- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission File Number 1-11154
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ULTRAMAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3663331
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Pickwick Plaza, Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 622-7000
--------------------------------------------
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 |_|
Common Stock, $.01 Par Value -- 44,594,612 shares as of August 9, 1996
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ULTRAMAR CORPORATION
FORM 10-Q
June 30, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995.............................................. 3
Consolidated Statements of Income for the Three and Six Month
Periods Ended June 30, 1996 and 1995........................... 4
Consolidated Statements of Cash Flows for the Six Month
Periods Ended June 30, 1996 and 1995........................... 5
Notes to Financial Statements.................................... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.... 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 18
SIGNATURE.............................................................. 19
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ULTRAMAR CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
----------- -----------
(Unaudited) (Note)
(in thousands)
Assets
Current assets:
Cash and cash equivalents ................................. $ 265,322 $ 126,852
Accounts and notes receivable, net ........................ 200,207 181,222
Inventories ............................................... 237,126 288,251
Prepaid expenses and other current assets ................. 32,415 41,912
Deferred income taxes ..................................... 10,175 13,421
----------- -----------
Total current assets .................................... 745,245 651,658
Notes receivable and other assets, net ...................... 76,352 74,336
Property, plant and equipment, at cost ...................... 1,449,694 1,383,665
Less accumulated depreciation and amortization .............. (163,702) (138,324)
----------- -----------
1,285,992 1,245,341
----------- -----------
Total assets ............................................ $ 2,107,589 $ 1,971,335
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion of long-term debt ....... $ 157 $ 172
Accounts payable .......................................... 201,429 181,809
Accrued liabilities ....................................... 101,310 123,002
Taxes other than income taxes ............................. 145,093 124,999
Income taxes payable ...................................... 11,511 1,365
Deferred income taxes ..................................... 4,229
----------- -----------
Total current liabilities ............................... 463,729 431,347
Long-term debt, less current portion ........................ 668,529 600,253
Other long-term liabilities ................................. 177,952 174,832
Deferred income taxes ....................................... 71,571 61,548
Stockholders' equity:
Common Stock, par value $.01 per share:
Authorized - 100,000,000 shares, issued and outstanding -
44,591,412 and 44,414,469 shares, respectively ........ 445 444
Additional paid-in capital ................................ 673,380 669,942
Unamortized restricted stock awards ....................... (219) (102)
Retained earnings ......................................... 107,462 88,722
Foreign currency translation adjustment ................... (55,260) (55,651)
----------- -----------
Total stockholders' equity .............................. 725,808 703,355
----------- -----------
Total liabilities and stockholders' equity .............. $ 2,107,589 $ 1,971,335
=========== ===========
Note: The balance sheet at December 31, 1995 has been derived from the audited
consolidated financial statements at that date.
See accompanying notes.
3
ULTRAMAR CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
(in thousands, except per share data)
Revenues
Sales and services ............................... $ 877,316 $ 699,604 $ 1,613,930 $ 1,328,471
Operating costs and expenses
Cost of products sold ............................ 675,085 548,040 1,241,918 1,024,919
Operating expenses ............................... 75,022 73,306 145,016 148,812
Selling, general and
administrative expenses ........................ 48,955 47,408 100,302 95,671
Depreciation and amortization .................... 18,763 14,084 34,565 27,452
------------ ------------ ------------ ------------
Total operating costs and
expenses ................................. 817,825 682,838 1,521,801 1,296,854
------------ ------------ ------------ ------------
Operating income ................................... 59,491 16,766 92,129 31,617
Interest income .................................... 2,727 1,384 4,498 2,059
Interest expense ................................... (14,835) (11,956) (24,843) (23,319)
------------ ------------ ------------ ------------
Income before income taxes and
cumulative effect of accounting
change ........................................... 47,383 6,194 71,784 10,357
Provision for income taxes ......................... 18,981 2,810 28,570 4,141
------------ ------------ ------------ ------------
Income before cumulative effect
of accounting change ............................. 28,402 3,384 43,214 6,216
Cumulative effect to December 31,
1994 of accounting change,
net of income taxes - Note 2 .................... 22,024
------------ ------------ ------------ ------------
Net income ......................................... $ 28,402 $ 3,384 $ 43,214 $ 28,240
============ ============ ============ ============
Earnings per share:
Income before cumulative
effect of accounting change ..................... $ .63 $ .09 $ .96 $ .16
Cumulative effect of accounting change ............. .56
------------ ------------ ------------ ------------
Net income ......................................... $ .63 $ .09 $ .96 $ .72
============ ============ ============ ============
Weighted average number of common
and common equivalent shares used in
computation ................................... 45,272,326 39,083,070 45,139,169 39,018,857
Dividends per common share ..................... $ .275 $ .275 $ .55 $ .55
============ ============ ============ ============
See accompanying notes.
4
ULTRAMAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1996 1995
--------- ---------
(in thousands)
Cash Flows from Operating Activities
Net income ....................................................... $ 43,214 $ 28,240
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ................................ 34,565 27,452
Amortization of debt discount and issuance costs ............. 742 815
Restricted stock award amortization .......................... 45 90
Provision for losses on receivables .......................... 1,204 1,841
Undistributed earnings of investees .......................... (120) (34)
Loss (gain) on sale of fixed assets .......................... 703 (382)
Provision for deferred income taxes .......................... 17,459 3,337
Cumulative effect of accounting change ....................... (22,024)
Changes in operating assets and liabilities:
(Increase) decrease in accounts and notes receivable ....... (16,073) 32,290
Decrease in inventories .................................... 51,568 3,749
Decrease in prepaid expenses and other
current assets ........................................... 9,174 1,899
(Increase) decrease in notes receivable and other assets ... (2,422) 4,976
Increase (decrease) in accounts payable, accrued liabilities
and taxes other than income taxes ........................ 15,290 (47,100)
Increase (decrease) in income taxes payable ................ 10,128 (790)
Increase (decrease) in other long-term liabilities ......... 168 (6,247)
--------- ---------
Net cash provided by operating activities ........................ 165,645 28,112
Cash Flows from Investing Activities
Capital expenditures ............................................. (53,977) (75,526)
Increase in deferred refinery maintenance turnaround costs ....... (9,010)
Acquisition of marketing operations .............................. (13,995)
Proceeds from sale of property, plant and equipment .............. 2,837 2,497
--------- ---------
Net cash used in investing activities ............................ (74,145) (73,029)
Cash Flows from Financing Activities
Proceeds from the issuance medium term notes ..................... 149,229
Increase (decrease) in other long-term debt ...................... 68,171 (82,665)
Proceeds from the issuance of Common Stock ....................... 2,974 787
Payment of dividends ............................................. (24,474) (21,203)
--------- ---------
Net cash provided by financing activities ........................ 46,671 46,148
Effect of exchange rate changes on cash .......................... 299 623
--------- ---------
Net Increase in Cash and Cash Equivalents ........................ 138,470 1,854
Cash and Cash Equivalents at Beginning of Period ................. 126,852 55,053
--------- ---------
Cash and Cash Equivalents at End of Period ....................... $ 265,322 $ 56,907
========= =========
Cash flow information:
Interest paid .................................................. $ 13,941 $ 20,846
========= =========
Income taxes paid .............................................. $ 957 $ 796
========= =========
See accompanying notes.
5
ULTRAMAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. The results of operations may be affected by seasonal
factors, such as the demand for petroleum products and working capital
requirements in Eastern Canada, both of which vary significantly during the
year, or industry factors that may be specific to a particular period, such as
movements in, and the general level of, crude oil prices, the demand for and
prices of refined products, industry supply capacity and refinery maintenance
turnarounds. For further information, see the financial statements and notes
thereto included in the Ultramar Corporation annual report on Form 10-K for the
year ended December 31, 1995.
NOTE 2: Change in Accounting for Refinery Maintenance Turnaround Costs
During the second quarter of 1995, the Company changed its method of accounting
for refinery maintenance turnaround costs from an accrual method to a deferral
and amortization method to better match revenues and expenses. The change
resulted in a cumulative adjustment through December 31, 1994 of $22.0 million
(after income taxes of $13.4 million) or $.56 per share, which is included in
net income for the six month period ended June 30, 1995. The effect of the
change on the three month period ended June 30, 1995 was to increase net income
by approximately $1.0 million ($.03 per share). The effect of the change on the
six month period ended June 30, 1995 was to increase income before cumulative
effect of accounting change by approximately $2.7 million ($.07 per share) and
net income by $24.7 million ($.63 per share).
NOTE 3: Inventories
June 30, December 31,
1996 1995
-------- --------
(in thousands)
Inventories consisted of the following:
Crude oil and other feedstocks ................... $125,709 $138,317
Refined and other finished products .............. 88,634 128,422
Materials and supplies ........................... 22,783 21,512
-------- --------
$237,126 $288,251
======== ========
6
ULTRAMAR CORPORATION
NOTES TO FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
Crude oil and refined product inventories are valued at the lower of cost or
market (net realizable value). Cost is determined on the last-in, first-out
("LIFO") basis. Materials and supplies are valued at average cost, not in excess
of market value. At June 30, 1996 the replacement cost of inventories was $25.1
million higher than the LIFO cost. At December 31, 1995, the replacement cost of
inventories approximated the LIFO cost.
NOTE 4: Net Income per Common and Common Equivalent Share
Net income per common and common equivalent share is based on the weighted
average number of shares of Common Stock outstanding during each period,
including the common stock equivalents of dilutive stock options.
NOTE 5: Income Taxes
The consolidated income tax provisions for the three and six month periods ended
June 30, 1996 and 1995 were determined based upon estimates of the Company's
U.S. and Canadian effective income tax rates for the years ending December 31,
1996 and 1995, respectively. The differences between the consolidated effective
income tax rates and the U.S. Federal statutory rate are primarily attributable
to state income taxes and the effects of foreign operations.
NOTE 6: Commitments and Contingencies
The Company's operations are subject to environmental laws and regulations
adopted by various governmental authorities. Site restoration and environmental
remediation and clean-up obligations are accrued either when known or when
considered probable and reasonably estimable. Total future environmental costs
cannot be reasonably estimated due to unknown factors such as the magnitude of
possible contamination, the timing and extent of remediation, the determination
of the Company's liability in proportion to other parties and the extent to
which environmental laws and regulations may change in the future. Although
environmental costs may have a significant impact on results of operations for
any single year, the Company believes that such costs will not have a material
adverse effect on the Company's financial position.
There are various legal proceedings and claims pending against the Company that
arise in the ordinary course of business. It is management's opinion, based upon
advice of legal counsel, that these matters, individually or in the aggregate,
will not have a material adverse effect on the Company's financial position.
During the quarter ended June 30, 1996, the Company entered into a long-term
contract for a guaranteed source of product inventory. Under the terms of the
contract, the Company has an option which expires in January 1999 to purchase
product at market rates and is required to pay a quarterly guaranteed supply
fee of $1.5 million.
7
ULTRAMAR CORPORATION
NOTES TO FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
NOTE 7: Nonrecurring Items
In March 1995, a fire damaged a storage tank and, in June 1995, an explosion and
fire destroyed a crude oil heater at the Company's Wilmington refinery. The
Company accrued an estimate of the costs of the fire and explosion, including
the costs of clean-up efforts and of repairing the storage tank net of
anticipated insurance recoveries, resulting in a net charge of $2.6 million and
$5.6 million during the three and six month periods ended June 30, 1995,
respectively.
NOTE 8: Subsequent Events
On July 25, 1996, the Company declared a dividend of $.275 per common share
payable on September 18, 1996 to holders of record on August 15, 1996.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's annual report on Form 10-K for the year ended December 31, 1995.
Results of Operations
The Company's operating results are affected by Company-specific factors,
primarily its refinery utilization rates and refinery maintenance turnarounds;
seasonal factors, such as the demand for petroleum products and working capital
requirements for eastern Canada, both of which vary significantly during the
year; and industry factors, such as movements in and the general level of crude
oil prices, the demand for and prices of refined products and industry supply
capacity. The effect of crude oil price changes on the Company's operating
results is determined, in part, by the rate at which refined product prices
adjust to reflect such changes. As a result, the Company's earnings have been
volatile in the past and may be volatile in the future.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Financial and operating data by geographic area for the three month periods
ended June 30, 1996 and 1995 are as follows:
Financial Data:
Three Months Ended June 30,
------------------------------------------------------------------------------------
1996 1995
--------------------------------------- ---------------------------------------
West Coast North East(1) Total West Coast North East(1) Total
---------- ------------- ----- ---------- ------------- -------
(in thousands)
Revenues ................................. $483,982 $393,334 $877,316 $328,574 $371,030 $699,604
Cost of products sold .................... 397,614 277,471 675,085 270,699 277,341 548,040
Operating expenses ....................... 44,337 30,685 75,022 42,714 30,592 73,306
Selling, general and
administrative expenses ................ 7,994 40,961 48,955 2,582 44,826 47,408
Depreciation and amortization ............ 12,203 6,560 18,763 7,950 6,134 14,084
-------- -------- -------- -------- -------- --------
Operating income ................... 21,834 37,657 59,491 4,629 12,137 16,766
Interest expense, net .................... 7,866 4,242 12,108 4,374 6,198 10,572
-------- -------- -------- -------- -------- --------
Income before
income taxes .................... $ 13,968 $ 33,415 47,383 $ 255 $ 5,939 6,194
======== ======== ======== ========
Provision for income taxes 18,981 2,810
-------- --------
Net income.......................... $ 28,402 $ 3,384
======== =======
(1) North East results include the Company's operations in eastern Canada as
well as in the northeast United States (including unallocated corporate
office costs).
9
Operating Data: Three Months Ended
- --------------- June 30,
-----------------------
1996 1995
------ -----
West Coast
Wilmington Refinery
Throughput (BPD)...................................................... 112,200 81,400
Margin (dollars per barrel)........................................... 6.29 4.17
Retail Marketing
Sales volume (BPD).................................................... 37,800 34,700
Overall margin (cents per gallon) (1)................................ 10.9 12.1
Retail Marketing - Company-operated Only
Sales volume (BPD).................................................... 18,700 18,500
Fuel margin (cents per gallon) (2)................................... 13.6 11.9
Average number of retail outlets...................................... 149 146
North East
Quebec Refinery
Throughput (BPD)...................................................... 147,400 138,100
Margin (dollars per barrel) (3)...................................... 3.65 1.64
Retail Marketing
Sales volume (BPD).................................................... 54,000 54,000
Overall margin (cents per gallon) (1) (3)............................ 25.2 26.1
(1) Overall retail marketing margin includes sales of petroleum products
through company and dealer-operated retail outlets as well as sales of
convenience store items at company-operated outlets.
(2) Fuel margin at company-operated retail outlets includes sales of petroleum
products only (excluding convenience store items).
(3) Effective January 1, 1996, the Company modified its policy for pricing
refined products transferred from its Quebec refinery to its North East
marketing operations to more closely reflect the spot market prices for
such refined products. To facilitate the comparison to the operating data
for the second quarter of 1996, the amounts reported for the second quarter
of 1995 have been adjusted to reflect the pricing policy change as if it
had occurred as of January 1, 1995. The refining margin and retail
marketing margin originally reported for the three month period ended June
30, 1995 were $3.00 per barrel and 21.3 cents per gallon, respectively.
General
Net income for the quarter ended June 30, 1996 totaled $28.4 million as compared
to $3.4 million for the quarter ended June 30, 1995. On the West Coast, income
before income taxes of $14.0 million was $13.7 million higher than the quarter
ended June 30, 1995, as a result of strong refining margins and increased
refinery throughput. Refining margins strengthened during the quarter as
wholesale prices increased in response to earlier increases in crude oil prices.
The increase in refinery throughput is attributable to the operation of the new
gasoil hydrotreater at the Wilmington refinery. In the North East, income before
income taxes for the second quarter of 1996 of $33.4 million was $27.5 million
higher than that of the second quarter of 1995 as wholesale prices and refining
margins strengthened, consistent with those on the West Coast, and refinery
throughput increased.
10
West Coast Operations
Revenues for the West Coast operations for the second quarter of 1996 of $484.0
million were $155.4 million or 47.3% higher than for the second quarter of 1995,
principally as a result of a 24.6% increase in overall product sales volume, to
169,300 BPD, and a 20.4% increase in average product prices.
The cost of products sold as a percentage of revenues for the second quarter of
1996 remained consistent at approximately 82.2%. Refinery operating expenses
before depreciation for the second quarter of 1996 of $24.3 million were
comparable to those of the second quarter of 1995. However, refinery operating
costs per barrel of throughput of $2.38 per barrel decreased by 26.1% as a
result of the increase in refinery throughput attributable to the new gasoil
hydrotreater. Selling, general and administrative expenses for the second
quarter of 1996 of $8.0 million were $5.4 million above those of the
corresponding quarter of 1995, as expenses for the second quarter of 1995 were
reduced by a favorable settlement of a previously accrued liability ($3.8
million). Depreciation expense for the second quarter of 1996 was $12.2 million
or $4.3 million higher than in the second quarter of 1995, primarily due to the
completion of the new gasoil hydrotreater during the fourth quarter of 1995.
Net interest charges for the quarter of $7.9 million were $3.5 million higher
than in the corresponding quarter in 1995 principally due to the capitalization
of interest during the construction of the gasoil hydrotreater in the second
quarter of 1995.
During the second quarter of 1996, margins at the Wilmington refinery were $6.29
per barrel of throughput or 50.8% higher than the corresponding quarter in 1995
as wholesale prices increased in response to earlier increases in crude oil
prices. In addition, refining margins during the quarter ended June 30, 1995
suffered from a more narrow price differential between heavy and light crude
oils and an oversupply of gasoline. Refinery throughput of 112,200 BPD during
the quarter was 37.8% higher than in the second quarter of 1995 as additional
feed and blendstocks were processed through the gasoil hydrotreater.
Additionally, refinery throughput during the second quarter of 1995 suffered due
to unplanned down time at several of the refinery's operating units and the June
1995 crude oil heater explosion.
Retail marketing margins of 10.9 cents per gallon during the second quarter of
1996 were 1.2 cents per gallon lower than the second quarter of 1995. Retail
marketing margins decreased as retail product prices did not keep pace with
increases at the wholesale level. Overall retail sales volume averaged 37,800
BPD during the second quarter of 1996, an increase of 8.9% from the second
quarter of 1995, while the company-operated network averaged 18,700 BPD which
was comparable to second quarter 1995.
Company-operated convenience store sales of $14.9 million and gross margin of
28.5% during the second quarter of 1996 were comparable to the second quarter of
1995. The profit contribution from convenience store sales offset 48.5% of the
direct operating expenses of company-operated retail outlets. Net operating
costs at company-operated retail outlets averaged 6.5 cents per gallon during
the second quarter of 1996 compared to 5.1 cents per gallon in the corresponding
period of 1995.
North East Operations
Revenues for the North East operations for the second quarter of 1996 of $393.3
million increased by 6.0% over the corresponding quarter of 1995 principally due
to a 6.6% increase in average product prices. Overall product sales volume
during the second quarter of 1996 of 146,985 BPD was 1.6% lower than in second
quarter of 1995.
The cost of products sold as a percentage of revenues during the second quarter
of 1996 was 70.5% as compared to 74.7% in the second quarter of 1995. Refinery
operating expenses before depreciation for the second quarter of 1996 of $12.3
million were $1.3 million or 11.6% higher than in 1995 principally due to
increased throughput and increased additive and chemical costs associated with
the processing of acidic crude oils. As a result of the increased additive and
chemical costs, the refinery operating cost per barrel of throughput increased
by 4 cents to 92 cents. Selling, general and administrative expenses for the
second quarter of 1996 of $41.0 million were $3.9 million lower than in the
comparable quarter of 1995 as the expenses of the second quarter of 1995
included a $3.0 million charge for the reorganization of the North East
marketing and supply operations. Net interest expense for the second quarter of
1996
11
of $4.2 million was $2.0 million lower than in the second quarter of 1995
reflecting the Company's positive cash flow in the North East.
Refining margin of $3.65 per barrel of throughput during the second quarter of
1996 was $2.01 higher than the corresponding quarter of 1995. The improvement in
refining margin reflects the strong wholesale prices previously mentioned as
well as the benefit of processing lower cost, acidic crude oil. Refinery
throughput during the second quarter of 1996 increased by 6.7% to 147,400 BPD.
Retail marketing margin of 25.2 cents per gallon during the second quarter of
1996 decreased 0.9 cents from the corresponding quarter during 1995 as retail
prices did not keep up with the increase in wholesale product costs. Retail
marketing volumes during the second quarter of 1996 and 1995 were consistent at
54,000 BPD.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Financial and operating data by geographic area for the six month periods ended
June 30, 1996 and 1995 is as follows:
Financial Data:
- ---------------
Six Months Ended June 30
--------------------------------------------------------------------------------------
1996 1995
---------------------------------------- -----------------------------------------
West Coast North East(1) Total West Coast North East(1) Total
---------- ---------- ---------- ---------- ---------- ----------
(in thousands)
Revenues ................................ $ 811,900 $ 802,030 $1,613,930 $ 607,513 $ 720,958 $1,328,471
Cost of products sold ................... 674,505 567,413 1,241,918 503,947 520,972 1,024,919
Operating expenses ...................... 80,680 64,336 145,016 85,613 63,199 148,812
Selling, general and
administrative expenses ............... 15,903 84,399 100,302 7,363 88,308 95,671
Depreciation and amortization ........... 21,677 12,888 34,565 15,444 12,008 27,452
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) ............. 19,135 72,994 92,129 (4,854) 36,471 31,617
Interest expense, net ................... 11,041 9,304 20,345 7,826 13,434 21,260
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes and
cumulative effect of
accounting change ................. $ 8,094 $ 63,690 71,784 $ (12,680) $ 23,037 10,357
========== ========== ========== ==========
Provision for income taxes 28,570 4,141
---------- ----------
Income before cumulative
effect of accounting
change................... 43,214 6,216
Cumulative effect to December
31, 1994 of accounting
change, net of income taxes 22,024
---------- ----------
Net income............... $ 43,214 $ 28,240
========== ==========
(1) North East results include the Company's operations in eastern Canada as
well as in the northeast United States (including unallocated corporate
office costs).
12
Operating Data: Six Months Ended
- --------------- June 30,
----------------------
1996 1995
------ -----
West Coast
Wilmington Refinery
Throughput (BPD)...................................................... 97,900 77,300
Margin (dollars per barrel)........................................... 5.11 3.73
Retail Marketing (1)
Sales volume (BPD).................................................... 36,300 33,500
Overall margin (cents per gallon)..................................... 9.7 12.5
Retail Marketing - Company-operated Only (2)
Sales volume (BPD).................................................... 18,200 17,800
Fuel margin (cents per gallon)........................................ 11.8 13.0
Average number of retail outlets...................................... 149 146
North East
Quebec Refinery
Throughput (BPD)...................................................... 145,900 141,700
Margin (dollars per barrel) (3)....................................... 3.76 1.84
Retail Marketing
Sales (BPD)........................................................... 58,800 57,800
Fuel margin (cents per gallon) (1) (3)................................ 24.6 26.6
(1) Overall retail marketing margin includes sales of petroleum products
through company and dealer-operated retail outlets as well as sales of
convenience store items at company-operated outlets.
(2) Fuel margin at company-operated retail outlets includes sales of petroleum
products only (excluding convenience store items).
(3) Effective January 1, 1996, the Company modified its policy for pricing
refined products transferred from its Quebec refinery to its North East
marketing operations to more closely reflect the spot market prices for
such refined products. To facilitate the comparison to the operating data
for the first six months of 1996, the amounts reported for the first six
months of 1995 have been adjusted to reflect the pricing policy change as
if it had occurred as of January 1, 1995. The refining margin and retail
marketing margin originally reported for the six month period ended June
30, 1995 were $3.21 per barrel and 21.8 cents per gallon, respectively.
General
Net income for the six month period ended June 30, 1996 totaled $43.2 million as
compared to $28.2 million (including the cumulative effect of a change in
accounting for refinery maintenance turnaround costs of $22.0 million) for the
six month period ended June 30, 1995. On the West Coast, income before income
taxes for the six month period ended June 30, 1996, was $8.1 million as compared
to a loss of $12.7 million for the first six months of 1995 as operating results
were impacted positively by improved refining margins and higher refinery
throughput. In the North East, income before income taxes of $63.7 million was
$40.7 million above that of the first six months of 1995, primarily due to
improved refinery margins.
13
West Coast Operations
Revenues for the West Coast operations for the first six months of 1996 of
$811.9 million were $204.4 million or 33.6% higher than for the first six months
of 1995, principally due to a 17% increase in overall product sales volume, to
152,500 BPD, and a 15.0% increase in average product prices.
The cost of products sold as a percentage of revenues for the first six months
of 1996 was 83.1% and was comparable to the six months ended June 30, 1995.
Refinery operating expenses, before depreciation, of $45.6 million were 5.4%
lower than in the first half of 1995 as the expenses in 1995 included $5.6
million of estimated costs associated with the March 1995 tank fire and June
1995 crude oil heater explosion. Selling, general and administrative expenses
for the first half of 1996 of $15.9 million were $8.5 million above those of the
corresponding period of 1995, principally due to the favorable settlement of
previously accrued liabilities ($7.3 million) during the first six months of
1995. Depreciation expense for the first half of 1996 was $21.7 million or
$6.2 million higher than in the first half of 1995, primarily due to the
completion of the new gasoil hydrotreater during the fourth quarter of 1995.
Net interest charges for the first six months of 1996 of $11.0 million were
$3.2 million higher than in the corresponding period in 1995 due to the
capitalization of interest during the construction of the gasoil hydrotreater in
the second half of 1995.
During the first half of 1996, refining margins at the Wilmington refinery were
$5.11 per barrel of throughput or 37.0% higher than the same period in 1995, due
to sustained higher wholesale product prices and expansion of the heavy to light
crude oil price differential. Refinery throughput of 97,900 BPD during the first
six months of 1996 was 20,600 BPD or 26.6% higher than the same period of 1995
as a result of the processing of additional feed and blendstocks through the
gasoil hydrotreater during 1996 and unplanned downtime attributable to the
previously mentioned explosion and fires experienced during 1995.
Retail marketing margins of 9.7 cents per gallon during the six month period
ended June 30, 1996 were 2.8 cents per gallon or 22.4% lower than the same
period in 1995 as retail product prices did not keep pace with the increase in
wholesale prices previously mentioned. Overall retail sales volume averaged
36,300 BPD during the first six months of 1996, an increase of 2,800 BPD or 8.4%
from the same period in 1995, while the company-operated network averaged 18,200
BPD, an increase of 400 BPD or 2.2% compared to the first six months of 1995.
Both company-operated convenience store sales of $28.1 million and gross margin
of 28.6% for the six month period ended June 30, 1996 increased by 2.9% as
compared to the same period in 1995. The profit contribution from convenience
store sales offset 47.7% of the direct operating expenses of company-operated
retail outlets during 1996. Net operating costs at company-operated retail
outlets averaged 6.4 cents per gallon during the first six months of 1996
compared to 5.6 cents per gallon in the corresponding period of 1995.
North East Operations
Revenues for the North East operations for the six month period ended June 30,
1996 of $802.0 million were $81.1 million or 11.2% higher than revenues in the
corresponding period in 1995. The increase in revenues was attributable to a
7.4% increase in average product prices and a 2.3% increase in product sales
volume to 151,800 BPD for the first six months of 1996.
The cost of products sold as a percentage of revenues for the first six months
of 1996 of 70.7% decreased by 1.5% compared to the first six months of 1995.
Refinery operating expenses before depreciation for the first six months of 1996
of $24.7 million were $2.6 million or 12.0% higher than in 1995 due to an
increase in storage tank repairs and increased additive and chemical costs
associated with the processing of acidic crude oils. Selling, general and
administrative expenses during the first six months of 1996 of $84.4 million
decreased by $3.9 million or 4.4% as compared to 1995, as 1995 included a $3.0
million reserve for the reorganization of the North East marketing and supply
operations. Net interest costs for the first six months of 1996 of $9.3 million
were $4.1 million or 30.7% lower than the first six months of 1995 as positive
cash flow in the North East eliminated the need for short-term borrowings.
14
Refining margin of $3.76 per barrel of throughput during the first six months of
1996 more than doubled as compared to the margin during the first six months of
1995. As previously mentioned, the increase is attributable to strong wholesale
product prices and the benefit of processing lower cost acidic crude oils.
Refinery throughput for the first six months of 1996 of 145,900 BPD increased by
4,200 BPD or 3.0% as compared to 1995. Although refinery throughput increased,
the higher refinery operating expenses previously mentioned resulted in an 8%
increase in operating cost per barrel, to 93 cents per barrel.
Retail marketing margin of 24.6 cents per gallon during the first six months of
1996 was 7.5% lower than during the corresponding period of 1995. The decrease
in retail marketing margin was due to wholesale costs increasing faster than
retail prices. Retail marketing volume of 58,800 BPD during the first six months
of 1996 was slightly better than the volume for the first six months of 1995 of
57,800 BPD.
Outlook
The Company's earnings depend largely on refining and retail marketing margins.
The petroleum refining and marketing industry has been, and continues to be,
volatile and highly competitive. The cost of crude oil purchased by the Company
and the price of refined products sold by the Company have fluctuated widely. As
a result of the historic volatility of refining and marketing margins and the
fact that they are affected by many diverse factors, it is impossible to
predict future margin levels.
During the second quarter of 1996, industry refining margins were strong on the
West Coast and in the North East as crude oil prices fell at a faster pace than
wholesale product prices. Beginning in June, industry refining margins have
significantly declined and have averaged approximately $2.00 per barrel below
second quarter levels. This is, in part, due to lower wholesale prices for
petroleum products. On the West Coast, retail margins have benefitted from
these lower wholesale prices and this has partially offset the impact of the
lower refining margin. Retail margins in the North East are presently lower
than second quarter margins as street prices have fallen more than wholesale
prices.
In July, the Company experienced unplanned downtime at two processing units at
its Wilmington refinery which temporarily curtailed production. In September,
the Company will conduct a planned shutdown of the crude and vacuum units at
the Quebec refinery which will reduce production in the third quarter.
Capital Expenditures
The refining and marketing of petroleum products is a capital intensive
business. The capital requirements of the Company's operations consist primarily
of (i) non-discretionary expenditures, such as those required to maintain
reliability and safety and to address environmental regulations; and (ii)
discretionary opportunity expenditures, such as those being currently made to
enhance retail marketing facilities profitability
During the six month period ended June 30,1996 capital expenditures totaled
$54.0 million, of which $17.5 million related to the completion of the
high-pressure gasoil hydrotreater at the Wilmington refinery. The gasoil
hydrotreater increases the Wilmington refinery's ability to upgrade unfinished
product into finished product and to process generally lower cost heavy, sour
crude oil and less-expensive feedstocks. Capital expenditures also included $5.3
million for modifications to the Quebec refinery to enhance its ability to
process Heidrun and other acidic crude oils and $4.6 million for modifications
to the refinery's facilities to accommodate a unit train to transport product
from the refinery to Montreal. In conjunction with its plans to expand and
upgrade its retail marketing operations in the northeast, the Company also spent
$14.0 million during the first half of 1996 to acquire the operating assets of a
wholesale distributor and a retail home heating operation in the northeast
United States.
The Company is continually investigating strategic acquisitions and other
business opportunities that will complement its current business activities.
15
The Company expects to fund its capital expenditures over the next several years
from cash provided by operations and, to the extent necessary, from the proceeds
of borrowings under its bank credit facilities and its commercial paper and
medium-term note programs discussed below. In addition, depending upon its
future needs and the cost and availability of various financing alternatives,
the Company may from time to time seek additional debt or equity financing in
the public or private markets.
Liquidity and Capital Resources
At June 30, 1996, the Company had a cash position of $265.3 million. The Company
has committed, unsecured bank facilities which provide a maximum of $200 million
and Cdn. $200 million of available credit to its subsidiaries, Ultramar Inc. and
Canadian Ultramar Limited respectively, and a $200 million commercial paper
program supported by the unsecured bank facility of Ultramar Inc. The Company's
bank facilities require the maintenance of certain financial ratios and
contain covenants that must be complied with before its subsidiaries can pay
cash dividends and make loans to the Company. The Company believes these
covenants will not have a significant impact on the Company's liquidity or its
ability to pay dividends. At June 30, 1996, the Company had approximately $328.4
million of remaining borrowing capacity under the committed bank facilities and
commercial paper program. The Company presently has an additional $343.3 million
of borrowing capacity under uncommitted, unsecured short-term lines of credit
with various financial institutions.
In addition to its credit facilities, the Company has $50 million available
under a debt shelf registration previously filed with the Securities and
Exchange Commission and intends to file a second shelf registration statement in
the third quarter of 1996 covering the issuance, from time to time, of up to an
additional $250 million of debt and/or equity securities. The net proceeds from
any offering under the existing or planned shelf registration would add to the
Company's working capital and would also be available for general corporate
purposes.
The Company believes its current sources of funds will be sufficient to satisfy
its capital expenditure, working capital, debt service and dividend requirements
for at least the next twelve months.
In its efforts to reduce working capital, during the second quarter of 1996, the
Company lowered the base level of product inventory carried at its North East
facilities by approximately $60 million. The liquidation of inventory, which is
carried on a LIFO cost basis, did not impact the Company's earnings for the
quarter. In order to insure that an adequate supply of product inventory will be
available to the North East operation in the future, the Company also entered
into a contract which provides it, through January 1999, with a guaranteed
source of equivalent product volume to that liquidated during the quarter.
On June 25, 1996, the Company declared a dividend of $.275 per common share
payable on September 18, 1996 to holders of record on August 15, 1996.
Cash Flows for the Six Months Ended June 30, 1996
During the six months ended June 30, 1996, the Company's cash position increased
$138.5 million to $265.3 million. Net cash provided by operating activities
before changes in non-cash operating assets and liabilities was $97.8 million.
Net cash provided by operating activities after changes in non-cash operating
assets and liabilities (including the liquidation of inventory noted above)
totaled $165.6 million.
Net cash used in investing activities during the six month period ended June 30,
1996 totaled $74.1 million and included the previously mentioned capital
expenditures and acquisitions of marketing operations, net of proceeds from
asset disposals, as well as an increase of deferred refinery maintenance
turnaround costs.
Financing activities during the six month period ended June 30, 1996, provided
net cash of $46.7 million, consisting of borrowings under the Company's
commercial paper program ($68.2 million) and the issuance of Common Stock upon
the exercise of employee stock options ($3.0 million), partially offset by the
payment of dividends ($24.5 million).
16
Seasonality
In the North East, demand for petroleum products varies significantly during the
year. Distillate demand during the first and fourth quarters can range from 30%
to 40% above the average demand during the second and third quarters, resulting
in significantly higher accounts receivable and inventory levels. The Company's
operations on the West Coast are less affected by seasonal fluctuations in
demand than its operations in the North East. The working capital requirements
of the West Coast operations are less than for the North East due to lower
inventory requirements and show little fluctuation throughout the year.
Exchange Rates
The value of the Canadian dollar relative to the U.S. dollar remained stable
during the six months ended June 30, 1996. However, the value at June 30, 1996
was substantially lower than that at the time of the Company's investment in its
Canadian operations in 1992. As a result, the Company's net equity at June 30,
1996 has been reduced by $55.3 million.
With the exception of its crude oil costs, which are U.S. dollar denominated,
fluctuations in the Canadian dollar exchange rate will affect the U.S. dollar
amount of revenues and related costs and expenses reported by the Company's
operations in Canada. The potential impact on refining margin of fluctuating
exchange rates together with U.S. dollar denominated crude oil costs is
mitigated by the Company's pricing policies, which generally pass on any change
in the cost of crude oil. Marketing margins, on the other hand, have been
adversely affected by exchange rate fluctuations as competitive pressures have,
from time to time, limited the Company's ability to promptly pass through the
increased costs to the ultimate consumer.
The Company expects the Canadian to U.S. dollar exchange rate to continue to
fluctuate and thus cannot reasonably predict its future movement or the
resulting impact on the Company's equity or results of operations. The Company
has considered various strategies to manage currency risk and hedges the
Canadian currency risk when such hedging is considered economically appropriate.
17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement re: Computation of Earnings Per Share
(b) Reports on Form 8-K
None
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTRAMAR CORPORATION
(REGISTRANT)
By: /S/ H. PETE SMITH
--------------------------
H. PETE SMITH
SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
AUGUST 9, 1996
19