded in income. Prospectively, the
Companies plan to elect hedge accounting only under limited
circumstances involving derivatives with initial terms of 90 days or
greater and notional amounts of $25 million or greater.
6
3. INVENTORIES
Inventories, primarily at LIFO, consist of the following:
June 30,
2001 December 31,
(Unaudited) 2000
----------- ------------
(000's omitted)
Refined products $ 901,887 $ 809,953
Crude oil 216,299 269,831
Materials and supplies 78,998 76,281
----------- -----------
$ 1,197,184 $ 1,156,065
=========== ===========
4. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
June 30,
2001 December 31,
(Unaudited) 2000
----------- ------------
(000's omitted)
Revolving bank loans $ 16,000 $ --
Senior Notes, $200 million face amount,
due 2006 with interest rate of 7.875% 199,852 199,837
Senior Notes, $500 million face amount,
due 2003 with interest rate of 7.875% 498,861 498,614
Private Placement Senior Notes,
due 2001 to 2006 with interest
rates from 9.03% to 9.30% 96,753 96,753
Master Shelf Agreement Senior Notes,
due 2002 to 2009 with interest rates
from 7.17% to 8.94% 260,000 260,000
Tax-Exempt Bonds, due 2004 to 2031 with
variable and fixed interest rates 354,370 329,370
Taxable Bonds, due 2026 to 2028 with
variable interest rates 149,000 174,000
Cit-Con bank credit agreement 3,571 7,143
---------- ----------
1,578,407 1,565,717
---------- ----------
Current portion of long-term debt (84,506) (47,078)
---------- ----------
$1,493,901 $1,518,639
========== ==========
On May 11, 2001, CITGO renewed its $150 million 364-day revolving bank
loan facility for another term.
On May 28, 2001, CITGO established an additional $25 million 364-day
revolving bank loan facility.
5. INVESTMENT IN LYONDELL-CITGO REFINING LP
LYONDELL-CITGO Refining LP ("LYONDELL-CITGO") owns and operates a
refinery in Houston, Texas with a refining capacity of 265 thousand
barrels per day. LYONDELL-CITGO is owned 41.25% by subsidiaries of
CITGO and 58.75% by Lyondell Chemical Company (collectively, the
"Owners"). This refinery processes heavy crude oil supplied by
Petroleos de Venezuela, S.A. (together with one or more of its
subsidiaries, "PDVSA") under a long-term
7
supply contract that expires in 2017. CITGO purchases substantially all
of the gasoline, diesel and jet fuel produced at the refinery under a
long-term contract.
On February 9, 2001, PDVSA notified LYONDELL-CITGO that, effective
February 1, 2001, it had declared force majeure under the contract
described above. Under a force majeure declaration, PDVSA may reduce
the amount of crude oil that it would otherwise be required to supply
under this agreement. If PDVSA reduces its delivery of crude oil,
LYONDELL-CITGO may be required to use alternative sources to obtain its
required supply of crude oil, which may result in reduced operating
margins. As of June 30, 2001, PDVSA's deliveries of crude oil to
LYONDELL-CITGO have not been reduced due to PDVSA's declaration of
force majeure.
CITGO has notes receivable from LYONDELL-CITGO that totaled $35 million
at June 30, 2001 and December 31, 2000. The notes bear interest at
market rates and are due July 1, 2003. These notes are included in
other assets in the accompanying consolidated balance sheets.
CITGO accounts for its investment in LYONDELL-CITGO using the equity
method of accounting and records its share of the net earnings of
LYONDELL-CITGO based on allocations of income agreed to by the Owners.
Information on CITGO's investment in LYONDELL-CITGO follows:
June 30,
2001 December 31,
(Unaudited) 2000
----------- ------------
(000's omitted)
Carrying value of investment $ 526,251 $ 518,333
Notes receivable 35,278 35,278
Participation interest 41% 41%
Summary of financial position:
Current assets $ 261,000 $ 310,000
Non-current assets 1,360,000 1,386,000
Current liabilities 300,000 867,000
Non-current liabilities 775,000 321,000
Member's equity 546,000 508,000
Six Months Ended June 30,
----------------------------
2001 2000
----------- ------------
(Unaudited)
Equity in net income (loss) $ 39,220 $ (5,711)
Cash distribution received 37,002 23,137
Summary of operating results:
Revenue $ 1,841,785 $ 1,760,190
Gross profit 166,324 55,692
Net income (loss) 107,507 (480)
On July 20, 2001, LYONDELL-CITGO completed a refinancing of its working
capital revolver and its $450 million term bank loan that matures on
September 14, 2001. The new 18-month term loan and working capital
revolver will mature in January 2003.
8
6. COMMITMENTS AND CONTINGENCIES
Litigation and Injury Claims - Various lawsuits and claims arising in
the ordinary course of business are pending against the Companies. The
Companies record accruals for potential losses when, in management's
opinion, such losses are probable and reasonably estimable. If known
lawsuits and claims were to be determined in a manner adverse to the
Companies, and in amounts greater than the Companies' accruals, then
such determinations could have a material adverse effect on the
Companies' results of operations in a given reporting period. However,
in the opinion of the Companies' management, the ultimate resolution of
these lawsuits and claims will not exceed, by a material amount, the
amount of the accruals and the insurance coverage available to the
Companies. This opinion is based upon the current assessment of the
Companies' management and counsel of these lawsuits and claims. The
most significant lawsuits and claims are discussed below.
Four former marketers of The UNO-VEN Company ("UNO-VEN") have filed a
class action complaint against UNO-VEN alleging improper termination of
the UNO-VEN Marketer Sales Agreement under the Petroleum Marketing
Practices Act in connection with PDVMR's 1997 acquisition of Unocal's
interest in UNO-VEN. This class action has been certified for liability
purposes. The lawsuit is pending in the U.S. District Court in
Wisconsin. PDVMR has filed a motion for summary judgment. The
Companies, including PDVMR, jointly and severally, have agreed to
indemnify UNO-VEN and certain other related entities against certain
liabilities and claims, including this matter.
A lawsuit is pending against PDVMR and CITGO in the Illinois state
court which claims damages as a result of PDVMR's invoicing a
partnership, in which it is a partner, and an affiliate of the other
partner of the partnership, alleging excessive charges for electricity
used by these entities' facilities located adjacent to the Lemont,
Illinois refinery. The Companies have denied all allegations and are
pursuing their defenses.
In May 1997, a fire occurred at CITGO's Corpus Christi refinery. No
serious personal injuries were reported. Approximately 1,300 claims
have been resolved for immaterial amounts. There are seventeen related
lawsuits pending in Corpus Christi, Texas state court against CITGO on
behalf of approximately 9,000 individuals alleging property damages,
personal injury and punitive damages. None of these are presently
scheduled for trial.
A class action lawsuit is pending in Corpus Christi, Texas state court
against CITGO which claims damages for reduced value of residential
properties as a result of alleged air, soil and groundwater
contamination. CITGO has purchased 275 adjacent properties included in
the lawsuit and settled those related property damage claims. CITGO has
contested an agreement that purported to provide for settlement of the
remaining property damage claims for $5 million payable by it. Motions
by CITGO and the plaintiffs for summary judgment related to the
enforcement of this agreement are currently under consideration by the
court.
A lawsuit alleging wrongful death and personal injury filed in 1996
against CITGO and other industrial facilities in Corpus Christi, Texas
state court was brought by persons who claim that exposure to refinery
hydrocarbon emissions have caused various forms of illness. The lawsuit
is scheduled for trial in 2002.
Litigation is pending in federal court in Lake Charles, Louisiana
against CITGO by a number of current and former refinery employees and
applicants asserting claims of racial discrimination in connection with
CITGO's employment practices. A trial involving two plaintiffs resulted
in verdicts for CITGO. The Court granted CITGO summary judgment with
respect to another group of claims; this has been appealed to the Fifth
Circuit Court of Appeals. No trials of the remaining cases are set
pending this appeal.
9
CITGO is among defendants to class action lawsuits in North Carolina,
New York and Illinois alleging contamination of water supplies by
methyl tertiary butyl ether, a component of gasoline. These actions
allege that methyl tertiary butyl ether poses public health risks and
seek damages as well as remediation of the alleged contamination. These
matters are in early stages of discovery. The Illinois case has been
transferred to New York and consolidated with the case pending in New
York. CITGO has denied all of the allegations and is pursuing its
defenses.
In 1999, a group of U.S. independent oil producers filed petitions
under the U.S. antidumping and countervailing duty laws against imports
of crude oil from Venezuela, Iraq, Mexico and Saudi Arabia. These laws
provide for the imposition of additional duties on imports of
merchandise if (1) the U.S. Department of Commerce, after
investigation, determines that the merchandise has been sold to the
United States at dumped prices or has benefited from countervailing
subsidies, and (2) the U.S. International Trade Commission determines
that the imported merchandise has caused or threatened material injury
to the U.S. industry producing like product. The amount of the
additional duties imposed is generally equal to the amount of the
dumping margin and subsidies found on the imports on which the duties
are assessed. No duties are owed on imports made prior to the formal
initiation of an investigation by the U.S. Department of Commerce. In
1999, prior to initiation of a formal investigation, the U.S.
Department of Commerce dismissed the petitions. In 2000, the U.S. Court
of International Trade overturned this decision and remanded the case
to the U.S. Department of Commerce for reconsideration.
Environmental Compliance and Remediation - The Companies are subject to
various federal, state and local environmental laws and regulations
which may require the Companies to take action to correct or improve
the effects on the environment of prior disposal or release of
petroleum substances by the Companies or other parties. Maintaining
compliance with environmental laws and regulations in the future could
require significant capital expenditures and additional operating
costs.
PDV America's accounting policy establishes environmental reserves as
probable site restoration and remediation obligations become reasonably
capable of estimation. Based on currently available information,
including the continuing participation of former owners in remediation
actions and indemnification agreements with third parties, PDV America
believes that its accruals are sufficient to address its environmental
cleanup obligations.
In 1992, CITGO reached an agreement with a state agency to cease usage
of certain surface impoundments at CITGO's Lake Charles refinery by
1994. A mutually acceptable closure plan was filed with the state in
1993. CITGO and its former owner are participating in the closure and
sharing the related costs based on estimated contributions of waste and
ownership periods. The remediation commenced in December 1993. In 1997,
CITGO presented a proposal to a state agency revising the 1993 closure
plan. In 1998 and 2000, CITGO submitted further revisions as requested
by the state agency. A ruling on the proposal, as amended, is expected
in 2001 with final closure to begin in 2002.
In 1992, an agreement was reached between CITGO and its former owner
concerning a number of environmental issues which provides in part that
the former owner will continue to share the costs of certain specific
environmental remediation and certain tort liability actions based on
ownership periods and specific terms of the agreement.
The Texas Natural Resources Conservation Commission conducted
environmental compliance reviews at the Corpus Christi refinery in 1998
and 1999. The Texas Natural Resources Conservation Commission has
issued notices of violation related to each of the reviews and has
proposed fines of approximately $970,000 based on the 1998 review and
$700,000 based on the 1999 review. The first notice of violation was
issued in January 1999 and the second notice of violation was issued in
December 1999. Most of the alleged violations refer to recordkeeping
and
10
reporting issues, failure to meet required emission levels, and failure
to properly monitor emissions. A hearing on the merits has been
scheduled for November 2001. CITGO intends to vigorously contest the
alleged violations and proposed fines.
In June 1999, CITGO and numerous other industrial companies received
notice from the U.S. Environmental Protection Agency, that the U.S.
Environmental Protection Agency believes these companies have
contributed to contamination in the Calcasieu Estuary, in the proximity
of Lake Charles, Calcasieu Parish, Louisiana and are Potentially
Responsible Parties under the Comprehensive Environmental Response,
Compensation, and Liability Act. The Environmental Protection Agency
made a demand for payment of its past investigation costs from CITGO
and other Potentially Responsible Parties and is conducting a Remedial
Investigation/Feasibility Study under its authority under the
Comprehensive Environmental Response, Compensation, and Liability Act.
CITGO and other Potentially Responsible Parties may be potentially
responsible for the costs of the Remedial Investigation/Feasibility
Study. CITGO disagrees with the Environmental Protection Agency's
allegations and intends to contest this matter.
In October 1999, the Louisiana Department of Environmental Quality
issued CITGO a notice of violation and potential penalty alleging
violation of benzene NESHAPS regulations covering benzene emissions
from wastewater treatment operations at CITGO's Lake Charles, Louisiana
refinery and requested additional information. CITGO anticipates
resolving this for an immaterial amount.
In November 1999, the Attorney General's Office of Illinois filed a
complaint in the 12th Judicial Circuit Court, Will County, Illinois
against PDVMR and CITGO alleging damages from several releases to the
air of contaminants from PDVMR's refinery. The initial complaint
alleged violations and potential compliance action. The Attorney
General's office later made a demand for penalties of approximately
$150,000. While CITGO and PDVMR disagree with the Attorney General's
alleged violations and proposed penalty demand, they are cooperating
with the agency and anticipate reaching an agreement with the agency to
resolve this lawsuit by the end of 2001.
In January 2001, CITGO and PDVMR received notices of violation from the
Environmental Protection Agency alleging violations of the Federal
Clean Air Act. The notices of violation are an outgrowth of inspections
and formal information requests regarding CITGO's and PDVMR's
compliance with the Federal Clean Air Act. The notices of violation
cover CITGO's Lake Charles, Louisiana and Corpus Christi, Texas
refineries and the PDVMR Lemont, Illinois refinery operated by CITGO.
For the Lake Charles and Lemont facilities, the notices of violation
allege, among other things, violations of the "New Source Review"
provisions of the Federal Clean Air Act, which address installation and
permitting of new and modified air emission sources. For the Corpus
Christi facility, the notice of violation alleges violations of various
monitoring, leak detection and repair requirements of the Federal Clean
Air Act. If the Companies were to be found to have violated the
provisions cited in the notices of violation, they could be subject to
possible penalties and capital expenditures for installation or
upgrading of pollution control equipment or technologies. The
likelihood of an unfavorable outcome and the amount or range of any
potential loss cannot reasonably be estimated at this time.
Conditions which require additional expenditures may exist with respect
to various sites of the Companies including, but not limited to, the
Companies' operating refinery complexes, closed refineries, service
stations and crude oil and petroleum product storage terminals. The
amount of such future expenditures, if any, is indeterminable.
Derivative Commodity and Financial Instruments - The Companies enter
into petroleum futures contracts, options and other over-the-counter
commodity derivatives, primarily to reduce its inventory purchase and
product sale exposure to market risk. In the normal course of business,
the Companies also enter into certain petroleum commodity forward
purchase and sale contracts that
11
qualify as derivatives. At June 30, 2001, the balance sheet caption
other current liabilities includes $7.5 million related to the fair
values of open commodity derivatives.
The Companies have also entered into various interest rate swaps to
manage its risk related to interest rate changes on its debt. The fair
value of the interest rate swap agreements in place at June 30, 2001,
based on the estimated amount that the Companies would receive or pay
to terminate the agreements as of that date and taking into account
current interest rates, was a loss of $3 million, the offset of which
is recorded in the balance sheet caption other current liabilities. In
connection with the determination of fair market value, the Companies
consider the creditworthiness of the counter parties, but no adjustment
was determined to be necessary as a result.
7. RELATED PARTY TRANSACTIONS
CITGO's largest supplier of crude oil is PDVSA. CITGO has entered into
long-term crude oil supply agreements with PDVSA with respect to the
crude oil requirements for each of CITGO's refineries. These crude oil
supply agreements contain force majeure provisions that entitle the
supplier to reduce the quantity of crude oil and feedstocks delivered
under the crude supply agreements under specified circumstances. On
February 9, 2001, PDVSA notified CITGO that it had declared force
majeure, effective February 1, 2001, under each of the long-term crude
oil supply agreements it has with CITGO. Under a force majeure
declaration, PDVSA may reduce the amount of crude oil that it would
otherwise be required to supply under these agreements. If PDVSA
reduces its delivery of crude oil, CITGO may be required to use
alternative sources to obtain their required supply of crude oil, which
may result in reduced operating margins.
As of June 30, 2001, PDVSA's deliveries of crude oil to CITGO have not
been reduced due to PDVSA's declaration of force majeure. It is not
possible for CITGO to forecast future financial impacts of this force
majeure condition on CITGO's costs or the duration of the force
majeure.
8. SUBSEQUENT EVENT
On August 14, 2001, a fire occurred and was extinguished at the crude
distillation unit of the Companies' Lemont refinery. There were no
reports of serious injuries to workers at the plant. The extent of
damage to the affected units has not yet been determined. We are
conducting an investigation into the cause of the fire. The financial
effects of this event are not presently determinable.
12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The following discussion of the financial condition and results of
operations of PDV America should be read in conjunction with the unaudited
condensed consolidated financial statements of PDV America included elsewhere
herein. Reference is made to PDV America's Annual Report for the fiscal year
ended December 31, 2000 on Form 10-K, dated March 30, 2001, for additional
information and a description of factors that may cause substantial fluctuations
in the earnings and cash flows of PDV America.
In the quarter ended June 30, 2001, PDV America generated net income of
$255.5 million on revenue of $5.8 billion compared to net income of $79.7
million on revenue of $5.7 billion for the same period last year. In the six
months ended June 30, 2001, PDV America generated net income of $373.5 million
on revenue of $10.8 billion compared to net income of $123.4 million on revenue
of $10.6 billion for the same period last year. (See "Results of Operation -
Gross margin" below).
CITGO's revenue accounted for over 99% of PDV America's consolidated
revenues for the three and six-month periods ended June 30, 2001 and 2000.
PDVMR's sales of $1.0 billion for the six-month period ended June 30, 2001 were
primarily to CITGO and, accordingly, these were eliminated in consolidation.
LYONDELL-CITGO owns and operates a refinery in Houston, Texas that
processes heavy crude oil supplied by PDVSA under a long-term supply contract
that expires in 2017. CITGO purchases substantially all of the gasoline, diesel
and jet fuel produced at the refinery under a long-term contract.
On February 9, 2001, PDVSA notified LYONDELL-CITGO that, effective
February 1, 2001, it had declared force majeure under the contract described
above. Under a force majeure declaration, PDVSA may reduce the amount of crude
oil that it would otherwise be required to supply under this agreement. If PDVSA
reduces its delivery of crude oil, LYONDELL-CITGO may be required to use
alternative sources to obtain its required supply of crude oil, which may result
in reduced operating margins. As of June 30, 2001, PDVSA's deliveries of crude
oil to LYONDELL-CITGO have not been reduced due to PDVSA's declaration of force
majeure.
CITGO's largest supplier of crude oil is PDVSA. CITGO has entered into
long-term crude oil supply agreements with PDVSA with respect to the crude oil
requirements for each of CITGO's refineries. These crude oil supply agreements
contain force majeure provisions that entitle the supplier to reduce the
quantity of crude oil and feedstocks delivered under the crude supply agreements
under specified circumstances. On February 9, 2001, PDVSA notified CITGO that it
had declared force majeure, effective February 1, 2001, under each of the
long-term crude oil supply agreements it has with CITGO. Under a force majeure
declaration, PDVSA may reduce the amount of crude oil that it would otherwise be
required to supply under these agreements. If PDVSA reduces its delivery of
crude oil, CITGO may be required to use alternative sources to obtain their
required supply of crude oil, which may result in reduced operating margins.
As of June 30, 2001, PDVSA's deliveries of crude oil to CITGO have not
been reduced due to PDVSA's declaration of force majeure. It is not possible for
CITGO to forecast future financial impacts of this force majeure condition on
CITGO's costs or the duration of the force majeure.
13
Results of Operations
The following table summarizes the sources of PDV America's sales
revenues and sales volumes for the three and six-month periods ended June 30,
2001 and 2000:
PDV America's Sales Revenues and Volumes
Three Months Six Months Three Months Six Months
Ended June 30, Ended June 30, Ended June 30, Ended June 30,
-------------------- ------------------ --------------- -----------------
2001 2000 2001 2000 2001 2000 2001 2000
-------- -------- ------- ------- ------ ------ ------ ------
($ in millions) ($ in millions) (MM gallons) (MM gallons)
Gasoline $ 3,553 $ 3,441 $ 6,213 $ 6,096 3,508 3,650 6,522 6,791
Jet fuel 456 440 938 934 564 571 1,137 1,182
Diesel/#2 fuel 1,005 1,030 2,193 2,124 1,264 1,338 2,721 2,718
Asphalt 136 166 186 213 255 244 345 321
Petrochemicals and industrial
products 439 461 865 852 604 430 1,140 816
Lubricants and waxes 153 139 295 254 72 72 142 128
-------- -------- ------- ------- ----- ----- ------ ------
Total refined product sales 5,742 5,677 10,690 10,473 6,267 6,305 12,007 11,956
Other sales 14 8 28 44
-------- -------- ------- ------- ----- ----- ------ ------
Total sales $ 5,756 $ 5,685 $10,718 $10,517 6,267 6,305 12,007 11,956
======== ======== ======= ======= ===== ===== ====== ======
The following table summarizes PDV America's cost of sales and
operating expenses for the three and six-month periods ended June 30, 2001 and
2000:
PDV America's Cost of Sales and Operating Expenses
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
($ in millions) ($ in millions)
Crude oil $ 1,455 $ 1,706 $ 2,781 $ 3,167
Refined products 3,063 3,005 5,525 5,440
Intermediate feedstocks 448 432 757 749
Refining and manufacturing costs 281 267 582 518
Other operating costs, expenses and inventory changes 61 63 420 304
-------- -------- -------- --------
Total cost of sales and operating expenses $ 5,308 $ 5,473 $ 10,065 $ 10,178
======== ======== ======== ========
Sales revenues and volumes. Sales increased $71 million, or
approximately 1%, in the three-month period ended June 30, 2001 as compared to
the same period in 2000. This was due to an increase in average sales price of
2%, offset by a decrease in sales volume of 1%. Sales increased $201 million, or
approximately 2%, in the six-month period ended June 30, 2001 as compared to the
same period in 2000. This was due to an increase in average sales price of 2%
and an increase in sales volume of less than 1%. (See PDV America's Sales
Revenues and Volumes table above.)
Equity in earnings of affiliates. Equity in earnings of affiliates
increased by $44 million for the three-month period ended June 30, 2001 and
increased by $57 million for the six-month period ended June 30, 2001 as
compared to the same periods in 2000. These increases were primarily due to the
change in the earnings of LYONDELL-CITGO. CITGO's share of these earnings
increased $36 million, from $(12) million in the second quarter of 2000 to $24
million in the second quarter of 2001, and $44 million, from $(5) million in the
first six months of 2000 to $39 million in the first six months of 2001.
LYONDELL-CITGO's increased earnings in 2001 are primarily due to higher refining
margins that were partially offset by the impact of higher natural gas prices
and lower crude processing rates due to an unplanned production
14
unit outage at the refinery. The earnings of the first six months of 2000 were
impacted by a major turnaround which occurred during the second quarter of 2000.
Cost of sales and operating expenses. Cost of sales and operating
expenses decreased by $165 million or 3% in the quarter ended June 30, 2001 as
compared to the same period in 2000. Cost of sales and operating expenses
decreased by $113 million or 1% in the six months ended June 30, 2001 as
compared to the same period in 2000. (See PDV America's Cost of Sales and
Operating Expenses table above.)
The Companies purchase refined products to supplement the production
from their refineries to meet marketing demands and resolve logistical issues.
Refined product purchases represented 58% and 55% of the total cost of sales and
operating expenses for the second quarters of 2001 and 2000, respectively, and
55% and 53% of the total cost of sales and operating expenses for the first six
months of 2001 and 2000, respectively. The Companies estimate that margins on
purchased products, on average, are lower than margins on produced products due
to the fact that the Companies can only receive the marketing portion of the
total margin received on the produced refined products. However, purchased
products are not segregated from produced products of the Companies and margins
may vary due to market conditions and other factors beyond the Companies'
control. As such, it is difficult to measure the effects on profitability of
changes in volumes of purchased products. In the near term, other than normal
refinery turnaround maintenance, the Companies do not anticipate operational
actions or market conditions that might cause a material change in anticipated
purchased product requirements; however, there could be events beyond the
control of the Companies which impact the volume of refined products purchased.
(See also "Factors Affecting Forward-Looking Statements".)
Gross margin. The gross margin for the three-month period ended June
30, 2001 was approximately 7.1 cents per gallon, compared to approximately 3.4
cents per gallon for the same period in 2000. The gross margin for the six-month
period ended June 30, 2001 was approximately 5.4 cents per gallon, compared to
approximately 2.8 cents per gallon in the same period in 2000. In the
three-month period ended June 30, 2001, the revenue per gallon component
increased approximately 2% while the cost per gallon component decreased by
approximately 2%. As a result, the gross margin increased by approximately 3.7
cents on a per gallon basis in the quarter ended June 30, 2001 compared to the
same period in 2000. In the six-month period ended June 30, 2001, the revenue
per gallon component increased by approximately 1% while the cost per gallon
component decreased by approximately 2%. As a result, the gross margin increased
by approximately 2.6 cents on a per gallon basis in the six months ended June
30, 2001 compared to the same period in 2000. These results reflect improved
industry wide refining and marketing margins. The improved margins and high
refinery throughput during the second quarter of 2001 allowed the Companies to
generate the higher gross margins reported during the period.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased in the second quarter of 2001 by 29%, from $56
million in the second quarter of 2000 to $72 million in the second quarter of
2001. Selling, general and administrative expenses increased in the first six
months of 2001 by 19%, from $103 million in the first six months of 2000 to $123
million in the same period in 2001. The difference is primarily due to an
increase in employee incentive compensation in 2001.
Interest Expense. Interest expense decreased by $10 million in the
three-month period ended June 30, 2001 and decreased by $19 million in the first
six months of 2001 as compared to the same periods in 2000. This was primarily
due to the lower average amount outstanding under the revolving and short-term
borrowing facilities during the first six months of 2001 that was made possible
by cash flows from operating activities.
15
Liquidity and Capital Resources
For the six-month period ended June 30, 2001, the Companies'
consolidated net cash provided by operating activities totaled approximately
$420 million. Operating cash flows were derived from net income of $373 million,
depreciation and amortization of $145 million and changes in working capital of
$(98) million. The more significant changes in working capital included the
decrease in accounts receivable, including receivables from affiliates, of
approximately $186 million, the increase in inventories of approximately $41
million, the increase in other long-term assets of approximately $42 million and
the decrease in accounts payable and other current liabilities, including
payables to affiliates, of approximately $199 million.
Net cash used in investing activities totaled $86 million for the
six-month period ended June 30, 2001 consisting primarily of capital
expenditures of $81 million, compared to $62 million for the same period in
2000.
Net cash used in financing activities totaled $50 million for the
six-month period ended June 30, 2001 consisting primarily of $38 million net
repayment on short-term borrowings and the payment of capital lease obligations
of $17 million, offset by $16 million in proceeds from revolving bank loans.
On May 11, 2001, CITGO renewed its $150 million 364-day revolving bank
loan facility for another term.
On May 28, 2001, CITGO established an additional $25 million 364-day
revolving bank loan facility.
As of June 30, 2001, capital resources available to the Companies
included cash generated by operations, available borrowing capacity under
CITGO's committed bank facilities of $559 million and $190 million of
uncommitted short-term borrowing facilities with various banks and $75 million
available borrowing capacity under PDVMR's revolving credit facility with
various banks. Additionally, the remaining $400 million from CITGO's shelf
registration with the Securities and Exchange Commission for $600 million of
debt securities may be offered and sold from time to time. PDV America's
management believes that the Companies have sufficient capital resources to
carry out planned capital spending programs, including regulatory and
environmental projects in the near term, and to meet currently anticipated
future obligations as they arise. The Companies periodically evaluates other
sources of capital in the marketplace and anticipates that long-term capital
requirements will be satisfied with current capital resources and future
financing arrangements, including the issuance of debt securities. The
Companies' ability to obtain such financing will depend on numerous factors,
including market conditions and the perceived creditworthiness of the Companies
at that time.
In April 2000, CITGO amended an agreement to sell trade accounts
receivable on an ongoing basis and without recourse. The amendment increased the
amount of such receivables that can be sold to $225 million. The amended
agreement was extended in April 2001 for one year and is renewable for
successive annual terms by mutual agreement.
The Companies are in compliance with their obligations under their debt
financing arrangements at June 30, 2001.
16
New Accounting Standards
On January 1, 2001 the Companies adopted the SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The
statement, as amended, establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an entity
recognize all derivatives, at fair value, as either assets or liabilities in the
statement of financial position with an offset either to shareholder's equity
and comprehensive income or income depending upon the classification of the
derivative. Certain of the derivative instruments identified at January 1, 2001
under the provisions of SFAS No. 133 had been previously designated in hedging
relationships that addressed the variable cash flow exposure of forecasted
transactions. Under the transition provisions of SFAS No. 133, on January 1,
2001, the Companies recorded an after-tax, cumulative-effect-type transition
charge of $1.5 million to accumulated other comprehensive income related to
these derivatives. Certain of the derivative instruments identified at January
1, 2001, under the provisions of SFAS No. 133, had been previously designated in
hedging relationships that addressed the fair value of certain forward purchase
and sale commitments. Under the transition provisions of SFAS No. 133, on
January 1, 2001, the Companies recorded fair value adjustments to the subject
derivatives and related commitments resulting in the recording of a net
after-tax, cumulative-effect-type transition charge of $0.2 million to net
income. The remaining derivatives identified at January 1, 2001 under the
provisions of SFAS No. 133, consisting of certain forward purchases and sales,
had not previously been considered derivatives under accounting principles
generally accepted in the United States of America. Under the transition
provisions of SFAS No. 133, on January 1, 2001, the Companies recorded an
after-tax, cumulative-effect-type benefit of $13.8 million to net income related
to these derivatives.
PDV America did not elect subsequent hedge accounting for derivatives
existing at January 1, 2001. Accordingly, all changes in the fair value of those
derivatives have been recorded in income. Prospectively, PDV America plans to
elect hedge accounting only under limited circumstances involving derivatives
with initial terms of 90 days or greater and notional amounts of $25 million or
greater.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141") which addresses financial accounting and reporting for business
combinations and requires that all business combinations initiated after June
30, 2001 be accounted for under the purchase method. Use of the pooling of
interests method is no longer permitted. The adoption of SFAS No. 141 will not
impact the Companies' financial position or results of operations.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") which
is fully effective in fiscal years beginning after December 15, 2001, although
certain provisions of SFAS No. 142 are applicable to goodwill and other
intangible assets acquired in transactions completed after June 30, 2001. SFAS
No. 142 addresses financial accounting and reporting for acquired goodwill and
other intangible assets and requires that goodwill and intangibles with an
indefinite life no longer be amortized but instead be periodically reviewed for
impairment. The adoption of SFAS No. 142 will not impact the Companies'
financial position or results of operations.
17
Proposed Accounting Change
The American Institute of Certified Public Accountants has issued a
"Statement of Position" exposure draft on cost capitalization that is expected
to require companies to expense the non-capital portion of major maintenance
costs as incurred. The statement is expected to require that any existing
deferred non-capital major maintenance costs be expensed immediately. This
statement also has provisions that will change the method of determining
depreciable lives. The impact on future depreciation expense is not determinable
at this time. The exposure draft indicates that this change will be required to
be adopted for years beginning after June 15, 2002, and the effect of expensing
existing deferred major maintenance costs will be reported as a cumulative
effect of an accounting change in the consolidated statement of income. At June
30, 2001, PDV America had included turnaround costs of $106 million in other
assets. PDV America's management has not determined the amount, if any, of these
costs that could be capitalized under the provisions of the exposure draft.
18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Introduction. The Companies have exposure to price fluctuations of
crude oil and refined products as well as fluctuations in interest rates. To
manage these exposures, management has defined certain benchmarks consistent
with its preferred risk profile for the environment in which the Companies
operate and finance its assets. The Companies do not attempt to manage the price
risk related to all of its inventories of crude oil and refined products. As a
result, at June 30, 2001, the Companies were exposed to the risk of broad market
price declines with respect to a substantial portion of its crude oil and
refined product inventories. The following disclosures do not attempt to
quantify the price risk associated with such commodity inventories.
Commodity Instruments. CITGO balances its crude oil and petroleum
product supply/demand and manages a portion of its price risk by entering into
petroleum commodity derivatives.
Non-Trading Commodity Derivatives
Open Positions at June 30, 2001
Maturity Contracted Contract Market
Commodity Derivative Date Volume Value Value
--------- ---------- -------- ---------- -------- ------
($ in millions)
-----------------------
No Lead Gasoline (1) Futures Purchased 2001 299 $ 9.3 $ 9.2
Futures Sold 2001 815 $ 27.0 $ 24.2
OTC Swaps (Pay Floating/Receive Fixed)(3) 2001 200 $ - $ (0.4)
Forward Purchase Contracts 2001 6,014 $ 194.5 $ 163.6
Forward Sale Contracts 2001 6,086 $ 195.7 $ 167.8
Distillates (1) Futures Purchased 2001 1,697 $ 54.6 $ 52.3
Futures Purchased 2002 720 $ 22.2 $ 21.9
OTC Swap Options Purchased 2001 10 $ - $ -
OTC Swap Options Sold 2001 10 $ - $ -
OTC Swap Options Purchased 2002 30 $ - $ -
OTC Swap Options Sold 2002 30 $ - $ -
Forward Purchase Contracts 2001 1,092 $ 34.3 $ 32.1
Forward Sale Contracts 2001 1,482 $ 46.2 $ 44.9
Crude Oil (1) Futures Purchased 2001 947 $ 26.2 $ 24.7
Forward Purchase Contracts 2001 6,785 $ 190.1 $ 180.2
Forward Sale Contracts 2001 7,549 $ 210.4 $ 200.4
Natural Gas (2) Futures Purchased 2001 85 $ 3.4 $ 2.9
OTC Swap Options Purchased 2001 240 $ - $ 0.1
OTC Swap Options Sold 2001 140 $ - $ (1.3)
- ---------------
(1) Thousands of barrels
(2) Ten-thousands of mmbtu
(3) Floating price based on market index designated in contract; fixed price
agreed upon at date of contract.
19
Non-Trading Commodity Derivatives
Open Positions at June 30, 2000
Maturity Number of Contract Market
Commodity Derivative Date Contracts Value(2) Value
--------- ---------- -------- --------- -------- ------
($ in millions)
-----------------------
No Lead Gasoline (1) Futures Sold 2000 100 $ 4.1 $ 4.2
OTC Swap Options Purchased 2000 500 $ - $ -
OTC Swap Options Sold 2000 500 $ - $ -
OTC Swaps (Pay Floating/Receive
Fixed)(4) 2000 1,500 $ 55.7 $ 58.6
Heating Oil (1) Futures Purchased 2000 188 $ 9.0 $ 10.1
Futures Purchased 2001 337 $ 6.9 $ 7.6
Futures Sold 2000 25 $ 0.9 $ 0.9
OTC Swaps (Pay Floating/Receive
Fixed)(4) 2000 29 $ 0.8 $ 0.6
Crude Oil (1) Futures Sold 2000 300 $ 9.2 $ 9.8
OTC Swaps (Pay Floating/Receive
Fixed)(4) 2000 3,400 $ 104.9 $ 110.5
Natural Gas (2) Futures Purchased 2000 23 $ 0.9 $ 1.0
- ----------
(1) 1,000 barrels per contract
(2) Weighted average price
(3) 10,000 mmbtu per contract
(4) Floating price based on market index designated in contract; fixed price
agreed upon at date of contract.
Debt Related Instruments. CITGO has fixed and floating U.S. currency
denominated debt. CITGO uses interest rate swaps to manage its debt portfolio
toward a benchmark of 40 to 60 percent fixed rate debt to total fixed and
floating rate debt. These instruments have the effect of changing the interest
rate with the objective of minimizing CITGO's long-term costs. At June 30, 2001,
CITGO's primary exposures were to LIBOR and floating rates on tax exempt bonds.
For interest rate swaps, the table below presents notional amounts and
interest rates by expected (contractual) maturity dates. Notional amounts are
used to calculate the contractual payments to be exchanged under the contracts.
Non-Trading Interest Rate Derivatives
Open Positions at June 30, 2001 and 2000
Notional
Expiration Fixed Rate Principal
Variable Rate Index Date Paid Amount
- ------------------- ---- ---- ------
($ in millions)
J.J. Kenny February 2005 5.30% $ 12
J.J. Kenny February 2005 5.27% 15
J.J. Kenny February 2005 5.49% 15
---------
$ 42
=========
The fair value of the interest rate swap agreements in place at June
30, 2001, based on the estimated amount that CITGO would receive or pay to
terminate the agreements as of that date and taking into account current
interest rates, was a loss of $3 million.
20
For debt obligations, the table below presents principal cash flows and
related weighted average interest rates by expected maturity dates. Weighted
average variable rates are based on implied forward rates in the yield curve at
the reporting date.
Debt Obligations
At June 30, 2001
Expected Average
Fixed Average Fixed Variable Variable Interest
Expected Maturities Rate Debt Interest Rate Rate Debt Rate
- ------------------- --------- ------------- --------- -----------------
($ in millions) ($ in millions)
2001 $ 40 9.11% $ 4 4.67%
2002 36 8.78% 16 5.01%
2003 560 7.98% - -
2004 31 8.02% 16 6.41%
2005 11 9.30% - -
Thereafter 380 7.99% 484 8.37%
---------- ---- -------- ----
Total $ 1,058 8.07% $ 520 8.18%
========== ==== ======== ====
Fair Value $ 1,079 $ 520
========== ========
Debt Obligations
At June 30, 2000
Expected Average
Fixed Average Fixed Variable Variable Interest
Expected Maturities Rate Debt Interest Rate Rate Debt Rate
- ------------------- --------- ------------- --------- -----------------
($ in millions) ($ in millions)
2000 $ 290 7.94% $ 38 7.04%
2001 40 9.11% 7 7.46%
2002 36 8.78% - -
2003 560 7.98% - -
2004 31 8.02% 16 8.52%
Thereafter 391 8.02% 484 9.29%
--------- ---- -------- ----
Total $ 1,348 8.04% $ 545 9.09%
========= ==== ======== ====
Fair Value $ 1,345 $ 545
========= ========
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The required information is incorporated by reference into Part II of
this Report from Note 6 of the Notes to the Condensed Consolidated Financial
Statements included in Part I of this Report.
Item 5. Other Information
On August 14, 2001, a fire occurred and was extinguished at the crude
distillation unit of the Companies' Lemont refinery. There were no reports of
serious injuries to workers at the plant. The extent of damage to the affected
units has not yet been determined. We are conducting an investigation into the
cause of the fire. The financial effects of this event are not presently
determinable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
None.
(b) Reports on Form 8-K:
-------------------
None.
22
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PDV AMERICA, INC.
Date: August 14, 2001 By: /s/ Carlos Jorda
----------------------------------------
Name: Carlos Jorda
Title: President, Chief Executive
Officer, Chief Financial Officer
and Director
Date: August 14, 2001 By: /s/ Jose I. Moreno
----------------------------------------
Name: Jose I. Moreno
Title: Secretary and Director
23