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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 MARCH 31, 2002
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)
ONE WARREN PLACE, 6100 SOUTH YALE AVENUE, TULSA, OKLAHOMA 74136
---------------------------------------------------------------
(Address of principal executive office) (Zip Code)
(918) 495-4000
--------------
(Registrant's telephone number, including area code)
N. A.
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(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 April 30, 2002)
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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 MARCH 31, 2002
TABLE OF CONTENTS
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<Table>
<Caption>
PAGE
FACTORS AFFECTING FORWARD LOOKING STATEMENTS......................................................................1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2002 and December 31, 2001........................2
Condensed Consolidated Statements of Income and Comprehensive Income -
Three-Month Periods Ended March 31, 2002 and 2001...................................................3
Condensed Consolidated Statement of Shareholder's Equity - Three-Month Period
Ended March 31, 2002................................................................................4
Condensed Consolidated Statements of Cash Flows - Three-Month Periods Ended
March 31, 2002 and 2001.............................................................................5
Notes to the Condensed Consolidated Financial Statements............................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................................................14
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........................................20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................24
Item 6. Exhibits and Reports on Form 8-K...................................................................24
SIGNATURES.......................................................................................................25
</Table>
FACTORS AFFECTING FORWARD LOOKING STATEMENTS
This Report contains "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" pertaining to capital expenditures and
investments related to environmental compliance, strategic planning, purchasing
patterns of refined products and capital resources available to the Companies
(as defined herein) 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. Those statements
are subject to risks and uncertainties, such as increased inflation, continued
access to capital markets and commercial bank financing on favorable terms,
increases in environmental and other regulatory burdens, outcomes of currently
contested matters, changes in prices or demand for the Companies' products as a
result of competitive actions or economic factors and changes in the cost of
crude oil, feedstocks, blending components or refined products. Those statements
are also subject to the risks of increased costs in related technologies and
those technologies producing anticipated results. Should one or more of these
risks or uncertainties, among others, materialize, actual results may vary
materially from those estimated, anticipated or projected. Readers are cautioned
not to place undue reliance on these forward looking statements, which speak
only as of the date of this Report. PDV America undertakes no obligation to
publicly release any revision to these forward looking statements to reflect
events or circumstances after the date of this Report.
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
PDV AMERICA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<Table>
<Caption>
March 31,
2002 December 31,
(Unaudited) 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 39,953 $ 116,069
Accounts receivable, net 920,750 913,068
Due from affiliates 50,828 67,788
Inventories 1,030,281 1,109,346
Prepaid expenses and other 92,844 122,921
------------ ------------
Total current assets 2,134,656 2,329,192
NOTES RECEIVABLE FROM PDVSA AND AFFILIATE 798,000 798,000
PROPERTY, PLANT AND EQUIPMENT - Net 3,357,624 3,292,555
INVESTMENTS IN AFFILIATES 710,046 700,701
OTHER ASSETS 258,746 231,222
------------ ------------
$ 7,259,072 $ 7,351,670
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term bank loans $ 90,000 $ --
Accounts payable 592,817 616,854
Payables to affiliates 344,179 265,518
Taxes other than income 208,778 219,699
Other 230,416 313,946
Current portion of long-term debt 86,364 107,864
Current portion of capital lease obligation 20,358 20,358
------------ ------------
Total current liabilities 1,572,912 1,544,239
LONG-TERM DEBT 1,732,949 1,802,809
CAPITAL LEASE OBLIGATION 46,964 46,964
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 225,940 218,706
OTHER NONCURRENT LIABILITIES 212,560 218,766
DEFERRED INCOME TAXES 775,743 793,233
MINORITY INTEREST -- 23,176
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDER'S EQUITY:
Common stock - $1.00 par value, 1,000 shares authorized, issued and outstanding 1 1
Additional capital 1,532,435 1,532,435
Retained earnings 1,162,955 1,174,806
Accumulated other comprehensive loss (3,387) (3,465)
------------ ------------
Total shareholder's equity 2,692,004 2,703,777
------------ ------------
$ 7,259,072 $ 7,351,670
============ ============
</Table>
See notes to condensed consolidated financial statements.
2
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Three Months
Ended March 31,
----------------------------
2002 2001
------------ ------------
REVENUES:
Net sales $ 3,622,355 $ 4,895,632
Sales to affiliates 49,067 65,919
------------ ------------
3,671,422 4,961,551
Equity in earnings of affiliates 18,934 23,631
Interest income from affiliates 16,544 16,544
Insurance recoveries 94,706 --
Other income (expense) - net (6,453) 991
------------ ------------
3,795,153 5,002,717
COST OF SALES AND EXPENSES:
Cost of sales and operating expenses (including purchases
of $1,238,848 and $1,585,970 from affiliates) 3,708,903 4,747,468
Selling, general and administrative expenses 76,804 60,770
Interest expense, excluding capital lease 26,069 28,613
Capital lease interest charge 1,893 2,407
Minority interest -- 34
------------ ------------
3,813,669 4,839,292
------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (18,516) 163,425
INCOME TAXES (6,665) 58,955
------------ ------------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (11,851) 104,470
CUMULATIVE EFFECT, ACCOUNTING FOR DERIVATIVES,
NET OF RELATED INCOME TAXES OF $0 AND $7,977 -- 13,600
------------ ------------
NET (LOSS) INCOME (11,851) 118,070
------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS):
Cash flow hedges:
Cumulative effect, accounting for derivatives, net
of related income taxes of $0 and $(850) -- (1,450)
Less: reclassification adjustment for derivative losses included
in net income, net of related income taxes of $44 and $139 78 237
------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS) 78 (1,213)
------------ ------------
COMPREHENSIVE (LOSS) INCOME $ (11,773) $ 116,857
============ ============
</Table>
See notes to condensed consolidated financial statements.
3
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) TOTAL
------ ------ ---------- ----------- ------------- -----------
BALANCE, DECEMBER 31, 2001 1 $ 1 $1,532,435 $ 1,174,806 $ (3,465) $ 2,703,777
Net loss -- -- -- (11,851) -- (11,851)
Other comprehensive income -- -- -- -- 78 78
------ ------ ---------- ----------- ------------- -----------
BALANCE, MARCH 31, 2002 1 $ 1 $1,532,435 $ 1,162,955 $ (3,387) $ 2,692,004
====== ====== ========== =========== ============= ===========
</Table>
See notes to condensed consolidated financial statements.
4
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
Three Months
Ended March 31,
-------------------------
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES $ 63,985 $ 192,045
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (120,510) (37,436)
Proceeds from sales of property, plant and equipment 276 629
Investments in LYONDELL-CITGO Refining LP (15,400) (1,300)
Investments in and advances to other affiliates (2,967) (96)
---------- ----------
Net cash used in investing activities (138,601) (38,203)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term bank loans 90,000 (37,500)
Net repayments of revolving bank loans (66,500) --
Proceeds from issuance of tax-exempt bonds 25,000 25,000
Payments on taxable bonds (25,000) (25,000)
Payments of capital lease obligations -- (8,402)
Payments of master shelf agreement notes (25,000) --
Repayments of other debt -- (1,778)
---------- ----------
Net cash used in financing activities (1,500) (47,680)
---------- ----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (76,116) 106,162
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 116,069 20,751
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 39,953 $ 126,913
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash (received) paid during the period for:
Interest, net of amounts capitalized $ 29,079 $ 37,359
========== ==========
Income taxes (net of refund of $50,000 in 2002) $ (45,561) $ 111,808
========== ==========
</Table>
See notes to condensed consolidated financial statements.
5
PDV AMERICA, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE-MONTH PERIODS ENDED MARCH 31, 2002 AND 2001
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1. BASIS OF PRESENTATION
The financial information for PDV America, Inc. ("PDV America") subsequent
to December 31, 2001 and with respect to the interim three-month periods
ended March 31, 2002 and 2001 is unaudited. In the opinion of 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
periods ended March 31, 2002 and 2001 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, 2001 on Form
10-K, dated March 29, 2002, for additional information.
The condensed consolidated financial statements include the accounts of PDV
America and its wholly owned subsidiaries, CITGO Petroleum Corporation
("CITGO"), and PDV USA, Inc. ("PDV USA"), as well as CITGO's wholly-owned
subsidiaries, VPHI Midwest, Inc. ("VPHI") and its wholly owned subsidiary,
PDV Midwest Refining, L.L.C. ("PDVMR") and Cit-Con Oil Corporation, which
was 65% owned by CITGO through December 31, 2001 (collectively, "the
Companies"). On January 1, 2002, CITGO acquired the outstanding 35%
interest in Cit-Con from Conoco, Inc. The principal asset of Cit-Con is
a lubricants refinery in Lake Charles, Louisiana. This transaction did not
have a material effect on the consolidated financial position or results of
operations of CITGO.
On January 1, 2002, PDV America contributed all of the common stock of VPHI
to CITGO. This transaction had no effect on the consolidated financial
statements of the Companies.
Certain reclassifications have been made to the March 31, 2001 financial
statements to conform to the classifications used at March 31, 2002.
2. CHANGE IN ACCOUNTING PRINCIPLE
On January 1, 2001 the Companies adopted 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 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. Under the transition provisions of SFAS No. 133, on January 1,
2001 the Companies recorded an after-tax, cumulative-effect-type transition
benefit of $13.6 million to net income related to derivatives that existed
on that date and an after-tax, cumulative-effect-type transition charge of
$1.5 million to accumulated other comprehensive income.
6
3. INVENTORIES
Inventories, primarily at LIFO, consist of the following:
<Table>
<Caption>
MARCH 31,
2002 DECEMBER 31,
(UNAUDITED) 2001
------------ ------------
(000'S OMITTED)
Refined products $ 766,150 $ 836,683
Crude oil 184,572 193,319
Materials and supplies 79,559 79,344
------------ ------------
$ 1,030,281 $ 1,109,346
============ ============
</Table>
4. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
<Table>
<Caption>
MARCH 31,
2002 DECEMBER 31,
(UNAUDITED) 2001
------------ ------------
(000'S OMITTED)
Revolving bank loans $ 325,000 $ 391,500
Senior Notes, $200 million face amount, due 2006 with
interest rate of 7.875% 199,875 199,867
Senior Notes due August 1, 2003 with interest rate of 7.875% 499,249 499,117
Private Placement Senior Notes, due 2002 to 2006 with
interest rate of 9.30% 56,819 56,819
Master Shelf Agreement Senior Notes, due 2002 to
2009 with interest rates from 7.17% to 8.94% 235,000 260,000
Tax Exempt Bonds, due 2004 to 2032 with variable
and fixed interest rates 382,370 357,370
Taxable Bonds, due 2026 to 2028 with variable interest rates 121,000 146,000
------------ ------------
1,819,313 1,910,673
Current portion of long-term debt (86,364) (107,864)
------------ ------------
$ 1,732,949 $ 1,802,809
============ ============
</Table>
7
5. INVESTMENT IN LYONDELL-CITGO REFINING LP
LYONDELL-CITGO Refining LP ("LYONDELL-CITGO") owns and operates a 265 MBPD
refinery in Houston, Texas and is owned by subsidiaries of CITGO (41.25%)
and Lyondell Chemical Company (58.75%) ("the Owners"). This refinery
processes heavy crude oil supplied by Petroleos de Venezuela, S.A.
("PDVSA" which may also be used to refer to one or more of its
subsidiaries) 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.
As of December 31, 2001, PDVSA deliveries of crude oil to LYONDELL-CITGO
had not been reduced due to PDVSA's declaration of force majeure. On
January 22, 2002, PDVSA notified LYONDELL-CITGO that pursuant to the
February 9, 2001 declaration of force majeure, effective March 1, 2002,
PDVSA expects to deliver approximately 20 percent less than the contract
volume and that force majeure will be in effect until at least June 2002.
PDVSA delivered approximately 89 percent of the contractual crude oil
volume during the first quarter of 2002. When PDVSA reduces its delivery
of crude oil under the crude oil supply contract, LYONDELL-CITGO is
required to use alternative sources of crude oil which may result in
reduced operating margins. The future effect of this declaration on
LYONDELL-CITGO's crude oil supply and the duration of this situation are
not known at this time.
CITGO has notes receivable from LYONDELL-CITGO which total $35 million at
March 31, 2002 and December 31, 2001. 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.
Cash distributions are allocated to the Owners based on participation
interest. Information on CITGO's investment in LYONDELL-CITGO follows:
8
<Table>
<Caption>
March 31, December 31,
2002 2001
----------- ------------
(Unaudited)
(000s omitted)
Carrying value of investment $ 521,063 $ 507,940
Notes receivable 35,278 35,278
Participation interest 41% 41%
Summary of financial position:
Current assets $ 256,000 $ 227,000
Non current assets 1,430,000 1,434,000
Current liabilities 813,000 377,000
Non current liabilities 344,000 776,000
Member's equity 529,000 508,000
</Table>
<Table>
<Caption>
Three Months Ended March 31,
----------------------------
2002 2001
------------- -------------
(Unaudited)
Equity in net income $ 14,438 $ 14,898
Cash distribution received 16,715 15,372
Summary of operating results:
Revenue $ 706,718 $ 910,117
Gross profit 60,312 71,999
Net income 41,297 41,824
</Table>
9
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. The most significant
lawsuits and claims are discussed below.
A class action lawsuit brought by four former marketers of the UNO-VEN
Company ("UNO-VEN") in U.S. District Court in Wisconsin 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 has resulted in the
Federal judge granting PDVMR's motion for summary judgment. PDVMR and it's
parent, VPHI, 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 Illinois state court which
claims damages as a result of PDVMR invoicing a partnership in which it is
a partner, and an affiliate of the other partner of the partnership,
alleging excessive charges for electricity utilized 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. 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. A trial of the claims of
approximately 20 plaintiffs began in April 2002. Approximately 1,300
claims have been resolved for immaterial amounts.
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. Over CITGO's objections, the
trial court has recently ruled that an agreement by CITGO that purported
to provide for settlement of the remaining property damage claims for $5
million payable by it is enforceable. CITGO will appeal this decision.
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 September 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; these rulings have been affirmed by the Fifth
Circuit Court of Appeals. Trials of the remaining cases will be set in the
future.
CITGO is among defendants to class action and individual lawsuits in New
York and Illinois alleging contamination of water supplies by methyl
tertiary butyl ether ("MTBE"), a component of
10
gasoline. These actions allege that MTBE poses public health risks and
seek testing, damages and remediation of the alleged contamination. These
matters are in early stages of discovery. One of the Illinois cases 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. A North Carolina case has been settled for an immaterial amount.
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 ("DOC"), 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 DOC. In 1999, prior to
initiation of a formal investigation, the DOC dismissed the petitions. In
2000, the U.S. Court of International Trade ("CIT") reversed this decision
and remanded the case to the DOC for reconsideration. In August 2001, the
DOC again dismissed the petitions. This matter is now pending before the
CIT for a decision to affirm or remand for further consideration.
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 additional compliance actions and also
actions to remediate the effects on the environment of prior disposal or
release of petroleum, hazardous substances and other waste and/or pay for
natural resource damages. Maintaining compliance with environmental laws
and regulations could require significant capital expenditures and
additional operating costs. Also, numerous other factors affect the
Companies' plans with respect to environmental compliance and related
expenditures. See "Factors Affecting Forward Looking Statements".
The Companies' accounting policy establishes environmental reserves as
probable site restoration and remediation obligations become reasonably
capable of estimation. The Companies believe the amounts provided in their
consolidated financial statements, as prescribed by generally accepted
accounting principles, are adequate in light of probable and estimable
liabilities and obligations. However, there can be no assurance that the
actual amounts required to discharge alleged liabilities and obligations
and to comply with applicable laws and regulations will not exceed amounts
provided for or will not have a material adverse affect on their
consolidated results of operations, financial condition and cash flows.
In 1992, CITGO reached an agreement with the Louisiana Department of
Environmental Quality ("LDEQ") to cease usage of certain surface
impoundments at the Lake Charles refinery by 1994. A mutually acceptable
closure plan was filed with the LDEQ 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 the
LDEQ revising the 1993 closure plan. In 1998 and 2000, CITGO submitted
further revisions as requested by the LDEQ. A ruling on the proposal, as
amended, is expected in 2002 with final closure to begin later in 2002.
The Texas Natural Resources Conservation Commission conducted
environmental compliance reviews at the Corpus Christi refinery in 1998
and 1999. The Texas Commission issued Notices of Violation ("NOV") related
to each of the reviews and has proposed fines of approximately $970,000
11
based on the 1998 review and $700,000 based on the 1999 review. The first
NOV was issued in January 1999 and the second NOV was issued in December
1999. Most of the alleged violations refer to recordkeeping and reporting
issues, failure to meet required emission levels, and failure to properly
monitor emissions. CITGO is currently engaged in settlement discussions,
but is prepared to contest the alleged violations and proposed fines if a
reasonable settlement cannot be reached.
In June 1999, CITGO and numerous other industrial companies received
notice from the U.S. EPA that the U.S. EPA 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 ("PRPs") under the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"). The U.S. EPA made a demand for
payment of its past investigation costs from CITGO and other PRPs and is
conducting a Remedial Investigation/Feasibility Study ("RI/FS") under its
CERCLA authority. CITGO and other PRPs may be potentially responsible for
the costs of the RI/FS, subsequent remedial actions and natural resource
damages. CITGO disagrees with the U.S. EPA's allegations and intends to
contest this matter.
In October 1999, the LDEQ issued CITGO a NOV and Potential Penalty
alleging violation of the National Emission Standards for Hazardous Air
Pollutants ("NESHAPS") regulations covering benzene emissions from
wastewater treatment operations at CITGO's Lake Charles, Louisiana
refinery and requested additional information. CITGO finalized a
Settlement Agreement April 11, 2002 with the LDEQ that had CITGO pay a
penalty of $300,000 and agree to implement beneficial environmental
projects at the Lake Charles refinery estimated at $1.3 million as well as
miscellaneous requirements regarding compliance with NESHAPS.
In January and July 2001, CITGO received NOVs from the U.S. EPA alleging
violations of the Federal Clean Air Act. The NOVs are an outgrowth of an
industry-wide and multi-industry U.S. EPA enforcement initiative alleging
that many refineries and electric utilities modified air emission sources
without obtaining permits under the New Source Review provisions of the
Clean Air Act. The NOV's to CITGO followed inspections and formal
Information Requests regarding the Lake Charles, Louisiana and Corpus
Christi, Texas refineries and the Lemont, Illinois refinery which at the
time was operated by CITGO but not owned by CITGO. At the U.S. EPA's
request, CITGO is engaged in settlement discussions, but is prepared to
contest the NOVs if settlement discussions fail. If CITGO settles or is
found to have violated the provisions cited in the NOVs, it would be
subject to possible penalties and significant capital expenditures for
installation or upgrading of pollution control equipment or technologies.
In June 1999, a NOV was issued by the U.S. EPA alleging violations of the
NESHAPS regulations covering benzene emissions from wastewater treatment
operations at the Lemont, Illinois refinery operated by CITGO. CITGO is in
settlement discussions with the U.S. EPA. CITGO believes this matter will
be consolidated with the matters described in the previous paragraph.
In 1992, an agreement was reached between CITGO and a 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.
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.
12
DERIVATIVE COMMODITY AND FINANCIAL INSTRUMENTS - As of March 31, 2002 the
Companies' petroleum commodity derivatives included exchange traded
futures contracts, forward purchase and sale contracts, exchange traded
and over-the-counter options, and over-the-counter swaps. At March 31,
2002, the balance sheet captions prepaid expenses and other current assets
and other current liabilities include $23 million and $24 million,
respectively, related to the fair values of open commodity derivatives.
The Companies have also entered into various interest rate swaps to manage
their risk related to interest rate changes on their debt. The fair value
of the interest rate swap agreements in place at March 31, 2002, 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 counterparties, 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 which entitle PDVSA to reduce
the quantity of crude oil and feedstocks delivered under the crude oil
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. During 2001, PDVSA deliveries of crude oil to CITGO were
slightly less than contractual base volumes due to this declaration of
force majeure. Therefore, CITGO was required to obtain alternative sources
of crude oil, which resulted in lower operating margins. On January 22,
2002, PDVSA notified CITGO that pursuant to the February 9, 2001
declaration of force majeure, effective March 1, 2002, PDVSA expected to
deliver approximately 20 percent less than the contract volume and PDVSA
indicated that force majeure will be in effect until at least June 2002.
PDVSA delivered approximately 91 percent of the contractual crude oil
volume during the first quarter of 2002. In March 2002, PDVSA delivered
approximately 82 percent of the contractual crude oil volume. When PDVSA
reduces its delivery of crude oil under these crude oil supply agreements,
CITGO may obtain alternative sources of crude oil or increase its
purchases of refined products which may result in reduced operating
margins. The future effect of this declaration on CITGO's crude oil supply
and the duration of this situation are not known at this time.
8. INSURANCE RECOVERIES
The insurance recoveries of $95 million included in the first quarter of
2002 relate primarily to a fire which occurred on August 14, 2001 at the
Lemont refinery. The crude unit was destroyed and the refinery's other
processing units were temporarily taken out of production. A new crude
unit is expected to be operational in May 2002. The Companies have
insurance coverage for this type of event including business interruption
insurance. The Companies received cash proceeds of $101 million during the
quarter, a portion of which were applied to receivables recorded during
2001. The Companies expect to recover additional amounts related to this
event.
13
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, 2001 on Form 10-K, dated March 29, 2002, for additional
information and a description of critical accounting policies and factors which
may cause substantial fluctuations in the earnings and cash flows of PDV
America.
On January 1, 2002, PDV America contributed all of the common stock of
VPHI to CITGO. This transaction had no effect on the consolidated financial
statements of the Companies.
In the quarter ended March 31, 2002, PDV America generated a net loss
of $11.9 million on total revenue of $3.8 billion compared to net income of
$118.1 million on total revenue of $5.0 billion for the same period last year.
(See "Gross margin").
14
RESULTS OF OPERATIONS
The following table summarizes the sources of PDV America's sales
revenues and sales volumes for the three-month periods ended March 31, 2002 and
2001:
PDV AMERICA SALES REVENUES AND VOLUMES
<Table>
<Caption>
THREE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
------------------- -------------------
2002 2001 2002 2001
-------- -------- -------- --------
($ in millions) (gallons in millions)
Gasoline $ 2,110 $ 2,660 3,340 3,014
Jet fuel 310 482 532 573
Diesel/#2 fuel 758 1,188 1,319 1,457
Asphalt 41 50 77 90
Petrochemicals and industrial products 298 426 499 536
Lubricants and waxes 130 142 59 70
-------- -------- -------- --------
Total refined product sales 3,647 4,948 5,826 5,740
Other sales and adjustments 24 14
-------- -------- -------- --------
Total sales $ 3,671 $ 4,962 5,826 5,740
======== ======== ======== ========
</Table>
The following table summarizes PDV America's cost of sales and
operating expenses for the three-month periods ended March 31, 2002 and 2001:
PDV AMERICA COST OF SALES AND OPERATING EXPENSES
<Table>
<Caption>
Three Months
Ended March 31,
------------------
2002 2001
-------- --------
($ in millions)
Crude oil $ 892 $ 1,326
Refined products 1,982 2,462
Intermediate feedstocks 266 309
Refining and manufacturing costs 283 301
Other operating costs, expenses and inventory changes 286 349
-------- --------
Total cost of sales and operating expenses $ 3,709 $ 4,747
======== ========
</Table>
15
Sales revenues and volumes. Sales decreased $1.3 billion, or
approximately 26%, in the three-month period ended March 31, 2002 as compared to
the same period in 2001. This was due to a decrease in average sales price of
27% partially offset by an increase in sales volume of 2%. (See PDV America
Sales Revenues and Volumes table above.)
Equity in earnings of affiliates. Equity in earnings of affiliates
decreased by $5 million for the three-month period ended March 31, 2002 as
compared to the same period in 2001. The decrease was primarily due to the
decrease in the earnings of Nelson Industrial Steam Company. CITGO's share of
these earnings decreased $9 million, from $7 million in the first quarter of
2001 to $(2) million in the first quarter of 2002. This decrease was partially
offset by an increase in the earnings of pipeline affiliates. CITGO's share of
these earnings increased $4 million, from $4 million in the first quarter of
2001 to $8 million in the first quarter of 2002.
Insurance recoveries. The insurance recoveries of $95 million included
in the first quarter of 2002 relate primarily to a fire which occurred on August
14, 2001 at the Lemont refinery. The crude unit was destroyed and the refinery's
other processing units were temporarily taken out of production. A new crude
unit is expected to be operational in May 2002. The Companies have insurance
coverage for this type of event including business interruption insurance. The
Companies expect to recover additional amounts related to this event.
Cost of sales and operating expenses. Cost of sales and operating
expenses decreased by $1 billion or 22%, in the quarter ended March 31, 2002 as
compared to the same period in 2001. PDVSA's reduction of deliveries of crude
oil related to its declaration of force majeure on its crude oil supply
agreements did not have a significant effect on the crude oil component of cost
of sales and operating expenses in the first quarter 2002 or 2001. (See PDV
America Cost of Sales and Operating Expenses table above.)
PDV America purchases refined products to supplement the production
from its refineries to meet marketing demands and resolve logistical issues.
Refined product purchases represented 53% of total cost of sales and operating
expenses for the first quarter 2002 and 52% for the first quarter of 2001. PDV
America estimates margins on purchased products, on average, are lower than
margins on produced products due to the fact that PDV America can only receive
the marketing portion of the total margin received on the produced refined
products. However, purchased products are not segregated from PDV America
produced products and margins may vary due to market conditions and other
factors beyond PDV America's control. As such, it is not practical to measure
the effects on profitability of changes in volumes of purchased products. In the
near term, other than normal refinery turnaround maintenance, PDV America does
not anticipate operational actions or market conditions which might cause a
material change in anticipated purchased product requirements; however, there
could be events beyond the control of PDV America 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 March
31, 2002 was negative, approximately (0.7) cents per gallon, compared to a
positive gross margin of approximately 3.7 cents per gallon for the same period
in 2001. The revenue per gallon component in the three-month period ended March
31, 2002 was approximately 23 cents less than the revenue per gallon in the
three-month period ended March 31, 2001. The cost per gallon component in the
three-month period ended March 31, 2002 was approximately 19 cents less than the
cost per gallon in the three-month period ended March 31, 2001. As a result, the
gross margin decreased approximately 4.4 cents on a per gallon basis in the
quarter ended March 31, 2002 compared to the same period in 2001. The gross
margin is directly affected by changes in selling prices relative to changes in
costs. An increase or decrease in the price for crude oil, feedstocks and
blending products generally results in a corresponding increase or decrease in
prices for refined
16
products. Generally, the effect of changes in crude oil and feedstock prices on
PDV America's consolidated operating results therefore depends in part on how
quickly refined product prices adjust to reflect these changes. However, in the
first quarter 2002, there was a substantial decrease in refined product sales
prices without an equivalent decrease in costs resulting in a significant
negative impact on PDV America's gross margin and earnings.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 26% from $61 million in the first quarter of
2001 to $77 million in the first quarter of 2002, primarily related to
sponsorship fees, professional and consulting fees, and the start-up expenses
related to international operations.
Interest Expense. Interest expense decreased by $3 million in the
three-month period ended March 31, 2002 as compared to the same period in 2001.
This was primarily due to the decrease in key interest rates during the first
quarter.
LIQUIDITY AND CAPITAL RESOURCES
For the three-month period ended March 31, 2002, PDV America's
consolidated net cash provided by operating activities totaled approximately $64
million including $101 million from insurance proceeds. Operating cash flows
were derived from a net loss of $12 million, depreciation and amortization of
$72 million and changes in working capital and other adjustments of $4 million.
The more significant changes in working capital included the decrease in
inventories of approximately $79 million, the decrease in prepaid expenses of
$54 million, the increase in income taxes payable of $34 million, and the
decrease in accounts payable and other current liabilities, including payables
to affiliates, of approximately $92 million. Additionally, other long term
assets increased $67 million.
Net cash used in investing activities totaled $139 million for the
three-month period ended March 31, 2002 consisting primarily of capital
expenditures of $121 million (compared to $37 million for the same period in
2001). The capital expenditures during the first quarter of 2002 relate
primarily to crude unit reconstruction at the Lemont refinery. On August 14,
2001, a fire occurred at the crude distillation unit of the Lemont refinery. The
crude unit was destroyed and the refinery's other processing units were
temporarily taken out of production. A new crude unit is expected to be
operational in May 2002.
Net cash used in financing activities totaled $2 million for the
three-month period ended March 31, 2002 consisting primarily of $67 million of
payments on revolving bank loans, $25 million of payments on master shelf
agreement notes and $25 million of payments on taxable bonds, offset by $90
million net proceeds from short-term bank loans and $25 million net proceeds on
tax-exempt bonds.
As of March 31, 2002, capital resources available to the Companies
included cash generated by operations, available borrowing capacity under
CITGO's committed bank facilities of $171 million and $100 million of
uncommitted short-term borrowing facilities 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 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. In addition, PDV America
intends that payments received from its notes receivable from PDVSA will provide
funds to service PDV America's $500 million of 7.875% Senior Notes. PDV America
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. PDV America's ability to obtain such
17
financing will depend on numerous factors, including market conditions and the
perceived creditworthiness of the Companies at that time. (See also "Factors
Affecting Forward Looking Statements".)
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 expires in June 2002 and is renewable for successive annual terms by
mutual agreement. CITGO intends to renew the agreement.
The Companies are in compliance with their obligations under their debt
financing arrangements at March 31, 2002.
NEW ACCOUNTING STANDARDS
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 were 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 did not materially impact the Companies' financial
position or results of operations.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143") which
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. This statement is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Companies have not
determined the impact on their financial statements that may result from the
adoption of SFAS No. 143.
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144") which addresses financial accounting and reporting for
the impairment or disposal of long-lived assets by requiring that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and by broadening the presentation
of discontinued operations to include more disposal transactions. SFAS No. 144
is effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. The provisions
of this statement generally are to be applied prospectively; therefore, the
adoption of SFAS No. 144 did not impact the Companies' financial position or
results of operations.
18
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 which 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 fiscal years beginning after June 15, 2002, and that 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 March 31, 2002, the Companies had included turnaround costs of $126
million in other assets. The Companies' management has not determined the
amount, if any, of these costs that could be capitalized under the provisions of
the exposure draft.
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Introduction. CITGO has exposure to price fluctuations of crude oil and
refined products as well as fluctuations in interest rates. To manage these
exposures, management has defined certain benchmarks consistent with its
preferred risk profile for the environment in which CITGO operates and finances
its assets. CITGO does not attempt to manage the price risk related to all of
its inventories of crude oil and refined products. As a result, at March 31,
2002, CITGO was exposed to the risk of broad market price declines with respect
to a substantial portion of its crude oil and refined product inventories. The
following disclosures do not attempt to quantify the price risk associated with
such commodity inventories.
Commodity Instruments. CITGO balances its crude oil and petroleum
product supply/demand and manages a portion of its price risk by entering into
petroleum commodity derivatives.
NON TRADING COMMODITY DERIVATIVES
OPEN POSITIONS AT MARCH 31, 2002
MATURITY CONTRACTED CONTRACT MARKET
COMMODITY DERIVATIVE DATE VOLUME VALUE VALUE
--------- ---------- -------- ---------- -------- ------
($ in millions)
----------------------
No Lead Gasoline (1) Futures Purchased 2002 441 $ 15.1 $ 15.4
Futures Sold 2002 577 $ 18.6 $ 20.0
Forward Purchase Contracts 2002 2,826 $ 86.5 $ 93.1
Forward Sale Contracts 2002 1,350 $ 41.9 $ 45.3
Distillates (1) Futures Purchased 2002 926 $ 25.1 $ 26.7
Futures Purchased 2003 152 $ 3.9 $ 4.4
Futures Sold 2002 882 $ 22.5 $ 25.1
Forward Purchase Contracts 2002 1,500 $ 39.6 $ 41.1
Forward Sale Contracts 2002 2,050 $ 52.7 $ 57.1
Crude Oil (1) Futures Purchased 2002 965 $ 22.1 $ 25.3
Futures Sold 2002 856 $ 21.4 $ 22.5
Futures Sold 2003 90 $ 2.2 $ 2.2
Listed Options Purchased 2002 1,550 $ -- $ 0.9
Listed Options Sold 2002 1,550 $ -- $ (0.4)
OTC Swaps (Pay Floating/Receive Fixed)(3) 2002 1,260 $ -- $ (1.0)
OTC Swaps (Pay Fixed/Receive Floating)(3) 2002 1,830 $ -- $ 1.7
Forward Purchase Contracts 2002 5,021 $ 120.7 $ 132.4
Forward Sale Contracts 2002 5,042 $ 119.0 $ 133.0
Natural Gas (2) Futures Sold 2002 40 $ 1.3 $ 1.3
</Table>
- ----------
(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.
20
NON TRADING COMMODITY DERIVATIVES
OPEN POSITIONS AT MARCH 31, 2001
MATURITY CONTRACTED CONTRACT MARKET
COMMODITY DERIVATIVE DATE VOLUME VALUE VALUE
--------- ---------- -------- ---------- -------- ------
($ in millions)
--------------------
No Lead Gasoline (1) Futures Purchased 2001 2007 $ 75.6 $ 76.7
Forward Purchase Contracts 2001 3752 $ 132.3 $ 132.7
Forward Sale Contracts 2001 2975 $ 104.8 $ 106.3
Distillates (1) Futures Purchased 2001 1171 $ 34.6 $ 34.8
Futures Purchased 2002 299 $ 9.0 $ 9.0
OTC Swap Options Purchased 2001 10 $ -- $ --
OTC Swap Options Sold 2001 10 $ -- $ --
OTC Swap Options Purchased 2002 30 $ -- $ --
OTC Swap Options Sold 2002 30 $ -- $ (0.1)
Forward Purchase Contracts 2001 1174 $ 34.8 $ 34.3
Forward Sale Contracts 2001 1419 $ 42.9 $ 42.8
Crude Oil (1) Futures Purchased 2001 200 $ 5.3 $ 5.3
Forward Purchase Contracts 2001 7254 $ 201.7 $ 190.0
Forward Sales Contracts 2001 8295 $ 230.8 $ 217.3
Natural Gas (2) Futures Purchased 2001 40 $ 2.1 $ 2.0
OTC Swap Options Purchased 2001 100 $ -- $ 0.3
OTC Swap Options Sold 2001 120 $ -- $ (0.4)
</Table>
- ----------
(1) Thousands of barrels
(2) Ten-thousands of mmbtu
21
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 March 31, 2002
and 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 MARCH 31, 2002 AND 2001
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
======
</Table>
The fair value of the interest rate swap agreements in place at March
31, 2002, 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 $3 million.
22
For debt obligations, the table below presents principal cash flows and
related weighted average interest rates by expected maturity dates. Weighted
average variable rates are based on implied forward rates in the yield curve at
the reporting date.
DEBT OBLIGATIONS
AT MARCH 31, 2002
EXPECTED
FIXED AVERAGE FIXED VARIABLE AVERAGE VARIABLE
EXPECTED MATURITIES RATE DEBT INTEREST RATE RATE DEBT INTEREST RATE
------------------- --------- ------------- --------- ----------------
($ in millions) ($ in millions)
2002 $ 11 9.30% $ 115 3.45%
2003 560 7.98% 300 5.15%
2004 31 8.02% 16 6.52%
2005 12 9.30% -- --
2006 252 8.06% -- --
Thereafter 128 7.85% 484 9.85%
----- ---- ----- -----
Total $ 994 8.01% $ 915 7.45%
===== ==== ===== =====
Fair Value $ 987 $ 915
===== =====
</Table>
DEBT OBLIGATIONS
AT MARCH 31, 2001
EXPECTED
FIXED AVERAGE FIXED VARIABLE AVERAGE VARIABLE
EXPECTED MATURITIES RATE DEBT INTEREST RATE RATE DEBT INTEREST RATE
------------------- --------- ------------- --------- ----------------
($ in millions) ($ in millions)
2001 $ 40 9.11% $ 5 5.52%
2002 36 8.78% -- --
2003 560 7.98% -- --
2004 31 8.02% 16 6.71%
2005 11 9.30% -- --
Thereafter 380 7.99% 485 8.49%
------- ------ ------ -----
Total $ 1,058 8.07% $ 506 8.40%
======= ====== ====== =====
Fair Value $ 1,080 $ 506
======= ======
</Table>
23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The required information is incorporated by reference to 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Forms 8-K:
None.
24
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: May 14, 2002 /s/ Carlos Jorda
--------------------------------------
Carlos Jorda
President and Chief Executive Officer
Date: May 14, 2002 /s/ Paul Largess
--------------------------------------
Paul Largess
Chief Accounting Officer and Treasurer
25