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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-4014
FINA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-1820692
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
FINA PLAZA, DALLAS, TEXAS 75206
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number Including Area Code: (214) 750-2400
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class A Common Stock $.50 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K ON ANY AMENDMENT TO THIS
FORM 10-K. [ ]
The aggregate market value of the Class A Common voting stock held by
non-affiliates of the Registrant as of February 11, 1998 was $162,562,360 based
on the closing price of $59.8125 per share as recorded by the American Stock
Exchange.
The number of shares outstanding of each of the issuer's classes of common
stock, as of February 11, 1998:
CLASS A COMMON STOCK -- 29,224,072
CLASS B COMMON STOCK -- 2,000,000
Documents Incorporated by Reference: Part III: The Company's Proxy
Statement for Annual Meeting of Stockholders to be held April 15, 1998.
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CROSS REFERENCE SHEET
FORM 10-K ITEM LOCATION IN
NUMBER AND CAPTION FORM 10-K
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PART I:
1. Business.................................................... page 1
2. Properties.................................................. page 3
3. Legal Proceedings........................................... page 5
4. Submission of Matters to a Vote of Security Holders......... page 5
PART II:
5. Market for the Registrants' Common Stock and Related
Security Holder Matters................................... page 6
6. Selected Financial Data..................................... page 7
7. Management's Discussion and Analysis of Financial Condition
and
Results of Operations..................................... page 8
8. Financial Statements and Supplementary Data................. page 13
9. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure...................................... page 40
PART III:
10. Directors and Executive Officers of the Registrant.......... page 40
11. Executive Compensation...................................... page 40
12. Security Ownership of Certain Beneficial Owners and
Management................................................ page 41
13. Certain Relationships and Related Transactions.............. page 41
PART IV:
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................. page 41
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PART I
ITEM 1 BUSINESS
(a) FINA, Inc. (and subsidiaries, collectively the "Company" or "FINA") was
organized in 1956 as American Petrofina, Incorporated and is part of an
international group of companies in more than 40 countries which are affiliated
with PetroFina S.A., ("PetroFina") a publicly-held corporation organized under
the laws of the Kingdom of Belgium. Petrofina Delaware, Incorporated ("PDI")
owns approximately 85% and 100% of the Class A and Class B common stock of the
Company, respectively. PetroFina owns 100% of PDI and American Petrofina Holding
Company.
On February 17, 1998, PetroFina and the Company announced that they entered
into a definitive agreement and plan of merger pursuant to which the Company
will become an indirect, wholly-owned subsidiary of PetroFina. Under the terms
of the agreement, current shareholders of the Company, other than PetroFina and
its subsidiaries will receive in exchange for each FINA, Inc. share they
currently hold $60 and a warrant entitling the holder to purchase nine-tenths
(0.9) of one PetroFina American Depositary Share ("ADS") at an exercise price of
$42.25 per ADS. Thus, each 10 warrants will entitle the holder of those
warrants, upon payment of $380.25, to receive nine ADSs. The warrants will be
exercisable for a period of five years from effective date of the merger.
PetroFina intends to seek listing of the warrants on the New York Stock
Exchange. The agreement was recommended by a Special Committee of the Board of
Directors of the Company and approved by the Company's Board of Directors.
Goldman, Sachs & Co. acted as financial adviser to the Special Committee. The
merger is subject to customary closing conditions. The Company and PetroFina
also announced that they have entered into a Memorandum of Understanding with
class counsel regarding the proposed comprehensive settlement of various class
action lawsuits that had been filed relating to the transaction. The settlement
is subject to, among other things, completion of definitive documentation
relating to the settlement, court approval and consummation of the merger.
FINA, Inc. is engaged, through its wholly-owned, main operating subsidiary,
Fina Oil and Chemical Company ("FOCC"), in crude oil and natural gas exploration
and production; petroleum products refining, supply and transportation and
marketing; and chemicals manufacturing and marketing. A wholly-owned subsidiary
of the Company, Fina Natural Gas Company, is engaged in natural gas marketing.
Fina Technology, Inc., a subsidiary of the Company, licenses certain proprietary
processes to others.
Capital expenditures for 1997 were $340.7 million compared to the prior
year's $263.3 million. Capital expenditures by segments of the Company are shown
in Note 14 to the Consolidated Financial Statements on pages 32 through 34.
Expenditures associated with refining, supply and transportation and marketing
were $48.0 million of the total capital expenditures primarily for efficiency
and yield improvement projects at both refineries. Expenditures of $125.4
million for exploration and production were attributable primarily to
exploration and development drilling activity. Expenditures relating to
chemicals were $159.0 million due to major expansions in two of the Company's
four product lines. The capital expenditures budget for 1998 is $395.5 million.
No major individual assets or subsidiaries were acquired or disposed of
during the five years ending December 31, 1997.
(b) Segment data is shown in Note 14 "Segment Data" to Consolidated
Financial Statements on pages 32 through 34.
(c) The Company has grouped its businesses into (1) crude oil and natural
gas exploration and production, and natural gas marketing; (2) petroleum
products refining, supply and transportation and marketing; and (3) chemicals
manufacturing and marketing, primarily petrochemicals and plastics including
polypropylene, styrene monomer, polystyrene and high density polyethylene, and
the licensing of certain chemical processes. The energy products are produced by
FOCC, a Delaware corporation. Petrochemicals and plastics are manufactured by
FOCC and by Cos-Mar Company ("Cos-Mar"), a 50% owned joint venture.
The Company markets gasoline and other refined products, including naphtha,
jet fuel, distillates, diesel fuel, heavy oils and asphalt, under the FINA(R)
brand or as unbranded products. FINA(R) transportation fuel products are
primarily sold through 2,659 branded retail outlets, of which 53 are
company-owned service
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stations and the remainder are owned and operated by 230 independent businesses
located in 15 states in the Southeastern and Southwestern regions of the United
States. The Company also markets petrochemicals and plastics under the FINA(R)
brand. Fina Natural Gas Company is engaged in natural gas marketing.
Following are products which accounted for more than 10% of consolidated
revenues in 1997, 1996 and 1995, and their appropriate percentage of revenues
for the three years:
PERCENTAGE OF REVENUES
-----------------------
1997 1996 1995
----- ----- -----
Refined Products:
Gasoline.................................................. 26% 30% 31%
Distillates............................................... 18% 20% 19%
Petrochemicals and Plastics................................. 27% 29% 32%
Natural Gas................................................. 19% 12% 8%
Additional segment data is shown in Note 14 "Segment Data" to Consolidated
Financial Statements on pages 32 through 34 herein.
Sufficient raw material is available in the foreseeable future for
supplying the needs of the various manufacturing units of the Company, although
political situations in the important oil producing nations can aggravate the
supply situation in the United States where imports of oil are necessary to meet
demand.
In September 1997, the Company and BASF announced their intention to
construct the world's largest steam cracker on property adjacent to the
Company's Port Arthur, Texas Refinery. When completed on a projected date of
late 2000, the steam cracker's integration with the Refinery will fully utilize
the Refinery's capacity, optimize refining and cracker feedstocks, and supply
raw materials to the Company's Chemicals plants. This investment is still
subject to a confirmation of the cost estimate and to parent Board's final
approval.
The Company licenses its patented chemical processes throughout the world.
The net earnings derived from licensing were not material to the consolidated
results of operations in 1997, 1996 and 1995.
The business of the Company cannot be considered seasonal and is sensitive
to crude oil and natural gas pricing, margins between crude oil and refined
products and chemicals margins. There are, however, fluctuations, such as
increased demand for gasoline during summer months. Inflation increases the
costs of labor and supplies and increases costs of acquiring and replacing
property, plant and equipment.
Inventories of refined products and crude oil vary according to the overall
supply environment and in anticipation of price increases or decreases. Payments
for crude oil are generally expected by the 20th day of the month following the
month in which the crude oil was delivered. Payments for refined products are
generally expected within 10 days of billing. Payments for chemicals are
generally expected within 30 days of billing. Credit is sometimes extended for a
longer period on products when there is a surplus, and in some cases, credit
terms are influenced by credit history and financial stability.
No material part of the business is dependent on a single customer or a few
customers. Most of the Company's customers are located in the Southern and
Midwestern regions of the United States, except with respect to chemicals where
customers are located throughout the United States. No single customer accounted
for more than 5% of the Company's sales in 1997, 1996 or 1995, and no account
receivable from any customer exceeded 5% of the Company's consolidated
stockholders' equity at December 31, 1997, 1996 or 1995.
No material portion of the business is subject to renegotiation of profits
or termination of contracts or subcontracts at the election of the government.
In both the crude oil and natural gas exploration and production and
natural gas marketing segment and the petroleum products refining, supply and
transportation and marketing segment, the principal methods of competition are
price and availability of product. In the petroleum products and chemicals
segments, quality of the product is also a competitive factor.
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During 1997, $11.3 million was expended on pollution control and
environmental protection capital projects. It is estimated that environmental
capital expenditures will be approximately $14.6 million companywide in 1998.
Additionally, during 1997, $34.5 million was charged to expenses relating to
ongoing environmental administration and maintenance activities at operating
facilities.
The number of persons employed on December 31, 1997 was 2,802 full time and
71 part time.
(d) Sales, operating profit (loss), and identifiable assets for the three
years ended December 31, 1997 were substantially all attributable to domestic
operations.
(e) "Executive Officers of the Registrant" are described in Part III, Item
10.
ITEM 2 PROPERTIES
(a) The Company owns and operates two refineries in Texas. The total raw
materials processed at both refineries averaged 232,000 barrels per day for
1997. The Port Arthur, Texas refinery is located on 1,231 acres in Jefferson
County, Texas and the Big Spring, Texas refinery is located on 1,259 acres in
Howard County, Texas.
The polystyrene plant located in Carville, Louisiana is the largest
polystyrene manufacturing plant in the world; total net capacity is 1.025
billion pounds per year. The Carville, Louisiana plant, and the adjacent styrene
monomer plant, also the largest styrene plant in the world, discussed herein,
are located on 358 acres in Iberville Parish, Louisiana.
The Company owns and operates a polypropylene plant at La Porte, Texas on
76.5 acres of land in Harris County, Texas. During 1997, the throughput capacity
was 1.5 billion pounds per year. The La Porte, Texas, plant is the largest
polypropylene manufacturing plant in the world. An expansion of the plant was
underway in 1997.
The Company purchased a high density polyethylene plant in 1992. The plant
is located in Harris County, Texas, in the Bayport area. The plant has a
capacity of 420 million pounds per year and is situated on 54.7 acres of land. A
major expansion of the plant was underway in 1997.
The Company operates, for a 50% owned joint venture, a styrene monomer
plant located in Carville, Louisiana. Gross production capacity is 2 billion
pounds per year. This plant is the largest styrene plant in the world.
A subsidiary of the Company owns a 33% interest in a propylene splitter at
Mont Belvieu, Texas, with an approximate capacity of 1.5 billion pounds per
year. An expansion of the plant was underway in 1997.
Over 1,071 miles of crude oil gathering and mainline pipelines are owned
and operated by the Company, together with 372 miles of products pipelines which
are leased. The Company also owns storage terminals and owns and leases rail
tank cars which are used in its distribution systems.
(b) Reserve Quantity information is shown in "Supplemental Oil and Gas Data
(Unaudited)" to Consolidated Financial Statements on pages 35 and 36.
(c) 1. Location of Reserves. The Company's major crude oil reserves are
located in West Texas in the Permian Basin, and the Company's major gas reserves
are located in High Island A571 offshore in the Gulf of Mexico, at Mecom and
LaTerre in Louisiana, and in the Texas Rio Grande Valley. All of the Company's
proved oil and gas reserves are located in the United States.
2. Reserves Reported to Other Agencies
Total proved net oil and gas reserves as of December 31, 1996 were reported
to the Energy Information Agency of the U.S. Department of Energy in May 1997
(EIA-28) in the amounts of 39 million barrels of crude oil and natural gas
liquids and 371 BCF of natural gas.
The reserve estimates reported above do not vary by more than five percent
from the similar amounts reported to the SEC for the same date.
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3. Production
FISCAL YEAR
ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
Average Wellhead Sales Price:
Crude Oil and Condensate ($/Bbl).......................... $17.90 $19.33 $15.53
Natural Gas ($/MCF)....................................... $ 2.60 $ 2.45 $ 1.57
Production (Lifting) Costs, including production severance
taxes ($BOE) (natural gas converted to barrels at 6 MCF to
1 Bbl).................................................... $ 3.56 $ 4.21 $ 4.35
All of the Company's production is located in the United States. Any
volumes of natural gas liquids resulting from ownership of processing plant
facilities are not significant.
4. Productive Wells and Acreage
As of December 31, 1997:
PRODUCTIVE WELLS
----------------------------------
GROSS NET DEVELOPED ACREAGE
-------------- ------------ --------------------
OIL GAS OIL GAS GROSS NET
----- --- --- --- ------- -------
1,125 481 430 226 535,243 228,062
5. Undeveloped Lease Acreage
GROSS NET
----- ---
As of December 31, 1997................................ 635,345 acres 242,686 acres
Fee, mineral and royalty acreage was 1,045,771 net acres as of December 31,
1997.
6. Drilling Activity
GROSS WELLS NET WELLS
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------- -------------------------
1997 1996 1995 1997 1996 1995
----- ----- ----- ----- ----- -----
Exploratory
Productive......................... 38 21 12 28.2 17.9 8.6
Dry................................ 12 8 5 6.2 6.0 3.2
Development
Productive......................... 45 77 31 24.9 40.8 10.9
Dry................................ 0 6 6 0 1.5 3.9
7. Present Activity as of December 31, 1997
DRILLING WELLS IN PROGRESS
Gross....................................................... 8.0
Net......................................................... 4.6
At all times the Company has contractual obligations to deliver natural
gas, usually on an "as needed" basis. Therefore, contract quantities are not
fixed and determinable. In May of 1989, the Company began purchasing gas
produced by unaffiliated companies for resale to the Company's customers. During
1997, 281,082 MMCF of gas was purchased and resold from both affiliated and
unaffiliated companies. The Company's obligations to deliver natural gas have
been met.
On December 31, 1997, the Company was obligated to deliver 5,482,571
barrels of crude oil in January 1998, 2,099,779 barrels in February, 1,957,044
barrels in March and 1,902,052 barrels in April. The Company purchases crude oil
either at the lease, on the spot market or on the futures market to fulfill its
commitments. The Company met its contractual obligations to date.
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ITEM 3 LEGAL PROCEEDINGS
As of December 31, 1997, neither FINA, Inc. nor any of its subsidiaries was
a party to, nor was any of their property subject to, any uninsured material
pending legal proceedings or claim which may be reasonably expected to exceed
10% of the current assets.
Following the public announcement of the merger proposal of PetroFina
described in Item 1 of this Form 10-K Annual Report, suits were filed suit in
the Court of Chancery of the State of Delaware against PetroFina, FINA and its
directors at the date of filing. The suits, which purported to be class actions,
alleged a breach of fiduciary duties and seek to enjoin the merger or, if
consummated, to set it aside. The Company and PetroFina have entered into a
Memorandum of Understanding with class counsel regarding a proposed
comprehensive settlement of such suits. The settlement is subject to, among
other things, completion of definitive documentation relative to the settlement,
court approval and consummation of the merger.
Management believes that there is no environmental liability pertaining to
proceedings involving a governmental authority with sanctions in excess of
$100,000 which is reasonably foreseeable in relation to its business activities
and operational permits other than:
The Texas Natural Resource Conservation Commission filed a lawsuit in 1992
alleging that an emission from a pipeline owned and operated by FOCC and
Cosden Pipeline Company has impacted groundwater under two residential
subdivisions in Howard County, Texas. Plaintiff seeks approximately
$1,500,000 in damages and penalties.
Environmental contingencies and the Company's policy regarding
environmental costs are discussed in Note 13 to the Consolidated Financial
Statements, on pages 31 and 32. A reserve has been established in accordance
with the policy. The level of future expenditures for environmental matters,
including clean-up obligations, is impossible to determine with any degree of
accuracy.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the Company's fiscal year ended December 31, 1997.
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PART II
ITEM 5 MARKET FOR THE REGISTRANTS' COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Class A Common Stock of the Company is traded on the American Stock
Exchange under the symbol FI. On February 11, 1998, there were 29,224,072 Class
A Common Shares outstanding and 2,288 holders of the shares.
COMMON STOCK MARKET PRICES BY QUARTER AND DIVIDEND PAID PER QUARTER
1997 1996
-------------------------------- --------------------------------
DIVIDEND DIVIDEND
HIGH LOW PAID HIGH LOW PAID
-------- -------- -------- -------- -------- --------
1st Quarter........................... $ 66 48$1/8 $0.70 51$7/8 $ 47 $0.60
2nd Quarter........................... 67 1/2 63 0.80 55 1/4 48 3/8 0.70
3rd Quarter........................... 67 1/8 63 5/8 0.80 55 1/2 48 7/8 0.70
4th Quarter........................... 67 1/2 63 0.80 54 1/2 46 1/2 0.70
The Stock Transfer Agent and Registrar of Stock is First Chicago Trust
Company of New York, P.O. Box 2500, Jersey City, New Jersey 07303-2500.
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ITEM 6 SELECTED FINANCIAL DATA
FINA, INC. AND SUBSIDIARIES
SUMMARY OF FINANCIAL AND OPERATING DATA
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND EMPLOYEES)
FINANCIAL
Sales and other operating revenues..................... $4,462,477 $4,081,244 $3,606,637 $3,421,112 $3,416,223
Depreciation, depletion, amortization, and lease
impairment........................................... 201,854 171,029 213,964* 185,961 198,341
Net earnings:
Earnings before cumulative effect of accounting
change............................................. 126,401 153,206 104,425 102,041 70,353
Net earnings (loss).................................. 126,401 153,206 104,425 102,041 70,353
Earnings per common share:
Earnings before cumulative effect of accounting
change............................................. 4.05 4.91 3.35 3.27 2.26
Net earnings (loss).................................. 4.05 4.91 3.35 3.27 2.26
Earnings prior to the adoption of SFAS 121:
Net earnings......................................... -- -- 142,598 -- --
Earnings per share................................... -- -- 4.57 -- --
Capital expenditures................................... 340,716 263,330 218,436 136,381 125,472
Long-term debt......................................... 593,532 584,983 496,331 531,162 740,058
Total long-term obligations............................ 594,988 587,290 498,446 532,148 766,476
Total assets........................................... 3,014,674 2,855,822 2,487,718 2,493,862 2,511,353
Stockholders' equity................................... 1,277,112 1,247,285 1,178,057 1,144,807 1,098,827
Cash dividends per share............................... 3.10 2.70 2.30 1.80 1.60
Average shares outstanding............................. 31,218 31,214 31,198 31,188 31,180
OPERATIONS
Crude oil, condensate, and natural gas liquids produced
(in thousands of net barrels)........................ 3,806 3,808 3,749 4,556 5,905
Natural gas produced (in millions of cubic feet)....... 69,698 56,719 52,119 52,864 67,924
Natural gas sold (in millions of cubic feet)........... 293,531 193,682 190,926 259,515 204,449
Total refinery throughput (barrels per day)............ 232,000 211,000 220,000 215,000 198,000
Major petrochemicals and plastics sold (millions of
pounds).............................................. 4,104 3,700 3,000 3,200 3,000
Company-branded service stations....................... 2,659 2,578 2,702 2,607 2,675
Undeveloped leasehold acreage (net).................... 242,686 212,625 209,167 189,723 203,734
Fee, mineral, and royalty acreage (net)................ 1,045,771 1,036,180 1,035,922 1,036,342 1,045,108
Employees (year-end)................................... 2,873 2,664 2,693 2,770 3,224
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* Includes a $58,723,000 charge for adoption of Financial Accounting Standard
No. 121 (FAS 121)
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ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCUSSION OF FINANCIAL INFORMATION
Net income for 1997 was $126 million compared to $153 million in 1996 and
$104 million in 1995. Net income for 1995 was $143 million prior to an
accounting change for Statement of Financial Accounting Standards No. 121 ("SFAS
121") resulting in a $38 million reduction to net income. The decrease in 1997
earnings was primarily the result of higher exploration expenses, an $8 per
barrel drop in crude oil prices which negatively impacted inventory valuation
and substantially lower chemical margins, only partially offset by higher
volumes and lower costs in all lines of business and higher refining margins.
Quarterly earnings during 1997 were relatively stable during the first three
quarters ranging between $39 million and $44 million. Fourth quarter earnings
declined to $3.6 million due to increased exploration expenses, lower refining
and chemicals margins, and a $3.50 per barrel drop in crude oil prices which
significantly impacted inventory valuations.
Basic and diluted earnings per common share in 1997 were $4.05 compared to
$4.91 and $3.35 in 1996 and 1995, respectively. Stockholders' equity was $1.277
billion, or $40.91 per common share, in 1997, compared to $1.247 billion, or
$39.96 per common share, in 1996 and $1.178 billion, or $37.75 per common share,
in 1995. The increase in stockholders' equity in 1997, 1996 and 1995 was
attributable to net income less annual dividends of $3.10 per share in 1997,
$2.70 per share in 1996 and $2.30 per share in 1995.
Sales and other operating revenues for 1997 were $4.5 billion compared to
$4.1 billion in 1996 and $3.6 billion in 1995. The increase in 1997 was
primarily due to higher natural gas production, sales and prices, and higher
volumes in Downstream and Chemicals, partially offset by lower refined product
and chemicals prices.
Total assets were $3.0 billion in 1997 compared to $2.9 billion in 1996 and
$2.5 billion in 1995. The increase in 1997 was principally due to capital
expenditures exceeding depreciation, depletion and amortization, and an increase
in receivables and inventories, partially offset by a reduction in investments
in affiliates.
Cost of raw materials and products purchased increased 12% in 1997
primarily due to an increase in natural gas marketing volumes and prices and
higher chemicals volumes. Direct operating expenses as a percent of sales and
other operating revenues were relatively constant for 1997, 1996 and 1995.
Selling, general and administrative expenses were $98.6 million, $87.0
million and $86.2 million in 1997, 1996 and 1995, respectively. The increase in
1997 primarily reflects increased bad debt expense, higher selling expense
associated with the chemicals expansion projects and year 2000 computer
programming costs.
Interest expense increased $1.9 million in 1997 from 1996 because of higher
average debt outstanding and higher interest rates. Both 1997 and 1996 interest
expense was lower than 1995, reflecting lower interest rates.
Interest and other income for 1997 was $6.1 million compared to a $2.7
million loss in 1996 and an $11.1 million loss in 1995. The increase in 1997 was
primarily associated with gains from asset sales of exploration and production
properties.
Total balance sheet debt was $686 million at year-end 1997, compared to
$696 million at year-end 1996 and $554 million at year-end 1995. The increase in
1996 was primarily due to the termination of $120 million of off-balance-sheet
financing which consisted of an $80 million account receivable sale and a $40
million guaranteed Cos-Mar joint venture borrowing from a bank which was
replaced with an additional investment by the Company. Total debt was $736
million, $696 million and $674 million for 1997, 1996 and 1995, respectively.
Total debt includes $50 million and $120 million of off-balance-sheet financing
in 1997 and 1995, respectively.
During the fourth quarter of 1995, the Company adopted SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of", ("SFAS 121") which resulted in a before-tax addition of
$58,723,000 to depreciation, depletion and amortization expense. After tax, the
additional charge was $38,173,000 or $1.22 per share. Under SFAS 121, the
Company evaluates impairment of exploration and production assets on a
field-by-field basis rather than using a one country cost center for its
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proved properties. On this basis, certain fields are impaired because they are
not expected to recover their entire book value from future cash flows. The
value of certain marketing assets in the Company's Downstream business were also
impaired under SFAS 121. As a result, the Company recognized a non-cash, pretax
charge of $52,523,000 related to its exploration and production assets and
$6,200,000 related to its marketing assets. The fair values of the impaired
assets were determined by using the present value of expected future cash flows
for the oil and gas properties and sales prices for similar assets for marketing
assets. If estimated future cash flows are not achieved with respect to certain
fields, further writedowns may be required.
Crude oil, refined products and petrochemicals are priced at the lower of
cost (last-in, first-out, "LIFO") or market on an aggregate basis. Materials and
supplies are priced at average cost, not in excess of market, less an allowance
for obsolescence. Because of price declines in a majority of the products during
1997, a valuation reserve of $1.1 million was established at December 31, 1997
to reduce the LIFO cost of inventory to replacement cost. The excess of
replacement cost of crude oil, refined products and petrochemicals over LIFO
cost was approximately $65.8 million at December 31, 1996.
The impact of the various lines of business on the financial position and
results of operations is discussed in the following text under appropriate
operating unit subheadings.
Exploration and Production and Natural Gas Marketing
Revenues and earnings/(loss) before interest and income tax were $896.8
million and $52.0 million, $569.0 million and $69.3 million, and $352.9 million
and ($66.9 million) for 1997, 1996 and 1995, respectively. Decreased earnings in
1997 were due to higher exploration expenses, lower crude prices, and lower
natural gas marketing income, only partially offset by higher natural gas
production, higher gas prices, and lower lifting costs.
Crude oil, condensate and natural gas liquids production was 3.8 million
barrels in 1997, flat with 1996. Natural gas production in 1997 was 69.7 billion
cubic feet, an increase from 56.7 billion cubic feet in 1996.
Average wellhead prices for crude fell $1.43 per barrel to $17.90 in 1997.
Average wellhead prices for natural gas were $2.60 per MCF in 1997, up from
$2.45 per MCF in 1996.
Drilling activity resulted in reserve additions of 18 million barrels of
oil equivalent during 1997 replacing 121% of production sales. Finding and
development costs in 1997 were $11.59 per barrel oil equivalent, compared to
$5.71 in 1996, a result of higher drilling and dry hole costs. Lifting costs, at
$3.56 per barrel oil equivalent, were improved from $4.21 in 1996.
The Company participated in 50 gross exploratory wells, compared to 29 in
1996 and 17 in 1995. The success rate was 76% compared to 72% in 1996 and 71% in
1995. The Company's participation in net exploratory wells was 34.4, compared
with 23.9 in 1996 and 11.8 in 1995. The success rate for net exploratory wells
was 82% compared to 75% in 1996 and 73% in 1995.
Natural Gas Marketing sales volumes averaged 770 million cubic feet per day
in 1997, up 54% from 500 million cubic feet per day in 1996.
Refining, Supply and Transportation and Marketing
Revenues and earnings/(loss) before interest and income tax were $2.5
billion and $71.7 million, $2.5 billion and ($16.8 million), and $2.2 billion
and ($4.7 million) for 1997, 1996 and 1995, respectively.
Improved results during 1997 were primarily due to higher industry refining
margins during the first three quarters, enhanced refining operations and
yields, the absence of major turnarounds, and lower operating costs, only
partially offset by inventory value losses caused by the drop in crude oil
prices, and lower marketing margins.
Refinery operations in 1997 included a throughput of 232,000 barrels per
day. At the Port Arthur, Texas Refinery throughput averaged more than 175,000
barrels per day, while at the Big Spring, Texas Refinery,
9
12
throughput averaged 57,000 barrels per day. The record throughput and income at
both refineries was a result of decreased turnaround activities and improved
operations.
In September 1997, a letter of intent was signed with BASF to construct the
world's largest Steam Cracker on property adjacent to the Port Arthur, Texas
Refinery. The integration of the cracker with the Refinery will fully utilize
Port Arthur's capacity, optimize refining and cracker feedstocks, and supply raw
materials to the Company's Chemicals plants. This investment is still subject to
a confirmation of the cost estimate and to parent Board's final approval.
Chemicals
Revenues and earnings before interest and income taxes were $1.1 billion
and $121.7 million, $1.0 billion and $231.2 million, and $1.1 billion and $290.6
million for 1997, 1996 and 1995, respectively.
Chemicals was the largest contributor to earnings, although down 47% from
1996 due to a 50% drop in industry margins only partially offset by higher sales
volumes. Record production was achieved during 1997 for polystyrene which was up
16%, polypropylene which was up 7% and polyethylene which was up 1% while
styrene production was down 6% due to two scheduled turnarounds.
A major expansion is underway to double capacity at the Company's joint
venture Propylene Splitter at Mont Belvieu, Texas, which takes propylene mix
from refineries, including the Port Arthur, Texas Refinery, and produces polymer
grade propylene for the Polypropylene Plant. In addition, a major step toward
increasing captive olefin supply was taken with the signing of a joint venture
letter of intent with BASF to construct the world's largest steam cracker on
property adjacent to the Port Arthur, Texas Refinery with a nameplate capacity
of 1.95 billion pounds per year of refinery grade propylene and 1.8 billion
pounds of ethylene per year.
Total chemical sales volumes were a record 4.1 billion pounds including
intra-company sales, up 11% versus the prior year reflecting effective marketing
activities and the full year operation of the 250 million pound per year
expansion project at the Polystyrene Plant, which was completed in mid-1996.
That expansion made the Carville, Louisiana Polystyrene Plant the largest
polystyrene plant in the world. At the Polypropylene Plant in LaPorte, Texas, a
500 million pound-per-year expansion started up at the end of 1995, making it
the largest polypropylene plant in the world. In 1996, project implementation
began on an expansion of the High Density Polyethylene Plant near Houston that
will double the facility's production capacity when completed in late 1998.
Construction also began on another expansion at the Polypropylene Plant which
will further increase capacity by 550 million pounds in late 1998.
YEAR 2000
In 1996, the Company developed a plan to deal with the Year 2000 issue and
began converting its computer systems to be Year 2000 compliant. The plan
provides for the conversion efforts to be completed by mid-1999. The Year 2000
issue is the result of computer programs being written using two digits rather
than four to define the applicable year. The Year 2000 costs are being funded
through operating cash flows and are not expected to be material in relation to
the Company's operating results. The Company is expensing all costs associated
with these system changes as the costs are incurred.
ENVIRONMENTAL MATTERS
The Company was contingently liable at December 31, 1997, under pending
lawsuits and other claims, some of which involved substantial sums. Considering
certain liabilities or reserves that have been set up for the lawsuits and
claims, and the difficulty in determining the ultimate liability in some of
these matters, internal counsel is of the opinion that the amounts, if any, that
ultimately might be due in connection with such lawsuits and claims would not
have a material adverse effect upon the Company's consolidated financial
condition.
The Company is subject to loss contingencies pursuant to federal, state and
local environmental laws and regulations. These regulations, which are currently
changing, regulate the discharge of materials into the environment and may
require the Company to incur future obligations to investigate the effects of
the release
10
13
or disposal of certain petroleum, chemical and mineral substances at various
sites; to remediate or restore these sites; to compensate others for damage to
property and natural resources and for remediation and restoration costs. These
possible obligations relate to sites owned by the Company or others and
associated with past or present operations, including sites at which the Company
has been identified as a Potentially Responsible Party ("PRP") under the federal
Superfund laws and comparable state laws. The Company is currently participating
in environmental investigations, assessments and cleanups under these
regulations at federal Superfund and state-managed sites, as well as other
cleanup sites, including operating and closed refineries, chemicals facilities,
service stations, pipelines and terminals. The Company may in the future be
involved in additional environmental investigations, assessments and cleanups.
The magnitude of future costs will depend on factors such as the unknown nature
of contamination at many sites, the unknown timing, extent and method of the
remedial actions which may be required and the determination of the Company's
liability in proportion to other responsible parties.
Environmental expenditures are expensed or capitalized depending on their
future economic benefit. Expenditures that relate to an existing condition
caused by past operations and that have no future economic benefit are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. The Company has accrued for environmental remediation
obligations of $19,336,000 and $20,339,000 at December 31, 1997 and 1996,
respectively. Substantially all amounts accrued are expected to be paid out over
the next five to ten years. The level of future expenditures for environmental
remediation obligations is impossible to determine with any degree of
reliability. The Company spent approximately $11,321,000 and $13,484,000 during
1997 and 1996, respectively, in capital expenditures for environmental
protection and for compliance with federal, state and local environmental laws
and regulations. In addition, the Company expensed $34,504,000 and $43,621,000
in 1997 and 1996, respectively, for ongoing environmental administration and
maintenance activities at operating facilities. Total environmental cash
expenditures are expected to increase over an extended period of time. Estimated
environmental capital expenditures for 1998 are $14,570,000.
CAPITAL RESOURCES AND LIQUIDITY
The Company's cash liquidity requirements for working capital, capital
expenditures, acquisitions and debt service over the past three years were
financed primarily by a combination of funds generated from operations,
borrowings and dispositions of assets.
Operating cash flows, defined as earnings before interest, taxes,
depreciation, depletion, amortization and lease impairment (EBITDA), was $427.3
million in 1997 compared to $437.5 million in 1996 and $417.9 million in 1995.
The decrease in 1997 operating cash flows compared to 1996 is the result of
reduced operating profits by the Company due to lower Upstream and Chemical
profits in 1997, partially offset by increased Downstream earnings.
During 1997, cash provided by operating activities totaled $384.0 million,
compared with $221.6 million in 1996 and $366.2 million in 1995. Cash flow from
operating activities during 1997 increased compared to the prior year primarily
resulting from an increase in accounts receivable due to the termination of an
$80 million accounts receivable financing agreement.
The Company's year-end 1997 balance sheet debt was $686 million compared to
$696 million at year-end 1996 and $554 million at year-end 1995. The increase in
1996 was primarily due to the termination of $120 million of off-balance-sheet
financing which consisted of an $80 million account receivable sale and a $40
million guaranteed Cos-Mar joint venture borrowing from a bank which was
replaced with an additional investment by the Company. Total debt was $736
million, $696 million and $674 million for 1997, 1996 and 1995, respectively.
Total debt includes $50 million and $120 million of off-balance-sheet financing
in 1997 and 1995, respectively.
In July 1996, the Company offered initial public debt of $125 million
five-year notes at market rates. The proceeds were used to refinance debt at
lower costs. The public debt was registered with the Securities and Exchange
Commission on Form S-3 in June 1996 and carried credit ratings of single A from
Standard & Poor's and A-3 from Moody's Investors Service.
11
14
The Company replaced its short term bank borrowings with a $400 million
commercial paper program supported fully by its unused revolving credit facility
in the third quarter of 1996.
In 1993, the Company entered into long-term note agreements with certain
insurance companies that provided for unsecured borrowings aggregating $275
million under Series A, Series B, and Series C Senior Notes. Proceeds from these
notes were used to repay other debt.
The Company has an unsecured revolving credit facility with a group of
banks in the amount of $550 million. Under the facility, the Company has
available credit in an amount of $420 million through February 2002.
The Company paid dividends of $3.10 per share in 1997, $2.70 per share in
1996 and $2.30 per share in 1995.
The Company believes that cash provided by operations, together with
borrowings available under the revolving credit facility with banks, will be
sufficient to fund the Company's working capital requirements, capital
expenditures, principal, interest and dividends.
Capital Expenditures
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
Exploration, Production and Natural Gas.............. $125,403 $125,254 $ 55,606
Refining, Supply and Transportation and Marketing.... 47,965 72,231 42,234
Chemicals............................................ 158,997 54,318 113,911
Corporate and Other.................................. 8,351 11,517 6,685
-------- -------- --------
Total...................................... $340,716 $263,330 $218,436
1997 capital expenditures were 29% above 1996. The projected capital
expenditures budget in 1998 is $395.5 million.
IMPACT OF INFLATION AND CHANGING PRICES
The business of the Company is not seasonal but is sensitive to crude oil
and natural gas pricing, margins between crude oil and refined products and
chemicals margins. Inflation impacts the Company by increasing costs of labor
and supplies, and increasing costs of acquiring and replacing property, plant
and equipment. The replacement cost of property, plant and equipment is
generally greater than the historical cost as a result of inflation.
Market conditions continue to be the primary factor in determining the
prices and costs of Company products.
MANAGEMENT RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
The management of FINA, Inc. is responsible for the financial information
and representations contained in the Consolidated Financial Statements and other
sections of this Annual Report on Form 10-K. The Company believes that the
financial statements fairly reflect the substance of its transactions and
present its consolidated financial position and results of operations in
conformity with generally accepted accounting principles. In preparing the
Consolidated Financial Statements, the Company is required to include amounts
that are based on estimates and judgments which the Company believes are
reasonable under the circumstances.
The Company has developed and maintains a system of internal accounting
controls designed to provide reasonable assurance that assets are safeguarded
from loss or unauthorized use and that transactions are properly recorded. In
establishing and maintaining internal controls, management must exercise
judgment in determining that the cost of such controls does not exceed the
benefits to be derived.
12
15
The Board of Directors exercises its oversight role for the Consolidated
Financial Statements through its Audit Committee, which is composed solely of
directors who are not officers or employees of the Company. The Audit Committee
meets with Company management, internal auditors and the independent auditors to
review the audit scope and any recommendations for improvements in the Company's
internal accounting controls. The independent auditors are engaged to provide an
objective, independent view of the fairness of reported operating results and
financial condition.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
PAGE
----
Independent Auditors' Report................................ 14
Consolidated Balance Sheet -- December 31, 1997 and 1996.... 15
Consolidated Statement of Earnings -- Three years ended
December 31, 1997......................................... 16
Consolidated Statement of Stockholders' Equity -- Three
years ended December 31, 1997............................. 17
Consolidated Statement of Cash Flows -- Three years ended
December 31, 1997......................................... 18
Notes to Consolidated Financial Statements.................. 19
Schedule II -- Consolidated Valuation and Qualifying
Accounts -- Three years ended December 31, 1997........... 39
All other schedules are omitted as the required information is inapplicable
or presented in the consolidated financial statements or related notes.
13
16
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
FINA, Inc.:
We have audited the consolidated financial statements of FINA, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the consolidated
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FINA, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in note 6 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" in
1995.
KPMG Peat Marwick LLP
Dallas, Texas
January 26, 1998, except as to the third paragraph
of note 1(a) which is as of February 17, 1998
14
17
FINA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
1997 1996
---------- ----------
Current assets:
Cash and cash equivalents................................. $ 1,271 $ 1,585
Accounts and notes receivable, less allowance for doubtful
receivables of $4,829 in 1997 and $6,073 in 1996....... 581,724 552,553
Inventories............................................... 345,235 318,565
Deferred Federal income taxes............................. 31,298 17,408
Prepaid expenses and other current assets................. 16,434 14,587
---------- ----------
Total current assets.............................. 975,962 904,698
---------- ----------
Investments in and advances to affiliates................... 33,424 77,594
Net property, plant, and equipment at cost, (successful
efforts method for oil and gas properties)................ 1,849,378 1,720,965
Deferred charges and other assets, at cost less applicable
amortization.............................................. 155,910 152,565
---------- ----------
$3,014,674 $2,855,822
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term obligations.................................... $ 27,478 $ 71,735
Current installments of long term debt and lease
obligations............................................ 63,860 37,188
Accounts payable.......................................... 584,507 528,713
Accrued liabilities....................................... 151,102 104,321
---------- ----------
Total current liabilities......................... 826,947 741,957
---------- ----------
Long term debt and lease obligations, excluding current
installments.............................................. 594,988 587,290
Deferred Federal income taxes............................... 232,761 183,613
Other deferred credits and liabilities...................... 82,866 95,677
Stockholders' equity:
Preferred stock of $1 par value. Authorized 4,000,000
shares; none issued.................................... -- --
Class A common stock of $.50 par value. Authorized
38,000,000 shares; issued 29,221,972 shares in 1997 and
29,216,172 shares in 1996.............................. 14,611 14,608
Class B common stock of $.50 par value. Authorized and
issued 2,000,000 shares................................ 1,000 1,000
Additional paid-in capital................................ 451,100 450,899
Retained earnings........................................... 810,401 780,778
---------- ----------
Total stockholders' equity........................ 1,277,112 1,247,285
Commitments and contingencies...............................
---------- ----------
$3,014,674 $2,855,822
========== ==========
See accompanying Notes to Consolidated Financial Statements.
15
18
FINA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
THREE YEARS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997 1996 1995
---------- ---------- ----------
Revenues:
Sales and other operating revenues..................... $4,462,477 $4,081,244 $3,606,637
Interest and other income, net......................... 6,070 (2,742) (11,111)
---------- ---------- ----------
4,468,547 4,078,502 3,595,526
---------- ---------- ----------
Costs and expenses:
Cost of raw materials and products purchased........... 3,476,924 3,099,671 2,673,521
Direct operating expenses.............................. 378,766 393,250 361,711
Selling, general and administrative expenses........... 98,565 87,027 86,247
Taxes, other than on income............................ 55,017 49,738 43,533
Dry holes and abandonments............................. 31,930 11,277 12,638
Depreciation, depletion, amortization and lease
impairment (1995 includes $58,723 for adoption of
SFAS 121)........................................... 201,854 171,029 213,964
Interest............................................... 45,048 43,137 50,707
Less interest capitalized.............................. (7,764) (4,889) (7,873)
---------- ---------- ----------
4,280,340 3,850,240 3,434,448
---------- ---------- ----------
Earnings before income taxes................... 188,207 228,262 161,078
---------- ---------- ----------
Income taxes:
Current:
Federal............................................. 22,524 50,896 39,401
State............................................... 4,024 4,729 8,801
Deferred - Federal..................................... 35,258 19,431 8,451
---------- ---------- ----------
61,806 75,056 56,653
---------- ---------- ----------
Net earnings................................... $ 126,401 $ 153,206 $ 104,425
========== ========== ==========
Basic and diluted earnings per common share.............. $ 4.05 $ 4.91 $ 3.35
========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
16
19
FINA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
COMMON STOCK ADDITIONAL TOTAL
PREFERRED ----------------- PAID-IN RETAINED STOCKHOLDERS'
STOCK CLASS A CLASS B CAPITAL EARNINGS EQUITY
--------- ------- ------- ---------- -------- -------------
Balance at December 31, 1994.... $ -- $14,595 $1,000 $450,029 $679,183 $1,144,807
Shares issued in connection with
employee benefit plans, 18,168
shares........................ -- 9 -- 632 -- 641
Expenses from stock split....... -- -- -- (60) -- (60)
Net earnings.................... -- -- -- -- 104,425 104,425
Dividends paid, $2.30 per
share......................... -- -- -- -- (71,756) (71,756)
------- ------- ------ -------- -------- ----------
Balance at December 31, 1995.... -- 14,604 1,000 450,601 711,852 1,178,057
Shares issued in connection with
employee benefit plans, 8,600
shares........................ -- 4 -- 299 -- 303
Expenses from stock split....... -- -- -- (1) -- (1)
Net earnings.................... -- -- -- -- 153,206 153,206
Dividends paid, $2.70 per
share......................... -- -- -- -- (84,280) (84,280)
------- ------- ------ -------- -------- ----------
Balance at December 31, 1996.... -- 14,608 1,000 450,899 780,778 1,247,285
Shares issued in connection with
employee benefit plans, 5,800
shares........................ -- 3 -- 201 -- 204
Net earnings.................... -- -- -- -- 126,401 126,401
Dividends paid, $3.10 per
share......................... -- -- -- -- (96,778) (96,778)
------- ------- ------ -------- -------- ----------
Balance at December 31, 1997.... $ -- $14,611 $1,000 $451,100 $810,401 $1,277,112
======= ======= ====== ======== ======== ==========
See accompanying Notes to Consolidated Financial Statements.
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20
FINA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities:
Net earnings........................................... $ 126,401 $ 153,206 $ 104,425
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, depletion, amortization, lease
impairment and abandonments....................... 202,701 171,313 214,952
Net equity in losses of affiliates.................. 6,084 5,598 4,713
Loss (gain) on sale of assets....................... (9,292) (4,977) 6,245
Deferred income taxes............................... 35,258 19,431 8,451
Changes in assets and liabilities:
Accounts and notes receivable..................... (29,171) (216,307) 29,368
Inventories....................................... (26,670) (17,069) (14,958)
Prepaid expenses and other current assets......... (1,847) (1,624) (3,950)
Accounts payable and accrued liabilities.......... 102,575 144,579 36,068
Other............................................. (21,998) (32,551) (19,140)
--------- --------- ---------
Net cash provided by operating activities...... 384,041 221,599 366,174
--------- --------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment............. (330,555) (234,978) (213,142)
Proceeds from sales of assets.......................... 14,575 14,901 23,751
Investments in and advances to affiliates.............. 38,086 (65,600) (7,582)
Dividends received in excess of equity in earnings of
affiliates.......................................... -- 77 1,954
--------- --------- ---------
Net cash used in investing activities.......... (277,894) (285,600) (195,019)
--------- --------- ---------
Cash flows from financing activities:
Additions to long term debt and lease obligations...... 71,576 326,199 127,451
Payments of long term debt and lease obligations....... (37,206) (235,641) (186,693)
Net change in short term obligations................... (44,257) 51,735 (37,000)
Issuance of common stock............................... 204 302 581
Dividends paid......................................... (96,778) (84,280) (71,756)
--------- --------- ---------
Net cash provided by (used in) financing
activities................................... (106,461) 58,315 (167,417)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents..... (314) (5,686) 3,738
Cash and cash equivalents at beginning of year........... 1,585 7,271 3,533
--------- --------- ---------
Cash and cash equivalents at end of year................. $ 1,271 $ 1,585 $ 7,271
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
18
21
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) GENERAL
FINA, Inc. with subsidiaries ("the Company") is an integrated energy
company. The Company's principal lines of business are crude oil and natural gas
exploration and production and natural gas marketing ("Upstream"); petroleum
products refining, supply and transportation and marketing ("Downstream"); and
chemicals manufacturing and marketing ("Chemicals"). The principal markets for
refined products are domestic wholesale and retail markets while natural gas is
sold primarily to domestic marketers, manufacturing facilities and local
distribution companies. Petrochemical and plastic products are primarily sold to
domestic manufacturers of fiber, film, packaging and consumable products. Raw
materials are readily available and the Company is not dependent upon a single
supplier or a few suppliers.
Class A and Class B Common Stock are identical in all respects except on
any vote for the election of directors. The holders of record of the Class B
Common Stock are entitled to elect the smallest number comprising more than half
of the directors to be elected and the remaining directors are elected by the
holders of record of the Class A Common Stock voting separately as a class.
PetroFina Delaware, Incorporated ("PDI") owns 100% of the Class B Common Stock
and approximately 85% of the Class A Common Stock. PetroFina S.A. ("PetroFina"),
a Belgian publicly-held corporation, owns 100% of American PetroFina Holding
Company which owns 100% of the stock of PDI.
On February 17, 1998, PetroFina and the Company announced that they entered
into a definitive agreement and plan of merger pursuant to which the Company
will become an indirect, wholly-owned subsidiary of PetroFina. Under the terms
of the agreement, current shareholders of the Company, other than PetroFina and
its subsidiaries will receive in exchange for each FINA, Inc. share they
currently hold $60 and a warrant entitling the holder to purchase nine-tenths
(0.9) of one PetroFina American Depositary Share ("ADS") at an exercise price of
$42.25 per ADS. Thus, each 10 warrants will entitle the holder of those
warrants, upon payment of $380.25, to receive nine ADSs. The warrants will be
exercisable for a period of five years from effective date of the merger.
PetroFina intends to seek listing of the warrants on the New York Stock
Exchange. The agreement was recommended by a Special Committee of the Board of
Directors of the Company and approved by the Company's Board of Directors.
Goldman, Sachs & Co. acted as financial adviser to the Special Committee. The
merger is subject to customary closing conditions. The Company and PetroFina
also announced that they have entered into a Memorandum of Understanding with
class counsel regarding the proposed comprehensive settlement of various class
action lawsuits that had been filed relating to the transaction. The settlement
is subject to, among other things, completion of definitive documentation
relating to the settlement, court approval and consummation of the merger.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its significant subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
19
22
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, all certificates of deposit and short
term highly liquid debt instruments, such as U.S. Treasury bills and notes, with
original maturities of three months or less are considered cash equivalents.
The indirect method is used to present cash flows from operating
activities. Additional cash flow information follows:
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
Interest paid, net of amounts capitalized................ $37,385 $36,299 $45,249
======= ======= =======
Income taxes paid, net of refunds received............... $39,247 $46,749 $29,275
======= ======= =======
(d) INVESTMENTS IN AFFILIATES
Investments in affiliates in which the Company owns between 20% and 50% of
the voting stock are carried at amortized cost adjusted for changes in equity
since acquisition.
(e) INVENTORIES
Crude oil, refined products and petrochemicals are priced at the lower of
cost (last-in, first-out) ("LIFO") or market on an aggregate basis. Materials
and supplies are priced at average cost, not in excess of market, less an
allowance for obsolescence. Because of price declines in a majority of the
products during 1997, a valuation reserve of $1,093,000 was established at
December 31, 1997, to reduce the LIFO cost of inventory to net realizable value.
The excess of replacement cost of crude oil, refined products and petrochemicals
over LIFO cost was $65,846,000 at December 31, 1996.
A summary of inventories follows:
DECEMBER 31
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
Crude oil and refined products and chemicals................ $313,074 $286,949
Materials and supplies...................................... 32,161 31,616
-------- --------
$345,235 $318,565
======== ========
(f) PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 19. Costs to acquire mineral
interests in oil and gas properties, to drill exploratory wells that find proved
reserves and to drill and equip development wells are capitalized. Geological
and geophysical costs and costs to drill exploratory wells that do not find
proved reserves are expensed.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value and, if necessary, a loss is
recognized by providing an impairment allowance. The remaining unproved oil and
gas properties are aggregated and an overall impairment allowance is provided
based on prior experience. Capitalized costs of proved oil and gas properties
are depreciated and depleted by the unit-of-production method based on proved
oil and gas reserves estimated by Company engineers.
20
23
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Substantially all other property, plant and equipment is depreciated by the
straight-line method at rates based on the estimated useful lives for the
classes of property. Depreciation rates used are as follows:
Refining and marketing facilities........................... 5.00% to 33.33%
Chemical facilities......................................... 6.66% to 33.33%
Pipelines................................................... 4.00% to 18.75%
Other....................................................... 6.66% to 33.33%
Interest is capitalized as a component of the cost of construction and
development projects in progress.
Repairs and maintenance are charged to earnings as incurred. Renewals and
betterments are capitalized. When assets are sold, retired or otherwise disposed
of, the applicable costs and reserves are removed from the accounts and the
resulting gain or loss is recognized.
(g) RESEARCH AND DEVELOPMENT
Research and development costs, which are expensed as incurred, amounted to
$14,961,000 in 1997, $15,192,000 in 1996 and $13,200,000 in 1995.
(h) INCOME TAXES
Income taxes are accounted for pursuant to SFAS 109 "Accounting for Income
Taxes." The Company files a consolidated Federal income tax return with APHC and
its affiliates. Under the terms of the tax sharing agreement, the Company is
allocated Federal income taxes on a separate return basis.
(i) EARNINGS PER SHARE
The Company adopted SFAS 128 "Earnings Per Share" during the fourth quarter
of 1997. Under SFAS 128, basic earnings per share (EPS) is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. For the years and quarters
presented herein, basic and diluted earnings per share are the same.
(j) DERIVATIVE CONTRACTS
The Company utilizes derivative financial instruments to manage market
risks and reduce exposure resulting from fluctuations in interest rates and the
prices of crude oil, refined products and natural gas. Derivative instruments
used include swap agreements, futures and options contracts and forward purchase
and sales commitments. The Company's practice is to use derivative instruments
primarily for purposes other than trading.
Hedge accounting is utilized when there is a high degree of correlation
between price movements in the derivative and the item designated as being
hedged. Gains and losses related to qualifying hedges are deferred and are
recognized in the balance sheet as other assets and liabilities, until the
hedged transaction occurs. Realized and unrealized changes in the fair value of
the remaining derivative financial instruments and forward commitments are
recognized in income in the period in which the change occurs.
Occasionally, the Company will use derivative contracts to hedge foreign
currency exposure on firm commitments to purchase or build long-lived assets, in
which case the gain or loss on the derivative contract is deferred and reported
as an adjustment of the carrying value of the long-lived asset when the firm
commitment is paid.
21
24
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the event it becomes likely that an anticipated transaction will not
occur or that adequate correlation no longer exists, hedge accounting is
terminated and future changes in the value of the derivative are recognized as
gains or losses.
The cash flow impact of derivative financial instruments is reflected as
cash flows from operating activities in the Consolidated Statement of Cash Flow.
(k) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from estimates.
(2) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment follows:
DECEMBER 31
------------------------
1997 1996
---------- ----------
(IN THOUSANDS)
Proved oil and gas properties............................... $1,060,872 $ 975,173
Unproved oil and gas properties............................. 252,820 263,395
Refining and marketing facilities........................... 1,409,932 1,371,879
Chemical facilities......................................... 608,229 463,223
Pipelines................................................... 68,924 68,063
Other....................................................... 82,289 83,250
---------- ----------
3,483,066 3,224,983
Less accumulated depreciation, depletion, amortization and
lease impairment.......................................... 1,633,688 1,504,018
---------- ----------
$1,849,378 $1,720,965
========== ==========
Property, plant and equipment includes capitalized lease obligations and
related accumulated depreciation of $8,795,000 and $4,604,000 at December 31,
1997, respectively, and $5,530,000 and $2,242,000 at December 31, 1996,
respectively.
(3) CURRENT AND LONG TERM DEBT
Short term obligations at December 31, 1997 include $297,478,000 of
commercial paper of which $270,000,000 is classified as long term debt and
discussed below. Short term obligations at December 31, 1996 included $2,000,000
of short term notes and $269,735,000 of commercial paper of which $200,000,000
was classified as long term debt. Weighted average interest rates for these
obligations at December 31, 1997 and 1996 were 5.84% and 5.53%, respectively.
22
25
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of long term debt follows:
DECEMBER 31
------------------------
1997 1996
---------- ----------
(IN THOUSANDS)
Commercial Paper (5.60% to 6.70%)........................... $ 270,000 $ 200,000
6.64% Series A Senior Notes, due May 1, 2000................ 70,200 93,600
6.78% Unsecured Notes, due July 15, 2001.................... 124,013 123,736
7.13% Series B Senior Notes, due May 1, 2002................ 125,000 125,000
7.57% Series C Senior Notes, due May 1, 2003................ 33,000 33,000
Other....................................................... 33,047 44,731
---------- ----------
Total long term debt.............................. 655,260 620,067
Less current installments of long term debt................. 61,728 35,084
---------- ----------
Long term debt, excluding current installments.... $ 593,532 $ 584,983
========== ==========
The Company has a $425,000,000 revolving credit facility, $325,000,000
maturing in February, 2002, and $100,000,000 in February, 1998, of which none
was outstanding under the facility at December 31, 1997. The Company intends to
rollover the commercial paper or use borrowings under this facility to finance
the repayment of $270,000,000 of commercial paper, classified as long term debt
at December 31, 1997. Borrowings under the credit facility bear interest at
various market rate options. The Company plans to replace the $100,000,000
portion of this facility with a similar facility at its due date.
The Senior Notes and the bank revolving credit facility contain provisions
that limit mergers and sales of assets, limit the incurrence of indebtedness and
restrict payments to stockholders. No material amounts of current and long term
debt are collateralized by Company assets.
Letters of credit are maintained with various banks, aggregating
$27,449,000 at December 31, 1997; principally for pollution control and workers'
compensation obligations.
The aggregate maturities of long term debt and capitalized lease
obligations for the five years ending December 31, 2002 are as follows:
1998 -- $63,860,000; 1999 -- $54,697,000; 2000 -- $48,722,000; 2001 --
$149,069,000; and 2002 -- $295,000,000.
(4) FINANCIAL INSTRUMENTS AND DERIVATIVE CONTRACTS
The Company uses swap agreements, futures and options contracts and forward
commitments to reduce its exposure to fluctuations in interest rates and in the
prices of crude oil, refined products and natural gas. Derivative instruments
give rise to credit risk due to possible nonperformance by the counter-parties.
However, through ongoing control procedures, FINA monitors the credit worthiness
of its counter-parties.
(a) INTEREST RATE SWAP AGREEMENTS
Interest rate swap agreements are used to help manage interest rate
exposure. Amounts to be paid or received under interest rate swap agreements are
accrued as interest rates change and are recognized over the life of the swap
agreements as an adjustment to interest expense. The related amounts payable to,
or receivable from, the counterparties are included in other current accrued
liabilities or assets. The fair value of the swap agreements are not recognized
in the consolidated financial statements because they are accounted
23
26
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for as hedges. The swap agreements expire at various dates through 2005. A
summary of the Company's interest rate swaps follows.
DECEMBER 31
--------------------
1997 1996
-------- --------
Fixed to Variable rates:
Notional amount (in thousands)............................ $224,315 $227,453
Average fixed rate received............................... 6.67% 6.65%
Average variable rate paid................................ 5.81% 5.63%
Variable to fixed rates:
Notional amount (in thousands)............................ $ 95,000 $ 50,000
Average fixed rate paid................................... 6.21% 6.21%
Average variable rate received............................ 5.75% 5.61%
(b) COMMODITY DERIVATIVES CONTRACTS
The Company uses crude oil, refined products and natural gas commodity
derivative contracts to hedge future purchases and sales commitments and to
reduce financial exposure related to price changes on anticipated transactions.
Crude oil and refined product futures and forward contracts are used to
facilitate the supply of crude to the Company's refineries and sales of refined
products while managing price exposure. The Company recognizes realized and
unrealized gains and losses on these contracts in income during the period in
which the change in market value occurs.
The Company also uses futures contracts to sell natural gas as a hedge of
equity production. Gains and losses on the qualifying hedges are deferred and
included in the measurement of the related transaction when the hedged
transaction occurs. The following table summarizes the Company's major commodity
derivatives at December 31:
NOTIONAL VOLUMES
AT DECEMBER 31
PURCHASES/(SALES)
DERIVATIVE ------------------
COMMODITY TYPE 1997 1996
--------- ---------- ------- -------
Crude Oil -- (thousands of barrels) Forwards 2,708 4,435
Futures 563 (410)
Natural Gas -- (billions of British thermal
units) Price Hedge -- Futures 1,940 (7,620)
Price Hedge -- Forwards (2,214) (170)
Basis Hedge -- Swaps 3,603 --
Basis Hedge -- Forwards 3,956 (560)
(c) FAIR VALUE OF FINANCIAL AND COMMODITY INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating the fair value of its financial and commodity instruments. The
reported amounts of cash equivalents, short-term receivable and payable and
short-term debt approximate fair value due to their short-term maturity. The
carrying value of the Company's floating rate debt approximated fair value and
the value of the fixed rate debt is estimated based on quoted market prices.
Market value is not readily determinable for certain equity investments and long
term receivables with a carrying value of $56,407,000 and $105,290,000 at
December 31, 1997 and 1996, respectively. The fair values of financial and
commodity derivatives are based on quoted market prices.
24
27
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying value and fair value of certain financial instruments as of
December 31, 1997 and 1996 are shown as assets and (liabilities) in the table
below:
DECEMBER 31
------------------------------------------------
1997 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
($ IN THOUSANDS)
Fixed rate long-term debt........... $(386,247) $(398,839) $(408,743) $(423,680)
Interest Rate Swaps................. -- 3,305 -- 4,543
Commodity Futures................... 19 19 1,730 1,730
Commodity Forwards.................. (990) (990) 4,475 4,475
Commodity Swaps..................... 797 797 3 3
(5) INCOME TAXES
Actual income tax expense differs from the "normal" income tax expense at
U.S. statutory rates as follows:
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
Computed income tax expense (at U.S. statutory
rates)............................................. $65,873 $79,892 $56,377
State income taxes, net of Federal benefit........... 2,616 3,074 5,721
Tax-free benefits and dividends on Company owned life
insurance.......................................... (2,920) (3,711) (2,358)
Section 29 credit.................................... (1,462) (1,854) (2,280)
Miscellaneous items.................................. (2,301) (2,345) (807)
------- ------- -------
$61,806 $75,056 $56,653
======= ======= =======
The tax effects of the primary temporary differences giving rise to the
deferred Federal income tax assets and liabilities as determined under SFAS 109
are as follows:
DECEMBER 31
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
Deferred income tax assets:
Basis in inventories...................................... $ 7,407 $ 6,056
Provision for losses...................................... 4,783 3,942
Alternative minimum tax credit carryforwards.............. 35,119 54,481
Miscellaneous items....................................... 11,313 15,161
-------- --------
Total deferred income tax assets.................. 58,622 79,640
-------- --------
Deferred income tax liabilities:
Employee benefits......................................... 2,052 996
Property, plant and equipment, principally due to
differences in depreciation, depletion, amortization,
lease impairment and abandonments...................... 223,778 208,562
Investments in affiliates, principally due to differences
in joint
venture depreciation................................... 33,498 34,539
Miscellaneous items....................................... 757 1,748
-------- --------
Total deferred income tax liabilities............. 260,085 245,845
-------- --------
Net deferred Federal income tax liability......... $201,463 $166,205
======== ========
25
28
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1997, alternative minimum tax credit carryforwards of
approximately $35,119,000 are available to reduce future Federal regular income
taxes payable over an indefinite period.
(6) IMPAIRMENT OF LONG-LIVED ASSETS
During the fourth quarter of 1995, the Company adopted SFAS 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of " which resulted in a before-tax addition of $58,723,000 to depreciation,
depletion and amortization expense. After tax, the additional charge was
$38,173,000 or $1.22 per share.
Under SFAS 121, the Company evaluates impairment of exploration and
production assets on a field-by-field basis rather than using a one country cost
center for its proved properties. On this basis, certain fields are impaired
because they are not expected to recover their entire carrying value from future
cash flows. In addition to the change in grouping of proved properties, the
value of certain marketing assets in the Company's Downstream business were also
determined to be impaired under SFAS 121. As a result, the Company recognized a
non-cash pre-tax charge of $52,523,000 related to its Upstream exploration and
production assets and $6,200,000 related to its Downstream marketing assets. The
fair values of the impaired assets were determined by using the present value of
expected future cash flows for the oil and gas properties and sales prices for
similar assets for certain marketing assets. If estimated future cash flows are
not achieved with respect to certain fields, further writedowns may be required.
(7) EMPLOYEE STOCK OPTIONS
Options to purchase shares of Class A Common Stock have been granted to
officers and employees under a stock option plan adopted in 1979. The stock
option plan expired in 1989, and no further grants will be made under that plan.
A summary of transactions follows:
OPTION PRICE
NUMBER OF -----------------------
SHARES PER SHARE TOTAL
--------- --------- ----------
Outstanding and exercisable at December 31, 1995... 41,000 $35.25 $1,445,250
======
Exercised.......................................... (8,600) $35.25 (303,150)
------ ====== ----------
Outstanding and exercisable at December 31, 1996... 32,400 $35.25 1,142,100
======
Terminated and reverted to plan.................... (800) $35.25 (28,200)
======
Exercised.......................................... (5,800) $35.25 (204,450)
------ ====== ----------
Outstanding and exercisable at December 31, 1997... 25,800 $35.25 $ 909,450
====== ====== ==========
The option price for options granted is the market value at date of grant.
Each option granted expires ten years from date of grant. No amounts are
recorded until options are exercised, at which time proceeds in excess of the
par value of the shares are credited to additional paid-in capital. All options
will expire April 28, 1998, unless earlier exercised.
(8) INVESTMENTS AND ADVANCES TO AFFILIATES
The Company and GE Plastics, a wholly-owned subsidiary of General Electric
Company ("GE"), are joint venturers in Cos-Mar Company ("Cos-Mar"), a chemical
operation. The Company's interest is 50% and is accounted for by the equity
method. The venturers reimburse the joint venture for the costs of operating the
facility and raw material and finished product inventories are the property of
the venturers. Direct operating
26
29
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expenses include charges from the joint venture of $17,749,000 in 1997,
$18,326,000 in 1996 and $19,346,000 in 1995. Investments in and advances to the
joint venture were $2,626,000 and $48,263,000 at December 31, 1997 and 1996,
respectively. During 1996, Cos-Mar retired $40,000,000 of Company guaranteed
joint venture borrowings from a bank with funds provided from additional
investment by the Company in the joint venture. During 1997, Cos-Mar added
$50,000,000 of Company guaranteed joint venture borrowings from a bank. Proceeds
from this borrowing were distributed to the Company. GE has guaranteed joint
venture's borrowings from a bank, aggregating $74,200,000 at December 31, 1997.
In December 1996, the Company acquired a 34.4% interest in Southwest
Convenience Stores ("SCS"). SCS has contributed all of its operating business,
including all of its assets and certain defined liabilities and obligations and
its area license agreement with the Southland Corporation.
(9) EMPLOYEE AND POSTRETIREMENT BENEFITS
The Company and its subsidiaries have two defined benefit pension plans
covering substantially all employees. The benefits are based on years of service
and the employee's final average monthly compensation. The Company's funding
policy is to contribute annually not less than the minimum required nor more
than the maximum amount that can be deducted for Federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
A restoration benefit plan provides supplemental pension benefits to
certain participants whose benefits are limited by the defined benefit pension
plans. The funding policy is to contribute annually amounts equal to benefit
payments made.
27
30
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the plans' funded status and the amounts recognized in the
consolidated balance sheet follows:
DECEMBER 31
----------------------------------------------------
1997 1996
------------------------ ------------------------
DEFINED DEFINED
BENEFITS RESTORATION BENEFITS RESTORATION
PLANS PLAN PLANS PLAN
--------- ----------- --------- -----------
(IN THOUSANDS)
Actuarial present value of benefit
obligations:
Vested benefit obligation.................. $(153,611) $(5,415) $(125,651) $(4,357)
========= ======= ========= =======
Accumulated benefit obligation, including
vested benefits......................... $(168,456) $(5,548) $(138,993) $(4,426)
========= ======= ========= =======
Projected benefit obligation................. $(201,455) $(7,557) $(164,351) $(5,874)
Plan assets at fair value, primarily listed
stocks and U.S. Government securities...... 272,510 -- 240,902 --
--------- ------- --------- -------
Plan assets in excess of (less than)
projected benefit obligation............... 71,055 (7,557) 76,551 (5,874)
Unrecognized net (gain) loss from past
experience different from that assumed and
effect of changes in assumptions........... 259 2,943 (11,110) 1,639
Unrecognized prior service cost being
recognized over 15 years................... 1,525 544 1,722 582
Unrecognized net (asset) liability at date of
adoption being recognized over 15.3
years...................................... (3,060) 485 (4,399) 607
Adjustment required to recognize minimum
liability.................................. -- (1,964) -- (1,380)
--------- ------- --------- -------
Prepaid (accrued) pension cost included in
the consolidated balance sheet............. $ 69,779 $(5,549) $ 62,764 $(4,426)
========= ======= ========= =======
A summary of the components of pension income follows:
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
Service cost-benefits earned during the year....... $ 6,366 $ 6,200 $ 4,920
Interest cost on projected benefit obligation...... 12,906 11,856 11,218
Actual return on plan assets....................... (40,031) (30,716) (43,665)
Net asset gain deferred for later recognition...... 15,528 8,156 23,167
Amortization of unrecognized prior service cost.... 234 234 234
Amortization of unrecognized actuarial losses...... 84 5 --
Amortization of unrecognized net asset............. (1,217) (1,217) (1,217)
-------- -------- --------
Total pension income..................... $ (6,130) $ (5,482) $ (5,343)
======== ======== ========
28
31
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the actuarial assumptions used in calculating the plans'
present value of projected benefit obligation follows:
1997 1996 1995
------ ------ ------
Weighted average discount rate...................... 7.25% 7.75% 7.50%
Rate of increase in future compensation levels...... 4.00% 4.00% 4.00%
Expected long term rate of return on assets......... 11.00% 11.00% 11.00%
The effect on the projected benefit obligation of the actuarial assumption
changes was an increase of approximately $24,972,000 in 1997 and a decrease of
approximately $6,081,000 in 1996.
In addition to providing pension benefits, certain health care and life
insurance benefits are provided to active and certain retired employees who meet
eligibility requirements defined in plan documents. The health care benefits in
excess of certain limits and the life insurance benefits are insured. The costs
of providing these benefits for active employees are expensed when the insurance
premiums are paid and claims incurred. The cost of providing these benefits for
active employees was $8,145,000 in 1997, $8,619,000 in 1996 and $8,594,000 in
1995.
A summary of the postretirement plan's funded status and the amounts
recognized in the consolidated balance sheet follows:
DECEMBER 31
------------------
1997 1996
------- -------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees.................................................. $37,998 $37,956
Fully eligible active plan participants................... 3,256 3,025
Other active plan participants............................ 23,376 19,136
------- -------
64,630 60,117
Unrecognized net gain (loss)................................ (1,972) 1,223
Unrecognized prior service cost............................. 175 197
------- -------
Accrued postretirement benefit cost......................... $62,833 $61,537
======= =======
A summary of the components of net periodic postretirement benefit cost
follows:
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
Service cost......................................... $1,271 $1,309 $1,024
Interest cost........................................ 4,504 4,649 5,111
Amortization of unrecognized prior service cost...... (22) (22) (22)
------ ------ ------
Net periodic postretirement benefit cost............. $5,753 $5,936 $6,113
====== ====== ======
For measurement purposes, a 6.55% and 6.43% weighted average annual rate of
increase in the per capita cost of covered benefits (i.e., health care cost
trend rate) for pre-65 and post-65 years of age, respectively, was assumed for
1998; the rate was assumed to decrease gradually to 6.00% for pre-65 and 5.00%
for post-65 years of age by the year 2002 and remain at that level thereafter. A
7.00% and 6.79% annual rate for pre-65 and post-65 years of age, respectively,
was assumed for 1997. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation as of
29
32
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997 by $4,889,000 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year ended
December 31, 1997 by $326,000.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25%, 7.75% and 7.50% at December 31,
1997, 1996 and 1995, respectively. The effect on the accumulated benefit
obligation of these changes was an increase of $8,144,000 in 1997 and a decrease
of $1,674,000 in 1996.
Defined contribution retirement savings plans (Thrift Plans) are available
to substantially all employees. The Thrift Plans permit employees to elect
salary deferral contributions of up to 10% of their compensation on a
tax-deferred basis and requires the Company to match up to the first 6% of the
participants' compensation in the highest matched plan subject to salary caps.
The expense for the Company's contribution was $6,296,342 in 1997, $5,965,000 in
1996 and $5,911,000 in 1995.
(10) SALE OF NOTES RECEIVABLE
Notes receivable sold with recourse were $10,502,000 and $15,562,000 at
December 31, 1997 and 1996, respectively. The Company remains obligated to
reimburse the purchasers for any uncollectible amounts pursuant to the recourse
provisions of the agreements.
(11) LEASES
The Company occupies certain marketing and manufacturing facilities and
uses certain equipment under leases expiring at various dates over the next 20
years. Under terms of certain lease agreements, the Company has agreed not to
mortgage certain of its interests in oil and gas properties.
At December 31, 1997, minimum lease payments on capital and operating
leases were as follows:
CAPITAL OPERATING
LEASES(I) LEASES(II)
--------- ----------
(IN THOUSANDS)
1998........................................................ $2,381 $ 38,145
1999........................................................ 1,170 32,316
2000........................................................ 379 25,272
2001........................................................ 57 18,274
2002........................................................ -- 11,638
Later years to 2016......................................... -- 23,298
------ --------
Total minimum lease payments...................... 3,987 $148,943
========
Imputed interest (8.82%).................................... (400)
------
Present value of minimum lease payments(iii)................ $3,587
======
- ---------------
(i) Substantially all leases provide that the Company shall pay taxes,
maintenance, insurance and certain other operating expenses applicable to
the leased properties.
(ii) Minimum payments have not been reduced by minimum sublease rentals of
approximately $1,293,000 which are due in the future under noncancellable
subleases.
(iii)Presented in the consolidated balance sheet as current installments and
noncurrent lease obligations of $2,132,000 and $1,456,000 at December 31,
1997, respectively, and $2,104,000 and $2,307,000 at December 31, 1996,
respectively.
30
33
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rental expense was $41,691,000 (net of $121,000 subleases) in 1997,
$36,114,000 (net of $451,000 subleases) in 1996 and $32,562,000 (net of $676,000
subleases) in 1995. Contingent rentals were not significant.
(12) RELATED PARTY TRANSACTIONS
The Company has a 50% interest in joint ventures with PDI in Texas and with
PetroFina in Hong Kong which market chemicals in international trade. The
Company sold chemicals aggregating $3,030,000 in 1997, $8,728,000 in 1996 and
$3,652,000 in 1995 to the joint ventures.
Accounts receivable include $5,344,000 and $6,418,000 at December 31, 1997
and 1996, respectively, from affiliates.
Accounts payable include $6,923,000 and $34,127,000 at December 31, 1997
and 1996, respectively, to affiliates.
Interest expense relating to borrowings from PDI was $3,000 in 1997,
$5,125,000 in 1996 and $12,938,000 in 1995. Crude oil and natural gas
aggregating $11,508,000 in 1997, $13,245,000 in 1996 and $8,953,000 in 1995 were
purchased from PDI in the ordinary course of business.
Refined products and chemicals aggregating $19,625,000 in 1997, $57,913,000
in 1996 and $53,542,000 in 1995 were purchased from PetroFina and its affiliates
other than PDI in the ordinary course of business.
(13) CONTINGENCIES
The Company was contingently liable at December 31, 1997, under pending
lawsuits and other claims, some of which involved substantial sums. Considering
certain liabilities that have been set up for the lawsuits and claims, and the
difficulty in determining the ultimate liability in some of these matters,
internal counsel is of the opinion that the amounts, if any, that ultimately may
be due in connection with such lawsuits and claims would not have a material
adverse effect upon the Company's consolidated financial condition.
The Company is subject to loss contingencies pursuant to federal, state and
local environmental laws and regulations. These regulations, which are currently
changing, regulate the discharge of materials into the environment and may
require the Company to incur future obligations to investigate the effects of
the release or disposal of certain petroleum, chemical and mineral substances at
various sites; to remediate or restore these sites; to compensate others for
damage to property and natural resources and for remediation and restoration
costs. These possible obligations relate to sites owned by the Company or others
and associated with past or present operations, including sites at which the
Company has been identified as a potentially responsible party ("PRP") under the
federal Superfund law and comparable state laws. The Company is currently
participating in environmental investigations, assessments and cleanups under
these regulations at federal Superfund and state-managed sites, as well as other
cleanup sites, including operating and closed refineries, chemical facilities,
service stations, pipelines and terminals. The Company may in the future be
involved in additional environmental investigations, assessments and cleanups.
The magnitude of future costs will depend on factors such as the unknown nature
and contamination at many sites, the unknown timing, extent and method of the
remedial actions which may be required and the determination of the Company's
liability in proportion to other responsible parties.
Environmental expenditures are expensed or capitalized depending on their
future economic benefit. Expenditures that relate to an existing condition
caused by past operations and that have no future economic benefit are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. The Company has accrued for environmental remediation
obligations of $19,336,000 and $20,339,000 at December 31, 1997 and 1996,
respectively. Substantially all amounts accrued are expected to be paid out over
the next five to ten
31
34
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
years. The level of future expenditures for environmental remediation
obligations is impossible to determine with any degree of reliability. The
Company spent approximately $11,321,000 and $13,484,000 during 1997 and 1996,
respectively, in capital expenditures for environmental protection and for
compliance with federal, state and local environmental laws and regulations. In
addition, the Company expensed $34,504,000 and $43,621,000 in 1997 and 1996,
respectively, for ongoing environmental administration and maintenance
activities at operating facilities. Total environmental cash expenditures at the
Company's operating locations are expected to increase over an extended period
of time as the Company complies with present and future regulatory requirements.
Estimated capital expenditures for 1998 related to environmental matters are
$14,570,000 (unaudited).
(14) SEGMENT DATA
The Company is engaged in crude oil and natural gas exploration and
production and natural gas marketing ("Upstream"); petroleum products refining,
supply and transportation and marketing ("Downstream"); and chemicals
manufacturing and marketing ("Chemicals"). Segment data as of and for the three
years ended December 31, 1997 follows (in thousands):
CORPORATE
UPSTREAM DOWNSTREAM CHEMICALS AND OTHER CONSOLIDATED
-------- ---------- ---------- --------- ------------
1997:
Sales:
Unaffiliated customers............. $896,812 $2,499,376 $1,058,765 $ 180 $4,455,133
======== ========== ========
Affiliates......................... $ -- $ -- $ 7,344 $ -- $ 7,344
======== ========== ========== ========
Inter-segment...................... $ 52,737 $ 101,918 $ 16,914 $ -- $ --
======== ========== ========== ======== ----------
4,462,477
==========
Operating profit (loss)............... $ 42,858 $ 71,626 $ 127,538 $(22,601) $ 219,421
Interest and other income............. 9,120 68 (5,832) 2,714 6,070
Interest expense, net................. -- -- -- (37,284) (37,284)
-------- ---------- ---------- -------- ----------
Earnings (loss) before income
taxes............................ $ 51,978 $ 71,694 $ 121,706 $(57,171) $ 188,207
======== ========== ========== ======== ==========
Accounts and notes receivable, net.... $152,975 $ 261,229 $ 158,910 $ 8,610 $ 581,724
======== ========== ========== ======== ==========
Identifiable assets................... $735,759 $1,346,540 $ 786,080 $146,295 $3,014,674
======== ========== ========== ======== ==========
Depreciation, depletion, amortization
and lease impairment............... $ 95,869 $ 68,251 $ 29,619 $ 8,115 $ 201,854
======== ========== ========== ======== ==========
Capital expenditures.................. $125,403 $ 47,965 $ 158,997 $ 8,351 $ 340,716
======== ========== ========== ======== ==========
32
35
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CORPORATE
UPSTREAM DOWNSTREAM CHEMICALS AND OTHER CONSOLIDATED
-------- ---------- ---------- --------- ------------
1996:
Sales:
Unaffiliated customers............. $569,014 $2,468,715 $1,032,045 $ 138 $4,069,912
======== ========== ========== ======== ==========
Affiliates......................... $ -- $ -- $ 11,332 $ -- 11,332
======== ========== ========== ========
Inter-segment...................... $ 61,872 $ 109,824 $ 14,763 $ -- --
======== ========== ========== ======== ----------
$4,081,244
==========
Operating profit (loss)............... $ 65,788 $ (12,997) $ 235,378 $(18,917) $ 269,252
Interest and other income............. 3,507 (3,836) (4,156) 1,743 (2,742)
Interest expense, net................. -- -- -- (38,248) (38,248)
-------- ---------- ---------- -------- ----------
Earnings (loss) before income
taxes............................ $ 69,295 $ (16,833) $ 231,222 $(55,422) $ 228,262
======== ========== ========== ======== ==========
Accounts and notes receivable, net.... $122,166 $ 262,367 $ 159,745 $ 8,275 $ 552,553
======== ========== ========== ======== ==========
Identifiable assets................... $680,203 $1,359,690 $ 693,033 $122,896 $2,855,822
======== ========== ========== ======== ==========
Depreciation, depletion, amortization
and lease impairment............... $ 71,711 $ 67,398 $ 27,336 $ 4,584 $ 171,029
======== ========== ========== ======== ==========
Capital expenditures.................. $125,254 $ 72,231 $ 54,318 $ 11,527 $ 263,330
======== ========== ========== ======== ==========
1995:
Sales:
Unaffiliated customers............. $352,932 $2,189,860 $1,059,731 $ 130 $3,602,653
======== ========== ========
Affiliates......................... $ -- $ -- $ 3,984 $ -- 3,984
======== ========== ========== ========
Inter-segment...................... $ 44,095 $ 129,780 $ 7,423 $ -- --
======== ========== ========== ======== ----------
$3,606,637
==========
Operating profit (loss)(1)............ $(60,653) $ (2,777) $ 295,905 $(17,452) $ 215,023
Interest and other income............. (6,258) (1,940) (5,292) 2,379 (11,111)
Interest expense, net................. -- -- -- (42,834) (42,834)
-------- ---------- ---------- -------- ----------
Earnings (loss) before income
taxes............................ $(66,911) $ (4,717) $ 290,613 $(57,907) $ 161,078
======== ========== ========== ======== ==========
Accounts and notes receivable, net.... $ 70,282 $ 194,051 $ 70,427 $ 1,486 $ 336,246
======== ========== ========== ======== ==========
Identifiable assets................... $576,966 $1,263,618 $ 531,737 $115,397 $2,487,718
======== ========== ========== ======== ==========
Depreciation, depletion, and lease
impairment(1)...................... $115,890 $ 75,554 $ 18,975 $ 3,545 $ 213,964
======== ========== ========== ======== ==========
Capital expenditures.................. $ 55,606 $ 42,234 $ 113,911 $ 6,685 $ 218,436
======== ========== ========== ======== ==========
- ---------------
(1) During the fourth quarter of 1995, the Company adopted SFAS 121, "Accounting
for the Impairment of Long Lived Assets and for Long-Lived Assets to be
Disposed Of". As a result, the Company recognized a before tax addition of
$58,723,000 to depreciation, depletion and amortization expense, of which
$52,523,000 was related to its Upstream business and $6,200,000 was related
to its Downstream business. After tax, the additional charge was $38,173,000
or $1.22 per share.
Consolidated totals are after elimination of inter-segment amounts.
Operating profit (loss) is sales and other operating revenue less operating
expenses (costs and expenses excluding interest) and is substantially all
33
36
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
derived from domestic operations. Identifiable assets are those assets that are
used in the operations in each business segment.
Most customers are located in the South and Midwest regions of the United
States. No single customer accounted for more than 5% of sales in 1997, 1996 or
1995, and no account receivable from any customer exceeded 5% of consolidated
stockholders' equity at December 31, 1997, 1996 or 1995.
(15) FINA OIL AND CHEMICAL COMPANY AND CONSOLIDATED SUBSIDIARIES SUMMARY
FINANCIAL DATA
Fina Oil and Chemical Company ("FOCC"), a wholly-owned subsidiary of the
Company, is the main operating subsidiary of the Company whose principal lines
of business include crude oil and natural gas exploration and production;
petroleum products refining, supply and transportation and marketing; and
chemicals manufacturing and marketing. FOCC issued senior debt securities during
1996 which are unconditionally guaranteed on an unsecured basis by the Company.
Following is summary consolidated financial data for FOCC (in thousands):
1997 1996
----------- -----------
At December 31:
Current Assets............................................ $ 846,240 $ 818,116
Noncurrent Assets......................................... 2,296,640 1,914,715
Current Liabilities....................................... (704,163) (659,894)
Noncurrent Liabilities(1)................................. (2,318,492) (1,956,490)
----------- -----------
Net Assets............................................. $ 120,225 $ 116,447
=========== ===========
1997 1996 1995
---------- ---------- ----------
Year ended December 31:
Sales and other operating revenues.............. $3,785,025 $3,690,533 $3,363,505
========== ========== ==========
Gross profit(2)................................. $ 334,207 $ 341,138 $ 303,166
========== ========== ==========
Net earnings(3)................................. $ 114,777 $ 137,371 $ 99,074
========== ========== ==========
- ---------------
(1) Primarily consists of payables to related parties.
(2) Gross profit is defined as sales and other operating revenues less cost of
raw materials and products purchased; direct operating expenses; taxes,
other than on income; and depreciation, depletion, amortization and lease
impairment.
(3) In 1995, FOCC adopted SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" which resulted in a
before-tax addition of $58,723,000 to depreciation, depletion and
amortization expense. After tax, the additional charge was $38,173,000.
34
37
FINA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997:
Sales and other operating
revenues........................ $1,114,068 $1,034,558 $1,111,641 $1,202,210
========== ========== ========== ==========
Gross profit(1).................... $ 86,196 $ 102,286 $ 106,039 $ 55,395
========== ========== ========== ==========
Net earnings....................... $ 39,150 $ 40,023 $ 43,593 $ 3,635
========== ========== ========== ==========
Basic and diluted earnings per
common share.................... $ 1.25 $ 1.28 $ 1.40 $ 0.12
========== ========== ========== ==========
1996:
Sales and other operating
revenues........................ $ 965,115 $1,047,290 $ 993,264 $1,075,575
========== ========== ========== ==========
Gross profit(1).................... $ 94,799 $ 95,162 $ 92,857 $ 84,738
========== ========== ========== ==========
Net earnings....................... $ 38,022 $ 38,079 $ 38,866 $ 38,239
========== ========== ========== ==========
Basic and diluted earnings per
common share.................... $ 1.22 $ 1.22 $ 1.25 $ 1.22
========== ========== ========== ==========
- ---------------
(1) Gross profit is defined as sales and other operating revenues less cost of
raw materials and products purchased; direct operating expenses; taxes,
other than on income; and depreciation, depletion, amortization and lease
impairment.
35
38
FINA, INC. AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DATA -- (UNAUDITED)
The following tables set forth supplementary disclosures for oil and gas
producing activities in accordance with SFAS 69.
(a) CAPITALIZED COSTS
Capitalized costs relating to oil and gas producing activities and the
related amounts of accumulated depreciation, depletion, amortization and lease
impairment follow:
DECEMBER 31
------------------------------------
1977 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
Proved oil and gas properties....................... $1,060,872 $ 975,173 $ 905,554
Unproved oil and gas properties..................... 252,820 263,395 232,085
---------- ---------- ----------
1,313,692 1,238,568 1,137,639
Less accumulated depreciation, depletion,
amortization and lease impairment................. 743,106 691,303 640,223
---------- ---------- ----------
Net capitalized costs............................... $ 570,586 $ 547,265 $ 497,416
========== ========== ==========
(b) COSTS INCURRED
A summary of costs incurred in oil and gas property acquisition,
exploration and development activities (both capitalized and charged to expense)
for the three years ended December 31, 1997 follows:
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
Acquisition of unproved properties.................. $ 10,156 $ 8,258 $ 5,304
======== ======== ========
Acquisition of proved properties.................... $ (11) $ 4,128 $ 1,091
======== ======== ========
Exploration costs................................... $109,411 $ 87,738 $ 46,463
======== ======== ========
Development costs................................... $ 50,398 $ 54,840 $ 29,992
======== ======== ========
The above costs were incurred in the United States.
36
39
FINA, INC. AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DATA -- (UNAUDITED) -- (CONTINUED)
(c) RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
The following table presents the results of operations for oil and gas
producing activities for the three years ended December 31, 1997.
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
Revenues:
Sales............................................. $225,375 $184,423 $119,772
Transfers......................................... 19,992 23,272 17,710
-------- -------- --------
Total..................................... 245,366 207,695 137,482
Production costs.................................... (53,169) (54,078) (51,922)
Exploration costs................................... (46,536) (30,150) (26,662)
Depreciation, depletion, amortization, lease
impairment and abandonments....................... (96,368) (71,683) (116,592)
-------- -------- --------
49,293 51,784 (57,694)
Income tax benefit (expense)........................ (15,791) (16,270) 22,473
-------- -------- --------
Results of operations from producing activities,
excluding interest costs.......................... $ 33,503 $ 35,514 $(35,221)
======== ======== ========
(d) RESERVE QUANTITY INFORMATION
The following table presents the Company's estimate of its proved oil and
gas reserves, all of which are located in the United States. The Company
emphasizes that reserve estimates are inherently imprecise and that estimates of
new discoveries are more imprecise than those of producing oil and gas
properties. Accordingly, the estimates are expected to change as future
information becomes available. The estimates have been prepared by the Company's
internal petroleum reservoir engineers.
1997 1996 1995
---------------- ---------------- ----------------
OIL GAS OIL GAS OIL GAS
------ ------- ------ ------- ------ -------
Proved developed and undeveloped
reserves:
Beginning of year..................... 39,087 370,757 34,572 314,222 31,699 348,204
Revisions of previous estimates....... (1,803) (9,475) 2,923 (15,467) 1,236 283
Purchases of minerals in place........ 503 204 1,129 4,769 48 55
Sales of minerals in place............ (3,841) (3,630) (650) (3,074) (2,052) (11,729)
Extensions and discoveries............ 3,296 88,473 4,921 127,026 7,390 29,528
Production............................ (3,806) (69,698) (3,808) (56,719) (3,749) (52,119)
------ ------- ------ ------- ------ -------
End of year........................... 33,436 376,631 39,087 370,757 34,572 314,222
====== ======= ====== ======= ====== =======
Proved developed reserves:
Beginning of year..................... 21,012 239,790 18,814 228,548 19,986 237,270
====== ======= ====== ======= ====== =======
End of year........................... 17,472 247,503 21,012 239,790 18,814 228,548
====== ======= ====== ======= ====== =======
Oil reserves, which include condensate and natural gas liquids, are stated
in thousands of barrels and gas reserves are stated in millions of cubic feet.
37
40
FINA, INC. AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DATA -- (UNAUDITED) -- (CONTINUED)
(e) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS AND CHANGES THEREIN
RELATING TO PROVED OIL AND GAS RESERVES
The following table, which presents a standardized measure of discounted
future net cash flows and changes therein relating to proved oil and gas
reserves, is presented pursuant to Statement of Financial Accounting Standards
No. 69. In computing this data, assumptions other than those required by the
Financial Accounting Standards Board could produce different results.
Accordingly, the data should not be construed as representative of the fair
market value of the Company's proved oil and gas reserves.
Future cash inflows were computed by applying year end prices of oil and
gas relating to proved reserves to the estimated year end quantities of those
reserves. Future price changes were considered only to the extent provided by
contractual arrangements in existence at year end. Future development and
production costs were computed by estimating the expenditures to be incurred in
developing and producing the proved oil and gas reserves at the end of the year,
based on year end costs. Future income tax expenses were computed by applying
the year end statutory tax rate adjusted for tax credits, with consideration of
future tax rates already legislated, to the future pretax net cash flows
relating to proved oil and gas reserves, less the tax basis of the properties
involved. The standardized measure of discounted future cash flows represents
the present value of estimated future net cash flows using a 10% annual discount
rate.
DECEMBER 31
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
Future cash inflows............................. $1,321,549 $2,124,172 $1,202,555
Future production and development costs......... (495,084) (592,189) (476,786)
Future income tax expenses...................... (154,559) (403,264) (117,188)
---------- ---------- ----------
Future net cash flows........................... 671,906 1,128,719 608,581
10% annual discount for estimated timing of cash
flows......................................... (239,807) (438,354) (244,862)
---------- ---------- ----------
Standardized measure of discounted future net
cash flows.................................... $ 432,099 $ 690,365 $ 363,719
========== ========== ==========
Beginning of year............................... $ 690,365 $ 363,719 $ 317,694
Changes resulting from:
Sales and transfers of oil and gas produced,
net of production costs.................... (192,197) (153,617) (85,560)
Extensions and discoveries.................... 132,191 232,124 56,806
Purchases of minerals in place................ 3,538 18,444 353
Sales of minerals in place.................... (26,902) (11,906) (22,829)
Previously estimated development costs
incurred during the year................... 52,907 32,270 43,600
Revisions of previous quantities.............. (23,746) 8,017 17,186
Accretion of discount......................... 93,698 43,377 34,626
Net change in income taxes.................... 147,242 (176,597) (41,459)
Net changes in prices and costs............... (444,996) 334,534 43,302
---------- ---------- ----------
End of year..................................... $ 432,099 $ 690,365 $ 363,719
========== ========== ==========
38
41
SCHEDULE II
FINA, INC. AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
Year ended December 31, 1995 --
Allowance for doubtful receivables.................. $7,201 $2,790 $3,280(1) $6,711
====== ====== ====== ======
Year ended December 31, 1996 --
Allowance for doubtful receivables.................. $6,711 $1,330 $1,968(1) $6,073
====== ====== ====== ======
Year ended December 31, 1997 --
Allowance for doubtful receivables.................. $6,073 $4,465 $5,709(1) $4,829
====== ====== ====== ======
- ---------------
(1) Bad debts written off, less recoveries.
39
42
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in accountants or disagreements by the
Registrant with its accountants on accounting or financial disclosures.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS OF REGISTRANT AND SERVED AS AN
CAPACITIES SERVED IN 1997 AGE OFFICER SINCE
------------------------------------ --- -------------
Paul D. Meek, 67 6-06-68
Chairman of the Board
Ron W. Haddock, 57 6-19-86
President and Chief Executive Officer
Cullen M. Godfrey, 52 4-15-87
Senior Vice President, Secretary and General
Counsel
Michael J. Couch, 46 4-30-84
Senior Vice President
H. Patrick Jack, 45 8-23-89
Senior Vice President
Neil A. Smoak, 51 4-24-86
Senior Vice President
(Resigned March 1, 1998)
Yves Bercy, 52 7-01-93
Vice President and Chief Financial Officer
(Resigned August 31, 1997)
Richard L. Charter II, 48 4-24-97
Vice President
Michel Daumerie, 45 4-20-95
Vice President
Richard C. Lindley, 56 4-20-95
Vice President
Jeff D. Morris, 46 4-20-95
Vice President
Geoffroy Petit, 39 9-1-97
Vice President and Chief Financial Officer
S. R. West, 58 5-02-83
Vice President
Hilda Kouvelis, 35 2-20-97
Treasurer
Kevin A. Rupp, 42 4-20-95
Controller
Linda Middleton, 47 8-20-84
Assistant Secretary
There is incorporated by reference pages 4 through 7 of the Company's Proxy
Statement for the Annual Meeting of Security Holders to be held April 15, 1998.
ITEM 11 EXECUTIVE COMPENSATION
There is incorporated by reference pages 2 through 3 and 9 through 17 of
the Company's Proxy Statement for the Annual Meeting of Security Holders to be
held April 15, 1998.
40
43
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated by reference the first page and pages 2 through 7 of
the Proxy Statement for the Annual Meeting of Security Holders to be held April
15, 1998.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated by reference the first page and pages 4 through 5, 13
and 17 of the Company's Proxy Statement for the Annual Meeting of Security
Holders to be held April 15, 1998.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following are incorporated by reference or filed as part of this
Annual Report:
1. and 2. Consolidated Financial Statements and Schedules:
Reference is made to page 13 of this Form 10-K for a list of all
consolidated financial statements and schedules filed as part of this
Form 10-K.
No reports on Form 8-K were filed during the last quarter of the
period covered by this report. However, a Form 8-K was filed on February
17, 1998 reporting a news release by the Company approving PetroFina
S.A.'s offer of a negotiated merger whereby the Company would become an
indirect, wholly-owned affiliate.
3. Exhibits:
(2b) -- Agreement and Plan of Merger
(3a) -- The Articles of Incorporation of FINA, Inc.
(3b) -- The Bylaws of FINA, Inc.
(10a) -- Thrift and Employee Stock Ownership Plan for Employees of
American Petrofina, Incorporated
(10b) -- Credit Agreements of February 27, 1997 with NationsBank
of Texas, N.A. as amended February 26, 1998
(10c) -- American Petrofina, Incorporated Employee Non-Qualified
Stock Option Plan (1979)
(10d) -- Form 11-K Amdel Inc. Employee Investment Plan
(10e) -- Form 11-K FINA Capital Accumulation Plan
(10f) -- Agreements between FINA, Inc. (formerly American
Petrofina, Incorporated) and Ron W. Haddock
(10g) -- Employee Stock Ownership Plan of American Petrofina,
Incorporated
(10h) -- FINA Capital Accumulation Plan as amended
(10i) -- Fina Restoration Plan
(11) -- Computation of Ratio of Earnings to Fixed Charges
(19) -- FINA, Inc.'s Proxy Statement for Annual Meeting of
Security Holders to be held April 15, 1998
(21) -- Subsidiaries of the Registrant
(23) -- Independent Auditors' Consent
(27) -- Financial Data Schedule
41
44
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FINA, INC.
(Registrant)
By: /s/ CULLEN M. GODFREY
----------------------------------
Cullen M. Godfrey
Senior Vice President, Secretary
and General Counsel
Date: March 12, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURES AND TITLES DATE
--------------------- ----
By: /s/ PAUL D. MEEK March 12, 1998
-------------------------------------------------
Paul D. Meek
Chairman of the Board
By: /s/ RON W. HADDOCK March 12, 1998
-------------------------------------------------
Ron W. Haddock
President and CEO, Director
By: /s/ ALBERT V. CASEY March 12, 1998
-------------------------------------------------
Albert V. Casey
Director
By: /s/ FRANCOIS CORNELIS March 12, 1998
-------------------------------------------------
Francois Cornelis
Director
By: March , 1998
-------------------------------------------------
Axel de Broqueville
Director
By: March , 1998
-------------------------------------------------
Michel-Marc Delcommune
Director
By: /s/ ERNESTO MARCOS March 12, 1998
-------------------------------------------------
Ernesto Marcos
Director
By: March , 1998
-------------------------------------------------
Jose G. Rebelo
Director
By: /s/ PATRICIA M. WALLINGTON March 12, 1998
-------------------------------------------------
Patricia M. Wallington
Director
By: /s/ GEOFFROY PETIT March 12, 1998
-------------------------------------------------
Geoffroy Petit
Vice President and Chief Financial Officer
By: /s/ KEVIN RUPP March 12, 1998
-------------------------------------------------
Kevin Rupp
Controller and Principal Accounting Officer
45
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(2b) -- Agreement and Plan of Merger
(3a) -- The Articles of Incorporation of FINA, Inc.
(3b) -- The Bylaws of FINA, Inc.
(10a) -- Thrift and Employee Stock Ownership Plan for Employees of
American Petrofina, Incorporated
(10b) -- Credit Agreements of February 27, 1997 with NationsBank
of Texas, N.A. as amended February 26, 1998
(10c) -- American Petrofina, Incorporated Employee Non-Qualified
Stock Option Plan (1979)
(10d) -- Form 11-K Amdel Inc. Employee Investment Plan
(10e) -- Form 11-K FINA Capital Accumulation Plan
(10f) -- Agreements between FINA, Inc. (formerly American
Petrofina, Incorporated) and Ron W. Haddock
(10g) -- Employee Stock Ownership Plan of American Petrofina,
Incorporated
(10h) -- FINA Capital Accumulation Plan as amended
(10i) -- Fina Restoration Plan
(11) -- Computation of Ratio of Earnings to Fixed Charges
(19) -- FINA, Inc.'s Proxy Statement for Annual Meeting of
Security Holders to be held April 15, 1998
(21) -- Subsidiaries of the Registrant
(23) -- Independent Auditors' Consent
(27) -- Financial Data Schedule