-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kz36+RIEGue+7BkPytbEcguuFCD1gYu3hywNAzg7zLOX/EiaiP3T9v3ho4Z6ikSM ZiX+jZqdxtubJPpxhMHm6A== 0000810316-96-000041.txt : 19961002 0000810316-96-000041.hdr.sgml : 19961002 ACCESSION NUMBER: 0000810316-96-000041 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19961001 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIAMOND SHAMROCK INC CENTRAL INDEX KEY: 0000810316 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 742456753 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09409 FILM NUMBER: 96637778 BUSINESS ADDRESS: STREET 1: P O BOX 696000 CITY: SAN ANTONIO STATE: TX ZIP: 78230 BUSINESS PHONE: 2106416800 MAIL ADDRESS: STREET 1: P O BOX 696000 CITY: SAN ANTONIO STATE: TX ZIP: 78230 FORMER COMPANY: FORMER CONFORMED NAME: DIAMOND SHAMROCK R&M INC DATE OF NAME CHANGE: 19900207 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________ Form 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission File Number December 31, 1995 1-9409 ___________________ DIAMOND SHAMROCK, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 74-2456753 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 9830 Colonnade Boulevard San Antonio, Texas 78230 (Address of Principal (Zip Code) Executive Offices) Registrant's Telephone Number, Including Area Code: (210) 641-6800 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, $.01 Par Value New York 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/A or any amendment to this Form 10-K/A. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 14, 1996 was approximately $908,280,319 Shares of Common Stock outstanding at March 14, 1996 -- 29,181,697 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report to shareholders for the fiscal year ended December 31, 1995, filed as Exhibits 13.1 and 13.2 hereto, are incorporated by reference into Parts I and II hereof. Portions of the registrant's definitive Proxy Statement for the 1996 Annual Meeting of Stockholders, to be filed with the Commission pursuant to Regulation 14A no later than 120 days after the end of the fiscal year covered by this report, are incorporated by reference into Part III hereof. PART I Item 1. Business. Diamond Shamrock, Inc. (the "Company") is the leading independent refiner and marketer of petroleum products in the southwestern United States and the largest retail marketer of gasoline in the state of Texas. The Company operates two crude oil refineries located in Texas and is engaged in the wholesale and retail marketing of refined petroleum products in a nine state area. The Company sells gasoline and merchandise through Company-operated retail outlets concentrated in Texas, Colorado, New Mexico, Louisiana, and Arizona, and distributes gasoline through independently owned Diamond Shamrock branded outlets in Texas and nearby states. The Company also stores and markets natural gas liquids, manufactures and markets anhydrous ammonia and polymer-grade propylene, and operates certain other related businesses. The Company was incorporated in Delaware in February, 1987, and became a publicly owned corporation effective April 30, 1987. A description of the general development and conduct of the business of the Company is set forth below. Consolidated financial information for the Company for the year ended December 31, 1995 and for certain prior years, including Management's Discussion and Analysis of Financial Condition and Results of Operations, Consolidated Financial Statements, and Selected Financial Data, is included in this report as Exhibits 13.1 and 13.2, and all such information is incorporated into this report by reference. Information concerning outside sales and operating revenues and operating profit for the Company and each of its business segments for the three years ended December 31, 1995, together with information concerning the identifiable assets of the various business segments as of December 31, 1993, 1994, and 1995, is set forth in Note 5 contained in Exhibit 13.2, which is incorporated herein by reference. Refining The Company owns and operates two modern refineries strategically located near its key markets. The McKee Refinery, located near Amarillo, Texas, and the Three Rivers Refinery, located near San Antonio, Texas, have an aggregate refining capacity of approximately 215,000 barrels of crude oil per day (140,000 barrels at the McKee Refinery and 75,000 barrels at the Three Rivers Refinery). The Company operated its refineries at levels which averaged in excess of 95% of capacity in 1995. Approximately 91% of the refinery outputs are high-value products, including gasoline, diesel, jet fuels, and liquefied petroleum gases. The refineries also produce sulfur, sulfuric acid, ammonium thiosulfate, refinery grade propylene, fuel oil, asphalt, and carbon black oil. The completion of certain debottlenecking projects at the McKee Refinery during 1993, 1994, and 1995 increased its crude oil throughput capacity to approximately 140,000 barrels per day. Other projects at the refinery in recent years permit it to meet various federally mandated fuel specifications. Preparations were completed at the McKee Refinery during 1994 for the production of reformulated gasoline ("RFG") for the Dallas/Fort Worth market, and production of RFG commenced in November 1994. RFG production was made more cost-effective in mid-1995 when a new tertiary amylmethyl ether ("TAME") unit was completed at the refinery. In addition to RFG production, the McKee Refinery supplies oxygenated fuel during the winter months to the El Paso, Denver, and Albuquerque markets. Most of the oxygenated fuel manufactured at McKee, other than RFG, contains oxygenates obtained from other manufacturers. The McKee plant also manufactures low-sulfur diesel meeting governmental specifications for on-road use, with the aid of a desulfurization unit which was completed in 1993. In 1995, the Company commenced work at the Three Rivers Refinery on several expansion projects which will, when completed, allow the refinery to be more flexible in selecting its crude oil feedstock, upgrade its product slate, and expand its throughput capacity to approximately 85,000 barrels of crude oil per day. The projects include a demetalized oil hydrotreater, a hydrogen plant, a sulphur recovery plant, and expansion of the crude unit. The hydrogen plant was completed in October 1995. The sulphur recovery plant and expansion of the crude unit were completed in February 1996. The final phase of the expansion, completion of the demetalized oil hydrotreater, is scheduled for the third quarter of 1996. The Three Rivers Refinery began processing natural gas liquids (NGL) from local gas processing plants in early 1995. A 50 mile pipeline and modifications to existing equipment were completed in March 1996 to enable the Three Rivers plant to produce and transport a purity ethane product to a commercial ethylene plant for processing. The Company has also commenced engineering work on a benzene/toluene/xylene ("BTX") extraction and fractionation unit at the Three Rivers Refinery, which will allow the company to recover these valuable petrochemical feedstocks from the refinery s gasoline pool. Completion of the BTX unit is scheduled for the first half of 1997. The Three Rivers Refinery continued throughout 1995 to enjoy the benefits of a substantial plant expansion which was completed in 1993. That expansion included construction of a hydrocracker and modification of a continuous regeneration reformer and crude distillation unit. Completion of these projects enabled the refinery to increase gasoline production capacity by approximately 50% and production capacity for other distillates, including diesel, by approximately 25%. It also enabled the refinery to meet federal diesel desulphurization requirements. The Company owns a natural gas processing facility located at the McKee Refinery. Upon termination of a gas processing agreement as of January 1993, the operation of the facility was phased out. This facility has a throughput capacity of more than 172 million cubic feet of natural gas per day. The Company has no present plans to resume operation of the gas processing plant. Supply and Distribution The flexibility to supply the Company's refineries from a variety of sources is an essential part of being competitive. The Company's network of crude oil pipelines gives the Company the ability to acquire crude oil from producing leases, major domestic oil trading centers, and Gulf Coast ports, and to transport crude oil to the Company's refineries at a competitive cost. The McKee Refinery has access to crude oil from the Texas Panhandle, Oklahoma, southwestern Kansas, and eastern Colorado through approximately 1,200 miles of crude oil pipeline owned or leased (in whole or in part) by the Company. This refinery is also connected by common carrier pipelines to the major crude oil centers of Cushing, Oklahoma and Midland, Texas. The McKee Refinery also has access at Wichita Falls, Texas through a 70,000 barrel per day pipeline to major pipelines which transport crude oil from the Texas Gulf Coast and major West Texas oil fields into the Mid-Continent region. The Three Rivers Refinery has access to crude oil from foreign sources delivered to the Texas Gulf Coast at Corpus Christi, Texas, as well as crude oil from domestic sources. To enhance its access to foreign crude oil, in 1995 the Company completed a new crude oil terminal located at the Port of Corpus Christi, which has a total storage capacity of 1.2 million barrels. The addition of a fourth 400,000 barrel tank to the terminal in the first half of 1996 will permit the Company to be more flexible in taking delivery of and in blending crude oil feedstock for the Three Rivers Refinery, thereby enabling it to take better advantage of the increased refining complexity provided by the improvements that have been recently completed or which are currently underway at the Three Rivers Refinery. The addition of the new tank should also reduce the Company's demurrage expense (the charge assessed by a ship for the time it is delayed in port to unload cargo) by allowing the Company to accept delivery of larger crude oil cargos at the terminal, thereby decreasing the number of such deliveries, and reduce transportation expense by eliminating the need to terminal a portion of the Company's crude oil receipts through facilities located near Corpus Christi which are owned by other parties. The Corpus Christi crude oil terminal is connected to the Three Rivers Refinery by a 70 mile pipeline which has the capacity to deliver 120,000 barrels of crude oil per day to the refinery. The Three Rivers Refinery also has access to West Texas Intermediate crude oil through common carrier pipelines and to crude oil production in South Texas. The Company acquires a major portion of its crude oil requirements through the purchase of futures contracts on the New York Mercantile Exchange. The Company also uses the futures market to manage the price risk inherent in purchasing the crude oil in advance of the delivery date, and in maintaining the inventories contained within its refinery and pipeline systems. While the Company has no crude oil reserves and its operations could be adversely affected by fluctuations in the availability of crude oil and other supplies, the Company believes that current domestic and foreign sources of crude oil will be sufficient to meet the Company's requirements for the foreseeable future. The Company's refined products are distributed primarily through the Company's approximately 2,959 miles of refined products pipelines and its 16 terminals. The Company's refined products terminal near Dallas, the Southlake Terminal, also receives products from the Explorer Pipeline, a major common carrier of refined products from the Houston area. Over the last several years the Company has added significantly to its product distribution system. This has been accomplished in part by the construction of new product pipelines to connect the Company's refineries to expanding markets and in part by adding to or purchasing additional capacity in existing product pipelines. In November 1995, the Company commenced operation of a newly constructed 409-mile, 10-inch pipeline from the McKee Refinery to El Paso, Texas, along with a new terminal in El Paso from which the Company will distribute product delivered via the pipeline. The new pipeline has an initial capacity to deliver 27,000 barrels per day of refined products, including gasoline, diesel, jet fuels, and propane, and the new terminal provides total associated storage capacity for approximately 500,000 barrels of product. It gives the Company the capability of delivering refined products from the McKee Refinery directly to the El Paso market, in which the Company has established a significant market presence, and also to deliver refined products to markets in Arizona through a common carrier pipeline originating in El Paso. Available capacity in the Amarillo-Tucumcari-Albuquerque products pipeline, which carries products from the McKee refinery, has been expanded both by purchase of one-half of the interest of a pipeline partner, and by construction projects that expanded the capacity of that line by an additional 2,000 barrels per day, giving the line a total product delivery capacity from the McKee Refinery of 12,600 barrels per day. In 1994, the Company completed construction of a products pipeline from the McKee Refinery to the Colorado Springs, Colorado area. The project included a 10-inch pipeline to Colorado Springs, Colorado with an initial capacity of 32,000 barrels per day, covering approximately 258 miles, which connects to a new terminal facility with a total product storage capacity of 320,000 barrels. Subject to obtaining regulatory approvals, the Company plans to construct an extension of that pipeline to Denver. In 1994, the Company connected its product pipeline running from the McKee Refinery to the Southlake Terminal to those of another gasoline refiner and marketer at Wichita Falls, Texas and at Southlake, Texas. The connections enable the Company to deliver an additional 2,500 barrels of gasoline per day from the McKee Refinery to Wichita Falls as part of a product exchange arrangement, and to deliver an additional 9,000 to 18,000 barrels of gasoline per day from the McKee Refinery to the Southlake Terminal for sale at a specified margin above the spot market price. The Company expanded the Three Rivers Refinery product distribution system in 1992 by constructing a refined products terminal near Laredo, Texas. The project required construction of a 100-mile refined products pipeline connecting the terminal to the Three Rivers Refinery. The terminal enables the Company to deliver approximately 15,000 barrels per day of refined products to southwest Texas and adjacent market areas in Mexico. The Company has historically entered into product exchange and purchase agreements with unaffiliated companies. Exchange agreements provide for the delivery to unaffiliated companies of refined products at the Company's terminals in exchange for delivery of a similar amount of refined products to the Company by such unaffiliated companies at agreed locations. Purchase agreements involve the purchase by the Company of refined products from unaffiliated companies with delivery occurring at agreed locations. Such arrangements enable the Company to broaden its geographical distribution capabilities and supply markets not connected to its refined products pipeline system. Most of the Company's exchanges and purchase arrangements are long-standing arrangements, but generally can be terminated on 30 to 90 days notice. Products are currently received on exchange or by purchase through 39 terminals and distribution points throughout the Company's principal marketing areas. Marketing In December 1995, the Company successfully concluded a public tender offer for the outstanding common stock and warrants to purchase common stock of National Convenience Stores Incorporated ("NCS"), and NCS subsequently became a wholly owned subsidiary of the Company through merger. At the end of 1995, NCS operated 661 specialty convenience stores, over 90% of which sold gasoline, in four cities in the state of Texas under the name Stop N Go. The Company is currently engaged in the integration of the NCS stores with the rest of the Company's retail operations. The Company currently plans to sell Diamond Shamrock branded gasoline through the Stop N Go outlets, but to otherwise retain and use the Stop N Go brand in connection with those outlets. The Company has a strong brand identification in much of its nine-state marketing area. The volume of gasoline the Company sells through its network of 1,506 Company-operated retail outlets is equal to approximately 68% of the gasoline the Company produces at its refineries. The volume of gasoline the Company sells to independent branded and unbranded jobbers, commercial, and end user accounts, and other marketers exceeds the remainder of the Company's gasoline production. To the extent the Company's requirements exceed the production at its refineries, the balance is made up through purchases of gasoline. Total motor fuel outlets at the dates indicated below were as follows: December 31,
1995 1994 1993 Company Owned and Operated 715 496 504 Company Leased and Operated 791 314 272 TOTAL COMPANY OPERATED 1,506 810 776 Jobber Operated 1,203 1,206 1,194 TOTAL MOTOR FUEL OUTLETS 2,709 2,016 1,970
As of December 31, 1995, Company-operated retail outlets were located in Texas (1,291), Colorado (128), New Mexico (49), Louisiana (37), and Arizona (1). Most of the Company's stores are modern, attractive, high-volume gasoline outlets. In addition, these outlets sell a wide variety of products such as groceries, health and beauty aids, fast foods, and beverages. The Company plans to open 16 new retail outlets during 1996, most of which will be located in Arizona. The Company opened 30 new retail outlets in 1995. In 1995, the Company also purchased, in addition to 661 NCS retail outlets, 21 retail outlets in New Mexico. In 1994, the Company opened 17 new outlets, and purchased an additional 26. In 1993, the Company opened nine new outlets, and purchased an additional 19. The Company has an ongoing program to modernize and upgrade the retail outlets it operates. These efforts are designed to improve appearances and create a uniform look easily recognizable by customers. Exterior improvements generally include the installation of new price signs, lighting, and canopies over the gasoline pumping areas. The program also includes the installation of computer-controlled pumping equipment and the renovation of interiors. The Company is continuing its program of closing and selling retail outlets which have marginal profitability or which are situated outside its principal marketing areas. During 1995, the Company closed five such outlets. In addition, the Company sold all 11 of the outlets it operated in Amarillo, Texas to a retailer who agreed to become one of Diamond Shamrock's branded jobbers, and who agreed to retain the Diamond Shamrock brand on the outlets purchased as well as place it on another 36 of the jobber's outlets selling gasoline under other brands in that market. As of December 31, 1995, 136 independent jobbers supplied 1,203 "Diamond Shamrock" branded retail outlets located in eight states. The Company enjoys long-term relationships with many of its jobbers. Representatives from 20 jobbers make up a Jobber Council that meets on a regular basis with the Company's management to communicate concerns, and to learn about opportunities and developments in the Company's marketing program. During the past three years, the Company has made a number of significant improvements to its jobber assistance programs in an on-going effort to improve the quality of the "Diamond Shamrock" brand image. Such programs provide assistance or incentives to jobbers to upgrade existing outlets or construct new outlets and to make environmental improvements. In July 1993, the Company formed a joint venture for the purpose of franchising the Company's "Corner Store" branded convenience stores in Mexico. The stores are operated in conjunction with Mexican national oil company gasoline outlets under the name "Corner Store", and are patterned after the Company's retail outlets in the United States. Three new stores were opened under the franchise arrangement during 1995, and two unprofitable locations were closed during the year. A total of ten locations were operating under the franchise arrangement at the end of 1995. The Company anticipates that an additional three to five locations will be opened under the arrangement during 1996. The Company's competitive position is supported by its own proprietary credit card program, which had approximately 600,000 active accounts at the end of 1995. The Company currently utilizes electronic point-of-sales credit card processing ("P.O.S.") at all of its Company and jobber operated stores. P.O.S. reduces transaction time at the sales counter and lowers the Company's credit card program costs by reducing float, reducing charges paid by the Company to accept other company's credit cards for purchases, eliminating postage and insurance costs, and reducing bad debts. In February 1994, the Company began installing pump island-mounted credit card readers at high volume company operated retail locations, as part of its "Pay the Pump" program. These units enable the customer to pay for a gasoline purchase without leaving the gasoline pump. At the end of 1995, the Company had installed the units at over 160 of its stores. In June 1994, the Company completed installation of a computer based, intelligent retail information system ("IRIS") at Company-operated stores. IRIS incorporates an enhanced P.O.S. system and will automate inventory control, pricing, and sales tracking. IRIS interfaces with the Company's new pump island-mounted credit card readers and the new continuous underground storage tank monitoring system now being installed by the Company. The Company is currently working to integrate the newly acquired NCS stores into its electronic data processing system, and expects that project to be complete by the end of 1996. The "Corner Store" concept for the retail outlets that began in 1987 is intended to provide the customer with a message of convenience and friendly customer service. The Company also uses "Corner Store" to identify its newly expanded merchandise line. Customers now find a greater variety of merchandise and consistency of appearance from outlet to outlet. The Company actively uses radio, television, newspaper, and billboard advertising to promote the Company and its products. These promotional efforts are facilitated by the concentration of a substantial portion of the Company's outlets in the Texas metropolitan areas of Austin, Corpus Christi, Dallas, El Paso, Fort Worth, Houston, and San Antonio, and in Denver and Colorado Springs, Colorado. The Company considers the "Diamond Shamrock" and the "Stop N Go" brand names and logos to be of significant importance to its business. In addition to gasoline, the Company also markets an average of 52,484 barrels per day of diesel fuel to branded and non-branded customers, railroads, and large fleet accounts. Asphalt produced at the McKee Refinery is sold primarily to the roofing industry and for road construction. The Company also sells an average of 18,705 barrels per day of high quality jet fuel to commercial airlines and the United States military. Allied Businesses In addition to its core refining and marketing businesses, the Company is engaged in several related businesses. The more significant of these businesses and new ventures are described below. The Company owns and operates large underground natural gas liquids and petrochemical storage and distribution facilities located on the Mont Belvieu salt dome, northeast of Houston. The facility has total permitted storage capacity of approximately 77 million barrels, and consists of 30 wells. The facilities are used for storing and distributing ethane, ethane/propane mix, ethylene, propane, natural gasoline, butane, and isobutane, as well as refinery, chemical, and polymer-grade propylene. The Mont Belvieu facilities receive products from the McKee Refinery through the Skelly-Belvieu pipeline (which the Company operates and in which it owns a 50% interest), as well as from local fractionators and through major pipelines coming from the Mid-Continent region, West Texas, and New Mexico. In 1995, an average of approximately 618,000 barrels per day of natural gas liquids and petrochemicals moved through the facilities and were distributed via an extensive network of pipeline connections to various refineries and petrochemical complexes on the Texas and Louisiana Gulf Coasts, earning various storage and distribution fees for the Company. The Company operates a propane/propylene splitter plant located at the Company's Mont Belvieu hydrocarbon storage facility. A subsidiary of American PetroFina, Inc. ("Fina") has a one-third interest in the plant. The Company and Fina each pay their proportionate share of the costs and receive in kind their proportionate share of the products produced at the plant. The splitter is capable of producing 720 million pounds of polymer-grade propylene per year. Polymer-grade propylene is a feedstock used in the manufacture of plastics. The plant utilizes refinery-grade propylene produced by both the Company's refineries and other refiners for feedstock. The Company's storage facilities at Mont Belvieu are used to store both feedstock for the plant and polymer-grade propylene after it is produced. The product is distributed by pipeline to purchasers in the Houston ship channel area and to export facilities. In 1995, the Company's share of production from the splitter totaled over 500 million pounds of polymer-grade propylene, and the Company was successful in marketing product in excess of that amount. The Company and Fina have commenced work on a project, scheduled to be completed in the third quarter of 1996, which will add a second splitter and double the productive capacity of the plant. The two companies will maintain their existing ownership arrangement for the expanded facilities, under which Diamond Shamrock is entitled to two thirds of production. A petrochemical export terminal located on the Houston Ship Channel in which the Company has a joint venture interest was completed and commenced operation in August 1992. The terminal is connected by pipeline to the Company's propane/propylene splitter plant and petrochemical storage facilities at Mont Belvieu. The terminal provides the Company with access to international petrochemical markets. The Company has operated an ammonia production facility located at the McKee Refinery since 1991. During 1995, the plant produced approximately 431 tons per day of anhydrous ammonia which is marketed by the Company as a fertilizer. In September 1991, the Company and Sol Petroleo, S.A. ("Sol"), an Argentine company headquartered in Buenos Aires, jointly acquired the oil and gas exploration and production interests of Occidental Petroleum in the Republic of Bolivia. In 1994, the Company purchased all of Sol's interest in the Bolivian operations. The Bolivian operations are now owned jointly by a wholly-owned subsidiary of the Company and Phoebus Energy, Ltd., a Bermuda corporation in which the Company owns a 50% interest. The operation includes a 100% interest in the Chaco Block in southeastern Bolivia, which has net daily sales of approximately 12 million cubic feet of gas, a 100% interest in the Nupuco Block, which is also in southern Bolivia, and a 50% interest in the Madre de Dios Block in northern Bolivia. This operation is managed by a staff located in Santa Cruz de la Sierra, Bolivia. In August 1995, the Company announced that the joint venture of which it is part owner had made a significant natural gas discovery in the Nupuco Block. It is estimated that the first completed well will be capable of producing up to 20 million cubic feet per day of natural gas and 400 barrels per day of light condensate from five commercial zones. The Company is entitled to 75% of the net revenue of the joint venture, which it jointly operates with another partner. The Company is the indirect owner of approximately 34% of the outstanding shares of Sol, whose shares are publicly traded on the Argentine stock exchange. Sol currently markets gasoline under the Sol brand through 48 retail gasoline outlets and convenience stores in Argentina, eight of which are operated by the company and 40 of which are operated by jobbers. The Company operates a wholly owned subsidiary, North American InTeleCom, Inc. ("NAI"), which is engaged in the telecommunications industry. NAI operates telephone systems for use by inmates in correctional facilities, provides pay telephone services, manages the pay telephone accounts of several regional retailers, and provides prepaid calling card services. At the end of 1995, NAI operated inmate telephone systems in 60 correctional facilities serving some 40,000 inmates and owned or managed approximately 8,350 pay telephones. Competitive Considerations The Company's two refineries and refined products pipelines and terminals network are strategically located to service its markets in the states in which the Diamond Shamrock brand is strongly represented. The Company consistently sells more refined products than its refineries produce, purchasing its additional requirements in the spot market. This strategy has enabled the Company to operate its refineries at high rates while allowing for incremental refinery capacity expansions to be quickly utilized upon completion. Quality products and a strong brand identification have positioned the Company as the largest marketer of motor fuels in the state of Texas, with a market share of approximately 15%. The Company also has a branded gasoline market share of approximately 11% in the state of Colorado, approximately 13% in the state of New Mexico, and a significant branded gasoline market presence in Louisiana. The retail markets have historically been highly competitive. Competitors include a number of well capitalized and fully-integrated major oil companies and both large and small independent operators. Industry studies indicate that over the last several years, the retail markets have been characterized by several significant trends including (i) increased store rationalization by retailers to fewer geographic regions and (ii) increased consumer emphasis on convenience. During the past several years, the retail marketing industry has experienced increasing concentration of market outlets selling under the same brand in selected and fewer geographic regions as major oil companies have divested non- strategic locations and have focused efforts on targeted areas, many of which are near strategic supply sources. Additionally, smaller operators have closed marginal and unprofitable locations as a result of increasing environmental regulations requiring replacement of underground storage tanks. Industry studies indicate that consumer buying behavior continues to reflect the effect of increasing demands on consumer time. Convenience and the time required to make a purchase are increasingly important considerations in buying decisions. The Company believes these two trends may result in opportunities to increase market share in the Company's core markets. The Company's earnings and cash flow from operations are primarily dependent upon processing crude oil and selling quantities of refined products at refining and retail marketing margins sufficient to cover fixed and variable expenses. Crude oil and refined products are commodities. Crude oil costs and refined product prices depend on numerous factors beyond the Company's control, including the supply of and demand for crude oil, gasoline and other refined products which in turn depend on, among other factors, changes in domestic and foreign economies, political affairs and production levels, the availability of imports, the marketing of competitive fuels, and the extent of government regulation. The prices received by the Company for its refined products are affected by regional factors, such as product pipeline capacity, local market conditions, and the level of operations of competing refineries. A large, rapid increase in crude oil prices would adversely affect the Company's operating margins if the increased cost of raw materials could not be passed on to the Company's customers. In recent years, crude oil costs and prices of refined products have fluctuated substantially. The industry also tends to be seasonal in that refining margins often increase in the second quarter and decrease at the end of the third quarter of the year, reflecting increased demand for gasoline and other refined products during the summer driving season. Regulatory Matters Federal, state, and local laws and regulations establishing various health and environmental quality standards affect nearly all of the operations of the Company. Included among such statutes are the Clean Air Act of 1955, as amended ("CAA"), including substantial amendments adopted in 1990 (the "1990 Clean Air Act Amendments"), the Clean Water Act of 1977, as amended ("CWA"), the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"). Also significantly affecting the Company are the rules and regulations issued pursuant to the Occupational Safety and Health Act of 1970 ("OSHA"). The CAA requires the Company to meet certain air emission standards and certain specifications for the products the Company produces. The CWA requires the Company to obtain and comply with the terms of water discharge permits. The RCRA empowers the United States Environmental Protection Agency ("EPA") to regulate the treatment and disposal of industrial and hazardous wastes and to regulate the use and operation of underground storage tanks. CERCLA requires notification to the National Response Center of releases of hazardous materials and provides a program to remediate hazardous releases at uncontrolled or abandoned hazardous waste sites. The Superfund Amendments and Reauthorization Act of 1986 ("SARA") is an extension of the CERCLA cleanup program. Title III of SARA, the Emergency Planning and Community Right to Know Act of 1986, relates to planning for hazardous material emergencies and provides for a community's right to know about the hazards of chemicals used or manufactured at industrial facilities. OSHA requires the Company to furnish to each of its employees a place of employment and working conditions which are free from recognized hazards that are causing or are likely to cause death or serious physical harm. OSHA rules and regulations provide for a worker's right to know about the hazards of chemicals used or produced at the Company's facilities; for the management of hazards associated with the processes using highly hazardous chemicals; and for the safe clean-up of hazardous waste and response to uncontrolled releases of hazardous substances. Regulations issued by the EPA in 1988 with respect to underground storage tanks require the Company, over a period up to ten years, to install, where not already in place, spill prevention manholes, tank overfill protection devices, leak detection devices, and corrosion protection on all underground tanks and piping at retail gasoline outlets. The regulations also require periodic tightness testing of underground tanks and piping. Commencing in 1998, operators will be required under these regulations to install continuous monitoring systems for underground tanks. The Company seeks reimbursement from state underground storage tank insurance funds, when available, for expenses incurred in replacing older underground storage tanks and in cleaning up related hydrocarbon contamination. In 1995, the Company received over $2.6 million from such state insurance funds in Texas and Louisiana for claims filed in previous years. Continued receipt of such reimbursements remains problematic, insofar as aggregate claims made on such insurance funds in the states in which the Company operates continue to exceed amounts available in those insurance funds to pay such claims, and receipt of such reimbursements therefore continues to lag behind the time of application by substantial periods. State and local regulations in parts of Texas, New Mexico, Colorado, and Arizona require that only motor fuels containing specified levels of oxygen may be marketed in winter months. Such fuels are intended to reduce the amount of carbon monoxide in automobile emissions. Beginning in November 1992, the 1990 Clean Air Act Amendments required that only oxygenated gasoline having a minimum oxygen content of 2.7% be marketed in these areas during the winter months. The level of oxygen in motor fuels is normally raised by the addition of methyl tertiary butyl ether ("MTBE"), ethanol, or tertiary amyl methyl ether ("TAME"). The Company produces TAME and MTBE at its McKee Refinery in sufficient amounts to meet its requirements for production of reformulated gasoline ("RFG"), all of which is sold into the Dallas, Texas market. The rest of the Company's oxygenate requirements are currently being met by the purchase of oxygenates from other manufacturers. If other areas currently not identified as severe carbon monoxide or ozone nonattainment areas elect to require the use of oxygenated gasoline or RFG, the Company may be required to purchase additional blending components. To the extent that the Company is unable to pass along such costs by raising motor fuel prices, the Company's profitability will be adversely affected. The EPA has issued a series of regulations since 1989 under authority of the CAA requiring a reduction for the summer months in the volatility of gasoline as measured by its Reid Vapor Pressure ("RVP"), which measures the amount of light hydrocarbons contained in gasoline, such as normal butane, an octane booster. Such regulations require reductions in RVP for gasolines produced at the McKee Refinery for distribution in the Denver, Dallas-Fort Worth, and El Paso markets. The 1990 Clean Air Act Amendments impact the Company in the following areas: (i) starting in 1995, RFG was mandated for use in the nine worst ozone polluting cities, including Houston, Texas; Dallas, Texas has opted into the program; (ii) "Stage II" hose and nozzle controls on gas pumps to capture fuel vapors in nonattainment areas, including Beaumont, Dallas, El Paso, Fort Worth, and Houston, Texas; and (iii) more stringent refinery and petrochemical permitting requirements. In addition, EPA regulations required that after October 1, 1993 the sulfur contained in on-highway diesel fuel produced in the United States be reduced. Construction of a desulfurization unit at the McKee Refinery and a hydrocracker unit at the Three Rivers Refinery enabled the Company to produce diesel fuel in compliance with such regulations. It is expected that rules and regulations implementing the 1990 Clean Air Act Amendments and other federal, state, and local laws relating to health and environmental quality will continue to affect the operations of the Company. The Company cannot predict what health or environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or enforced with respect to products or activities of the Company. However, compliance with more stringent laws or regulations, as well as more expansive interpretation of existing laws and their more vigorous enforcement by the regulatory agencies could have an adverse effect on the operations of the Company and could require substantial additional expenditures by the Company, such as for the installation and operation of pollution control systems and equipment. Much of the capital spent by the Company for environmental compliance is integrally related to projects that increase refinery capacity or improve product mix, and the Company does not specifically identify capital expenditures related to such projects on the basis of environmental as opposed to economic purpose. However, with respect to capital expenditures budgeted primarily to produce federally-mandated fuels to comply with regulations related to air and water toxic emission levels, for remediation and compliance costs related to underground storage tanks, and to meet Stage II Vapor Recovery requirements, it is estimated that approximately $11.4 million was spent in 1995, $11.6 million was spent in 1994, and $21.4 million was spent in 1993. For 1996 the Company has budgeted approximately $14.1 million in environmental capital expenditures, primarily for the retail segment and the refining and wholesale segment. The Company has in effect policies, practices, and procedures in the areas of pollution control, product safety, occupational health, the production, handling, storage, use, and transportation of refined petroleum products, and the storage, use, and disposal of hazardous materials to prevent an unreasonable risk of material environmental or other damage, and the material financial liability which could result from such events. However, some risk of environmental or other damage is inherent in the businesses of the Company, as it is with other companies engaged in similar businesses. Employees The Company employs approximately 11,800 people, about 1,100 of which are part-time employees. Approximately 330 hourly paid workers at the McKee Refinery are affiliated with the Oil, Chemical, and Atomic Workers International Union, AFL-CIO, with which the Company has a contract extending to April 1996. The Company considers its relationship with its employees to be good and has not experienced any organized work stoppage in over 30 years. Certain Transactions In connection with the divestiture of its ownership of the Company in 1987 (the "Spin-Off"), Maxus Energy Corporation ("Maxus") and the Company entered into an agreement which, among other things, provides that as between the Company and Maxus, the Company will be responsible for liabilities and other obligations relating principally to the Company's business and Maxus will be responsible for all other liabilities relating principally to Maxus' continuing and former businesses, subject to certain cost-sharing arrangements described below. The agreement provides for the sharing by Maxus and the Company of certain liabilities relating to businesses discontinued or disposed of by Maxus prior to April 30, 1987. In substance, the cost of such liabilities will be borne one-third by the Company and two-thirds by Maxus until the Company's aggregate reimbursement share equals $85.0 million, and thereafter solely by Maxus. The Company has reflected the entire undiscounted amount of its liability under the Distribution Agreement in its financial statements (See Note 3 to the Consolidated Financial Statements contained in Exhibit 13.1 to this report). Although some expenditures are still subject to audit, the Company has reimbursed Maxus for a total of $74.9 million as of December 31, 1995, including $11.4 million paid during 1995. Pursuant to the agreement, the Company will also reimburse Maxus for one-third of all payments made by Maxus after April 30, 1987 for providing certain medical and life insurance benefits with respect to persons who retired on or before the effective date of the Spin-Off. The actuarial cost of these expected payments under the Distribution Agreement has been recognized by the Company. Item 2. Properties. The principal plants and properties used by the Company in its Refining and Wholesale segment are the McKee Refinery, the Three Rivers Refinery, the Company's crude oil and refined products pipelines, and its crude oil and products terminals. For a description of the foregoing, see "Refining", and "Supply and Distribution" in Item 1 above. The refineries are owned by the Company in fee, as were the Company's 1,268 miles of crude oil pipelines and 2,959 miles of refined products pipelines at the end of 1995. Forty-one miles of the Company's crude oil pipelines and 1,246 miles of its refined products pipelines were owned jointly with one or more other companies. The Company's interests in such pipelines were between 33% and 54%. The Company's 16 products terminals were owned in fee at the end of 1995. Fifteen of the terminals were 100% owned by the Company and one terminal was owned 60% by the Company. The Company leases the property on which its Corpus Christi crude oil terminal is situated, under a lease which has a 20 year primary term followed by six consecutive five year renewal options. The principal properties used in the Company's Retail segment at the end of 1995 were 1,506 Company-operated retail outlets, 715 of which are owned in fee and 791 of which are leased. Of the leased outlets, 202 were leased to the Company pursuant to a lease facility entered into in 1992. This lease facility was expanded by $25 million in April 1993, and by an additional $25 million in April 1994. The facility has an initial five year term which expires in 1999. After the initial five year term the Company may purchase the properties or renew the lease with the lessor's consent for an additional five year term or arrange for a sale of the outlets. For a description of the Company-operated retail outlets, see "Marketing" in Item 1 above. The principal plants and properties used in the Company's Allied Businesses segment are the hydrocarbon storage facility at Mont Belvieu, which the Company owns, and the jointly-owned propane/propylene splitter at Mont Belvieu. See "Allied Businesses" in Item 1 above. Item 3. Legal Proceedings. Routine Matters. The Company is a party to a number of lawsuits which are ordinary routine litigation incidental to the Company's businesses, the outcomes of which are not expected to have a material adverse effect on the Company's operations or financial position. In addition, the Company is engaged in a number of hydrocarbon remediation projects, mostly relating to retail gasoline outlets. While such cleanup projects are typically conducted under the supervision of a governmental authority, they do not involve proceedings seeking material monetary damages from the Company and are not expected to be material to the Company's operations or financial position. Three Rivers Refinery. In October and November, 1994, the Texas Natural Resource Conservation Commission ("TNRCC") conducted an inspection of the Company's Three Rivers Refinery. As a result of that inspection, the Company received a Notice of Violation from the TNRCC dated December 16, 1994. In 1995, the Company and the TNRCC negotiated an agreement pertaining to the notice of violation containing certain enforcement orders as well as a fine of $74,160 with $22,248 deferred. The Company expects the agreed order to be effective by the end of the first quarter of 1996. Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The principal United States market on which the Common Stock of the Company is traded is the New York Stock Exchange. The high and low sales prices for the Common Stock of the Company for each full quarterly period during 1994 and 1995 as reported on the New York Stock Exchange Composite Tape, together with the amount of cash dividends paid per share of the Common Stock by calendar quarter, are contained in Exhibit 13.2 to this report, which information is incorporated herein by reference. The approximate number of record holders of the Common Stock at March 14, 1996 was 12,899. Item 6. Selected Financial Data. The information required by this item appears in Exhibit 13.2 to this report, which information is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation The information required by this item appears in Exhibit 13.1 to this report, which information is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The information required by this item appears in Exhibit 13.2 to this report, which information is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Inapplicable. PART III Item 10. Directors and Executive Officers of the Registrant. The information required by this item with respect to the identity and business experience of the directors of the Company appears under the heading "Election of Directors" in the Company's definitive Proxy Statement for the 1996 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission (the "Commission") pursuant to Regulation 14A (the "Proxy Statement"), which information is incorporated herein by reference. The following information concerning the executive officers of the Company is as of March 1, 1996. Roger R. Hemminghaus, 59, is Chairman of the Board, President, and Chief Executive Officer of the Company, and has served as the Chief Executive Officer of the Company since April 1987. Robert C. Becker, 54, has served as Vice President and Treasurer of the Company since April 1987. W. Paul Eisman, 40, is Vice President and Group Executive- Manufacturing of the Company. During the five years prior to his promotion to that position in 1995, he served in various positions with the Company, including Director-Crude Oil Supply, Assistant to the Chairman, and Plant Manager of the McKee Refinery. Timothy J. Fretthold, 46, is Senior Vice President/Group Executive and General Counsel of the Company. He served as a Group Vice President, and General Counsel of the Company from April 1987 to June 1989, and as Senior Vice President/Group Executive and General Counsel since that date. Gary E. Johnson, 60, has served as Vice President and Controller of the Company since April 1987. William R. Klesse, 49, is Executive Vice President of the Company. He served as Group Vice President - Development and New Ventures of the Company from May 1988 to June 1989 and as Senior Vice President/Group Executive from that date until February 1995 when he became Executive Vice President. Mr. Klesse served as Group Vice President - Planning and Public Affairs of the Company from April 1987 through May 1988. J. Robert Mehall, 53, is Executive Vice President of the Company. He served as Group Vice President - Supply of the Company from April 1987 to June 1989 and as Senior Vice President/Group Executive from that date until February 1995 when he became Executive Vice President. A. W. O'Donnell, 63, is President/Marketing and Senior Vice President. He served as Group Vice President - Marketing of the Company from April 1987 to June 1989 and as Senior Vice President/Group Executive from that date until February 1995 when he became President/Marketing. Officers are elected annually by the Board of Directors and may be removed at any time by the Board. There are no family relationships among the executive officers listed or the directors of the Company, and there are no arrangements or understandings pursuant to which any of the officers or directors were elected as such. Information concerning compliance by the directors and executive officers of the Company with Section 16(a) of the Securities Exchange Act of 1934 appears under the heading "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's definitive Proxy Statement for the 1996 Annual Meeting of Stockholders to be filed with the Commission pursuant to Regulation 14A, which information is incorporated herein by reference. Item 11. Executive Compensation. The information required by this item appears under the heading "Compensation of Executive Officers" in the Proxy Statement, which information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this item appears under the heading "Beneficial Ownership of Securities" in the Proxy Statement, which information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The information required by this item with respect to directors appears under the heading "The Board of Directors and Its Committees - Certain Business Relationships" in the Proxy Statement, which information is incorporated herein by reference. The information required by this item with respect to executive officers appears under the heading "Employee Stock Purchase Loan Program" in the Proxy Statement, which information is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) Documents filed as part of this report: (1) Financial Statements The following financial statements are attached hereto as Exhibit 13.2, and are incorporated herein by reference: Consolidated Statement of Operations for the three years ended December 31, 1995 Consolidated Balance Sheet - December 31, 1995 and 1994 Consolidated Statement of Cash Flows for the three years ended December 31, 1995 Notes to Consolidated Financial Statements Supplementary Financial Information The Report of Independent Accountants relating to such financial statements is attached hereto as Exhibit 13.3, and is incorporated herein by reference. Condensed parent company financial information has been omitted, since the amount of restricted net assets of consolidated subsidiaries does not exceed 25% of total consolidated net assets. Also, footnote disclosure regarding restrictions on the ability of both consolidated and unconsolidated subsidiaries to transfer funds to the parent company has been omitted since the amount of such restrictions does not exceed 25% of total consolidated net assets. (2) Financial Statement Schedules. The following report of independent accountants and financial statement schedules are also a part of this report: Report of Independent Accountants on Financial Statement Schedules Schedule V - Consolidated Properties and Equipment Schedule VI - Consolidated Accumulated Depreciation All other schedules have been omitted because they are not applicable or the required information is shown in the Financial Statements or the Notes to Consolidated Financial Statements. (3) Exhibits. Exhibit Filing No. Reference Description of Document 3.1 * Certificate of Incorporation of the Company (Exhibit 3.1 to the Company's Form 10 Registration Statement No. 1-9409 (the "Form 10")). 3.2 * Form of Certificates of Designations of Series A Junior Participating Preferred Stock (Exhibit 3 to the Company's Form 8-A Registration Statement dated March 6, 1990, filed under Commission File No. 1-9409 (the "Form 8-A for Preferred Stock Purchase Rights")). 3.3 * Form of Certificate of Designations establishing 5% Cumulative Convertible Preferred Stock (filed as Exhibit 4.7 to the Company's Form S-3 Registration Statement dated August 6, 1993, under Commission File No. 33-67166, and incorporated herein by reference). 3.4 * By-Laws of the Company (Exhibit 3.2 to the Form 10). 4.1 * Certificate of Incorporation of the Company (Exhibit 3.1 to the Form 10). 4.2 * By-Laws of the Company (Exhibit 3.2 to the Form 10). 4.3 * Form of Common Stock Certificate (Exhibit 4.3 to the Form 10). 4.4 * Form of Indenture between the Company and The First National Bank of Chicago (Exhibit 4.1 to the Company's Form S-1 Registration Statement No. 33-32024 (the "Form S-1 for Medium-Term Notes")). 4.5 * Form of Right Certificate (Exhibit 1 to the Form 8-A for Preferred Stock Purchase Rights). 4.6 * Rights Agreement between the Company and Ameritrust Company National Association (Exhibit 2 to the Form 8-A for Preferred Stock Purchase Rights). 4.7 * Form of 9-3/8% Note Due March 1, 2001 (Exhibit 4.1 to Form 8-K dated February 20, 1991, filed with the Commission on February 22, 1991). 4.8 * Forms of Medium-Term Notes, Series A (Exhibit 4.2 to the Company's Form S-3 Registration Statement No. 33-588744). 4.9 * Form of 8% Debenture due April 1, 2023 (Exhibit 4.1 to Form 8-K dated March 22, 1993, filed with the Commission on March 25, 1993). 4.10 * 401(k) Retirement Savings Plan creating certain "participation interests" (Exhibit 4.1 to Form S-8 Registration Statement dated October 6, 1993, filed under Commission File No. 33-50573). 4.11 * Form of Certificate of Designations establishing 5% Cumulative Convertible Preferred Stock (filed as Exhibit 4.7 to the Company's Form S-3 Registration Statement dated August 6, 1993, under Commission File No. 33-67166, and incorporated herein by reference). 4.12 * Form of 5% Cumulative Convertible Preferred Stock Certificate (Exhibit 4.12 to the Company's Form 10-K for the fiscal year ended December 31, 1993 (the "1993 10-K"). 4.13 * Form of Medium Term Notes, Series B (Exhibit 99.1 to the Company's Report on Form 10-Q for the quarter ended June 30, 1995). 10.1 * Distribution Agreement between the Company and Maxus (Exhibit 10.1 to the Form 10). 10.2 * Tax-Sharing Agreement between the Company and Maxus (Exhibit 10.2 to the Form 10). 10.3 * Credit Agreement I, dated as of April 14, 1987, as amended and restated through April 15, 1993, between the Company and certain banks (Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended June 30, 1993.) 10.4 * Credit Agreement II, dated as of April 14, 1987, as amended and restated through April 15, 1993, between the Company and certain banks (Exhibit 10.2 to the Company's report on Form 10-Q for the quarter ended June 30, 1993). 10.5 * Senior Subordinated Note Purchase Agreement, dated as of April 17, 1987, between the Company and certain purchasers (the "Senior Subordinated Note Agreement") (Exhibit 10.22 to the Form 10). 10.6 * Amendment No. 1 to the Senior Subordinated Note Agreement, dated as of March 31, 1988 (Exhibit 19.5 to the Company's report on Form 10-Q for the quarter ended March 31, 1988). 10.7 * Amendment No. 2 to the Senior Subordinated Note Agreement, dated as of July 12, 1989, between the Company and certain purchasers. (Exhibit 19.2 to the Company's report on Form 10-Q for the quarter ended June 30, 1989 (the "June 30, 1989 10-Q")). 10.8 * Amendment No. 3 to the Senior Subordinated Note Agreement, dated as of December 6, 1993, between the Company and certain purchasers (Exhibit 10.8 to the 1993 10-K). 10.9 # 9% Senior Note Purchase Agreement, dated as of June 4, 1987, between the Company and Prudential Insurance Company of America (the "9% Senior Note Agreement"). 10.10 # Amendment No. 1 to the 9% Senior Note Agreement, dated as of July 12, 1989. 10.11 # Amendment No. 2 to the 9% Senior Note Agreement, dated as of December 6, 1993. 10.12 # 8.35% Senior Note Purchase Agreement, dated as of December 1, 1988, between the Company and Prudential Insurance Company of America (the "8.35% Senior Note Agreement"). 10.13 # Amendment No. 1 to the 8.35% Senior Note Agreement, dated as of July 12, 1989. 10.14 # Amendment No. 2 to the 8.35% Senior Note Agreement, dated as of December 6, 1993. 10.15 # 8.77% Senior Note Agreement, dated as of April 20, 1989, between the Company and Prudential Insurance Company of America (the "8.77% Senior Note Agreement"). 10.16 # Amendment No. 1 to the 8.77% Senior Note Agreement, dated as of July 12, 1989. 10.17 # Amendment No. 2 to the 8.77% Senior Note Agreement, dated as of December 6, 1993. 10.18 * X Form of Indemnification Agreement between the Company and its directors and executive officers (Exhibit 19.6 to the Company's report on Form 10-Q for the quarter ended June 30, 1987 (the "June 30, 1987 10-Q")). 10.19 * X Amended form of Employment Agreement between the Company and certain of its executive officers (Exhibit 19.2 to the Company's report on Form 10-Q for the quarter ended March 31, 1989). 10.20 * X Deferred Compensation Plan for executives and directors of the Company, amended and restated as of January 1, 1989 (Exhibit 10.13 to the Company's report on Form 10-K for the year ended December 31, 1988 (the "1988 Form 10-K")). 10.21 * X Supplemental Executive Retirement Plan of the Company (the "SERP") (Exhibit 10.16 to the Form 10). 10.22 * X First Amendment to the SERP (Exhibit 10.17 to the Form S-1 for Preferred Stock). 10.23 * X Second Amendment to the SERP (Exhibit 10.21 to the 1989 Form 10-K). 10.24 * X Performance Incentive Plan of the Company (Exhibit 10.19 to the Form 10). 10.25 * X Excess Benefits Plan of the Company (Exhibit 19.5 to the June 30, 1987 Form 10-Q). 10.26 * X 1987 Long-Term Incentive Plan of the Company (Annex A-1 to the Company's Form S-8 Registration Statement No. 33-15268). 10.27 * X Amended Form of Non-Incentive Stock Option Agreement with Stock Appreciation Rights between the Company and certain officers (Exhibit 19.5 to the June 30, 1989 Form 10-Q). 10.28 * X Amended Form of Restricted Stock Agreement between the Company and certain officers (Exhibit 19.6 to the June 30, 1989 Form 10-Q). 10.29 * X Form of Disability Benefit Agreement between the Company and certain of its executive officers (Exhibit 10.21 to the Form S-1 for Preferred Stock). 10.30 * X Form of Split Dollar Insurance Agreement between the Company and certain of its executive officers (Exhibit 10.20 to the 1988 Form 10-K). 10.31 * X Form of Supplemental Death Benefit Agreement between the Company and certain of its executive officers (Exhibit 19.9 to the June 30, 1987 Form 10-Q). 10.32 * X Form of Employee Stock Purchase Loan Agreement between the Company and certain of its executive officers and employees (Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987). 10.33 * X Amendment dated March 5, 1990 to the Employee Stock Purchase Loan Agreement (Exhibit 10.31 to the 1989 Form 10-K). 10.34 * X Retirement Plan for Non-Employee Directors of the Company dated as of May 2, 1989 (Exhibit 19.7 to the June 30, 1989 Form 10-Q). 10.35 * X Diamond Shamrock, Inc. Long-Term Incentive Plan (Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-34306 filed on April 13, 1990). 10.36 * X Form of Executive Officer's Restricted Stock Agreement between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan. (Exhibit 19.3 to the Company's report on Form 10-Q for the quarter ended June 30, 1990 (the "June 30, 1990 Form 10-Q")). 10.37 * X Form of Non-Incentive Stock Option Agreement with Stock Appreciation Rights between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan. (Exhibit 19.4 to the June 30, 1990 Form 10-Q). 10.38 * X Form of Executive Officer's Performance Restricted Stock Agreement between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan. (Exhibit 19.5 to the June 30, 1990 Form 10-Q). 10.39 * X Form of Non-Incentive Stock Option Agreement between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan (Exhibit 19.2 to the Company's report on Form 10-Q for the quarter ended September 30, 1991 (the "September 30, 1991 Form 10-Q"). 10.40 * X Form of Non-Incentive Stock Option Agreement With Reload between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan (Exhibit 19.3 to the Company's report on Form 10-Q for the quarter ended September 30, 1991 (the "September 30, 1991 Form 10-Q"). 10.41 * X Form of Amendment to the Non-Incentive Stock Option Agreement with Stock Appreciation Rights and the Non-Incentive Stock Option Agreement with Reload, each between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plans (Exhibit 19.1 to the Company's report on Form 10-Q for the quarter ended March 31, 1992 (the "March 31, 1992 Form 10-Q"). 10.42 * X Form of Amendment to the Non-Incentive Stock Option Agreement between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan (Exhibit 19.2 to the March 31, 1992 Form 10-Q). 10.43 * X Diamond Shamrock, Inc. Long-Term Incentive Plan, amended and restated as of May 5, 1992 (Exhibit 19.1 to the Company's report on Form 10-Q for the quarter ended June 30, 1992 (the "June 30, 1992 Form 10-Q"). 10.44 * X Form of Employee Stock Purchase Loan Agreement between the Company and certain of its executive officers and employees, amended and restated as of May 26, 1992 (Exhibit 19.2 to the June 30, 1992 Form 10-Q). 10.45 * Ground Lease Agreement between Brazos River Leasing, L.P. and DSRMC, dated as of April 23, 1993 (Exhibit 19.3 to the June 30, 1992 Form 10-Q). 10.46 * First Amendment to Ground Lease Agreement between Brazos River Leasing, L.P. and Diamond Shamrock Refining and Marketing Company, dated as of August 1, 1992 (Exhibit 10.2 to the Company's report on Form 10-Q for the quarter ended, September 30, 1993) 10.47 * Facilities Lease Agreement between Brazos River Leasing L.P. and DSRMC, dated as of April 23, 1992 (Exhibit 19.4 to the June 30, 1992 Form 10-Q). 10.48 * First Amendment to Facilities Lease Agreement between Brazos River Leasing, L.P. and Diamond Shamrock Refining and Marketing Company, dated as of August 1, 1992. (Exhibit 10.3 to the Company's report on Form 10-Q for the quarter ended September 30, 1993 (the "September 30, 1993 10-Q"). 10.49 * Schedule Relating to Certain Lease Agreements (Exhibit 10.4 to the September 30, 1993 10-Q). 10.50 * X Form of Excess Benefits Plan between the Company and certain officers, amended and restated as of December 1, 1992 (Exhibit 10.49 to the Company's report on Form 10-K for the year ended December 31, 1992 (the "1992 10-K")). 10.51 * X Form of Disability Benefit Agreement between the Company and certain officers, amended and restated as of January 1, 1993 (Exhibit 10.50 to the 1992 10-K). 10.52 * X Form of Deferred Compensation Plan between the Company and certain directors, officers and other employees of the Company, amended and restated as of January 1, 1993 (Exhibit 10.51 to the 1992 10-K). 10.53 * Second Amendment to Agreement for Ground Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of April 23, 1994 (Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended June 30, 1994 (the "June 30, 1994 10-Q")). 10.54 * Second Amendment to Ground Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of April 23, 1994. (Exhibit 10.2 to the June 30, 1994 10-Q) 10.55 * Second Amendment to Agreement for Facilities Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of April 23, 1994. (Exhibit 10.3 to the June 30, 1994 10-Q). 10.56 * Second Amendment to Facilities Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of April 23, 1994 (Exhibit 10.4 to the June 30, 1994 10-Q). 10.57 * First Amendment to Agreement for Ground Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of June 1, 1994 (Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended September 30, 1994 (the "September 30, 1994 10-Q")). 10.58 * First Amendment to Ground Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of June 1, 1994. (Exhibit 10.2 to the September 30, 1994 10-Q). 10.59 * First Amendment to Agreement for Facilities Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of June 1, 1994 (Exhibit 10.3 to the September 30, 1994 10-Q). 10.60 * First Amendment to Facilities Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of June 1, 1994 (Exhibit 10.4 to the September 30, 1994 10-Q"). 10.61 * Third Amendment to Agreement for Ground Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of September 16, 1994 (Exhibit 10.5 to the September 30, 1994 10-Q). 10.62 * Third Amendment to Ground Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of September 16, 1994. (Exhibit 10.6 to the September 30, 1994 10-Q). 10.63 * Third Amendment to Agreement for Facilities Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of September 16, 1994. (Exhibit 10.7 to the September 30, 1994 10-Q). 10.64 * Third Amendment to Facilities Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of September 16, 1994. (Exhibit 10.8 to the September 30, 1994 10-Q). 10.65 . First Amendment dated as of March 31, 1995 to Credit Agreement I dated as of April 14, 1987, as amended and restated through April 15, 1993. 10.66 . Second Amendment dated as of December 5, 1995 to Credit Agreement I dated as of April 14, 1987, as amended and restated through April 15, 1993, as further amended by the First Amendment thereto dated as of March 31, 1995. 10.67 . First Amendment dated as of March 31, 1995 to Credit Agreement II dated as of April 14, 1987, as amended and restated through April 15, 1993. 10.68 . Second Amendment dated as of December 5, 1995 to Credit Agreement II dated as of April 14, 1987, as amended and restated through April 15, 1993, as further amended by the First Amendment thereto dated as of March 31, 1995. 10.69 * Agreement and Plan of Merger, dated November 8, 1995 by and among Diamond Shamrock, Inc., Shamrock Acquisition Corp., and National Convenience Stores Incorporated. (Exhibit (c)(1) to the Company's Schedule 14D-1 Tender Offer Statement, filed with the Securities and Exchange Commission on November 14, 1995). 10.70 * Credit Agreement dated December 11, 1995 among the Company, Bank of America National Trust and Savings Association, as Agent, Chemical Bank, Royal Bank of Canada, and Societe Generale, as Co-Agents, and the banks named therein (Exhibit 4.1 to the Company's report on Form 8-K dated December 14, 1995). 10.71 *X Diamond Shamrock, Inc. Long-Term Incentive Plan, amended and restated as of May 2, 1995 (Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-59025). 10.72 *X Diamond Shamrock, Inc. Nonqualified 401(k) Plan (Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-64645). 13.1 . Management's Discussion and Analysis of Financial Condition and Results of Operation from the Company's Annual Report to Shareholders for the year ended December 31, 1995. 13.2 . Consolidated Financial Statements and Selected Financial Data from the Company's Annual Report to Shareholders for the year ended December 31, 1995. 13.3 . Report of Independent Accountants from the Company's Annual Report to Shareholders for the year ended December 31, 1995. 21.1 . Significant Subsidiaries of the Company. 23.1 . Consent of Price Waterhouse LLP. 24.1 . Power of Attorney of the Company 24.2 . Powers of Attorney of directors and officers of the Company. 27.1 . Financial Data Schedule ____________________________ * Each document marked with an asterisk is incorporated herein by reference to the designated document previously filed with the Securities Exchange Commission. # The Company hereby agrees pursuant to Item 601(b)(4)(III)(A) of Regulation S-K to furnish a copy of this agreement to the Securities and Exchange Commisson upon request. . Indicates a document filed with this report. X Indicates the document which constitutes an executive contract or compensation plan or arrangement. (b) Reports on Form 8-K. The following reports on Form 8-K were filed by the Company during the fourth quarter of 1995: Current Report on Form 8-K dated December 14, 1995, filed on December 28, 1995, and amended by Form 8-K/ A filed February 14, 1996. SIGNATURES 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. DIAMOND SHAMROCK, INC. By: /s/ TODD WALKER Todd Walker Attorney-in-Fact October 1, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant, and in the capacities, and on the dates indicated. Signature Title /s/ R. R. HEMMINGHAUS* R. R. Hemminghaus Chairman of the Board and President (Principal Executive Officer) /s/ ROBERT C. BECKER* Robert C. Becker Vice President and Treasurer (Principal Financial Officer) /s/ GARY E. JOHNSON* Gary E. Johnson Vice President and Controller Principal Accounting Officer) /s/ B. CHARLES AMES* B. Charles Ames Director /s/ E. GLENN BIGGS* E. Glenn Biggs Director /s/ WILLIAM E. BRADFORD* Director William E. Bradford /s/ LAURO F. CAVAZOS* Lauro F. Cavazos Director /s/ W. H. CLARK* W. H. Clark Director /s/ WILLIAM L. FISHER* William L. Fisher Director /s/ BOB MARBUT* Bob Marbut Director /s/ KATHERINE D. ORTEGA* Katherine D. Ortega Director * The undersigned, by signing his name hereto, does hereby sign this report on Form 10-K/A pursuant to the Powers of Attorney executed on behalf of the above-named officers and directors of the registrant, and contemporaneously filed herewith with the Securities and Exchange Commission /s/ TODD WALKER Todd Walker Attorney-in-Fact October 1, 1996 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors of Diamond Shamrock, Inc. Our audits of the consolidated financial statements referred to in our report dated February 23, 1996, which includes an explanatory paragraph with respect to the Company's change in its method of accounting for its long-term shared cost liability, which is included as Exhibit 13.3 to this Annual Report on Form 10-K/A also included an audit of the Financial Statement Schedules listed in Item 14(a)(2) hereof. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP San Antonio, Texas February 23, 1996 SCHEDULE V DIAMOND SHAMROCK, INC. CONSOLIDATED PROPERTIES AND EQUIPMENT Three Years Ended December 31, 1995 (dollars in millions)
Refining & Retail Allied Wholesale Marketing Businesses Other Total Balance January 1, 1993 $ 838.9 $ 306.7 $ 212.6 $ 33.6 $ 1,391.8 Additions, at cost 100.1 26.5 4.4 0.8 131.8 Disposals and transfers 10.1 (6.7) (34.5)(1) (0.5) (31.6) Balance December 31, 1993 949.1 326.5 182.5 33.9 1,492.0 Additions, at cost 89.3 49.3 22.3 1.2 162.1 Disposals and transfers (14.0) (6.3) 2.0 (0.4) (18.7) Balance December 31, 1994 1,024.4 369.5 206.8 34.7 1,635.4 Additions, at cost 193.0 202.3 21.2 1.5 418.0 Disposals and transfers 21.1 (9.3) (24.6) 0.7 (12.1) Balance December 31, 1995 $1,238.5 $ 562.5 $ 203.4 $ 36.9 $ 2,041.3
(1) During 1993, the Company exchanged an undivided interest in certain properties and equipment for an equity ownership interest in a limited liability company. This transaction increased investments by $19.2 million, decreased properties and equipment by $22.0 million and decreased accumulated depreciation by $2.8 million in the Allied Businesses segment. SCHEDULE VI DIAMOND SHAMROCK, INC. CONSOLIDATED ACCUMULATED DEPRECIATION Three Years Ended December 31, 1995 (dollars in millions)
Refining & Retail Allied Wholesale Marketing Businesses Other Total Balance January 1, 1993 $ 331.1 $ 85.3 $ 66.3 $ 11.5 $494.2 Additions charged against income 35.1 14.6 11.7 2.9 64.3 Disposals and transfers 0.7 (3.3) (3.5)* (1.5) (7.6) Balance December 31, 1993 366.9 96.6 74.5 12.9 550.9 Additions charged against income 38.3 16.3 13.1 3.2 70.9 Disposals and transfers (8.4) (4.2) 0.3 (0.2) (12.5) Balance December 31, 1994 396.8 108.7 87.9 15.9 609.3 Additions charged against income 43.5 20.5 11.4 2.3 77.7 Disposals and transfers 19.8 (3.7) (18.9) 0.0 (2.8) Balance December 31, 1995 $ 460.1 $ 125.5 $ 80.4 $ 18.2 $684.2
* See footnote (1) to the preceding Schedule V "Consolidated Properties and Equipment." The provisions for depreciation were computed principally in accordance with the following methods and range of rates:
Method Rate Buildings and land improvements Straight line 3% to 5% Machinery and equipment Straight line 5% to 20% Furniture and fixtures Straight line 10% to 20% Automotive equipment Straight line 14% to 33% Leasehold improvements Straight line Lease terms
INDEX TO EXHIBITS Exhibit Number Exhibit 3.1 * Certificate of Incorporation of the Company (Exhibit 3.1 to the Company's Form 10 Registration Statement No. 1-9409 (the "Form 10")). 3.2 * Form of Certificates of Designations of Series A Junior Participating Preferred Stock (Exhibit 3 to the Company's Form 8-A Registration Statement dated March 6, 1990, filed under Commission File No. 1-9409 (the "Form 8-A for Preferred Stock Purchase Rights")). 3.3 * Form of Certificate of Designations establishing 5% Cumulative Convertible Preferred Stock (filed as Exhibit 4.7 to the Company's Form S-3 Registration Statement dated August 6, 1993, under Commission File No. 33-67166, and incorporated herein by reference). 3.4 * By-Laws of the Company (Exhibit 3.2 to the Form 10). 4.1 * Certificate of Incorporation of the Company (Exhibit 3.1 to the Form 10). 4.2 * By-Laws of the Company (Exhibit 3.2 to the Form 10). 4.3 * Form of Common Stock Certificate (Exhibit 4.3 to the Form 10). 4.4 * Form of Indenture between the Company and The First National Bank of Chicago (Exhibit 4.1 to the Company's Form S-1 Registration Statement No. 33-32024 (the "Form S-1 for Medium-Term Notes")). 4.5 * Form of Right Certificate (Exhibit 1 to the Form 8-A for Preferred Stock Purchase Rights). 4.6 * Rights Agreement between the Company and Ameritrust Company National Association (Exhibit 2 to the Form 8-A for Preferred Stock Purchase Rights). 4.7 * Form of 9-3/8% Note Due March 1, 2001 (Exhibit 4.1 to Form 8-K dated February 20, 1991, filed with the Commission on February 22, 1991). 4.8 * Forms of Medium-Term Notes, Series A (Exhibit 4.2 to the Company's Form S-3 Registration Statement No. 33-58744). 4.9 * Form of 8% Debenture due April 1, 2023 (Exhibit 4.1 to Form 8-K dated March 22, 1993, filed with the Commission on March 25, 1993). 4.10 * 401(k) Retirement Savings Plan creating certain "participation interests" (Exhibit 4.1 to Form S-8 Registration Statement dated October 6, 1993, filed under Commission File No. 33-50573). 4.11 * Form of Certificate of Designations establishing 5% Cumulative Convertible Preferred Stock (filed as Exhibit 4.7 to the Company's Form S-3 Registration Statement dated August 6, 1993, under Commission File No. 33-67166, and under Commission File No. 33-67166, and under Commission File No. 33-67166, and incorporated herein by reference). 4.12 * Form of 5% Cumulative Convertible Preferred Stock Certificate (Exhibit 4.12 to the Company's Form 10-K for the fiscal year ended December 31, 1993 (the "1993 10-K"). 4.13 * Form of Medium Term Notes, Series B (Exhibit 99.1 to the Company's Report on Form 10-Q for the quarter ended June 30, 1995). 10.1 * Distribution Agreement between the Company and Maxus (Exhibit 10.1 to the Form 10). 10.2 * Tax-Sharing Agreement between the Company and Maxus (Exhibit 10.2 to the Form 10). 10.3 * Credit Agreement I, dated as of April 14, 1987, as amended and restated through April 15, 1993, between the Company and certain banks (Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended June 30, 1993.) 10.4 * Credit Agreement II, dated as of April 14, 1987, as amended and restated through April 15, 1993, between the Company and certain banks (Exhibit 10.2 to the Company's report on Form 10-Q for the quarter ended June 30, 1993). 10.5 * Senior Subordinated Note Purchase Agreement, dated as of April 17, 1987, between the Company and certain purchasers (the "Senior Subordinated Note Agreement") (Exhibit 10.22 to the Form 10). 10.6 * Amendment No. 1 to the Senior Subordinated Note Agreement, dated as of March 31, 1988 (Exhibit 19.5 to the Company's report on Form 10-Q for the quarter ended March 31, 1988). 10.7 * Amendment No. 2 to the Senior Subordinated Note Agreement, dated as of July 12, 1989, between the Company and certain purchasers. (Exhibit 19.2 to the Company's report on Form 10-Q for the quarter ended June 30, 1989 (the "June 30, 1989 10-Q")). 10.8 * Amendment No. 3 to the Senior Subordinated Note Agreement, dated as of December 6, 1993, between the Company and certain purchasers (Exhibit 10.8 to the 1993 10-K). 10.9 # 9% Senior Note Purchase Agreement, dated as of June 4, 1987, between the Company and Prudential Insurance Company of America (the "9% Senior Note Agreement"). 10.10 # Amendment No. 1 to the 9% Senior Note Agreement, dated as of July 12, 1989. 10.11 # Amendment No. 2 to the 9% Senior Note Agreement, dated as of December 6, 1993. 10.12 # 8.35% Senior Note Purchase Agreement, dated as of December 1, 1988, between the Company and Prudential Insurance Company of America (the "8.35% Senior Note Agreement"). 10.13 # Amendment No. 1 to the 8.35% Senior Note Agreement, dated as of July 12, 1989. 10.14 # Amendment No. 2 to the 8.35% Senior Note Agreement, dated as of December 6, 1993. 10.15 # 8.77% Senior Note Agreement, dated as of April 20, 1989, between the Company and Prudential Insurance Company of America (the "8.77% Senior Note Agreement"). 10.16 # Amendment No. 1 to the 8.77% Senior Note Agreement, dated as of July 12, 1989. 10.17 # Amendment No. 2 to the 8.77% Senior Note Agreement, dated as of December 6, 1993. 10.18 * X Form of Indemnification Agreement between the Company and its directors and executive officers (Exhibit 19.6 to the Company's report on Form 10-Q for the quarter ended June 30, 1987 (the "June 30, 1987 10-Q")). 10.19 * X Amended form of Employment Agreement between the Company and certain of its executive officers (Exhibit 19.2 to the Company's report on Form 10-Q for the quarter ended March 31, 1989). 10.20 * X Deferred Compensation Plan for executives and directors of the Company, amended and restated as of January 1, 1989 (Exhibit 10.13 to the Company's report on Form 10-K for the year ended December 31, 1988 (the "1988 Form 10-K")). 10.21 * X Supplemental Executive Retirement Plan of the Company (the "SERP") (Exhibit 10.16 to the Form 10). 10.22 * X First Amendment to the SERP (Exhibit 10.17 to the Form S-1 for Preferred Stock). 10.23 * X Second Amendment to the SERP (Exhibit 10.21 to the 1989 Form 10-K). 10.24 * X Performance Incentive Plan of the Company (Exhibit 10.19 to the Form 10). 10.25 * X Excess Benefits Plan of the Company (Exhibit 19.5 to the June 30, 1987 Form 10-Q). 10.26 * X 1987 Long-Term Incentive Plan of the Company (Annex A-1 to the Company's Form S-8 Registration Statement No.33-15268). 10.27 * X Amended Form of Non-Incentive Stock Option Agreement with Stock Appreciation Rights between the Company and certain officers (Exhibit 19.5 to the June 30, 1989 Form 10-Q). 10.28 * X Amended Form of Restricted Stock Agreement between the Company and certain officers (Exhibit 19.6 to the June 30, 1989 Form 10-Q). 10.29 * X Form of Disability Benefit Agreement between the Company and certain of its executive officers (Exhibit 10.21 to the Form S-1 for Preferred Stock). 10.30 * X Form of Split Dollar Insurance Agreement between the Company and certain of its executive officers (Exhibit 10.20 to the 1988 Form 10-K). 10.31 * X Form of Supplemental Death Benefit Agreement between the Company and certain of its executive officers (Exhibit 19.9 to the June 30, 1987 Form 10-Q). 10.32 * X Form of Employee Stock Purchase Loan Agreement between the Company and certain of its executive officers and employees (Exhibit 10.19 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987). 10.33 * X Amendment dated March 5, 1990 to the Employee Stock Purchase Loan Agreement (Exhibit 10.31 to the 1989 Form 10-K). 10.34 * X Retirement Plan for Non-Employee Directors of the Company dated as of May 2, 1989 (Exhibit 19.7 to the June 30, 1989 Form 10-Q). 10.35 * X Diamond Shamrock, Inc. Long-Term Incentive Plan (Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-34306 filed on April 13, 1990). 10.36 * X Form of Executive Officer's Restricted Stock Agreement between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan. (Exhibit 19.3 to the Company's report on Form 10-Q for the quarter ended June 30, 1990 (the "June 30, 1990 Form 10-Q")). 10.37 * X Form of Non-Incentive Stock Option Agreement with Stock Appreciation Rights between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan. (Exhibit 19.4 to the June 30, 1990 Form 10-Q). 10.38 * X Form of Executive Officer's Performance Restricted Stock Agreement between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan. (Exhibit 19.5 to the June 30, 1990 Form 10-Q). 10.39 * X Form of Non-Incentive Stock Option Agreement between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan (Exhibit 19.2 to the Company's report on Form 10-Q for the quarter ended September 30, 1991 (the "September 30, 1991 Form 10-Q"). 10.40 * X Form of Non-Incentive Stock Option Agreement With Reload between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan (Exhibit 19.3 to the Company's report on Form 10-Q for the quarter ended September 30, 1991 (the "September 30, 1991 Form 10-Q"). 10.41 * X Form of Amendment to the Non-Incentive Stock Option Agreement with Stock Appreciation Rights and the Non- Incentive Stock Option Agreement with Reload, each between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plans (Exhibit 19.1 to the Company's report on Form 10-Q for the quarter ended March 31, 1992 (the "March 31, 1992 Form 10-Q"). 10.42 * X Form of Amendment to the Non-Incentive Stock Option Agreement between the Company and certain officers pursuant to the Diamond Shamrock, Inc. Long-Term Incentive Plan (Exhibit 19.2 to the March 31, 1992 Form 10-Q). 10.43 * X Diamond Shamrock, Inc. Long-Term Incentive Plan, amended and restated as of May 5, 1992 (Exhibit 19.1 to the Company's report on Form 10-Q for the quarter ended June 30, 1992 (the "June 30, 1992 Form 10-Q"). 10.44 * X Form of Employee Stock Purchase Loan Agreement between the Company and certain of its executive officers and employees, amended and restated as of May 26, 1992 (Exhibit 19.2 to the June 30, 1992 Form 10-Q). 10.45 * Ground Lease Agreement between Brazos River Leasing, L.P. and DSRMC, dated as of April 23, 1993 (Exhibit 19.3 to the June 30, 1992 Form 10-Q). 10.46 * First Amendment to Ground Lease Agreement between Brazos River Leasing, L.P. and Diamond Shamrock Refining and Marketing Company, dated as of August 1, 1992 (Exhibit 10.2 to the Company's report on Form 10-Q for the quarter ended, September 30, 1993) 10.47 * Facilities Lease Agreement between Brazos River Leasing L.P. and DSRMC, dated as of April 23, 1992 (Exhibit 19.4 to the June 30, 1992 Form 10-Q). 10.48 * First Amendment to Facilities Lease Agreement between Brazos River Leasing, L.P. and Diamond Shamrock Refining and Marketing Company, dated as of August 1, 1992. (Exhibit 10.3 to the Company's report on Form 10-Q for the quarter ended September 30, 1993 (the "September 30, 1993 10-Q"). 10.49 * Schedule Relating to Certain Lease Agreements (Exhibit 10.4 to the September 30, 1993 10-Q). 10.50 * X Form of Excess Benefits Plan between the Company and certain officers, amended and restated as of December 1, 1992 (Exhibit 10.49 to the Company's report on Form 10-K for the year ended December 31, 1992 (the "1992 10-K")). 10.51 * X Form of Disability Benefit Agreement between the Company and certain officers, amended and restated as of January 1, 1993 (Exhibit 10.50 to the 1992 10-K). 10.52 * X Form of Deferred Compensation Plan between the Company and certain directors, officers and other employees of the Company, amended and restated as of January 1, 1993 (Exhibit 10.51 to the 1992 10-K). 10.53 * Second Amendment to Agreement for Ground Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of April 23, 1994 (Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended June 30, 1994 (the "June 30, 1994 10-Q")). 10.54 * Second Amendment to Ground Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of April 23, 1994. (Exhibit 10.2 to the June 30, 1994 10-Q) 10.55 * Second Amendment to Agreement for Facilities Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of April 23, 1994. (Exhibit 10.3 to the June 30, 1994 10-Q). 10.56 * Second Amendment to Facilities Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of April 23, 1994 (Exhibit 10.4 to the June 30, 1994 10-Q). 10.57 * First Amendment to Agreement for Ground Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of June 1, 1994 (Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended September 30, 1994 (the "September 30, 1994 10-Q")). 10.58 * First Amendment to Ground Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of June 1, 1994. (Exhibit 10.2 to the September 30, 1994 10-Q). 10.59 * First Amendment to Agreement for Facilities Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of June 1, 1994. (Exhibit 10.3 to the September 30, 1994 10-Q). 10.60 * First Amendment to Facilities Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of June 1, 1994 (Exhibit 10.4 to the September 30, 1994 10-Q"). 10.61 * Third Amendment to Agreement for Ground Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of September 16, 1994 (Exhibit 10.5 to the September 30, 1994 10-Q). 10.62 * Third Amendment to Ground Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of September 16, 1994. (Exhibit 10.6 to the September 30, 1994 10-Q). 10.63 * Third Amendment to Agreement for Facilities Lease between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of September 16, 1994. (Exhibit 10.7 to the September 30, 1994 10-Q). 10.64 * Third Amendment to Facilities Lease Agreement between Brazos River Leasing L.P. and Diamond Shamrock Refining and Marketing Company, dated as of September 16, 1994. (Exhibit 10.8 to the September 30, 1994 10-Q). 10.65 . First Amendment dated as of March 31, 1995 to Credit Agreement I dated as of April 14, 1987, as amended and restated through April 15, 1993. 10.66 . Second Amendment dated as of December 5, 1995 to Credit Agreement I dated as of April 14, 1987, as amended and restated through April 15, 1993, as further amended by the First Amendment thereto dated as of March 31, 1995. 10.67 . First Amendment dated as of March 31, 1995 to Credit Agreement II dated as of April 14, 1987, as amended and restated through April 15, 1993. 10.68 . Second Amendment dated as of December 5, 1995 to Credit Agreement II dated as of April 14, 1987, as amended and restated through April 15, 1993, as further amended by the First Amendment thereto dated as of March 31, 1995. 10.69 * Agreement and Plan of Merger, dated November 8, 1995 by and among Diamond Shamrock, Inc., Shamrock Acquisition Corp., and National Convenience Stores Incorporated. (Exhibit 10.1 to the Company's report on Form 10-Q for the quarter ended September 30, 1995) 10.70 * Credit Agreement dated December 11, 1995 among the Company, Bank of America National Trust and Savings Association, as Agent, Chemical Bank, Royal Bank of Canada, and Societe Generale, as Co-Agents, and the banks named therein (Exhibit 4.1 to the Company's report on Form 8-K dated December 14, 1995). 10.71 *X Diamond Shamrock, Inc. Long-Term Incentive Plan, amended and restated as of May 2, 1995 (Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-59025). 10.72 *X Diamond Shamrock, Inc. Nonqualified 401(k)Plan (Exhibit 4.1 to the Company's Form S-8 Registration Statement No. 33-64645). 13.1 . Management's Discussion and Analysis of Financial Condition and Results of Operation from the Company's Annual Report to Shareholders for the year ended December 31, 1995. 13.2 . Consolidated Financial Statements and Selected Financial Data from the Company's Annual Report to Shareholders for the year ended December 31, 1995. 13.3 . Report of Independent Accountants from the Company's Annual Report to Shareholders for the year ended December 31, 1995. 21.1 . Subsidiaries of the Company. 23.1 . Consent of Price Waterhouse LLP. 24.1 . Power of Attorney of the Company 24.2 . Powers of Attorney of directors and officers of the Company. 27.1 . Financial Data Schedule _______________________________ * Each document marked with an asterisk is incorporated herein by reference to the designated document previously filed with the Securities and Exchange Commission. # The Company hereby agrees pursuant to Item 601(b)(4)(III)(A) of Regulation S-K to furnish a copy of this agreement to the Securities and Exchange Commission upon reqeust. . Indicates a document filed with this report. X Indicates the document which constitutes an executive contract or compensation plan or arrangement. W4964.TW EX-13.1 2 EX-13.1 Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Consolidated Results 1995 vs 1994 Sales and operating revenues for 1995 were $3,683.1 million compared to $3,297.3 million in 1994. Sales and operating revenues increased primarily due to a 5.5% and a 4.8% increase in refined product sales volumes and prices, respectively, and a 9.9% and a 3.2% increase in retail gasoline sales volumes and prices, respectively. This increase also reflected the contribution from a 7.0% increase in the average number of retail outlets during 1995. Per store retail merchandise sales and retail gasoline sales volumes increased 5.1% and 2.7%, respectively, during 1995 when compared to 1994. Also contributing to the increase in consolidated sales and operating revenues was a 20.6% increase in sales in the Company's Allied Businesses segment, primarily due to the strong demand for polymer grade propylene and ammonia fertilizer. In addition, the acquisition of National Convenience Stores Incorporated ("NCS") in mid-December 1995, contributed $42.1 million in sales and operating revenues. During 1995, the Company had net income of $47.3 million compared with $75.8 million in 1994. The Company's 1995 results were negatively impacted by weak refining margins in the inland markets where the Company sells most of its products. Refining margins improved somewhat later in the fourth quarter of 1995 due largely to heating oil price increases driven by cold weather; however, increases in the cost of gasoline could not be recovered at the retail level. Partially offsetting weak refining margins were strong results for polymer grade propylene and ammonia fertilizer due to improved demand. A major portion of the Company's inventory is valued at the lower of last-in, first-out (LIFO) cost or market. At December 31, 1995, inventories of crude oil and refined products of the Refining and Wholesale segment and propylene products in the Allied Businesses segment were valued at market (lower than LIFO cost). Motor fuel products of the Retail segment were recorded at their LIFO costs. Estimating the financial impact of changes in the valuation of refinery inventories due to such inventories being valued at market is difficult because of the number of variables that must be considered. For operating purposes, management attempts to estimate the impact of changes in valuation of refinery inventories on net income. The estimated after tax change in inventory values was a positive $5.2 million and $7.3 million in 1995 and 1994, respectively. Consolidated Results 1994 vs 1993 Sales and operating revenues for 1994 were $3,297.3 million compared to $3,100.0 million in 1993. Sales and operating revenues increased primarily due to a 6.4% increase in refined product sales volumes, a 6.4% increase in retail merchandise sales and an improvement in revenues in the Allied Businesses segment. During 1994, the Company had net income of $75.8 million compared with income before cumulative effect of accounting changes of $32.6 million and net income of $18.4 million in 1993. The Company's integrated business approach contributed significantly to the Company's profitability during 1994. The Refining and Wholesale segment was supported by strong refining margins in the first half of 1994. Then, as refining margins narrowed, the Company had excellent results from the Retail segment, reflecting improved retail margins in the second half of 1994. The Allied Businesses segment provided significant operating profit improvements throughout 1994, reflecting a general improvement in the petrochemical business and strong demand for ammonia fertilizer. The estimated after tax change in inventory values was a positive $7.3 million in 1994 and a negative $16.5 million in 1993. Segment Results 1995 vs 1994 Sales and operating revenues from the Refining and Wholesale segment were $1,796.0 million compared to $1,661.3 million in 1994. The increase is primarily due to a 5.5% and a 4.8% increase in refined product sales volumes and prices, respectively. Operating profit decreased by 41.6% primarily due to a 20.5% decrease in refinery margins from the same period a year ago. Last year, refinery margins in the Company's inland markets, where most of its products are sold, were strong, relative to the Gulf Coast market, primarily because supply to the inland markets were constrained by distribution system problems. While refinery margins in the Company's inland markets remain higher than those in the Gulf Coast market, they have declined versus last year while Gulf Coast margins have improved. The 1995 operating profit was positively impacted by an increase in the value of crude oil and refined product inventories. Sales and operating revenues in the Retail segment increased by 14.1% in 1995, primarily due to a 9.9% and a 3.2% increase in retail gasoline sales volumes and prices, respectively, and a 9.7% increase in retail merchandise sales. This increase reflected the contribution from a 7.0% increase in the average number of retail outlets during 1995. Per store retail merchandise sales increased 5.1% and per store retail gasoline sales volumes increased 2.7% during 1995 compared to 1994. In addition, the acquisition of NCS in mid-December 1995, contributed $42.1 million in sales and operating revenues. Retail segment operating profit decreased by $3.3 million to $55.6 million in 1995 from $58.9 million in 1994, primarily due to a 6.7% decrease in retail gasoline margins. Gross profit from lottery sales in 1995 was $9.2 million compared to $8.2 million in 1994. Allied Businesses sales and operating revenues increased 20.6% to $375.4 million in 1995, primarily due to an increase in revenues in the Company's propylene business, reflecting increased sales volumes and prices attributable to continued strong demand for polymer grade propylene. Also contributing to the increase in revenues was an 8.8% increase in natural gas liquids sales volumes. Operating profits in the Allied Businesses segment increased by 84.8% in 1995 to $48.1 million primarily due to a $13.7 million and a $4.0 million increase in operating profit from the Company's propylene and ammonia fertilizer businesses, respectively, reflecting a general improvement in the petrochemical business and demand for ammonia fertilizer. Segment Results 1994 vs 1993 Sales and operating revenues from the Refining and Wholesale segment increased $138.7 million from $1,522.6 million in 1993 to $1,661.3 million in 1994, primarily due to a 6.4% increase in refined product sales volumes as the Company's expansion of its Three Rivers Refinery came on-line. This increase was partially offset by a 5.1% decrease in refined products sales prices. Refining and Wholesale operating profit increased by 98.6% to $146.8 million compared to $73.9 million in 1993. This increase in operating profit was primarily due to a 17.0% increase in refinery margins compared to 1993. The 1994 operating profit was positively impacted by an increase in the value of crude oil and refined products inventories. The Company also benefited from a full year of the projects brought on line in 1993, namely, the Three Rivers expansion and the diesel desulfurizer at McKee. Sales and operating revenues in the Retail segment increased 3.9% in 1994, primarily due to a 6.4% increase in retail merchandise sales, a 2.0% increase in gasoline sales volumes, and a 15.8% increase in lottery sales, partially offset by a 2.9% decrease in retail gasoline sales prices. Per-store merchandise sales increased by 5.1%. Retail operating profit decreased by 6.1% to $58.9 million in 1994 from $62.7 million in 1993, primarily due to increased operating costs, reflecting the costs associated with the installation of the Company's computerized retail information inventory management and customer service system ("IRIS"). IRIS has the capability of tracking merchandise sales by item and interfacing with computerized controls for underground storage tank monitoring that allows the Company increased environmental protection. Also contributing to the decrease in operating profit was a 0.6% decrease in retail merchandise margins. Gross profit from lottery sales in 1994 was $8.2 million compared to $7.3 million in 1993. Allied Businesses sales and operating revenues increased 2.9% to $311.2 million in 1994, primarily due to an increase in revenues from the Company's ammonia fertilizer and propylene businesses. The propylene increases reflected strong demand for polymer grade propylene during the last half of the year. The ammonia fertilizer business benefited from strong demand for ammonia fertilizer and depressed natural gas prices. These revenue increases were partially offset by a 9.1% decrease in natural gas liquids sales volumes and a 6.9% decrease in natural gas liquids sales prices. Allied Businesses operating profits increased by 73.3% in 1994 to $26.0 million, primarily due to an $8.2 million and a $6.7 million increase in operating profits from the Company's propylene and ammonia fertilizer businesses, respectively. Also contributing to the increase in operating profits was a $3.0 million improvement from Trans Texas Pipeline, reflecting a full year of higher operating rates and tariffs. Partially offsetting the increase in operating profits was a $5.7 million increase in operating expense from international operations, and a $2.9 million decrease in natural gas processing operating profit, reflecting the cancellation of the Company's contract to process natural gas. Acquisition of National Convenience Stores In December 1995, the Company completed the acquisition of all the outstanding common shares of NCS for $27 per share in cash. The total value of the transaction is approximately $280.0 million, which includes the purchase of outstanding warrants for the spread between $27 per share and the exercise price of the warrants, transaction costs, and the assumption of NCS's debt. The purchase price exceeded the estimated fair value of net assets acquired by approximately $160.5 million, which is included in the accompanying consolidated balance sheet as excess of cost over acquired net assets, net of amortization. This asset is being amortized over its estimated useful life of 20 years. Financing for the transaction has been arranged through Bank of America National Trust and Savings Association. NCS operates 661 "Stop N Go" convenience stores located in Texas cities where the Company currently operates retail outlets. Nearly 600 of the NCS outlets sell gasoline. Based on historical results, it is estimated that total annual revenues for the combined companies will be approximately $4.1 billion. In addition, total merchandise sales are expected to more than double and the Company's sales of gasoline through branded outlets will increase approximately 21.0% to an estimated 123,000 barrels per day. Additionally, the acquisition increases the contribution of the Company's Retail segment to operating profit which lessens the impact of more volatile refining margins on profitability. Outlook 1995 was a difficult year for the refining and marketing industry due to industry-wide weak refining margins. Refining margins were negatively impacted by industry overcapacity, high utilization rates, regulatory changes relating to reformulated gasoline, and an unseasonably warm first quarter. Retail fuel margins, which usually widen when refining margins narrow, did not fully offset the downturn in refining. The outlook for the refining and marketing industry in 1996 is positive as most analysts agree that profit-ability in 1995 hit the bottom of a cycle that is expected to swing upward this year. Underlying these expectations is the assumed continued growth in gasoline demand which is expected to absorb the overcapacity that plagued the industry in 1995. Currently, however, although the industry is experiencing better demand and higher prices for heating oil driven by the recent cold winter weather, gasoline margins until recently were depressed. The Company has established earnings per share improvement goals of $0.75 per share in 1996 and another $0.75 per share the following year for a total of $1.50 by 1997. These earnings targets do not reflect the potential impact of changes in refining and marketing margins, the economy and inflation on operating expenses, or other factors outside the Company's control. As such, there necessarily can be no assurance that these goals will be realized. Underlying the Company's earnings improvement goals are several significant items. The primary contributor to improved earnings is the combined impact of the completion of capital projects currently underway or recently completed. The most significant of these projects are the El Paso pipeline and terminal, the Three Rivers expansion, and the second propylene splitter at Mont Belvieu. Project economics are based on historical product prices and raw material costs that represent two to five year averages. Also of significance is the recently completed migration of all Company information systems from a mainframe system to a client/server system which will result in significant cost savings over the next several years. The balance of the anticipated earnings improvement comes from a combination of administrative expense control measures and the optimization of operations. Finally, these profit improvement goals were established prior to our acquisition of NCS. While management is confident the NCS acquisition will contribute to the Company's operating profit in 1996, the Company will also incur one-time consolidation expenses during 1996 which will affect net income for the year. LIQUIDITY AND CAPITAL RESOURCES Cash Flow and Working Capital For the year ended December 31, 1995, cash provided by operations was $117.6 million, compared with $176.2 million provided in 1994. Working capital at December 31, 1995 consisted of current assets of $654.9 million and current liabilities of $489.5 million, or a current ratio of 1.3. At December 31, 1994, the current ratio was 1.4, with current assets of $540.4 million and current liabilities of $374.1 million. Cash provided by operations decreased primarily due to a $28.5 million decrease in net income and a decrease in deferred taxes provided. An increase in working capital (excluding the impact of the NCS acquisition) primarily due to an increase in inventory prices and volumes, negatively impacted cash provided by operations. This increase was partially offset by an increase in accounts payable, primarily attributable to an 8.8% increase in crude oil purchase prices in 1995 compared to 1994. The increase in cash provided by operations during 1994 over 1993 was primarily due to a $57.4 million increase in net income and an increase in deferred taxes provided. Deferred taxes increased primarily because of the difference between book and tax inventory valuation at the Company's two refineries and because of the increase in the difference between the book and tax basis for properties and equipment, offset in part by an increase in the alternative minimum tax credit carryforward. The Company was in an alternative minimum tax position for the 1994 taxable year. Increased working capital negatively impacted cash provided by operations during 1994. The increase in working capital in 1994 was primarily due to a 56.5% increase in inventories, attributable to high crude oil inventory at year-end. The increase in current liabilities was primarily due to a 125.2% increase in accounts payable. The increase in inventories and accounts payable was affected by the Company's decision to purchase additional crude oil in December 1994 in order to overcome potential supply disruptions caused by the implementation of Oil Pollution Act 1990 ("OPA 90"). Under OPA 90, all vessels trading in U.S. waters must have had a Certificate Of Financial Responsibility, approved by the Coast Guard, in place by December 28, 1994. Vessel owners were slow to comply, setting the stage for a possible shortage of foreign shipments to the U.S. The Company acquires a major portion of its crude oil requirements through the purchase of futures contracts on the New York Mercantile Exchange. The Company also uses the futures market to manage the price risk inherent in purchasing the crude oil in advance of the delivery date, and in maintaining the inventories contained within its refinery and pipeline systems. The Company defers the impact of changes in the market value of these contracts until such time as the hedged transaction is completed. The Company has not entered into any form of interest rate caps or swaps on any of its fixed or variable rate debt in recent periods. Capital Expenditures In recent years capital expenditures have represented a variety of projects designed to expand and maintain up-to-date refinery facilities, improve terminal and distribution systems, modernize and expand retail outlets, comply with environmental regulatory requirements, and pursue new ventures in related businesses. The Company's capital expenditures during 1995 were $556.6 million compared with $162.1 million in 1994, and $131.8 million in 1993. Included in the Company's 1995 capital expenditures is approximately $280.0 million for the acquisition of NCS on December 14, 1995. Also included in the Company's capital expenditures during 1995 is the completion of the McKee to El Paso refined products pipeline and terminal and the Three Rivers refinery hydrogen plant. The Company also recently completed drilling a brine production well at the East Terminal at Mont Belvieu and purchased four underground storage wells at the facility's West Terminal. In addition a non-cash investment of $12.0 million for a portion of a crude oil import and storage terminal acquired under an installment purchase arrangement is included in the 1995 capital expenditures. The acquisition of NCS and other capital expenditures, expenditures for debt service, lease obligations, working capital, and dividend requirements exceeded cash generated by operations. As a result, in addition to borrowing under the Bank of America term loan to finance the NCS acquisition, the Company on February 13, 1995 issued $75.0 million of 8.75% debentures due June 15, 2015 and on June 8, 1995 issued $25.0 million in non-callable 7.25% debentures due June 15, 2010. Also from time to time throughout 1995, the Company accessed the commercial paper and bank money markets. The Company announced in January 1996, the goal of strengthening the Company's balance sheet and, within two years, bringing its debt to total capital and interest coverage ratios back to the levels prior to the acquisition of NCS. The Company's capital expenditures budgets for the next two years have been reduced so that revised capital expenditure plans are approximately $160.0 million in 1996 and $140.0 million in 1997. The Company's goal is to pay down over $200.0 million of debt in the next two years through cash flow generated from operations, capital spending reductions, and the sale of some assets. The capital spending cuts include eliminating retail store construction in most of Texas, while integrating the NCS stores into the Company's system. The Company currently intends to continue to construct additional retail stores in Arizona. Many refinery projects have been deferred from 1996; however, expansion and upgrading projects begun in 1995 at the Company's Three Rivers refinery will be completed in 1996. These projects will increase the capacity of the refinery from 75,000 barrels per day to 85,000 barrels per day and allow heavy oils to be upgraded to more profitable products. The projects are scheduled for completion in the third quarter of 1996. In addition, expenditures continue at Three Rivers on the previously announced benzene toluene xylene ("BTX") extraction unit, which will produce high value petrochemical feedstocks. Once completed in 1997, the BTX project gives the Company the flexibility to shift certain components out of the gasoline pool into more attractive petrochemical markets. Finally, the 1996 capital budget also includes construction of a second 730 million pound per year propylene splitter at Mont Belvieu with completion scheduled for the third quarter of 1996. Although, it is presently the Company's goal to reduce debt in 1996, if its assumptions regarding operating results or capital requirements change, the Company can access its bank credit, bank money market, and commercial paper facilities. In addition, depending upon developments in the capital markets, the Company can access such markets to refinance existing debt or to meet its capital and operating requirements. In addition to the NCS acquisition, the Company continued to increase its retail marketing business in 1995 with the acquisition of 21 outlets in New Mexico. In addition, the Company opened 30 outlets and closed 16 marginal outlets in 1995. The Company opened 17 and nine new outlets, in 1994 and 1993, respectively. Approximately 21 of the newly opened outlets in 1995 were leased by the Company under a pre-existing long-term lease arrangement (the "Brazos Lease"). The Brazos Lease has an initial lease term which will expire in April 1999. Rent payable under the Brazos Lease is based upon the amounts spent to acquire or construct the outlets and the lessor's cost of funds from time to time. At December 31, 1995, approximately $15.3 million of the $190.0 million commitment remained available under the Brazos Lease to construct retail outlets. After the non-cancelable lease term, the Brazos Lease may be extended by agreement of the parties, or the Company may purchase or arrange for the sale of the retail outlets. If the Company were unable to extend the lease or arrange for the sale of the properties to a third party in 1999, the amount necessary to purchase properties under the lease as of December 31, 1995 would be approximately $175.0 million. Environmental Matters Environmental laws and regulations affect the Company in many areas. Starting on January 1, 1995, reformulated gasoline was mandated by the 1990 Clean Air Act amendments for the nine worst ozone polluting cities in the United States. Houston, which is in the Company's market area, is included among these nine cities. Other cities, including Dallas, which is also in the Company's market area, have chosen to "opt in" to the program. The Company currently supplies its Houston market through third party purchases and exchange agreements and anticipates it will continue such supply arrangements for its reformulated gasoline requirements in Houston. The Company currently makes reformulated gasoline for its Dallas market, which historically has absorbed approximately 25 percent of the McKee refinery's total gasoline pool. The 1990 Clean Air Act amendments also affect the Company by requiring more stringent refinery and petrochemical permitting requirements and Stage II vapor recovery nozzles on gas pumps in ozone non-attainment areas, including Beaumont, Dallas, El Paso, Fort Worth and Houston, which are located within the Company's market area. Most of the capital spent by the Company for environmental compliance is integrally related to projects that increase refinery capacity or improve product mix, and the Company does not specifically identify capital expenditures related to such economic projects as being environmental. However, with respect to capital expenditures budgeted primarily to produce federally-mandated fuels to comply with regulations related to air and water toxic emission levels and for remediation and compliance costs related to underground storage tanks, it is estimated that approximately $11.4 million was spent in 1995, $11.6 million was spent in 1994, and $21.4 million in 1993. For 1996, the Company has budgeted approximately $11.1 million primarily related to environmental capital expenditures to comply with underground storage tank regulations at retail sites and waste water treatment at the refineries. Federal, state, and local laws and regulations relating to health and environmental quality affect nearly all of the operations of the Company. While the Company cannot predict what legislation, rules, or regulations will be developed or how they will be administered, management believes that compliance with the more stringent laws or regulations could require substantial additional expenditures by the Company for installation and operation of systems and equipment related to health and environmental quality. Capital Structure Financing Activities During 1995 On February 13, 1995, the Company issued $75.0 million in non-callable 8.75% debentures due June 15, 2015. In March and December 1995, the Company renegotiated its two separate revolving credit facilities ("Agreement I" and "Agreement II"). Agreement I has a face value of $200.0 million with a maturity date of March 31, 2000. Agreement II matures on March 29, 1996, and has a value of $100.0 million. Interest under Agreement I and Agreement II varies depending on specified lending options available to the Company. Generally, the variable conditions relate to the prime rate, certificates of deposit, and London Interbank Offered Rates, as adjusted upward by specified percentages. As of December 31, 1995, the Company had no borrowings outstanding under Agreement I or Agreement II. Agreement I and Agreement II, the Senior Notes (as defined below) and the B of A Credit Facility (as defined below) all contain various restrictive covenants relating to the Company and its financial condition, operations, and properties. Under these covenants, the Company is required to maintain a minimum current ratio and net worth. These covenants also include restrictions on the payment of dividends. However, it is not anticipated that such limitations will affect the Company's present ability to pay dividends. At December 31, 1995, under the most restrictive of these covenants, $205.7 million was available for the payment of dividends. Agreement I and Agreement II, the Senior Notes, and the B of A Credit Facility are unsecured. Certain subsidiaries of the Company have unconditionally guaranteed the repayment of all indebtedness and the performance of all obligations incurred by the Company under Agreement I and Agreement II, the Senior Notes, and the B of A Credit Facility. In May 1995, the Company registered $150.0 million of unallocated securities in a Universal Shelf Registration. That registration, which was declared effective by the Securities and Exchange Commission in June 1995, allows the Company to issue up to $150.0 million of debt, equities or warrants, or any combination thereof, to the public on terms to be set at the time of issuance. The Company will issue the securities so registered from time to time, based on the Company's capital requirements and market conditions. On June 8, 1995, the Company issued $25.0 million in non-callable 7.25% debentures due June 15, 2010. The proceeds from the issuance of the debentures were used for general corporate purposes. On October 17, 1995, $6.2 million (the "Shamrock P/L Note") was assumed when the Company purchased the lessor's interest in the Southlake Products Pipeline extending from the McKee Refinery to the Dallas/Fort Worth area. The Shamrock P/L Note is currently being amortized semi-annually at 9.75% with a maturity date of January 15, 1999. During December 1995, the Company entered into a Revolving Credit Agreement (the "B of A Credit Facility") with a syndication of banks to finance the acquisition of NCS. The B of A Credit Facility is a revolving facility under which up to $220.0 million may be advanced and readvanced from time to time for general corporate purposes. Credit available under the B of A Credit Facility is reduced by equal amounts on four reduction dates: June 11, 1999; December 11, 1999; June 11, 2000; and, at maturity, on December 11, 2000. Interest under the B of A Credit Facility is structured similar to Agreement I and Agreement II. As of December 31, 1995, the Company had $220.0 million outstanding under the B of A Credit Facility. On December 14, 1995, the Company assumed $53.3 million in mortgages (the "Mortgages") as part of the NCS acquisition. The Mortgages currently carry an annual interest rate of 9.5% with average maturities of 7 years and are recorded at their net present value. The mortgages are secured by retail properties owned by the Company. The Company also assumed other NCS debt of $34.5 million which was immediately repaid and cancelled. At December 31, 1995, the Company had outstanding $163.0 million of borrowings under bank money market facilities provided by major money center banks at a weighted average rate of 6.05%. The bank money market facilities are uncommitted lines of credit under which banks extend unsecured short-term credit to the Company from time to time at market rates. Financing Activities During 1994 On January 6, 1994, the Company prepaid the $35.0 million balance on its $65.0 million Term Loan Agreement (the "Term Loan"). Financing Activities Prior To 1994 At December 31, 1995, the Company's long-term debt included the following amounts incurred prior to 1994: $100.0 million of 8% Debentures due April 1, 2023. $120.0 million of 10.75% Senior Notes (the "Senior Notes") payable in equal annual installments of $30.0 million beginning April 30, 1996. $5.3 million of 9% Senior Notes payable in semi-annual installments ending May 15, 1997. $30.0 million of 8.77% Senior Notes payable in quarterly installments consisting of interest only until the May, 1997 payment and thereafter of both interest and principal for the remaining 48 quarterly payments. $1.2 million of 8.35% Senior Notes payable in semi-annual installments ending May 15, 1997. $75.0 million of medium-term notes with an interest rate of 9-3/8% due March 1, 2001. $24.0 million of medium-term notes with an average interest rate of 8.45% maturing in the year 2003. $46.0 million of medium-term notes with an average interest rate of 7.44% maturing in the year 2006. Accounting Matters Effective January 1, 1993, the Company changed the accounting method for recording the liability under an agreement with Maxus (the "Distribution Agreement") (see Note 3 of the Notes to the Consolidated Financial Statements on page 14 of this Annual Report). Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 112 ("FAS 112"), "Employers' Accounting for Post-employment Benefits, an Amendment of FASB Statements No. 5 and 43" (see Note 3 of the Notes to the Consolidated Financial Statements on page 15 of this Annual Report). The Company plans to adopt Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," in 1996. While the Company has not completed its calculations on the effects of FAS 121, it does not expect adoption of FAS 121 will have a material impact on its results of operations or financial position. The Company plans to adopt Statement of Financial Accounting Standards No. 123 ("FAS 123), "Accounting for Stock-Based Compensation," in 1996, and plans to elect to adopt FAS 123 by providing the disclosure information regarding its stock-based compensation plans as allowed by FAS 123. Accordingly, adoption of FAS 123 is not expected to have a significant effect on the Company's results of operations or financial position. During the first quarter of 1996 the Company began classifying federal excise taxes and state motor fuel taxes in Sales and operating revenues and in Costs and expenses for financial reporting purposes. The Company believes this method of classification better reflects the nature of such taxes and is consistent with current industry practice. The results of operations for the three years ended December 31, 1995, 1994 and 1993 have been reclassified to conform to the 1996 presentation. The amount of such taxes for the three years ended December 31 is $746.3 million, $691.0 million and $544.7 million in 1995, 1994 and 1993, respectively. Neither operating profits nor net income are affected by this reclassification. W4034B.asc EX-13.2 3 EXHIBIT 13.2 Consolidated Statement of Operations (dollars in millions, except per share) 1995 1994 1993 REVENUES Sales and operating revenues(a) $ 3,683.1 $ 3,297.3 $3,100.0 Other revenues, net 19.9 14.8 10.2 3,703.0 3,312.1 3,110.2 COSTS AND EXPENSES Cost of products sold(a) 2,233.5 1,880.7 1,965.5 Operating expenses 403.3 388.8 340.0 Depreciation and amortization 77.7 70.9 64.3 Selling and administrative 81.4 71.7 60.9 Taxes other than income taxes(a) 786.0 730.9 581.4 Interest 47.4 43.3 40.6 3,629.3 3,186.3 3,052.7 Income before Tax Provision and Cumulative Effect of Accounting Changes 73.7 125.8 57.5 Provision for Income Taxes 26.4 50.0 24.9 Income before Cumulative Effect of Accounting Changes 47.3 75.8 32.6 Cumulative Effect of Accounting Changes (net of income taxes) - - (14.2) Net Income 47.3 75.8 18.4 Dividend Requirement on Preferred Stock 4.3 4.3 2.4 Earnings Applicable to Common Shares $ 43.0 $ 71.5 $ 16.0 Primary Earnings (Loss) Per Common Share Before Cumulative Effect of Accounting Changes $ 1.48 $ 2.45 $ 1.04 Cumulative Effect of Accounting Changes - - (0.49) Total $ 1.48 $ 2.45 $ 0.55 Fully Diluted Earnings (Loss) Per Common Share Before Cumulative Effect of Accounting Changes $ 1.46 $ 2.34 $ 1.04 Cumulative Effect of Accounting Changes - - (0.49) Total $ 1.46 $ 2.34 $ 0.55 Cash Dividends Per Share Common $ 0.56 $ 0.53 $ 0.52 Preferred $ 2.50 $ 2.50 $ 1.28 Weighted Average Common Shares Outstanding (thousands of shares) Primary 29,102 29,128 28,871 Fully Diluted 32,375 32,383 28,968 Pro forma amounts assuming the effect of the 1993 change in accounting principle is applied retroactively: 1995 1994 1993 Income before Cumulative Effect of Accounting Changes $47.3 $75.8 $32.6 Cumulative Effect of Accounting Changes - - - Net Income $47.3 $75.8 $32.6
(a) Reclassified to conform to 1996 presentation, to include excise taxes as a component of sales: The amount of such taxes for the years ended December 31, is $746.3 million, $691.0 million and $544.7 million in 1995, 1994 and 1993, respectively. The Notes to Consolidated Financial Statements are an integral part of this and related Consolidated Financial Statements.
Consolidated Balance Sheet December 31, (dollars in millions, except per share) 1995 1994 ASSETS Current Assets Cash and cash equivalents $ 48.6 $ 27.4 Receivables, less doubtful receivables 213.0 211.6 Inventories 376.0 291.0 Prepaid expenses and other current assets 17.3 10.4 Total Current Assets 654.9 540.4 Properties and Equipment, less accumulated depreciation 1,357.1 1,026.1 Excess of Cost over Acquired Net Assets, net of amortization 160.1 - Deferred Charges and Other Assets 73.3 54.3 $2,245.4 $1,620.8 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Long-term debt payable within one year $ 7.2 $ 3.9 Accounts payable 274.3 199.3 Accrued liabilities 208.0 170.9 Total Current Liabilities 489.5 374.1 Long-term Debt 957.5 509.2 Deferred Income Taxes 58.6 81.5 Other Liabilities and Deferred Credits 115.1 67.0 Stockholders' Equity Preferred Stock, $.01 par value Authorized shares - 25,000,000 Issued and outstanding shares - 1,725,000; 1,725,000 in 1994 0.0 0.0 Common Stock, $.01 par value Authorized shares - 75,000,000 Issued shares - 29,035,853; 29,014,667 in 1994 Outstanding shares - 28,994,715; 28,896,917 in 1994 0.3 0.3 Paid-in Capital 447.8 447.3 ESOP Stock and Stock Held in Treasury (37.4) (45.4) Retained Earnings 214.0 186.8 Total Stockholders' Equity 624.7 589.0 $2,245.4 $1,620.8
See Note 17 - Commitments and Contingencies The Notes to Consolidated Financial Statements are an integral part of this and related Consolidated Financial Statements.
Consolidated Statement of Cash Flows (dollars in millions) 1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 47.3 $ 75.8 $ 18.4 Adjustments to arrive at net cash provided by operating activities: Depreciation and amortization 77.7 70.9 64.3 Deferred income taxes 8.9 31.9 (9.9) Loss on sale of properties and equipment 1.0 0.9 3.0 Cumulative Effect of Accounting Changes - - 23.6 Cash flow from futures activity - - (3.0) Changes in operating assets and liabilities:* Decrease (increase) in accounts receivable 4.0 (62.8) (7.2) Decrease (increase) in inventories (49.8) (105.0) 7.2 Decrease (increase) in prepaid expenses 1.4 (1.8) (2.4) Increase (decrease) in accounts payable and accrued liabilities 28.9 153.3 3.3 Other, net (1.8) 13.0 12.0 NET CASH PROVIDED BY OPERATING ACTIVITIES 117.6 176.2 109.3 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of futures contracts - - (133.3) Settlement of futures contracts - - 136.3 Proceeds from sales of facilities 4.6 7.1 2.0 Purchase of properties and equipment (258.4) (162.1) (131.8) Purchase of NCS, net of cash acquired (163.5) - - Expenditures for investments (2.7) (3.2) (1.3) NET CASH USED IN INVESTING ACTIVITIES (420.0) (158.2) (128.1) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in commercial paper - - (108.5) Increases in long-term debt 640.8 214.2 321.8 Repayments of long-term debt (291.6) (190.8) (260.5) Payments of long-term liability (11.4) (10.2) (11.3) Funds received from ESOP 5.8 5.1 4.3 Issuance of Common Stock 0.3 0.9 1.7 Purchase of Treasury Stock 0.0 (3.4) (0.6) Issuance of Preferred Stock - - 84.3 Sale of Common Stock held in treasury 0.3 0.5 0.1 Dividends paid (20.6) (19.7) (17.2) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 323.6 (3.4) 14.1 Net increase (decrease) in cash and cash equivalents 21.2 14.6 (4.7) Cash and cash equivalents at beginning of period 27.4 12.8 17.5 Cash and cash equivalents at end of period $ 48.6 $ 27.4 $ 12.8
In January 1995, the Company acquired a portion of a crude oil import and storage terminal in a non-cash transaction under an installment purchase arrangement. The purchase price was $12.0 million. *Does not include the changes resulting from the NCS acquisition reflected below. Excluded from the Consolidated Statement of Cash Flows for the year ended December 31, 1993, was the effect of certain non-cash activities in which the Company exchanged an undivided interest in certain properties and equipment for an equity ownership interest in a limited liability company. This transaction increased investments by $19.2 million and decreased properties and equipment by $19.2 million. The Notes to Consolidated Financial Statements are an integral part of this and related Consolidated Financial Statements. Note 1 - ORGANIZATION Diamond Shamrock, Inc. (the "Company") was organized in February 1987, as a wholly-owned subsidiary of Maxus Energy Corporation, formerly Diamond Shamrock Corporation ("Maxus"), to engage in the business of refining and marketing of petroleum products and related businesses. Effective April 30, 1987, the shares of the Company's common stock, $0.01 par value (the "Common Stock") were distributed to the shareholders of Maxus in a spin-off transaction (the "Spin-off") approved by the Maxus Board of Directors on February 1, 1987. As a result, the Company became an independent entity which is primarily engaged in the refining and marketing of petroleum products. Note 2 SIGNIFICANT ACCOUNTING POLICIES The Consolidated Financial Statements have been prepared in conformity with generally accepted accounting principles. The preparation of financial state- ments 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 those estimates. The most significant accounting principles used are described below. Consolidation The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. Investments in other companies which are at least 20% owned are accounted for on the equity method. All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents It is the Company's policy to invest cash in excess of operating requirements in highly liquid income producing investments. The Company considers such investments with a maturity of three months or less at the time of purchase to be cash equivalents. Inventories Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method is used to determine cost for inventories of crude oil and refined products of the Refining and Wholesale segment, motor fuel products of the Retail segment, and propylene products in the Allied Businesses segment. Costs of all other inventories are determined on an average cost method. The Company includes purchased items in inventory when the product has been delivered and/or when title has passed to the Company. Imbalances in product exchanges are also reflected in the inventory account balance. Products owed to the Company are included in inventory and products owed to exchange partners are excluded from inventory. Financial Instruments The Company acquires a major portion of its crude oil requirements through the purchase of futures contracts on the New York Mercantile Exchange. The Company also uses the futures market to manage the price risk inherent in purchasing the crude oil in advance of the delivery date, and in maintaining the inventories contained within its refinery and pipeline systems. The Company defers the impact of changes in the market value of these contracts until such time as the hedged transaction is completed. The Company has not entered into any form of interest rate caps or swaps on any of its fixed or variable rate debt in recent years. Properties and Equipment Properties and equipment are carried at cost. Major additions are capitalized; expenditures for repairs and maintenance are charged against earnings. Properties and equipment are depreciated generally on the straight-line basis over their estimated useful lives. The Company capitalizes the interest cost associated with major property additions while in progress, such amounts being amortized over the useful lives of the related assets. Income Taxes Deferred income taxes are provided for the differences in the financial reporting and tax bases of assets and liabilities, for acquired net operating loss and tax credits available for carryforward. Earnings per Share The computation of primary earnings (loss) per share is based on the weighted average number of common shares outstanding during the year plus common stock equivalents consisting of stock options, stock awards subject to restrictions, and stock appreciation rights. In June 1993, the Company issued 1.725 million shares of 5% Cumulative Convertible Preferred Stock (the "Preferred Stock") in a private transaction for an aggregate of $86.3 million, before discounts and transaction costs. Each share of Preferred Stock is convertible into approximately 1.8868 shares of Common Stock. Primary earnings (loss) per common share have been adjusted for dividend requirements on Preferred Stock. The computation of fully diluted earnings (loss) per share, in addition to the adjustments for primary earnings (loss) per share for the years ended December 31, 1995 and 1994, assumes conversion of the Preferred Stock during the time that the shares are outstanding. The computation of fully diluted earnings (loss) per share for the year ended December 31, 1993, did not assume conversion of the Preferred Stock because the effect would have been antidilutive. Other Postemployment Benefits Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 112 ("FAS 112"), "Employers' Accounting for Post- employment Benefits, an Amendment of FASB Statements No. 5 and 43." FAS 112 addresses the accounting for compensation for future absences and postemploy- ment benefits provided to former or inactive employees that are not provided as part of a pension or postretirement plan. The adoption of the new standard had no material effect on the results of operations and did not require recording any cumulative effect of adoption of a change of accounting method. Classification of Excise Taxes During the first quarter of 1996 the Company began classifying federal excise taxes and state motor fuel taxes in Sales and operating revenues and in Costs and expenses for financial reporting purposes. The Company believes this method of classification better reflects the nature of such taxes and is consistent with current industry practice. The results of operations for the three years ended December 31, 1995, 1994 and 1993 have been reclassified to conform to the 1996 presentation. The amount of such taxes for the three years ended December 31 is $746.3 million, $691.0 million and $544.7 million in 1995, 1994 and 1993, respectively. Neither operating profits nor net income are affected by this reclassification. Note 3 CHANGES IN ACCOUNTING PRINCIPLES At December 31, 1989, the Company recorded a liability for payments to be made pursuant to the Distribution Agreement (the "Distribution Agreement") with Maxus, the Company's former parent, for certain liabilities relating to businesses of Maxus discontinued or disposed of prior to the date on which the Company was spun off to Maxus shareholders. The Company's total liability under the Distribution Agreement is limited to $85.0 million. At December 31, 1989, the Company believed that it would be required to make payments under the Distribution Agreement beginning in 1991 and continuing for approximately ten or more years. The Company did, in fact, begin to make payments in 1991, and, based on current levels of payments, it is expected that payments will continue until 1997. Inasmuch as the total amount of the liability was known ($85.0 million) and the Company believed the timing and amount of the payments could be estimated with reasonable accuracy, the liability at December 31, 1989 was recorded on a discounted basis, in accordance with the accounting rules in existence at the time. Annual additions to the liability had been recorded as interest through December 31, 1992. During June 1993, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board ("FASB") released the minutes of its May 20, 1993 meeting during which the EITF announced a consensus with regard to certain issues of "Accounting for Environmental Liabilities" (Issue 93-5). The consensus effectively changed the criteria for determining when a liability may be recorded on a discounted method. Consequently, in 1993, the Company changed the accounting method for recording its liability under the Distribution Agreement to reflect the entire unpaid amount rather than the discounted amount of the liability. The change of method was recorded as if the change had occurred on January 1, 1993 and is reflected in the Consolidated Statement of Operations as the Cumulative Effect of Accounting Changes for the twelve months ended December 31, 1993. The amount of $14.2 million represented the unrecorded liability of $23.6 million at December 31, 1992, less related tax benefit of $9.4 million. The following pro forma information is provided to reflect the earnings per share amounts which would have been reported had the undiscounted accounting method for recording the liability been adopted in the year the liability was originally recorded.
1995 1994 1993 Pro forma Primary Earnings (Loss) Per Share Before Cumulative Effect of Accounting Changes $ 1.48 $ 2.45 $ 1.04 Cumulative Effect of Accounting Changes - - - Total $ 1.48 $ 2.45 $ 1.04 Pro forma Fully Diluted Earnings (Loss) Per Share Before Cumulative Effect of Accounting Changes $ 1.46 $ 2.34 $ 1.04 Cumulative Effect of Accounting Changes - - - Total $ 1.46 $ 2.34 $ 1.04
Earnings per share as currently reported:
1995 1994 1993 Primary Earnings (Loss) Per Share Before Cumulative Effect of Accounting Changes $ 1.48 $ 2.45 $ 1.04 Cumulative Effect of Accounting Changes - - (0.49) Total $ 1.48 $ 2.45 $ 0.55 Fully Diluted Earnings (Loss) Per Share Before Cumulative Effect of Accounting Changes $ 1.46 $ 2.34 $ 1.04 Cumulative Effect of Accounting Changes - - (0.49) Total $ 1.46 $ 2.34 $ 0.55
Effective January 1, 1993, the Company adopted FAS 112, "Employers' Accounting for Postemployment Benefits, an Amendment of FASB Statements No. 5 and 43." FAS 112 addresses the accounting for compensation for future absences and for postemployment benefits provided to former or inactive employees that are not provided as part of a pension or postretirement plan. The adoption of the new standard had no material effect on the results of operations and did not require recording any cumulative effect of adoption of a change of accounting method. The Company plans to adopt Statement of Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," in 1996. While the Company has not completed its calculations on the effects of FAS 121, it does not expect adoption of FAS 121 will have a material impact on its results of operations or financial position. The Company plans to adopt Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation," in 1996, and plans to elect to adopt FAS 123 by providing the disclosure information regarding its stock-based compensation plans as allowed by FAS 123. Accordingly, adoption of FAS 123 is not expected to have a significant effect on the Company's results of operations or financial position. Note 4 - ACQUISITION On December 14, 1995, the Company completed the acquisition of National Convenience Stores Incorporated ("NCS"). NCS operates 661 "Stop N Go" convenience stores located in Texas, of which 600 sell gasoline. The total value of the transaction, including transaction costs and the assumption of NCS's debt, is approximately $280.0 million. The acquisition has been accounted for under the purchase method and, accordingly, the operating results of NCS have been included in the consolidated operating results since the date of the acquisition. The funds used to acquire NCS were arranged through Bank of America National Trust and Savings Association. The purchase price exceeded the estimated fair value of net assets acquired by approximately $160.5 million, which is included in the accompanying consolidated balance sheet as excess of cost over acquired net assets, net of amortization. This asset is being amortized over its estimated useful life of 20 years. In arriving at the purchase cost of the acquisition and, consequently, the excess cost over acquired net assets, the company evaluated, among other things, various analyses of cash flow and profitability projections including, as applicable, the impact on existing Company businesses. Such analyses necessarily involve significant management judgment to evaluate the capacity of the acquired business to perform within projections. The pro forma statements listed below combining the results of operations of the Company and NCS are unaudited and reflect purchase price accounting adjustments assuming the acquisition occurred at the beginning of each year presented.
1995 1994 Revenues(a) $ 4,566.1 $ 4,200.3 Income before tax provision 67.8 115.3 Net Income 40.6 $ 66.2 Primary Earnings Per Common Share $ 1.25 $ 2.13 Fully Diluted Earnings Per Common Share $ 1.25 $ 2.04 (a) Reclassified to conform to 1996 presentation, to include excise taxes as a component of sales: The amount of such taxes for the years ended December 31, is $746.3 million and $691.0 million, respectively.
Note 5 - BUSINESS SEGMENTS The Company's revenues from continuing operations are principally derived from three business segments: Refining and Wholesale, Retail, and Allied Businesses. Refining and Wholesale is engaged in crude oil refining and wholesale marketing of refined petroleum products. Retail is engaged in selling refined petroleum products and other merchandise. Allied Businesses is engaged in transporting, storing, and marketing natural gas liquids; upgrading refinery grade propylene and selling polymer grade propylene; selling ammonia fertilizer; selling specialized telephone services; selling environmental testing and related services; and investing in petroleum related opportunities. The Company's business segments operate primarily in the Southwest region of the United States with particular emphasis in Texas, Colorado, Louisiana, New Mexico, and Oklahoma.
Refining and Allied Wholesale Retail Businesses Total 1995 Sales and operating revenues(a) $1,796.0 $1,511.7 $ 375.4 $ 3,683.1 Costs and expenses(a) 1,710.2 1,456.1 327.3 3,493.6 Operating profit $ 85.8 55.6 $ 48.1 189.5 Interest expense 47.4 Administrative expense 68.4 Income before tax provision $ 73.7 1994 Sales and operating revenues(a) $1,661.3 $1,324.8 $ 311.2 $ 3,297.3 Costs and expenses(a) 1,514.5 1,265.9 285.2 3,065.6 Operating profit $ 146.8 $ 58.9 $ 26.0 $ 231.7 Interest expense 43.3 Administrative expense 62.6 Income before tax provision $ 125.8 1993 Sales and operating revenues(a) $ 1,522.6 $1,275.0 $ 302.4 $ 3,100.0 Costs and expenses(a) 1,448.7 1,212.3 287.4 2,948.4 Operating profit $ 73.9 $ 62.7 $ 15.0 $ 151.6 Interest expense 40.6 Administrative expense 53.5 Income before tax provision and cumulative effect of accounting changes $ 57.5
(a) Reclassified to conform to 1996 presentation, to include excise taxes as a component of sales: The amount of such taxes for the years ended December 31, is $360.2 million, $340.5 million, and $227.8 million in 1995, 1994, and 1993, respectively in the Refining and Wholesale segment. The amount of such taxes for the years ended December 31 is $386.1 million, $350.5 million, and $316.9 million in 1995, 1994, and 1993, respectively in the Retail segment. Intersegment sales and operating revenues are generally derived from transactions made at prevailing market rates. Sales of refined petroleum products from the Refining and Wholesale segment to the Retail segment amounted to $592.4 million in 1995, $502.7 million in 1994, and $510.1 million in 1993. Sales of natural gas liquids from the Allied Businesses segment to the Refining and Wholesale segment amounted to $21.5 million in 1995, $15.8 million in 1994, and $23.4 million in 1993. Identifiable Assets 1995 1994 1993 Refining and Wholesale $1,227.3 $1,048.2 $ 846.8 Retail 754.3 333.0 281.2 Allied Businesses 188.0 159.0 142.7 Corporate 75.8 80.6 78.5 $2,245.4 $1,620.8 $1,349.2
Identifiable assets are those assets that are utilized by the respective business segment. Corporate assets are principally cash, investments, and other assets that cannot be directly associated with the operations or activities of a business segment. Note 6 - TAXES The Company's provision for income taxes was comprised of the following:
1995 1994 1993 Current Federal $ 16.2 $ 16.4 $ 21.8 State and local 1.3 1.7 3.5 17.5 18.1 25.3 Deferred Federal 7.9 29.1 (0.3) State and local 1.0 2.8 (0.1) 8.9 31.9 (0.4) $ 26.4 $ 50.0 $24.9
Federal income taxes paid (net of refunds) during 1995, 1994, and 1993 were: $20.1 million, $11.0 million, and $21.5 million, respectively. The principal reasons for the difference between the statutory federal income tax rate and the Company's provision for income taxes were:
1995 1994 1993 Tax provision at statutory federal rate (35%) $ 26.0 $ 45.6 $ 20.1 Effect of tax rate increase on deferred taxes - - 1.7 State income taxes, net of federal tax benefit 1.9 3.3 2.2 General business credit (3.7) (0.6) (0.7) Other, net 2.2 1.7 1.6 $ 26.4 $ 50.0 $ 24.9
The components of the net deferred tax liability are summarized as follows:
1995 1994 Deferred tax assets Inventory valuation reserves $ 6.4 $ 10.5 Postretirement and pension plan liabilities 12.1 13.0 Long-term shared costs liability 2.8 7.1 Alternative minimum tax credit 19.2 16.0 Nonrecurring expenses in connection with acquisition 7.3 - Environmental reserve 6.4 - Insurance reserve 6.6 - Operating loss carryforward 10.0 - General business credit carryforward 13.6 0.9 Allowance for doubtful receivables 2.2 1.9 Miscellaneous other 24.7 12.2 111.3 61.6 Deferred tax liabilities Properties and equipment (133.1) (119.4) Inventory valuation reserve (20.0) (21.3) Section 382 basis adjustment (7.5) - Miscellaneous other (2.7) (2.4) (163.3) (143.1) Deferred tax asset valuation allowance (5.0) - Net deferred tax liability $ (57.0) $(81.5)
At December 31, 1995 the net deferred tax liability is reflected as $1.6 million in Current deferred tax assets and $58.6 million in Noncurrent deferred tax liabilities. At December 31, 1994, the entire amount of the net deferred tax liability was reflected as Noncurrent deferred tax liabilities. In accordance with the provisions of SFAS No. 109, a valuation allowance of $5.0 million at December 31, 1995 is deemed appropriate by management in view of the expiration dates of the acquired net operating loss carryforwards and credit carryforwards and the amount of future taxable income necessary to utilize such losses and credits. The acquired net operating loss carryforwards and credit carryforwards are subject to the separate return limitation year (SRLY) rules. These rules limit the use of the acquired NCS operating loss carryforwards and credit carryforwards to offset the taxable income of NCS. In addition, the ownership change limitations under section 382 of the Internal Revenue Code further limit the utilization of the acquired loss carryforwards and credit carryforwards. For federal income tax purposes at December 31, 1995, the Company estimated that it had $13.6 million of unused general business tax credits including an acquired general business tax credit of $7.4 million which expires in varying amounts if unused by the years 1998 to 2010. The remaining $6.2 million expires in 2009 and 2010. The Company also had an estimated $19.2 million of minimum tax credit available for carryforward with an indefinite expiration. There is an estimated $28.3 million of SRLY net operating loss carryforward from the NCS acquisition that expires in varying amounts if unused by the years 2001 to 2005. Some of the estimates may be affected by the federal income tax return of NCS for the fiscal year ended June 30, 1995 that will be filed during March of 1996. Taxes other than income taxes were comprised of the following:
1995 1994 1993 Excise taxes $746.3 $691.0 $544.7 Real and personal property 20.2 18.1 15.8 Payroll 10.6 11.6 11.2 Superfund 7.3 8.6 7.8 Other 1.6 1.6 1.9 $786.0 $730.9 $581.4
Note 7 - EMPLOYEE BENEFIT PLANS Defined Benefit Pension Plans The Company maintains a retirement plan known as the Career Average Retirement Income Plan (the "CARIP"). Under the CARIP, eligible employees acquire a right upon retirement to an annual amount equal to 2% of the employee's eligible earnings from February 1, 1987 to May 31, 1989, and 1% of the employee's eligible earnings from June 1, 1989 forward, plus a potential supplement under certain circumstances. The Company also maintains a retirement plan for its collective bargaining groups (the "Bargaining Unit Plan"). The Bargaining Unit Plan generally provides benefits that are based on the union member's monthly base pay during the five years before retirement. The Company also maintains a retirement plan referred to as the Retirement Income Plan (the "RIP") to cover certain employees not eligible for coverage under the CARIP or the Bargaining Unit Plan. Under the RIP, eligible employees acquire a right upon retirement to a monthly amount equal to $5 for each year of plan service from January 1, 1989 forward. The Company also maintains a retirement plan referred to as the Excess Benefits Plan (the "Excess Benefits Plan"), which provides benefits in place of reductions of qualified benefits resulting from various statutory limitations imposed by the Internal Revenue Code and the deferral of compensation through the Deferred Compensation Plan. In addition, the Company has adopted a Supplemental Retirement Plan (the "SRP"). The SRP provides additional benefits for executive officers in excess of amounts payable under the defined benefit plans of the Company or any predecessor employer. The Company also provides a retirement plan for its non-employee Directors (the "Directors Retirement Plan"). The Directors Retirement Plan provides an annual retirement benefit for a period of time equal to the shorter of (a) length of service as a non-employee Director or (b) life of Director. Net periodic pension cost included the following components:
1995 1994 1993 Service cost-benefits earned during the period $3.2 $3.4 $2.5 Interest cost on projected benefit obligation 3.2 2.8 2.2 Actual return on assets (6.6) 0.2 (1.9) Net amortization and deferral 4.7 (2.0) 0.5 Net periodic pension cost $4.5 $4.4 $3.3
Significant assumptions used in the actuarial calculations were:
1995 1994 1993 Discount rates 7.25% 8.50% 7.25% Rates of increase in compensation level 4.50% 5.00% 4.50% Expected long-term rate of return on assets 9.00% 9.00% 9.00%
The Company's trusteed plans are funded at amounts required by the Employee Retirement Income Security Act. Effective December 31, 1995, the Company lowered its discount rate to 7.25% and its rates of increase in compensation level to 4.50%. The following table summarizes the funded status of the Company's defined benefit pension plans and the related amounts recognized in the Company's Consolidated Balance Sheet:
1995 1994 Plans Plans Plans Plans Where Where Where Where Assets Benefits Assets Benefits Exceed Exceed Exceed Exceed Benefits Assets Benefits Assets Actuarial present value of benefit obligations: Vested benefit obligation $27.5 $7.1 $12.3 $14.6 Accumulated benefit obligation 28.9 7.2 12.3 15.6 Projected benefit obligation 37.0 8.2 17.2 18.5 Plan assets at fair market value 32.4 6.2 13.9 12.3 Projected benefit obligation in excess of plan assets 4.6 2.0 3.3 6.2 Unrecognized net loss (6.9) (1.7) (2.7) (5.3) Unrecognized net obligation (0.3) (0.2) (0.3) (0.2) Unrecognized prior service cost 0.5 0.2 0.1 0.7 Adjustment to recognize minimum liability 0.0 0.6 0.0 2.1 Pension liability (Prepaid pension cost) recognized in the Consolidated Balance Sheet (2.1) 0.9 0.4 3.5
In 1995, the plans where assets exceeded the accumulated benefit obligation were the Bargaining Unit Plan, the Retirement Income Plan, the Career Average Retirement Income Plan, and the Excess Benefits Plan. In 1994, the plans where assets exceeded the accumulated benefit obligation were the Bargaining Unit Plan and the SRP. At December 31, 1995, Plan assets were invested in equity securities (58%), bonds (34%), and other investments (8%). At December 31, 1994, Plan assets were invested in bonds (58%), equity securities (33%), and other investments (9%). Retiree Health Care and Life Insurance Benefits The Company provides certain health care and life insurance benefits to eligible retirees. Employees who participate in the CARIP are eligible for retiree health care and life insurance benefits if they satisfy certain age and service requirements. The Company also shares in the cost of providing similar benefits to former Maxus employees pursuant to the Distribution Agreement (see Note 17). Generally, the health care plans pay a stated percentage of most medical expenses reduced for any deductibles, payments made by government programs, and other group coverage. The cost of providing most of these benefits is shared with retirees. The plans are unfunded. The following table sets forth the plans' status and the amount recognized in the Company's Consolidated Balance Sheet as of December 31, 1995 and 1994: Accumulated postretirement benefit obligation attributable to:
Health Life Care Insurance Total 1995 1994 1995 1994 1995 1994 Retirees $20.9 $19.0 $3.2 $2.8 $24.1 $21.8 Fully Eligible Active Plan Participants 2.2 1.6 0.1 0.1 2.3 1.7 Other Active Plan Participants 5.6 3.3 2.7 3.2 8.3 6.5 Unrecognized net loss (5.0) (1.3) (0.1) (0.4) (5.1) (1.7) Total Accumulated Postretirement Benefit Obligation $23.7 $22.6 $5.9 $5.7 $29.6 $28.3 Net Periodic Postretirement Benefit Cost: Health Life Care Insurance Total 1995 1994 1995 1994 1995 1994 Service Cost of Benefits Earned $0.3 $0.3 $0.1 $0.2 $0.4 $0.5 Interest Cost on Accumulated Postretirement Benefit Obligation 1.9 1.4 0.4 0.4 2.3 1.8 Net Periodic Postretirement Benefit Cost $2.2 $1.7 $0.5 $0.6 $2.7 $2.3
The discount rate used in the actuarial calculation was 7.25% and 8.50% in 1995 and 1994, respectively. The rate of increase in compensation level was 4.50% and 5.00% in 1995 and 1994, respectively. For measuring the expected postretirement benefit obligation, the health care cost trend rate ranged from 9.2% to 12.0% in 1995, grading down to an ultimate rate of 6.0% in the year 2000. A one percentage point increase in the assumed health care cost trend would increase the aggregate of the service and interest components of 1995 net periodic postretirement benefit cost by $0.3 million and the 1995 accumulated postretirement benefit obligation by $3.4 million. Long-Term Incentive Plans In 1987 and 1990, and as amended in 1995, the Company adopted Long-Term Incentive Plans which are administered by the Compensation Committee of the Board of Directors to provide officers and key employees with stock options, stock appreciation rights ("SARs"), performance units, and securities awards. In May 1995, upon shareholder approval, the shares of Common Stock that may be issued under the plans were increased from 3,500,000 shares to 4,500,000 shares. The number of common shares issued or transferred as restricted shares that become non-forfeitable solely contingent upon the participant having a certain length of service with the Company shall not, in aggregate, exceed 314,000 Common Shares. At December 31, 1995, 1994, and 1993, Common Stock reserved for future grants under the Long-Term Incentive Plans were 1,601,425 shares, 966,213 shares, and 1,195,868 shares, respectively. In 1994 all SARs were exercised and no SARs have been granted since that time. Transactions in stock options are summarized as follows:
1995 1994 1993 Outstanding at January 1, 878,419 810,587 746,934 Granted 277,500 248,447 367,461 Exercised (66,651) (172,533) (206,957) Cancelled upon exercise of SARs - (6,042) (84,979) Forfeited (1,876) (2,040) (11,872) Outstanding at December 31, 1,087,392 878,419 810,587 Exercisable at December 31, 572,662 293,737 283,285 Range of exercise prices of options outstanding at December 31, $ 11.31 $ 11.31 $ 11.31 to 29.75 to 29.75 to 27.38 Range of exercise prices of options exercised $ 11.31 $ 11.31 $ 11.31 to 23.75 to 25.63 to 22.57
Grants of restricted, performance restricted stock and performance units for 1995, 1994, and 1993 are summarized as follows:
Shares Date Shares Performance Performance Granted Restricted Restricted Units February 1993 40,568 63,414 December 1993 24,235 - February 1994 16,450 - 1,639,000 February 1995 44,715 - 1,694,000 July 1995 - - 456,800
All shares of performance restricted stock granted became non-restricted on October 1, 1995 when certain financial goals were met. The restricted stock vests over a four-year period through 1999. Deferred compensation equivalent to market value at the date of grant is recorded to additional paid-in capital and is amortized to compensation expense over the vesting period. The amount amortized in 1995, 1994, and 1993 was $1.6 million, $2.1 million, and $2.1 million, respectively. Unvested shares are restricted as to transfer or sale. Performance Units have a target value of $1.00, but based on the Company's performance, each unit may have an actual value ranging from $0.00 to $2.00 at the end of the three year performance cycle. The cycles begin on January 1, and end on December 31. Any distributions will occur during the first quarter following the three year performance cycle. Performance units granted in 1994 will be paid two thirds in the form of cash and one third in the form of non- restricted stock. Performance units granted in 1995 will be paid in cash. The amount accrued in 1995 and 1994 was $1.2 million and $0.5 million, respectively. Performance Incentive Plan A Performance Incentive Plan has been adopted by the Company, under which the Compensation Committee may grant cash awards to eligible employees. For Plan years 1995, 1994, and 1993, the Company paid $2.4 million, $2.7 million, and $2.3 million, respectively. Employee Stock Ownership Plans (ESOPs) The Company maintains two Employee Stock Ownership Plans. ESOP I was formed in June 1987, and ESOP II was formed in April 1989 (ESOP I and ESOP II are collectively referred to as the "ESOPs"). Between 1987 and 1991, the Company loaned ESOP I $34.5 million which it used to purchase 2,052,207 shares of Common Stock. Between 1989 and 1991, $31.3 million was loaned by the Company to ESOP II which it used to purchase 1,466,957 shares of Common Stock. In 1992 and 1991, the Company contributed 37,400, and 45,000 treasury shares of Common Stock, respectively, to ESOP I as part of special award programs and a success sharing program. In accordance with the success sharing program, the Company accrued $1.5 million, $2.8 million and $1.3 million for the purchase of 55,523 shares, 107,681 shares and 31,668 shares in 1995, 1994 and 1993, respectively. All employees of the Company who have attained a minimum length of service and satisfied other plan requirements are eligible to participate in the ESOPs, except that ESOP II excludes employees covered by any collective bargaining agreement with the Company. The Company will make contributions to ESOP I and ESOP II in sufficient amounts, when combined with dividends on the Common Stock, to retire the principal and interest on the loans used to fund the ESOPs (see Note 13). Common shares will be allocated to participants as the payments of principal and interest are made on the loan. Contributions to the ESOPs charged to expense for 1995, 1994, and 1993 were $7.5 million, $7.4 million, and $7.1 million, respectively. Dividend and interest income reduced the amounts charged to expense in 1995, 1994, and 1993 by $1.5 million, $1.8 million, and $1.8 million, respectively. The number of allocated shares held by ESOP I and ESOP II at December 31, 1995, were 1,822,383 shares and 360,226 shares, respectively. The number of suspense shares held by ESOP I and ESOP II at December 31, 1995, were 284,489 shares and 1,056,497 shares, respectively. Note 8 - RECEIVABLES
1995 1994 Notes and accounts receivable $220.1 $217.4 Less-Allowance for doubtful receivables 7.1 5.8 $213.0 $211.6
The following is a summary of the changes in the allowance for doubtful receivables:
1995 1994 1993 January 1, $ 5.8 $ 5.5 $ 4.2 Additions charged against earnings 9.6 3.2 2.3 Write-offs, net of recoveries (8.3) (2.9) (1.0) December 31, $ 7.1 $ 5.8 $ 5.5
Note 9 - INVENTORIES
1995 1994 Finished products $ 204.1 $ 109.6 Raw materials 137.4 148.3 Supplies 34.5 33.1 $ 376.0 $ 291.0
The cost of approximately 64% and 74% of total inventories was determined under the LIFO method at December 31, 1995 and 1994, respectively. At December 31, 1995 and 1994, market was lower than LIFO cost by $16.0 million and $27.1 million, respectively. The Company acquires a major portion of its crude oil requirements through the purchase of futures contracts on the New York Mercantile Exchange. The Company also uses the futures market to manage the price risk inherent in purchasing the crude oil in advance of the delivery date, and in maintaining the inventories contained within its refinery and pipeline systems. Note 10 - PROPERTIES AND EQUIPMENT
1995 1994 Properties and Equipment Refining and Wholesale $ 1,238.5 $ 1,024.4 Retail 562.5 369.5 Allied Businesses 203.4 206.8 Corporate 36.9 34.7 2,041.3 1,635.4 Less-Accumulated depreciation 684.2 609.3 $ 1,357.1 $ 1,026.1
The charge against earnings for maintenance and repairs was $40.1 million in 1995, $41.1 million in 1994, and $29.3 million in 1993.nterest capitalized was $6.8 million in 1995, $2.3 million in 1994, and $6.1 million in 1993. Expenditures for Properties and Equipment
1995 1994 1993 Refining and Wholesale $193.0 $ 89.3 $100.1 Retail 362.4 49.3 26.5 Allied Businesses 21.2 22.3 4.4 Corporate 1.5 1.2 0.8 $578.1 $162.1 $131.8
The amount in the table above in the Retail segment for 1995, includes expenditures for the acquisition of NCS. Depreciation
1995 1994 1993 Refining and Wholesale $43.3 $38.3 $35.1 Retail 20.4 16.3 14.6 Allied Businesses 11.4 13.1 11.7 Corporate 2.6 3.2 2.9 $77.7 $70.9 $64.3
Note 11 - ACCRUED LIABILITIES
1995 1994 Accrued Taxes $ 71.0 $ 65.3 Accrued Insurance 6.8 - Accrued Royalties 6.6 6.7 Current Portion of Long-term Shared Costs Liability (see Note 17) 8.0 8.0 Other Liabilities 115.6 90.9 $208.0 $170.9
Note 12 - OTHER LIABILITIES AND DEFERRED CREDITS
1995 1994 Post Retirement Benefit $ 28.3 $28.3 Long-term Shared Costs Liability (see Note 17) 2.1 13.4 Deferred Credits 10.3 11.8 Environmental Reserve 18.9 - Insurance Reserve 10.8 - Other Liabilities 44.7 13.5 $115.1 $67.0
Note 13 - LONG-TERM DEBT
1995 1994 Commercial Paper $ 0.0 $ 0.0 10.75% Senior Notes 120.0 150.0 9% Senior Notes 5.3 8.4 8.77% Senior Notes 30.0 30.0 8.35% Senior Notes 1.2 1.9 Medium Term Notes 145.0 145.0 Shamrock Pipeline Note 6.2 - Pollution Control Financings 10.9 10.9 7.25% Debentures 25.0 - Credit Facility 220.0 - 8% Debentures 100.0 100.0 8.75% Debentures 75.0 - Bank Money Market Facilities 163.0 66.9 Mortgages 59.3 - Other Notes 3.8 0.0 964.7 513.1 Less-Due within one year 7.2 3.9 $957.5 $509.2
The aggregate maturities of the long-term debt obligations at December 31, 1995 for the next five years will be as follows, assuming no prepayments: 1996-$7.2 million; 1997-$37.9 million; 1998-$36.2 million; 1999-$145.4 million; 2000-$120.9 million; and all future periods-$611.1 million. On February 29, 1996, the Company exercised an early redemption option to redeem 11.75% $4.4 million in Palo Duro River Authority Revenue Bonds at par value. On February 13, 1995, the Company issued $75.0 million in non-callable 8.75% debentures due June 15, 2015. In March and December 1995, the Company renegotiated its two separate revolving credit facilities ("Agreement I" and "Agreement II"). Agreement I has a face value of $200.0 million with a maturity date of March 31, 2000. Agreement II matures on March 29, 1996, and has a value of $100.0 million. Interest under Agreement I and Agreement II varies depending on specified lending options available to the Company. Generally, the variable conditions relate to the prime rate, certificates of deposit, and London Interbank Offered Rates, as adjusted upward by specified percentages. As of December 31, 1995, the Company had no borrowings outstanding under Agreement I or Agreement II. Agreement I and Agreement II, the Senior Notes and the B of A Credit Facility (as defined below) all contain various restrictive covenants relating to the Company and its financial condition, operations, and properties. Under these covenants, the Company is required to maintain a minimum current ratio and net worth. These covenants also include restrictions on the payment of dividends. However, it is not anticipated that such limitations will affect the Company's present ability to pay dividends. At December 31, 1995, under the most restrictive of these covenants, $205.7 million was available for the payment of dividends. In May 1995, the Company registered $150.0 million of unallocated securities in a Universal Shelf Registration. That registration, which was declared effective by the Securities and Exchange Commission in June 1995, allows the Company to issue up to $150.0 million of debt, equity, or warrants, or any combination thereof, to the public on terms to be set at the time of issuance. The Company will issue the securities so registered from time to time, based on the Company's capital requirements and market conditions. On June 8, 1995, the Company issued $25.0 million in non-callable 7.25% debentures due June 15, 2010. The proceeds from the issuance of the debentures were used for general corporate purposes. On October 17, 1995, $6.2 million (the "Shamrock P/L Note") was assumed when the Company purchased the lessor's interest in the Southlake Products Pipeline extending from the McKee Refinery to the Dallas/Fort Worth area. The Shamrock P/L Note is currently being amortized semiannually at 9.75% with a maturity date of January 15, 1999. During December 1995, the Company entered into a Revolving Credit Agreement (the "B of A Credit Facility") with a syndication of banks to finance the acquisition of NCS. The Credit Facility is a revolving facility under which up to $220.0 million may be advanced and readvanced from time to time for general corporate purposes. Credit available under the B of A Credit Facility is reduced by equal amounts on four reduction dates: June 11, 1999, December 11, 1999, June 11, 2000 and at maturity on December 11, 2000. Interest under the B of A Credit Facility is structured similar to Agreement I and Agreement II. As of December 31, 1995, the Company had $220.0 million outstanding under the B of A Credit Facility. On December 14, 1995, the Company assumed $53.3 million in mortgages (the "Mortgages") as part of the NCS acquisition. The Mortages currently carry an annual interest rate of 9.5% with average maturities of 7 years and are recorded at their net present value of $59.3 million. The mortgages are secured by retail properties owned by the Company. Outstanding bank money market facilities are reflected as long-term debt because the Company has the intent and ability either to roll over the debt as it becomes due or to convert such borrowings into long-term debt through revolving credit borrowings. At December 31, 1995, the Company had outstanding $163.0 million of borrowings under bank money market facilities provided by major money center banks at a weighted average annual rate of 6.05%. The bank money market facilities are uncommitted lines of credit under which banks extend unsecured short-term credit to the Company from time to time at market rates. Agreement I and Agreement II, the Senior Notes, and the B of A Credit Facility are unsecured. Certain subsidiaries of the Company have unconditionally guaranteed the repayment of all indebtedness and the performance of all obligations incurred by the Company under Agreement I and Agreement II, the Senior Notes, and the B of A Credit Facility. On January 6, 1994, the Company prepaid the $35.0 million balance on its $65.0 million Term Loan Agreement (the "Term Loan"). During February 1993, the Company issued $46.0 million in medium-term notes with an average rate of 7.44% and average maturities of 12 years. On April 1, 1993, the Company issued $100.0 of 8% Debentures due April 1, 2023. On February 27, 1991, the Company issued $75.0 million of 9-3/8% Notes due March 1, 2001 (the "Notes") under its medium-term note program. In December 1991, the Company issued $24.0 million in various notes with an average rate of 8.45% and maturities of 12 years. In connection with the Spin-off, the Company sold $150.0 million of 11% Subordinated Notes due April 30, 1999, (the "11% Subordinated Notes") to institutional investors. On July 14, 1989, the original 11% Subordinated Notes became 10.75% Senior Notes (the "10.75% Senior Notes") after certain contractual conditions were met. On May 1, 1995, the Company repaid $30.0 million of its 10.75% Senior Notes in a scheduled installment, leaving an outstanding balance of $120.0 million. Of this balance, $30.0 million is payable within one year. Since the Company intends to refinance the scheduled repayment by the use of commercial paper or other credit facilities which would be classified as long-term, and the Company has the capacity to do so, the current portion of the long-term debt payable on April 30, 1996 has been classified as long-term debt. Subsequent to the Spin-off, the Company placed $25.0 million of 9% Senior Notes due 1987-1997 (the "9% Senior Notes") and $5.0 million of 8.35% Senior Notes due 1989-1997 (the "8.35% Senior Notes") with an institutional investor and loaned the proceeds to the ESOP I (see Note 7). In 1989, the Company placed $30.0 million of 8.77% Senior Notes due 1997-2009 (the "8.77% Senior Notes") with the same institutional investor and loaned the proceeds to the ESOP II (see Note 7). Cash payments of interest for 1995, 1994, and 1993 were $49.6 million, $42.9 million, and $41.3 million, respectively. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of long-term debt is estimated to be $1,028.2 million at December 31, 1995, including amounts payable within one year. Note 14 - PREFERRED STOCK In June 1993, the Company issued 1.725 million shares of 5% Cumulative Convertible Preferred Stock (the "Preferred Stock") in a private placement for an aggregate of $86.3 million, before discounts and transaction costs. The issue was priced at $50 per share with a dividend rate of 5 percent. The Preferred stock became convertible into the Company's Common Stock on September 8, 1993, at an initial conversion price of $26.50 per share. After June 15, 1996, the Preferred Stock is redeemable at the Company's option, subject to certain conditions, for Common Stock, and after June 15, 2000, it is redeemable at par for cash, at the Company's option. Note 15 - STOCKHOLDERS' EQUITY
Common Paid-In Retained ESOP Treasury Stock Capital Earnings Stock Stock January 1, 1993 $0.3 $356.8 $131.5 $(51.6) $(1.3) Net Income 18.4 Cash dividends: Common ($0.52 per share) (15.0) Convertible Preferred ($1.28 per share) (See Note 14) (2.2) Issuance of Key Employees' and Directors' stoc 0.0 1.4 0.9 Payment on ESOP note 4.3 Purchase of treasury stock (0.6) Issuance of Convertible Preferred stock* 84.3 Adjustment of minimum liabilities of pensions (1.8) Tax benefit of ESOP dividends 0.4 Tax benefit of stock options 0.4 Options exercised 0.0 1.9 (0.8) 0.4 December 31, 1993 0.3 444.8 130.5 (47.3) (0.6) Net Income 75.8 Cash dividends: Common ($0.53 per share) (15.4) Convertible Preferred ($2.50 per share) (See Note 14) (4.3) Issuance of Key Employees' and Directors' stock 0.0 0.0 (0.1) Payment on ESOP note 5.1 Purchase of treasury stock (3.4) Adjustment of minimum liabilities of pensions 0.8 Success sharing 0.0 0.9 Tax benefit of ESOP dividends 0.3 Tax benefit of stock options 0.5 Options exercised 0.0 1.1 (0.9) 0.9 December 31, 1994 0.3 447.3 186.8 (42.2) (3.2) Net Income 47.3 Cash dividends: Common ($0.56 per share) (16.3) Convertible Preferred ($2.50 per share) (See Note 14) (4.3) Issuance of Key Employees' and Directors' stock 0.0 0.0 (0.5) Payment on ESOP note 5.8 Purchase of treasury stock 0.1 Adjustment of minimum liabilities of pensions 1.2 Success sharing (0.3) 2.9 Tax benefit of ESOP dividends 0.3 Tax benefit of stock options 0.1 Stock forfeitures 0.0 0.0 (0.7) Options exercised 0.0 0.4 (0.3) 0.4 Other (0.4) December 31, 1995 $0.3 $447.8 $214.0 $(36.4) $(1.0)
*The Preferred Stock that was issued in 1993 has a par value of $17,250 which is not reflected above since it does not round to the nearest $100,000. At December 31, 1995 and 1994, the Company held 41,138 shares and 117,794 shares, respectively, as treasury stock. Note 16 - LEASE COMMITMENTS The Company leases certain machinery and equipment, transportation and marketing facilities, and office space under cancelable and non-cancelable leases, most of which expire within 20 years unless renewed. Minimum annual rentals at December 31, 1995 were as follows: (DOES NOT INCLUDE NCS AT THIS TIME)
Operating Leases 1996 $ 49.3 1997 41.2 1998 35.7 1999 23.1 2000 15.8 2001 and thereafter 112.3 $277.4
Rental expense for operating leases was as follows:
1995 1994 1993 Total rentals $34.5 $28.3 $21.1 Less-Sublease rental income 0.8 0.7 0.7 Rental expense $33.7 $27.6 $20.4
The Company has an existing long-term lease arrangement (the "Brazos Lease") to accommodate its continued retail outlet construction program. The Brazos Lease has an initial lease term which will expire in April 1999. Rent payable under the Brazos Lease is based upon the amounts spent to acquire or construct the outlets and the lessor's cost of funds from time to time. At December 31, 1995, approximately $15.3 million of the $190.0 million commitment remained available under the Brazos Lease to construct retail outlets. After the non-cancelable lease term, the Brazos Lease may be extended by agreement of the parties, or the Company may purchase or arrange for the sale of the retail outlets. If the Company were unable to extend the lease or arrange for the sale of the properties to a third party in 1999, the amount necessary to purchase properties under the lease as of December 31, 1995 would be approximately $175.0 million. Note 17 - COMMITMENTS AND CONTINGENCIES In connection with the Spin-off, the Company and Maxus entered into a Distribution Agreement which, among other things, provides for the sharing by the Company and Maxus of certain liabilities relating to businesses of Maxus discontinued or disposed of prior to the Spin-off date. The Company's total liability for such shared costs is limited to $85.0 million. Payments with respect to the shared costs are made by Maxus and the Company is obligated to reimburse Maxus for the Company's share promptly after receipt of Maxus' invoice accompanied by appropriate supporting data. Inasmuch as the Company has already reimbursed Maxus for more than $37.5 million, the Company's share of remaining shared costs is one-third of the amounts paid by Maxus. Although some expenditures are still subject to audit, the Company has reimbursed Maxus for a total of $75.0 million as of December 31, 1995, including $11.4 million paid during 1995. See Note 3 for a change in the method of accounting for the liability. Pursuant to the Distribution Agreement, the Company will also reimburse Maxus for one-third of all payments for the cost of certain medical and life insurance benefits for eligible retired employees made by Maxus after the Spin-off date with respect to persons who retired on or before the Spin-off date (see Note 7). The actuarial cost of these expected payments under the Distribution Agreement is included in the Accumulated Postretirement Benefit Obligation recorded as of January 1, 1992 (see Note 3). The Company's commitments for future purchases are for quantities not in excess of anticipated requirements and at prices which will not result in a loss. There are no long-term contracts with crude oil suppliers which would fix the cost of future deliveries. The Company anticipates that it will sustain no losses in fulfillment of existing sales contracts. The Company purchases its crude oil and other feedstocks from both domestic and foreign sources. During 1995, approximately 32% of the total feedstocks processed in the refineries was foreign crude oil. The Company does not anticipate any disruption in the availability of crude oil or other feedstocks, but the price of such commodities is beyond the Company's control, being affected by many factors including the supply and demand for crude oil, changes in domestic and foreign economies and political affairs, and the extent of governmental regulation. The Company is a party to a number of lawsuits, the outcomes of which are not expected to have a material effect on the Company's financial position or results of operations. Federal, state and local laws and regulations establishing various health and environmental quality standards affect nearly all of the operations of the Company. Included among such statutes are the Clean Air Act of 1955, as amended; the Clean Water Act of 1977, as amended; the Resource Conservation and Recovery Act of 1976, as amended; and the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. Regulations issued by the EPA in 1988 with respect to underground storage tanks require the Company, over a period up to ten years, to install, where not already in place, spill prevention manholes, tank overfill protection devices, leak detection devices, and corrosion protection on all underground tanks and piping at retail gasoline outlets. The regulations also require periodic tightness testing of underground tanks and piping. Commencing in 1998, operators will be required under these regulations to install continuous monitoring systems for underground tanks. The Company has in effect policies, practices, and procedures in the areas of pollution control, product safety, occupational health, the production, handling, storage, use, and disposal of hazardous materials to prevent an unreasonable risk of material environmental or other damage, and the material financial liability which could result from such events. However, some risk of environmental or other damage is inherent in the business of the Company, as it is with other companies engaged in similar businesses. None of the estimated costs or liabilities associated with individual locations identified as being in need of environmental remediation at December 31, 1995 is material to the results of operations of the Company. The environmental reserve of $18.9 million listed under Other Liabilities and Deferred Credits (see Note 12) is the fair value of a reserve established by NCS prior to its emergence from bankruptcy in March of 1993 for the cleanup of contaminated soil and groundwater caused by releases from underground gasoline storage tanks and underground piping systems and claims for third party damages relating to such releases. The actual costs may be higher or lower than that accrued due to the difficulty in estimating such costs and due to the potential changes in the status of regulations and state reimbursement programs. Supplementary Financial Information (unaudited) QUARTERLY FINANCIAL DATA CAPTION> (dollars in millions, except per share) 1995 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 Net sales (1) $845.7 $981.9 $941.7 $913.8 Gross profit(2) 44.9 83.2 46.1 48.1 Net income 5.4 28.0 5.7 8.2 Primary earnings per common share 0.15 0.93 0.16 0.24 Fully diluted earnings per common share 0.15 0.87 0.16 0.24 Cash dividends per share Common $ 0.14 $ 0.14 $ 0.14 $ 0.14 Preferred 0.625 0.625 0.625 0.625 Market price per common share High 26 1/2 28 7/8 27 3/8 26 7/8 Low 23 1/8 25 1/2 23 3/4 23 3/8 1994 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 Net sales (1) $753.5 $824.4 $868.6 $850.8 Gross profit(2) 52.1 82.3 68.7 62.8 Net income 12.2 27.5 20.6 15.5 Primary earnings per common share 0.38 0.9 0.67 0.49 Fully diluted earnings per common share 0.38 0.85 0.64 0.48 Cash dividends per share Common $ 0.13 $ 0.13 $ 0.13 $ 0.14 Preferred 0.625 0.625 0.625 0.625 Market price per common share High 30 28 1/4 28 1/2 29 1/8 Low 24 1/8 23 3/8 23 7/8 23 5/8
(1) Reclassified to conform to 1996 presentation to include excise taxes as a component of sales. (2) Gross profit is sales and operating revenues less cost of products sold and operating expenses and depreciation. Selected Historical Financial Information (unaudited)
(dollars in millions, except per share) 1995 1994 1993 1992 1991 OPERATIONS Sales and operating revenues: Refining and Wholesale(a) $1,796.0 $1,661.3 $1,522.6 $1,444.9 $1,457.5 Retail(a) 1,511.7 1,324.8 1,275.0 1,275.3 1,158.9 Allied Businesses 375.4 311.2 302.4 341.5 374.6 Total(a) $3,683.1 $3,297.3 $3,100.0 $3,061.7 $2,991.0 Operating profit: Refining and Wholesale $ 85.8 $ 146.8 $ 73.9 $ 68.1 $ 86.8 Retail 55.6 58.9 62.7 46.6 26.1 Allied Businesses 48.1 26.0 15.0 22.9 32.5 Total $ 189.5 $ 231.7 $ 151.6 $ 137.6 $ 145.4 Income from continuing operations $ 47.3 $ 75.8 $ 32.6 $ 26.4 $ 37.1 Net income $ 47.3 $ 75.8 $ 18.4 $ 8.7 $ 37.1 FINANCIAL POSITION Current assets $ 654.9 $ 540.4 $ 356.2 $ 358.5 $ 409.8 Current liabilities 489.5 374.1 220.4 217.0 252.9 Properties and equipment, less accumulated depreciation 1,357.1 1,026.1 941.1 897.6 791.2 Total assets $2,245.4 $1,620.8 $1,349.2 $1,297.5 $1,222.3 CAPITAL STRUCTURE Long-term debt including portion due within one year $ 964.7 $ 513.1 $ 489.7 $ 536.9 $ 446.1 Deferred income taxes 57.0 81.5 48.7 61.4 65.6 Stockholders' equity 624.7 589.0 527.7 435.7 437.6 Total $1,646.4 $1,183.6 $1,066.1 $1,034.0 $ 949.3 OTHER DATA Capital expenditures $ 556.6 $ 162.1 $ 131.8 $ 170.5 $ 180.1 Depreciation and amortization 77.7 70.9 64.3 56.8 52.3 Book value per share* 19.47 18.45 16.40 16.50 16.76 PER COMMON SHARE Primary earnings: Continuing operations $ 1.48 $ 2.45 $ 1.04 $ 0.92 $ 1.39 Net income 1.48 2.45 0.55 0.30 1.39 Fully diluted earnings: Continuing operations $ 1.46 2.34 $ 1.04 $ 0.92 $ 1.36 Net income 1.46 2.34 0.55 0.30 1.36 CASH DIVIDENDS PER SHARE Common Stock $ 0.56 $ 0.53 $ 0.52 $ 0.52 $ 0.52 Preferred Stock 2.50 2.50 1.28 __ __ FINANCIAL RATIOS Current ratio $ 1.3 1.4 1.6 1.7 1.6 Total debt as a percent of total capital 58.6% 43.4% 45.9% 51.9% 47.0% (a) Reclassified to conform to 1996 presentation, to include excise taxes as a component of sales: The amount of such taxes for the years ended December 31, is $360.2 million, $340.5 million, $227.8 million, $154.5 million, and $164.3 million in 1995, 1994, 1993, 1992, and 1991, respectively in the Refining and Wholesale segment. The amount of such taxes for the years ended December 31, is $386.1 million, $350.5 million, $316.9 million, $304.6 million, and $250.8 million in 1995, 1994, 1993, 1992, and 1991, respectively in the Retail segment. * Calculated excluding 1,340,983; 1,669,264; 1,985,102; 2,286,705; and 2,573,904 unallocated ESOP shares at December 31 of the respective years.
Five Year Operating Information (unaudited)
1995 1994 1993 1992 1991 OPERATIONS Crude Oil Refining Capacity (barrels per day at year-end) McKee 140,000 135,000 125,000 120,000 110,000 Three Rivers 75,000 70,000 70,000 55,000 55,000 Total 215,000 205,000 195,000 175,000 165,000 Crude Oil Refined (barrels per day) McKee 130,439 126,235 118,949 112,909 111,765 Three Rivers 74,499 69,428 61,280 51,775 48,238 Total 204,938 195,663 180,229 164,684 160,003 Capacity Utilization 95.3% 95.4% 92.4% 94.1% 97.0% Total Inputs (barrels per day) Domestic Crude Oil 135,418 139,099 137,672 145,687 140,244 Foreign Crude Oil 69,520 56,564 42,557 18,997 19,759 Other Feedstocks 14,238 13,888 16,528 16,034 19,003 Total 219,176 209,551 196,757 180,718 179,006 Crude Oil Purchase Cost (dollars per barrel) 18.58 17.08 18.57 20.64 21.83 Inventory (thousands of barrels at year-end) Crude Oil 7,210 7,717 2,499 1,796 3,085 Petroleum Products 3,794 3,277 3,736 2,845 3,509 REFINED PRODUCT SPREAD (dollars per barrel) Product Sales Prices 22.31 21.53 22.39 24.04 25.55 Raw Material Costs 18.82 17.13 18.63 20.83 21.76 Refined Product Spread 3.49 4.40 3.76 3.21 3.79 PRODUCTS MANUFACTURED (barrels per day) Gasoline 124,573 120,377 112,974 104,220 103,271 Diesel Fuel 47,663 44,425 39,952 31,462 34,478 Aviation Fuel 17,946 18,921 17,602 18,900 16,382 Other 30,751 26,478 26,014 24,965 24,900 Total 220,933 210,201 196,542 179,547 179,031 WHOLESALE REFINED PRODUCT SALES (barrels per day) Gasoline 153,140 142,016 134,954 128,507 122,831 Diesel Fuel 52,484 49,102 43,774 36,487 37,686 Aviation Fuel 18,705 21,206 20,437 21,043 15,944 Other 13,817 13,373 12,872 13,156 12,148 Total 238,146 225,697 212,037 199,193 188,609 WHOLESALE REFINED PRODUCT SALES (dollars per barrel) Gasoline 24.37 23.06 24.15 26.54 28.09 Diesel Fuel 22.04 21.46 22.99 24.49 25.39 Aviation Fuel 22.50 22.05 23.78 25.07 26.95 Other 14.96 14.32 14.43 13.45 14.24 RETAIL Number of Retail Outlets (at year-end) Company Operated 1,506 810 776 761 763 Company Owned 715 496 504 518 529 Company Leased 791 314 272 243 234 RETAIL SALES Gasoline (barrels per day) 61,766 56,410 55,473 53,931 50,876 Diesel (barrels per day) 2,216 1,795 1,606 1,455 1,164 Merchandise ($000/day) 957.9 872.9 820.7 792.6 710.5 OTHER DATA Number of Jobber Outlets (at year-end) 1,203 1,206 1,194 1,163 1,155 Miles of Products Pipelines (at year-end) 2,959 2,484 2,291 2,290 2,275 Miles of Crude Oil Pipelines (at year-end) 1,268 1,289 2,110 2,110 1,839
W4040a.asc EX-13.3 4 Exhibit 13.3 Report of Independent Accountants To the Stockholders and Board of Directors of Diamond Shamrock, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations and of cash flows present fairly, in all material respects, the financial position of Diamond Shamrock, Inc. and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for its long-term shared cost liability in 1993. As discussed in Note 2 to the consolidated financial statements, the Company reclassified excise and motor fuels taxes. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP San Antonio, Texas February 23, 1996, except as to the last paragraph of Note 2, which is as of September 27, 1996 w4031A.tw EX-23.1 5 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in each of the Prospectuses constituting part of the Registration Statements of Diamond Shamrock, Inc. on Form S-3 (Nos. 33-67166, 33-59451 and 333-4157) filed on August 9, 1993, May 19, 1995, and May 20, 1996 respectively, and on Form S-8 (Nos. 33-15268, 33-34306, 33-47761, 33-50573, 33-59025, and 33-64645) filed on June 22, 1987, April 13, 1990, May 6, 1992, October 6, 1993, May 2, 1995, and November 30, 1995, respectively, of our report which, except as it pertains to the last paragraph of Note 2, for which our report is dated September 27, 1996, is dated February 23, 1996, and is appearing in Exhibit 13.3 of this Annual Report on Form 10-K/A. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears in Item 14(a)(2) of this Form 10-K/A. /s/ PRICE WATERHOUSE LLP PRICE WATERHOUSE LLP San Antonio, Texas September 30, 1996 W3117a.TW EX-27.1 6
5 1,000 12-MOS DEC-31-1995 DEC-31-1995 48,600 0 220,100 7,100 376,000 654,900 2,041,300 684,200 2,245,400 489,500 0 0 0 300 624,400 2,245,400 3,683,100 3,683,100 2,636,800 2,636,800 925,200 0 47,400 73,700 26,400 47,300 0 0 0 47,300 1.48 1.46
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