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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
Commission File Number 1-11154
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification No. 13-3663331
6000 North Loop 1604 West
San Antonio, Texas 78249-1112
Telephone number: (210) 592-2000
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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
--- ---
As of April 28, 2000, 86,751,000 shares of Common Stock, $0.01 par value, were
outstanding and the aggregate market value of such stock was $2,147,075,000.
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
FORM 10-Q
MARCH 31, 2000
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999...................... 3
Consolidated Statements of Income
for the Three Months Ended March 31, 2000 and 1999...................................... 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000 and 1999...................................... 5
Consolidated Statements of Comprehensive Income
for the Three Months Ended March 31, 2000 and 1999...................................... 6
Notes to Consolidated Financial Statements.................................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......................................... 23
Item 6. Exhibits and Reports on Form 8-K............................................................ 24
SIGNATURE................................................................................... 25
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
MARCH 31, DECEMBER 31,
2000 1999
-------- ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 96.3 $ 92.8
Accounts and notes receivable, net ...................... 838.1 616.5
Inventories ............................................. 608.4 556.8
Prepaid expenses and other current assets ............... 21.8 20.3
Deferred income taxes ................................... 110.3 110.4
-------- --------
TOTAL CURRENT ASSETS ................................. 1,674.9 1,396.8
-------- --------
Property, plant and equipment .............................. 4,369.8 4,345.8
Less accumulated depreciation and amortization ............. (1,361.0) (1,315.9)
-------- --------
Property, plant and equipment, net ...................... 3,008.8 3,029.9
Other assets, net .......................................... 498.7 509.3
-------- --------
TOTAL ASSETS ......................................... $5,182.4 $4,936.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt ..... $ 14.6 $ 14.0
Accounts payable ........................................ 630.8 489.2
Accrued liabilities ..................................... 344.0 392.4
Taxes other than income taxes ........................... 210.3 293.8
Income taxes payable .................................... 32.9 68.7
-------- --------
TOTAL CURRENT LIABILITIES ............................ 1,232.6 1,258.1
-------- --------
Long-term debt, less current portion ....................... 1,532.0 1,327.6
Other long-term liabilities ................................ 367.2 372.8
Deferred income taxes ...................................... 313.6 284.2
Commitments and contingencies
Company obligated preferred stock of subsidiary ............ 200.0 200.0
STOCKHOLDERS' EQUITY:
Common Stock, par value $0.01 per share:
250,000,000 shares authorized, 86,878,000 and
86,700,000 shares issued and outstanding as of
March 31, 2000 and December 31, 1999 .................. 0.9 0.9
Additional paid-in capital .............................. 1,513.1 1,516.3
Treasury stock .......................................... (1.0) (0.7)
Grantor trust stock ownership program ................... (96.1) (100.0)
Retained earnings ....................................... 205.6 160.4
Accumulated other comprehensive loss .................... (85.5) (83.6)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ........................... 1,537.0 1,493.3
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........... $5,182.4 $4,936.0
======== ========
See accompanying notes to consolidated financial statements.
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in millions, except share and per share data)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- -----------
SALES AND OTHER REVENUES ................................... $ 3,639.4 $ 2,720.2
----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of products sold ................................... 2,461.1 1,553.4
Operating expenses ...................................... 231.7 249.1
Selling, general and administrative expenses ............ 74.6 75.6
Taxes other than income taxes ........................... 671.5 712.6
Depreciation and amortization ........................... 62.1 57.2
Restructuring and other expenses, net ................... (0.7) 7.4
----------- -----------
TOTAL OPERATING COSTS AND EXPENSES ................... 3,500.3 2,655.3
----------- -----------
OPERATING INCOME ........................................... 139.1 64.9
Interest income .......................................... 2.9 2.9
Interest expense ......................................... (29.5) (38.6)
Equity income from joint ventures ........................ 6.2 2.1
----------- -----------
INCOME BEFORE INCOME TAXES AND DIVIDENDS OF SUBSIDIARY ..... 118.7 31.3
Provision for income taxes ............................... 47.0 12.7
Dividends on preferred stock of subsidiary ............... 2.6 2.6
----------- -----------
NET INCOME ................................................. $ 69.1 $ 16.0
=========== ===========
NET INCOME PER SHARE:
Basic ................................................... $ 0.80 $ 0.18
Diluted ................................................. $ 0.80 $ 0.18
WEIGHTED AVERAGE NUMBER OF SHARES (IN THOUSANDS):
Basic ................................................... 86,713 86,557
Diluted ................................................. 86,814 86,643
DIVIDENDS PER COMMON SHARE ................................. $ 0.275 $ 0.275
See accompanying notes to consolidated financial statements.
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 69.1 $ 16.0
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization ..................................... 62.1 57.2
Provision for losses on receivables ............................... 3.2 1.7
Equity income from joint ventures ................................. (6.2) (2.1)
Loss (gain) on sale of property, plant and equipment .............. (0.7) 0.1
Deferred income tax provision ..................................... 29.7 6.0
Other, net ........................................................ 0.6 1.0
Changes in operating assets and liabilities:
Decrease (increase) in accounts and notes receivable ............ (220.6) 249.3
Decrease (increase) in inventories .............................. (52.3) 56.8
Decrease (increase) in prepaid expenses and
other current assets .......................................... (2.0) 2.7
Decrease in accounts payable and other current liabilities ...... (25.4) (195.4)
Decrease (increase) in other long-term assets ........................ 0.1 (8.8)
Decrease in other long-term liabilities .............................. (5.6) (13.0)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ........... (148.0) 171.5
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (26.6) (35.3)
Deferred refinery maintenance turnaround costs ...................... (8.7) (18.3)
Proceeds from sales of property, plant and equipment ................ 5.0 2.2
-------- --------
NET CASH USED IN INVESTING ACTIVITIES ......................... (30.3) (51.4)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in commercial paper and short-term borrowings ............ 207.2 (162.6)
Repayment of long-term debt ......................................... (2.2) (2.7)
Payment of cash dividends ........................................... (23.9) (23.8)
Other, net .......................................................... 0.7 0.1
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ........... 181.8 (189.0)
-------- --------
Effect of exchange rate changes on cash .............................. -- 1.2
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. 3.5 (67.7)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 92.8 176.1
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 96.3 $ 108.4
======== ========
See accompanying notes to consolidated financial statements.
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited, in millions)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
-------- --------
NET INCOME ........................................................... $ 69.1 $ 16.0
Other comprehensive income (loss):
Foreign currency translation adjustment ........................... (1.9) 7.2
Minimum pension liability adjustment, net of income tax benefit ... -- (1.1)
-------- --------
COMPREHENSIVE INCOME ................................................. $ 67.2 $ 22.1
======== ========
See accompanying notes to consolidated financial statements.
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Ultramar Diamond Shamrock Corporation (the Company) in accordance with United
States' generally accepted accounting principles for interim financial reporting
and with Securities and Exchange Commission rules and regulations for Form 10-Q.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. These
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
Operating results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. The results of operations may be affected by seasonal factors, such as the
demand for refined products and working capital requirements in the Northeast
System, 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 maintenance turnarounds.
Certain previously reported amounts have been reclassified to conform to the
2000 presentation.
NOTE 2: INVENTORIES
Inventories consisted of the following:
MARCH 31, DECEMBER 31,
2000 1999
-------- -----------
(in millions)
Crude oil and other feedstocks ....................................... $ 184.5 $ 155.4
Refined and other finished products and convenience store items ...... 365.9 346.9
Materials and supplies ............................................... 58.0 54.5
-------- --------
TOTAL INVENTORIES ............................................... $ 608.4 $ 556.8
======== ========
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3: COMPUTATION OF NET INCOME PER SHARE
Basic net income per share is calculated as net income divided by the weighted
average number of common shares outstanding. Diluted net income per share
assumes, when dilutive, issuance of the net incremental shares from stock
options and restricted shares. The following table reconciles the net income
amounts and share numbers used in the computation of net income per share.
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---------- ----------
(in millions, except per share data)
BASIC NET INCOME PER SHARE:
Weighted average common shares outstanding (in thousands) ...... 86,713 86,557
========== ==========
Net income applicable to Common Stock .......................... $ 69.1 $ 16.0
========== ==========
Basic net income per share ..................................... $ 0.80 $ 0.18
========== ==========
DILUTED NET INCOME PER SHARE:
Weighted average common shares outstanding (in thousands) ...... 86,713 86,557
Net effect of dilutive stock options based on the treasury stock
method using the average market price ..................... 101 86
---------- ----------
Weighted average common equivalent shares ...................... 86,814 86,643
========== ==========
Net income ..................................................... $ 69.1 $ 16.0
========== ==========
Diluted net income per share ................................... $ 0.80 $ 0.18
========== ==========
NOTE 4: RESTRUCTURING AND OTHER EXPENSES
Restructuring and other expenses consisted of the following:
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
-------- --------
(in millions)
Gain on sale of property, plant and equipment .... $ (0.7) $ --
Transaction costs related to the terminated
Diamond 66 joint venture ....................... -- 11.0
Restructuring reserve reductions ................. -- (3.6)
-------- --------
Restructuring and other expenses, net ....... $ (0.7) $ 7.4
======== ========
In March 1999, the Company and Phillips Petroleum Company terminated discussions
related to the formation of a proposed joint venture (Diamond 66) between the
two companies. During the first quarter of 1999, the Company expensed $11.0
million of transaction costs related to the formation of Diamond 66.
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In June 1998, the Company adopted a three-year restructuring plan to reduce its
retail cost structure by eliminating 251 positions to improve operating
efficiencies and to close and sell 316 under-performing convenience stores. In
addition, the Company restructured certain pipeline and terminal operations and
support infrastructure resulting in the elimination of 62 positions. During the
three months ended March 31, 2000, nine convenience stores were sold or closed
and six employees were terminated under the retail and pipeline and terminal
restructuring plans. From June 1998 through December 1999, 227 convenience
stores were sold or closed and 235 retail employees and 62 pipeline and terminal
employees were terminated.
Changes in accrued restructuring costs for the quarter ended March 31, 2000 were
as follows:
BALANCE AT BALANCE AT
DECEMBER 31, 1999 PAYMENTS MARCH 31, 2000
----------------- -------- --------------
(in millions)
Severance and related costs $ 5.1 $ (1.2) $ 3.9
Lease buyout costs 6.0 -- 6.0
Fuel system removal costs 2.5 (0.1) 2.4
-------- -------- --------
$ 13.6 $ (1.3) $ 12.3
======== ======== ========
NOTE 5: 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
are difficult to assess and estimate 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,
improvements in cleanup technologies 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 or
results of operations.
NOTE 6: BUSINESS SEGMENTS
The Company has three reportable segments: Refining, Retail and
Petrochemical/NGL. The Refining segment includes refinery, wholesale, product
supply and distribution, and transportation operations. The Retail segment
includes Company-operated convenience stores, dealers/jobbers and truckstop
facilities, cardlock and home heating oil operations. The Petrochemical/NGL
segment includes earnings from Nitromite fertilizer, NGL marketing and certain
NGL pipeline operations. Equity income from Diamond-Koch and Skelly-Belvieu are
not included in operating income. Operations that are not included in any of the
three reportable segments are included in the Corporate category and consist
primarily of corporate office expenditures.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately as each business
requires unique technology and marketing strategies. The Company evaluates
performance based on earnings before interest, taxes and depreciation and
amortization (EBITDA). Intersegment sales are generally derived from
transactions made at prevailing market rates.
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ULTRAMAR DIAMOND SHAMROCK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
PETROCHEMICAL/
REFINING RETAIL NGL CORPORATE TOTAL
-------- ------ ------------- --------- -----
(in millions)
THREE MONTHS ENDED MARCH 31, 2000:
Sales and other revenues from
external customers ............... $2,449.2 $1,150.1 $ 40.1 $ -- $3,639.4
Intersegment sales .................. 791.3 -- 1.4 -- 792.7
EBITDA .............................. 166.1 59.1 8.9 (26.7) 207.4
Depreciation and amortization ....... 41.0 18.2 0.2 2.7 62.1
Operating income (loss) ............. 125.1 40.9 2.5 (29.4) 139.1
Total assets ........................ 3,510.5 1,257.5 159.5 254.9 5,182.4
THREE MONTHS ENDED MARCH 31, 1999:
Sales and other revenues from
external customers ............... $1,429.7 $1,266.0 $ 24.5 $ -- $2,720.2
Intersegment sales .................. 488.2 2.1 -- -- 490.3
EBITDA .............................. 110.4 52.9 2.5 (41.6) 124.2
Depreciation and amortization ....... 39.9 16.2 0.3 0.8 57.2
Operating income (loss) ............. 70.5 36.7 0.1 (42.4) 64.9
Total assets ........................ 3,458.2 1,265.7 167.6 71.9 4,963.4
The following summarizes the reconciliation of reportable segment operating
income to consolidated operating income:
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
-------- --------
(in millions)
OPERATING INCOME:
Total operating income for reportable segments ...... $ 168.4 $ 107.3
Other income (loss) ................................. (29.3) (42.4)
-------- --------
Consolidated operating income .................... $ 139.1 $ 64.9
======== ========
NOTE 7: SUBSEQUENT EVENTS
On April 10, 2000, the Company signed a seven-year agreement with Sonatrach, the
Algerian national oil company, to supply the Company's Quebec Refinery with an
additional 35,000 barrels per day of light, low-sulfur crude oil. This
additional supply of crude oil is expected to begin arriving by mid-2001.
On May 2, 2000, the Board of Directors declared a quarterly dividend of $0.275
per Common Share payable on June 1, 2000 to holders of record on May 18, 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE COMPANY
Ultramar Diamond Shamrock Corporation (the Company) is a leading independent
refiner and marketer of high-quality refined products and convenience store
merchandise in the central and southwest regions of the United States (the US
System), and the northeast United States and eastern Canada (the Northeast
System). Its operations consist of six refineries with a combined throughput
capacity of 649,000 barrels per day, approximately 5,000 convenience stores,
pipelines, a home heating oil business, and related petrochemical 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 refined products and working capital
requirements; and industry factors, such as movements in and the 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.
SEASONALITY
In the Northeast System, demand for refined 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. The
substantial increase in demand for home heating oil during the winter months
results in the Company's Northeast System having significantly higher accounts
receivable and inventory levels during the first and fourth quarters of each
year. The Company's US System is less affected by seasonal fluctuations in
demand than its operations in the Northeast System. The working capital
requirements of the US System, though substantial, show little fluctuation
throughout the year. Both the US and Northeast Systems are impacted by the
increased demand for gasoline during the summer driving season.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Financial and operating data by geographic area for the three months ended March
31, 2000 and 1999 are as follows:
FINANCIAL DATA:
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------
2000 1999
----------------------------------- ----------------------------------
US NORTHEAST TOTAL US NORTHEAST TOTAL
-------- -------- -------- -------- -------- --------
(in millions)
Sales and other revenues ............... $2,605.1 $1,034.3 $3,639.4 $2,146.0 $ 574.2 $2,720.2
Cost of products sold .................. 1,746.9 714.2 2,461.1 1,245.4 308.0 1,553.4
Operating expenses(1) .................. 207.5 24.2 231.7 227.5 21.6 249.1
Selling, general and
administrative expenses .............. 32.2 42.4 74.6 37.0 38.6 75.6
Taxes other than income taxes(2) ....... 488.7 182.8 671.5 543.4 169.2 712.6
Depreciation and amortization .......... 51.1 11.0 62.1 47.9 9.3 57.2
Restructuring and other expenses(3) .... (0.8) 0.1 (0.7) 7.4 -- 7.4
-------- -------- -------- -------- -------- --------
Operating income ....................... $ 79.5 $ 59.6 139.1 $ 37.4 $ 27.5 64.9
======== ======== ======== ========
Interest income ........................ 2.9 2.9
Interest expense ....................... (29.5) (38.6)
Equity income from joint ventures ...... 6.2 2.1
-------- --------
Income before income taxes and dividends
of subsidiary ........................ 118.7 31.3
Provision for income taxes ............. 47.0 12.7
Dividends on subsidiary stock .......... 2.6 2.6
-------- --------
Net income ............................. $ 69.1 $ 16.0
======== ========
(1)Operating expenses in the US System decreased due to lower retail operating
expenses as a result of the sale of 416 convenience stores during 1999 and the
closure of the Alma Refinery in December 1999.
(2)Taxes other than income taxes decreased in the US System as sales volumes
declined from 1999 levels (see note 1 above). Taxes other than income taxes for
the Northeast System increased in conjunction with the increased fuel sales
volume especially in the motorist and home heating oil businesses.
(3)In March 1999, the Company expensed $11.0 million of transaction costs
associated with the termination of the proposed Diamond 66 joint venture.
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OPERATING DATA:
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- -----------
US SYSTEM
Mid-Continent Refineries(1):
Throughput (barrels per day) ............. 353,000 390,600
Margin ($/barrel) ........................ $ 4.73 $ 3.27
Operating cost ($/barrel) ................ $ 1.92 $ 1.87
Wilmington Refinery:
Throughput (barrels per day) ............. 142,200 131,800
Margin ($/barrel) ........................ $ 5.86 $ 5.53
Operating cost ($/barrel) ................ $ 1.65 $ 1.70
Retail:
Fuel volume (barrels per day) ............ 152,900 170,900
Fuel margin (cents per gallon) ........... 8.5 10.9
Merchandise sales ($1,000/day) ........... $ 2,768 $ 3,307
Merchandise margin (%) ................... 28.2% 26.6%
NORTHEAST SYSTEM
Quebec Refinery:
Throughput (barrels per day) ............. 162,600 158,200
Margin ($/barrel) ........................ $ 4.98 $ 1.68
Operating cost ($/per barrel) ............ $ 0.87 $ 0.86
Retail:
Fuel volume (barrels per day) ............ 77,900 73,500
Overall margin (cents per gallon)(2) ..... 23.8 25.8
(1)In December 1999, the Alma Refinery was permanently shutdown and ceased
operations. Excluding the Alma Refinery operations from the Mid-Continent
Refineries' first quarter 1999 amounts would have resulted in the following:
Throughput (barrels per day) ..................340,400
Margin ($/barrel)...............................$ 3.26
Operating cost ($/barrel).......................$ 1.76
(2)Retail overall margin reported for the Northeast System represents a blend of
gross margin for Company and dealer-operated retail outlets and convenience
stores, home heating oil sales and cardlock operations.
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GENERAL
Net income for the quarter ended March 31, 2000, was $69.1 million as compared
to $16.0 million for the quarter ended March 31, 1999. On a per share basis,
basic and diluted net income per share for the first quarter of 2000 and 1999
was $0.80 per share and $0.18 per share, respectively.
US SYSTEM
Sales and other revenues in the US system increased $459.1 million or 21.4 % to
$2,605.1 million in the first quarter of 2000 as compared to the first quarter
of 1999 as a result of higher refined product sales prices. Sales volumes in the
US refining operations declined 14% due to the closure of the Alma Refinery in
December 1999, and sales volumes in the US retail operations declined 10% due to
the sale of 416 convenience stores during 1999.
The US System had operating income of $79.5 million for the first quarter of
2000 as compared to $37.4 million for the first quarter of 1999. The increase in
operating income was primarily due to improved refinery margins and lower
operating expenses.
During the first quarter of 2000, refining margins improved dramatically from
the first quarter of 1999, when refining margins reached ten year lows, except
on the West Coast. Refining margins have improved since 1999 due to the steady
decline in crude oil and refined product inventories as a result of crude oil
producers limiting production.
The Mid-Continent refining margin increased $1.46 per barrel, or 44.6%, to $4.73
per barrel as all three Mid-Continent Refineries operated at high throughput
levels when wholesale gasoline and distillate prices climbed to four-year highs.
The decrease in refining throughput for the Mid-Continent Refineries from
390,600 barrels per day in the first quarter of 1999 to 353,000 barrels per day
in the first quarter of 2000 was due to the permanent shutdown of the Alma
Refinery in December 1999. During the first quarter of 1999, the Alma Refinery
contributed approximately 50,200 barrels per day of throughput.
The Wilmington Refinery margin improved 6.0% from $5.53 per barrel in 1999 to
$5.86 per barrel in 2000 as the Company benefited from increased demand and
maintenance turnarounds at competitor refineries during the first quarter of
2000. In addition, throughput at the Wilmington Refinery increased 7.9% to
142,200 barrels per day from 131,800 barrels per day in 1999.
The US retail operations continued to be impacted negatively by the sharp
increase in wholesale gasoline prices, which increased faster than retail pump
prices. As a result, the retail fuel margin declined from 10.9 cents per gallon
in 1999 to 8.5 cents per gallon in 2000. Beginning in late March, retail fuel
margins began to recover as wholesale gasoline prices started to decline and
retail pump prices remained stable. Partially offsetting the negative 2000 fuel
margin was the increase in the merchandise margin from 26.6% in 1999 to 28.2% in
2000. Also positively impacting the US retail operations were increases in
merchandise sales per store and fuel volumes per store as a result of selling
less profitable convenience stores during 1999. On a same store basis,
merchandise sales increased 5% and fuel volumes increased 12%.
Selling, general and administrative expenses for the first quarter of 2000 were
$4.8 million lower than in the first quarter of 1999 due to lower selling
expenses as a result of selling 416 convenience stores during 1999.
Restructuring and other expenses for the three months ended March 31, 1999
included $11.0 million of transaction costs associated with the termination of
the proposed Diamond 66 joint venture and $3.6 million of restructuring reserve
reductions.
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NORTHEAST SYSTEM
Sales and other revenues in the Northeast System increased $460.1 million from
$574.2 million in the first quarter of 1999 to $1,034.3 million in the first
quarter of 2000. The increase in sales was due to higher selling prices of
refined products as a result of higher crude oil prices compared to 1999 coupled
with a 2.5% increase in sales volume.
Refining throughput for the first quarter of 2000 increased 4,400 barrels per
day over the first quarter of 1999. The refinery margins improved significantly
during the first quarter of 2000 as compared to the first quarter of 1999 due to
reduced industry inventory levels and increased demand.
Retail operations benefited from a 6.0% increase in fuel volumes as a result of
site upgrades at motorist business locations. The overall retail margin declined
to 23.8 cents per gallon in 2000 as the increased sales were generated from the
motorist business which has a lower margin as compared to the home heating oil
business.
Selling, general and administrative expenses for the first quarter of 2000
increased $3.8 million over the first quarter of 1999 due to higher selling
expenses incurred to support the higher sales volume, especially in the home
heating oil and motorist businesses.
CORPORATE
Interest expense of $29.5 million in the first quarter of 2000 was $9.1 million
lower than in the corresponding quarter of 1999 due to the repayment of $602.8
million of debt during 1999.
The consolidated income tax provisions for the first quarter of 2000 and 1999
were based upon the Company's estimated effective income tax rates for the years
ending December 31, 2000 and 1999 of 39.6% and 41.7%, respectively. The
consolidated effective income tax rates exceed the U.S. Federal statutory income
tax rate primarily due to state income taxes, the effects of foreign operations
and the amortization of nondeductible goodwill.
OUTLOOK
The Company's earnings depend largely on refining and retail 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 as well
as the price of refined products sold by the Company have fluctuated widely in
the past. As a result of the historic volatility of refining and retail margins
and the fact that they are affected by numerous diverse factors, it is
impossible to predict future margin levels.
Industry-wide refining margins during the first quarter of 2000 increased by 70%
from year-ago levels due to lower crude oil and refined product inventories
coupled with increased demand and competitor refinery outages and maintenance
problems. Higher distillate demand, especially for home heating oil, was due
mainly to an acquisition which occurred in late 1999. Also, gasoline demand was
higher for the first quarter of 2000 than 1999. Lower production helped draw
inventory levels in the United States to near four-year lows. While refining
margins moved higher, retail fuel margins eroded as retail pump prices could not
keep pace with the escalation in wholesale prices. In March 2000, OPEC announced
an increase in crude oil production of just under two million barrels per day.
In response to this announcement, crude oil prices fell and subsequently so did
wholesale prices. Retail pump prices toward the end of the first quarter of 2000
and into April 2000 remained stable resulting in improved retail margins.
Operating results early in the second quarter of 2000 have continued at the
strong levels experienced in March 2000. Continued strong industry fundamentals
are keeping refining margins above average first quarter levels as the industry
moves into the summer driving season. Low gasoline inventories and strong demand
are helping to stabilize refined product prices, and both refining and retail
margins should show improvements when compared to
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the second quarter of 1999. In addition, per store volumes for both fuel and
merchandise are trending higher than last year.
The Company is on track to achieve the targeted $100.0 million of EBIT
improvements for 2000. These improvements include continued expense reductions,
yield and volume improvements in refining, increased merchandise contributions
from retail, and revenue benefits resulting from capital spending. The
improvements are expected to help the Company achieve its goal of increasing
return on capital employed (ROCE) in a "low-margin" environment.
See "Certain Forward-Looking Statements."
CAPITAL EXPENDITURES
The petroleum refining and marketing industry is a capital-intensive business.
Significant capital requirements include expenditures to upgrade or enhance
refinery operations to meet environmental regulations and maintain the Company's
competitive position, as well as to acquire, build and maintain broad-based
retail networks. The capital requirements of the Company's operations consist
primarily of:
o maintenance expenditures, such as those required to maintain equipment
reliability and safety and to address environmental regulations; and
o growth opportunity expenditures, such as those planned to expand and
upgrade its retail business, to increase the capacity of certain
refinery processing units and pipelines and to construct additional
petrochemical processing units.
During the quarter ended March 31, 2000, capital expenditures totaled $26.6
million of which $12.9 million related to maintenance expenditures and $13.7
million related to growth opportunity expenditures. Approximately $6.4 million
and $4.4 million of costs have been incurred at the refineries and at the retail
level, respectively, for various maintenance expenditures. During the quarter
ended March 31, 2000, the Company also incurred $8.7 million in refinery
maintenance turnaround costs primarily at the Three Rivers and McKee Refineries.
The Company plans to invest $40.0 million to expand its Quebec Refinery from
160,000 barrels per day to 190,000 barrels per day to meet the growing demand in
eastern Canada. The expansion, which is still subject to permitting approvals,
is expected to further reduce operating and feedstock costs. The project is
included in the capital expenditures budget for 2000 and is slated for
completion in the latter part of 2001.
The Company is continually investigating strategic acquisitions and other
business opportunities, some of which may be material, that will complement its
current business activities.
The Company expects to fund its capital expenditures from cash provided by
operations and, to the extent necessary, from the proceeds of borrowings under
its bank credit facilities and its commercial paper program 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
FINANCING
As of March 31, 2000, the Company had cash and cash equivalents of $96.3
million. The Company currently has two committed, unsecured bank facilities
which provide a maximum of $700.0 million U.S. and $200.0 million Cdn. of
available credit, and a $700.0 million commercial paper program supported by the
committed, unsecured U.S. bank facility.
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As of March 31, 2000, the Company had borrowing capacity of approximately $663.5
million remaining under its committed bank facilities and commercial paper
program and had approximately $602.5 million under uncommitted, unsecured
short-term lines of credit with various financial institutions.
In addition to its bank credit facilities, the Company has $1.0 billion
available under universal shelf registrations previously filed with the
Securities and Exchange Commission. The net proceeds from any debt or equity
offering under the universal shelf registrations would add to the Company's
working capital and would be available for general corporate purposes.
The Company also has $75.7 million available pursuant to committed lease
facilities aggregating $355.0 million under which the lessors will construct or
acquire and lease convenience stores to the Company.
The bank facilities and other debt agreements require that the Company maintain
certain financial ratios and other restrictive covenants. The Company is in
compliance with such covenants and believes that such covenants will not have a
significant impact on the Company's liquidity or its ability to pay dividends.
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.
Effective March 29, 1999, the Company established a revolving accounts
receivable securitization facility (Securitization Facility) which provides the
Company with the ability to sell up to $250.0 million of accounts receivable on
an ongoing basis. In connection with the Securitization Facility, the Company
sells, on a revolving basis, an undivided interest in certain of its trade and
credit card receivables. The proceeds from the sale of accounts receivable,
which totaled $237.6 million during 1999, were used to reduce the Company's
outstanding indebtedness under its commercial paper program. At December 31,
1999 and March 31, 2000, the balance of receivables sold was $39.8 million. The
remaining availability under the Securitization Facility can be used should the
Company decide to sell additional receivables in the future.
As an alternative financing vehicle, the Company is considering the formation of
a master limited partnership (MLP), which would operate most of the Company's
pipeline and terminal assets. A wholly-owned subsidiary of the Company would be
the general partner of the MLP and operate the assets on its behalf. It is
contemplated that the MLP, through an initial public offering, would sell
limited partnership units to the public representing a minority of the ownership
interest. Management expects to form the MLP and complete the initial public
offering during the second half of 2000, subject to approval by the Board of
Directors, acceptable market conditions and other considerations.
EQUITY
On May 2, 2000, the Board of Directors declared a quarterly dividend of $0.275
per Common Share payable on June 1, 2000 to holders of record on May 18, 2000.
CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000
During the first quarter ended March 31, 2000, the Company's cash position
increased $3.5 million to $96.3 million. Net cash used in operating activities
was $148.0 million due to an increased investment in accounts and notes
receivable of $220.6 million resulting primarily from higher product prices in
the first quarter of 2000.
Net cash used in investing activities during the quarter ended March 31, 2000
totaled $30.3 million which included $26.6 million for capital expenditures and
$8.7 million for refinery maintenance turnaround costs.
Net cash provided by financing activities during the quarter ended March 31,
2000, totaled $181.8 million. During the quarter ended March 31, 2000, the
Company's commercial paper and short-term borrowings increased $207.2 million to
fund the higher investment in accounts and notes receivable explained above. The
Company also paid cash dividends totaling $23.9 million during the first quarter
of 2000.
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CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999
During the first quarter ended March 31, 1999, the Company's cash position
decreased $67.7 million to $108.4 million. Net cash provided by operating
activities was $171.5 million including the receipt of $222.0 million from the
sale of trade and credit card receivables under the Company's Securitization
Facility.
Net cash used in investing activities during the quarter ended March 31, 1999,
totaled $51.4 million including $35.3 million for capital expenditures and $18.3
million for refinery maintenance turnaround costs.
Net cash used in financing activities during the quarter ended March 31, 1999,
totaled $189.0 million, including payments to reduce short-term borrowings of
$162.6 million and for cash dividends totaling $23.8 million.
EXCHANGE RATES
The value of the Canadian dollar relative to the U.S. dollar has weakened
substantially since the acquisition of the Canadian operations in 1992. As the
Company's Canadian operations are in a net asset position, the weaker Canadian
dollar has reduced, in U.S. dollars, the Company's net equity at March 31, 2000,
by $84.2 million. Although the Company expects the exchange rate to fluctuate
during 2000, it cannot reasonably predict its future movement.
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 Canadian
operations. The potential impact on the refining margin of fluctuating exchange
rates together with U.S. dollar denominated crude oil costs is mitigated by the
Company's pricing policies in the Northeast System, which generally pass on any
change in the cost of crude oil. Retail 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 on the
increased costs to the ultimate consumer. The Company has considered various
strategies to manage currency risk, and it hedges the Canadian currency risk
when such hedging is considered economically appropriate.
See "Certain Forward-Looking Statements."
YEAR 2000 ISSUE
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, the Company does not expect any significant
impact to its ongoing business as a result of the Year 2000 issue.
See "Certain Forward-Looking Statements."
CERTAIN FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain "forward-looking" statements
as such term is defined in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Act of 1934, and information relating to the Company and
its subsidiaries that are based on the beliefs of management as well as
assumptions made by and information currently available to management. When used
in this report, the words "anticipate," "believe," "estimate," "expect," and
"intend" and words or phrases of similar expressions, as they relate to the
Company or its subsidiaries or management, identify forward-looking statements.
Such statements reflect the current views of management with respect to future
events and are subject to certain risks, uncertainties and assumptions relating
to the operations and results of operations, including as a result of
competitive factors and pricing pressures, shifts in market demand and general
economic conditions and other factors.
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Should one or more of these risks or uncertainties materialize, or should any
underlying assumptions prove incorrect, actual results or outcomes may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including changes in interest
rates, foreign currency rates and commodity prices related to crude oil, refined
products and natural gas. To manage or reduce these market risks, the Company
uses interest rate swaps, foreign exchange contracts, and commodity futures and
price swap contracts. The Company's policies allow using derivatives for the
purchase of physical quantities of crude oil and refined products as wells as
for the management of crude oil costs. Generally, the derivatives relate to an
underlying, offsetting position, anticipated transaction or firm commitment.
During 1999 and 2000, as part of the Company's crude oil procurement activities,
commodity futures contracts were used to manage the price of crude oil supplied
to its refineries. The Company has from time to time, on a very limited basis,
used derivative instruments for trading purposes; however, the gains and losses
from such activities have been immaterial. A discussion of the Company's primary
market risk exposures in derivative financial instruments is presented below.
INTEREST RATE RISK
The Company is subject to interest rate risk on its long-term fixed interest
rate debt. Commercial paper borrowings and borrowings under revolving credit
facilities do not give rise to significant interest rate risk because these
borrowings have maturities of less than three months. The carrying amount of the
Company's floating interest rate debt approximates fair value. Generally, the
fair market value of debt with a fixed interest rate will increase as interest
rates fall, and the fair market value will decrease as interest rates rise. This
exposure to interest rate risk is managed by obtaining debt that has a floating
interest rate or using interest rate swaps to change fixed interest rate debt to
floating interest rate debt. Since mid-1999, the Federal Reserve has raised
interest rates 0.25% on five different occasions and is biased towards continued
rate increases as long as the economy remains in an expansion mode. As a result,
the fair value of the Company's fixed rate debt is declining as shown in the
following tables.
The following table provides information about the Company's long-term debt and
interest rate swaps, both of which are sensitive to changes in interest rates.
For long-term debt, principal cash flows and related weighted average interest
rates by expected maturity dates, after consideration of refinancing, are
presented. For interest rate swaps, the table presents notional amounts and
weighted average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contract. Weighted average floating rates are based on implied forward
rates in the yield curve at March 31, 2000.
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MARCH 31, 2000
--------------------------------------------------------------------------------------------------
EXPECTED MATURITY - YEAR ENDING DECEMBER 31,
--------------------------------------------------------------------------------------------------
THERE- FAIR
2000 2001 2002 2003 2004 AFTER TOTAL VALUE
--------- --------- --------- --------- --------- --------- --------- ---------
(in millions, except interest rates)
LONG-TERM DEBT:
Fixed rate ................ $ 12.6 $ 84.3 $ 284.7 $ 33.3 $ 0.5 $ 911.3 $ 1,326.7 $ 1,247.9
Average interest rate ... 8.9% 9.5% 8.7% 8.7% 7.7 7.6% 8.0% N/A
Floating rate ............. $ -- $ -- $ 219.9 $ -- $ -- $ -- $ 219.9 $ 219.9
Average interest rate ... --% --% 6.5% --% --% --% 6.5% N/A
INTEREST RATE SWAPS:
Fixed to floating ......... $ -- $ -- $ 200.0 $ -- $ -- $ 250.0 $ 450.0 $ 450.0
Average pay rate ........ 6.09% 6.73% 6.49% 6.82% 6.79% 7.06% 6.81% N/A
Average receive rate .... 6.43% 6.43% 6.43% 6.59% 6.59% 6.88% 6.69% N/A
DECEMBER 31, 1999
------------------------------------------------------------------------------------------------
EXPECTED MATURITY - YEAR ENDING DECEMBER 31,
------------------------------------------------------------------------------------------------
THERE- FAIR
2000 2001 2002 2003 2004 AFTER TOTAL VALUE
--------- --------- --------- ------- ------ ------- --------- ---------
(in millions, except interest rates)
LONG-TERM DEBT:
Fixed rate ................ $ 14.0 $ 84.5 $ 285.0 $ 33.5 $ 0.6 $ 911.4 $ 1,329.0 $ 1,295.2
Average interest rate ... 8.8% 9.6% 8.7% 8.8% 7.7% 7.6% 8.0% N/A
Floating rate ............. $ -- $ -- $ 12.6 $ -- $ -- $ -- $ 12.6 $ 12.6
Average interest rate ... --% --% 5.7% --% --% --% 5.7% N/A
INTEREST RATE SWAPS:
Fixed to floating ......... $ -- $ -- $ 200.0 $ -- $ -- $ 250.0 $ 450.0 $ 450.0
Average pay rate ........ 6.22% 6.91% 7.00% 7.09% 7.13% 7.50% 7.18% N/A
Average receive rate .... 6.43% 6.43% 6.43% 6.59% 6.59% 6.88% 6.69% N/A
FOREIGN CURRENCY RISK
The Company periodically enters into short-term foreign exchange contracts to
manage its exposure to exchange rate fluctuations on the trade payables of its
Canadian operations that are denominated in U.S. dollars. These contracts
involve the exchange of Canadian and U.S. currency at future dates. Gains and
losses on these contracts generally offset losses and gains on the U.S. dollar
denominated trade payables. At March 31, 2000, the Company had commitments to
purchase $3.0 million of U.S. dollars. The Company's exposure to market risk is
minimal on these contracts as they matured on April 3, 2000.
The Company generally does not hedge for the effects of foreign exchange rate
fluctuations on the translation of its foreign results of operations or
financial position.
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COMMODITY PRICE RISK
The Company is subject to the market risk associated with changes in market
prices of its underlying crude oil, refined products and natural gas; however,
such changes in values are generally offset by changes in the sales price of the
Company's refined products. Price swaps are price hedges for which gains and
losses are recognized when the hedged transactions occur; however, losses are
recognized when future prices are not expected to recover.
During the quarter ended March 31, 2000, the Company purchased $1.1 billion of
crude oil to supply its various refineries. In conjunction with these purchases,
the Company entered into commodity futures contracts. The commodity futures
contracts are generally satisfied by the Company taking physical delivery of the
underlying crude oil or refined product; however, there are contracts which are
closed without taking physical delivery of the underlying barrels.
As of March 31, 2000, the Company did not hold any commodity futures contracts
not designated as hedges. However during the three months ended March 31, 2000,
the Company incurred a loss of $0.2 million associated with such contracts not
designated as hedges which are marked to market value and recognized currently
in cost of products sold.
As of March 31, 2000, the Company had outstanding commodity futures and price
swap contracts to buy $294.5 million and sell $281.7 million of crude oil and
refined products or to settle differences between a fixed price and market price
on aggregate notional quantities of 6.4 million barrels of crude oil and refined
products which will mature on various dates through June 2002. As of December
31, 1999, the Company had outstanding commodity futures and price swap contracts
to buy $351.8 million and sell $194.0 million of crude oil and refined products
or to settle differences between a fixed price and market price on aggregate
notional quantities of 6.4 million barrels of crude oil and refined products
which mature on various dates through June 2002. The fair value of commodity
futures contracts designated as hedges is based on quoted market prices. The
fair value of price swap contracts is determined by comparing the contract price
with current broker quotes for futures contracts corresponding to the period
that the anticipated transactions are expected to occur.
The information below reflects the Company's futures contracts and price swaps
that are sensitive to changes in crude oil or refined product commodity prices.
The tables present the notional amounts in barrels for crude oil and refined
product, the weighted average contract prices and the total contract amount by
expected maturity dates. Contract amounts are used to calculate the contractual
payments and quantity of barrels of crude oil or refined product to be exchanged
under the futures contract.
MARCH 31, 2000
----------------------------------------------------------
FAIR
CARRYING VALUE WEIGHTED
AMOUNT AMOUNT CONTRACT CONTRACT AVERAGE
GAIN (LOSS) GAIN (LOSS) AMOUNT VOLUMES PRICE
----------- ----------- -------- ------- --------
(mbbl)
(in millions, except weighted average price)
PROCUREMENT:
FUTURES CONTRACTS - LONG:
2000 ................... $ (3.1) $ (3.2) $154.5 6.4 $24.12
FUTURES CONTRACTS - SHORT:
2000 ................... 0.3 11.0 281.7 11.3 24.97
PRICE SWAPS:
2002 ................... (9.1) (8.0) 140.0 6.4 22.00
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DECEMBER 31, 1999
---------------------------------------------------------------
FAIR
CARRYING VALUE WEIGHTED
AMOUNT AMOUNT CONTRACT CONTRACT AVERAGE
GAIN (LOSS) GAIN (LOSS) AMOUNT VOLUMES PRICE
----------- ----------- -------- -------- --------
(mbbl)
(in millions, except weighted average price)
PROCUREMENT:
FUTURES CONTRACTS - LONG:
2000 ................... $ 0.9 $ 2.3 $ 211.8 9.5 $ 22.26
FUTURES CONTRACTS - SHORT:
2000 ................... 0.1 0.4 194.0 8.8 22.02
PRICE SWAPS:
2002 ................... (9.1) (19.9) 140.0 6.4 22.00
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
EPA Region V v. Total Petroleum, Inc. (Alma Refinery) In April, 2000 the Company
settled an enforcement action that had been filed by Environmental Protection
Agency (EPA) Region V, in which the EPA alleged violations of the Clean Air Act
and Resource Conservation and Recovery Act in connection with the Company's
refinery in Alma, Michigan. The settlement agreement requires the Company to
fund $9.9 million of specific environmental and economic development projects
and to pay penalties of $4.0 million. These settlement amounts are fully
accrued.
Unocal Patent Infringement Action (Update) On March 29, 2000 the U. S. Court of
Appeals upheld a California trial court's decision that Unocal Corporation holds
a valid patent with respect to certain reformulated gasoline compositions, and
assessed damages of 5.75 cents per gallon for gasoline infringing on the patent.
The defendants in the suit, Arco, Chevron, Exxon Mobil, Shell, and Texaco, have
filed a petition for rehearing with the U.S. Court of Appeals. The Company is
not a party to the suit, and its exposure, if any, depends on numerous factors,
including the availability of alternate gasoline formulations and its ability to
recover any additional costs in the marketplace.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2000 Annual Meeting of Stockholders was held on May 2, 2000, in
Houston, Texas. At the meeting, the Company's stockholders elected four
directors to serve three-year terms expiring in 2003, approved the amendments to
the Company's Non-Employer Director Equity Plan, and ratified the appointment of
Arthur Andersen LLP to serve as independent accountants for the Company and its
subsidiaries for 2000.
The following tables summarize the number of votes cast for, against or
withheld, and number of abstentions as to each matter:
ELECTION OF DIRECTORS
Name Total Votes For Total Votes Withheld
Byron Allumbaugh 80,103,843 392,200
E. Glenn Biggs 80,108,518 387,525
Katherine D. Ortega 80,101,715 394,328
Madeleine Saint-Jacques 80,102,034 394,009
APPROVAL OF AMENDMENTS TO THE COMPANY'S NON-EMPLOYER DIRECTOR EQUITY PLAN
For Against Abstain
78,121,904 2,205,926 168,213
RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS
For Against Abstain
80,342,583 81,057 72,403
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Form of Ultramar Diamond Shamrock Corporation Intermediate Incentive
and Performance-Based Restricted Stock Plan
10.2 Form of Ultramar Diamond Shamrock Corporation Intermediate Incentive
and Performance-Based Restricted Stock Award Agreement
10.3 Form of Amendment to Ultramar Corporation Supplemental Executive
Retirement Plan
10.4 Form of Amendment to Diamond Shamrock, Inc. Supplemental Executive
Retirement Plan
10.5 Ultramar Diamond Shamrock Corporation Non-Employee Director Equity
Plan, as amended effective January 1, 2000 (incorporated by reference
to the Company's Definitive Schedule 14A Information filed March 21,
2000)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ULTRAMAR DIAMOND SHAMROCK CORPORATION
BY: /s/ H. PETE SMITH
---------------------------------
H. PETE SMITH
EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
MAY 12, 2000
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EXHIBIT INDEX
EXHIBIT
NUMBERS DESCRIPTION
- ------- -----------
10.1 Form of Ultramar Diamond Shamrock Corporation Intermediate
Incentive and Performance-Based Restricted Stock Plan
10.2 Form of Ultramar Diamond Shamrock Corporation Intermediate
Incentive and Performance-Based Restricted Stock Award Agreement
10.3 Form of Amendment to Ultramar Corporation Supplemental Executive
Retirement Plan
10.4 Form of Amendment to Diamond Shamrock, Inc. Supplemental
Executive Retirement Plan
10.5 Ultramar Diamond Shamrock Corporation Non-Employee Director
Equity Plan, as amended effective January 1, 2000 (incorporated
by reference to the Company's Definitive Schedule 14A Information
filed March 21, 2000)
27.1 Financial Data Schedule