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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 001-12138
PDV America, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0297556
- ------------------------------ -------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
750 Lexington Avenue
New York, New York 10022
--------------------------------------------------
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code (212) 753-5340
Securities registered pursuant to Section 12(b) of the Securities
Exchange Act of 1934:
Name of Each Exchange
Title of Each Class on Which Registered
- --------------------------------------------------------------------------------
7-1/4% Senior Notes, Due 1998 New York Stock Exchange, Inc.
7-3/4% Senior Notes, Due 2000 New York Stock Exchange, Inc.
7-7/8% Senior Notes, Due 2003 New York Stock Exchange, Inc.
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
--- ---
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K:
Not Applicable.
Aggregate market value of the voting stock held by non-affiliates of the
registrant: Not Applicable
Number of shares of Common Stock outstanding as of March 1, 1997: 1,000
DOCUMENTS INCORPORATED BY REFERENCE
None
Table of Contents
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Page
----
FACTORS AFFECTING FORWARD LOOKING STATEMENTS................................ ii
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES.................................. 1
ITEM 3. LEGAL PROCEEDINGS........................................ 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS......................................... 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.............................. 22
ITEM 6. SELECTED FINANCIAL DATA.................................. 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................... 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA..................................................... 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE................... 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT............................................... 35
ITEM 11. EXECUTIVE COMPENSATION................................... 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.................................... 36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS............................................. 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON
FORM 8-K................................................. 38
i
FACTORS AFFECTING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Specifically, all statements under the captions "Items 1 and
2--Business and Properties" and "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations" relating to expected increases in
production capacity and related capital expenditures and investments,
environmental compliance and remediation and related capital expenditures, and
future capital expenditures in general are forward looking statements. Such
statements are subject to certain risks and uncertainties, such as increased
inflation, continued access to capital markets and commercial bank financing on
favorable terms, increases in regulatory burdens, changes in prices or demand
for the Company's products as a result of competitive actions or economic
factors and changes in the cost of crude oil, feedstocks, blending components or
refined products. Such statements are also subject to increased costs in related
technologies, and such technologies producing anticipated results, as well as
performance by third parties in accordance with contractual terms and
specifications, in particular, but without limitation, with respect to
construction contracts and indemnification agreements. Should one or more of
these risks or uncertainties, or other risks and uncertainties (some of which
may be unforeseen at this time) materialize, actual results may vary materially
from those estimated, anticipated or projected. Specifically, capital costs
could increase, projects could be delayed or anticipated related improvements in
capacity or performance may not be fully realized. Although the Company believes
that the expectations reflected by such forward looking statements are
reasonable based on information currently available to the Company, no
assurances can be given that such expectations will prove to have been correct.
ii
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
Overview
PDV America, Inc. ("PDV America" or the "Company" and,
together with its subsidiaries, the "Companies") was incorporated in 1986 in the
State of Delaware and is the holding company for the U.S. operations of
Petroleos de Venezuela, S.A. (together with one or more of its subsidiaries,
referred to herein as "PDVSA"), the national oil company of the Republic of
Venezuela. Through its wholly owned operating subsidiary CITGO Petroleum
Corporation ("CITGO") and its 50% ownership interest in The UNO-VEN Company
("UNO-VEN"), PDV America refines, markets and transports gasoline, diesel fuel,
jet fuel, heating oil, petrochemicals, lubricants, asphalt and other refined
products, mainly within the continental United States east of the Rocky
Mountains.
PDV America's aggregate net interest in rated crude oil
refining capacity is 683 thousand barrels per day ("MBPD"). The following table
shows the capacity of each U.S. refinery in which PDV America holds an interest
and PDV America's share of such capacity.
PDV America Refining Capacity
Net PDV
America
Total Interest
Rated In
Crude Rated
PDV America Refining Refining
Owner Interest Capacity Capacity
---------------- --------------------------------------------
(%) (MBPD) (MBPD)
Refinery Interests Held By PDV America
as of December 31, 1996
Lake Charles, LA CITGO 100 320 320
Corpus Christi, TX CITGO 100 140 140
Paulsboro, NJ CITGO 100 84 84
Savannah, GA CITGO 100 28 28
Houston, TX (1) LYONDELL-CITGO 13 265 34
Lemont, IL UNO-VEN 50 153 77
---------------------------
Total Rated Refining Capacity
as of December 31, 1996 990 683
===========================
- -------------------------
(1) Initial interest acquired on July 1, 1993. CITGO interest in
LYONDELL-CITGO at December 31, 1996 was approximately 13%, and will
increase to approximately 42% on April 1, 1997 in accordance with the
agreements concerning such interest. CITGO has an option, for 18 months
after the completion date and for an additional investment, to increase
its participation interest up to a maximum of 50%. See
"CITGO-Refining-LYONDELL-CITGO".
1
The following table shows aggregate refined product sales
(excluding lubricants and waxes) of PDV America for the three years in the
period ended December 31, 1996.
PDV America Refined Product Sales (1)
Year Ended December 31, Year Ended December 31,
-------------------------------------------------------------
1996 1995 1994 1996 1995 1994
-------------------------------------------------------------
($ in millions) (MM gallons)
Light Fuels
Gasoline $ 7,927 $ 6,761 $ 5,611 11,995 11,747 10,387
Jet Fuel 1,506 1,181 1,120 2,372 2,282 2,165
Diesel/#2 fuel 2,522 1,508 1,625 4,052 3,023 3,319
Asphalt 257 238 194 569 503 506
Industrial Products and
Petrochemicals 936 904 773 1,660 1,810 1,731
---------------------------------------------------------
Total $13,148 $10,592 $ 9,323 20,648 19,365 18,108
=========================================================
- -------------------------
(1) Includes all of CITGO (excluding lubricants and waxes) and 50% of UNO-VEN
refined product sales.
CITGO and UNO-VEN are operated independently of one another,
and, where their markets overlap, they compete against each other for market
share.
2
The following table shows PDV America's aggregate interest in
refining capacity, refinery input and product yield for the three years in the
period ended December 31, 1996.
PDV America Refinery Production (1)
Year Ended December 31,
---------------------------------------------------
1996(2) 1995(3) 1994(4)
---------------------------------------------------
(MBPD, except as otherwise indicated)
Rated Refining Capacity (5) 683 681 678
Refinery Input
Crude oil 561 81.2% 543 80.8% 535 79.5%
Other feedstocks 130 18.8 129 19.2 138 20.5
---------------------------------------------------
Total 691 100.0% 672 100.0% 673 100.0%
===================================================
Product Yield (6)
Light fuels
Gasoline 313 44.9% 310 45.7% 317 46.5%
Jet Fuel 70 10.0 66 9.7 59 8.7
Diesel/#2 fuel 122 17.5 118 17.4 125 18.4
Asphalt 34 4.9 32 4.7 30 4.4
Petrochemical and Industrial Products 158 22.7 152 22.5 150 22.0
---------------------------------------------------
Total 697 100.0% 678 100.0% 681 100.0%
===================================================
- -------------------------
(1) Includes all of CITGO and 50% of UNO-VEN refinery production, except as
otherwise noted.
(2) Includes a weighted average of 12.89% of the Houston refinery for 1996.
(3) Includes a weighted average of 11.45% of the Houston refinery for 1995.
(4) Includes a weighted average of 10.48% of the Houston refinery for 1994.
(5) At year end.
(6) Does not include Paulsboro Unit 1. See "CITGO--Refining--Paulsboro
Refinery".
Competitive Nature of the Petroleum Refining Business
The petroleum refining industry is cyclical and highly
volatile, reflecting capital intensity with high fixed costs and low variable
costs. Petroleum industry operations and profitability are influenced by a large
number of factors, some of which individual petroleum refining and marketing
companies cannot entirely control. Governmental regulations and policies,
particularly in the areas of taxation, energy and the environment, have a
significant impact on petroleum refining and marketing activities, regulating
the manner in which companies conduct their operations and formulate their
products, and, in some cases, directly limiting their profits. In addition, the
U.S. petroleum refining industry is highly fragmented, with no company
accounting for more than 10% of the total volume of gasoline sold in the U.S.
market. Demand for crude oil and its products is largely driven by the condition
of local and worldwide economies, although weather patterns and taxation
relative to other energy sources can also be significant factors. Generally,
U.S. refiners compete for sales on the basis of price and brand image and, in
some product areas, product quality.
3
CITGO
CITGO refines, markets and transports gasoline, diesel fuel,
jet fuel, petrochemicals, lubricants, refined waxes, asphalt and other refined
products, and markets gasoline through over 14,000 CITGO branded independently
owned and operated retail outlets located throughout the United States,
primarily east of the Rocky Mountains. CITGO also markets jet fuel primarily to
airline customers. A variety of lubricants and waxes are sold to independent
distributors, mass marketers and industrial customers. Petrochemicals and
industrial products are sold directly to various manufacturers and industrial
companies throughout the United States. Asphalt is marketed primarily to
independent paving contractors.
Refining
CITGO produces its light fuels and petrochemicals primarily
through its Lake Charles and Corpus Christi refineries. Asphalt refining
operations are carried out through CITGO's Paulsboro and Savannah refineries. In
addition, CITGO purchases light fuels from LYONDELL-CITGO Refining Company, Ltd.
("LYONDELL-CITGO"), in which it holds an interest.
Lake Charles Refinery. The Lake Charles refinery, located in
Lake Charles, Louisiana, was originally built in 1944 and, since then, has been
continuously upgraded. Today it is a modern, complex, high conversion refinery
and is the sixth largest such refinery in the United States. It has a rated
refining capacity of 320 MBPD and is capable of processing large volumes of
crude oil into a flexible slate of refined products, including significant
quantities of high-octane unleaded gasoline and, due to recent modifications,
the new reformulated gasoline. The Lake Charles refinery has a Solomon Process
Complexity Factor of 15.2 (as compared to an average of 12.6 for U.S. refineries
in the most recently available Solomon Associates, Inc. survey). The Solomon
Process Complexity Rating is an industry measure of a refinery's ability to
produce higher value-added products. A higher rating indicates a greater
capability to produce such products.
4
The following table shows the rated refining capacity,
refinery input and product yield at the Lake Charles refinery for the three
years in the period ended December 31, 1996.
Lake Charles Refinery Production
Year Ended December 31,
--------------------------------------------------
1996 1995 1994
--------------------------------------------------
(MBPD, except as otherwise indicated)
Rated Refining Capacity (1) 320 320 320
Refinery Input
Crude oil 274 85.1% 275 85.4% 274 83.0%
Other feedstocks 48 14.9 47 14.6 56 17.0
-------------------------------------------------
Total 322 100.0% 322 100.0% 330 100.0%
=================================================
Product Yield
Light fuels
Gasoline 164 50.3% 164 50.0% 169 50.0%
Jet Fuel 62 19.0 58 17.7 52 15.4
Diesel/#2 fuel 38 11.7 42 12.8 50 14.8
Petrochemicals and Industrial Products 62 19.0 64 19.5 67 19.8
-------------------------------------------------
Total 326 100.0% 328 100.0% 338 100.0%
=================================================
Utilization of Rated Refining Capacity 86% 86% 86%
- -------------------------
(1) At year end.
Approximately 67%, 64% and 68% of the total crude runs at the
Lake Charles refinery in the years 1996, 1995 and 1994, respectively, consisted
of crude oil with an average API gravity of 24o or less. Due to the complex
processing required to refine such crude oil, the Lake Charles refinery's
economic crude oil throughput capacity is approximately 290 MBPD, which is
approximately 90% of its rated capacity of 320 MBPD.
The Lake Charles refinery's Gulf Coast location provides it
with access to crude oil deliveries from multiple sources. Imported crude oil
and feedstocks supplies are delivered by ship directly to the Lake Charles
refinery, and domestic crude oil supplies are delivered by pipeline and barge.
In addition, the refinery is connected by pipelines to the Louisiana Offshore
Oil Port (the "LOOP") and to terminal facilities in the Houston area through
which it can receive crude oil deliveries if the Lake Charles docks are
temporarily inaccessible. For delivery of refined products, the refinery is
connected through the Lake Charles Pipeline directly to the Colonial and
Explorer Pipelines, which are the major refined product pipelines supplying the
northeast and midwest regions of the United States, respectively. The refinery
also uses adjacent terminals and docks, which provide access for ocean tankers
and barges.
The Lake Charles refinery's main petrochemical products are
propylene and benzene. Propylene production was 5.0, 5.7 and 5.2 MBPD, and
benzene production was 3.2, 4.1 and 3.8 MBPD, in each case for the years 1996,
1995 and 1994, respectively. Industrial products include sulphur, residual fuels
and petroleum coke.
5
Located adjacent to the Lake Charles refinery is a lubricants
refinery operated by CITGO and owned by Cit-Con Oil Corporation ("Cit-Con"),
which is owned 65% by CITGO and 35% by Conoco, Inc. ("Conoco"). Primarily
because of its specific design, the Cit-Con refinery produces extremely high
quality oils and waxes and is one of few such refineries in the industry
designed as a stand-alone lubricants refinery. Following enhancements made in
1995, the Cit-Con refinery currently has a rated capacity of 9.6 MBPD of base
oils and 1.4 MBPD of wax. In addition, the Cit-Con refinery is the seventh
largest paraffin lubricants refinery, based on rated capacity, in the United
States. For the years 1996, 1995 and 1994, utilization at the Cit-Con refinery
was 100%, 101% and 110%, respectively, of its rated capacity. Feedstocks are
supplied 65% from CITGO's Lake Charles refinery and 35% from Conoco's nearby
refinery; and finished refined products are shared on that pro rata basis by
CITGO and Conoco. Conoco is a participant in a project to build a new refinery
that will produce base oils. CITGO anticipates that such refinery will be more
efficient than the Cit-Con refinery and, as a result, such new refinery may be
able to produce base oils at a lower cost than those produced at the Cit-Con
refinery. CITGO is reviewing the feasibility of improving the manufacturing
efficiency of the Cit-Con refinery through technological improvements and cost
reductions while continuing to evaluate various other responses to the expanded
supply of base oils which are expected to be available in the Gulf Coast area
when such new refinery is placed in service.
Corpus Christi Refinery. The Corpus Christi refinery complex
consists of the East and West Plants, located within five miles of each other in
Corpus Christi, Texas. Construction began on the East Plant in 1937, which was
extensively reconstructed and modernized during the 1970's and 1980's. The West
Plant was completed in 1983. The Corpus Christi refinery is an efficient and
highly complex facility, capable of processing high volumes of crude oil into a
flexible slate of refined products, with a Solomon Process Complexity Factor of
15.8 (as compared to an average 12.6 for U.S. refineries in the most recently
available Solomon Associates, Inc. survey).
The following table shows rated refining capacity, refinery
input and product yield at the Corpus Christi refinery for the three years in
the period ended December 31, 1996.
Corpus Christi Refinery Production
Year Ended December 31,
----------------------------------------------
1996 1995 1994
----------------------------------------------
(MBPD, except as otherwise indicated)
Rated Refining Capacity (1) 140 140 140
Refinery Input
Crude oil 133 66.8% 121 64.7% 128 66.3%
Other feedstocks 66 33.2 66 35.3 65 33.7
----------------------------------------------
Total 199 100.0% 187 100.0% 193 100.0%
==============================================
Product Yield
Light fuels
Gasoline 93 47.0% 90 48.4% 99 51.0%
Diesel/#2 fuel 59 29.8 53 28.5 55 28.4
Petrochemicals and Industrial Products 46 23.2 43 23.1 40 20.6
----------------------------------------------
Total 198 100.0% 186 100.0% 194 100.0%
==============================================
Utilization of Rated Refining Capacity 95% 86% 91%
- -------------------------
(1) At year end.
6
Corpus Christi crude runs during 1996 consisted of 98% heavy
sour Venezuelan crude. Due to the complex processing required to refine such
heavy sour crude, the refinery's economic crude oil throughput is approximately
130 MBPD, which is approximately 93% of its rated capacity of 140 MBPD.
Crude oil supplies are delivered directly to the Corpus
Christi refinery through the Port of Corpus Christi.
CITGO operates the West Plant under a sublease agreement (the
"Sublease") from Union Pacific Corporation ("Union Pacific"). The basic term of
the Sublease ends on January 1, 2004, but CITGO may renew the Sublease for
successive renewal terms through January 31, 2011. CITGO has the right to
purchase the West Plant from Union Pacific at the end of the basic term, the end
of any renewal term, or on January 31, 2011, at a nominal price.
During the last several years, CITGO has increased the
capacity of the Corpus Christi refinery to produce petrochemical products. The
Corpus Christi refinery's main petrochemical products include cumene,
cyclohexane, methyl tertiary butyl ethers ("MTBE") and aromatics (including
benzene, toluene, and xylene). The Company produces a significant quantity of
cumene, an important petrochemical product used in the engineered plastics
market. The production of xylene, a basic building block used in the manufacture
of consumer plastics, allows the refinery to take advantage of its reforming
capacity while staying within the new more stringent gasoline specifications of
the Clean Air Act Amendments of 1990.
Paulsboro Refinery. The Paulsboro refinery, located in
Paulsboro, New Jersey, is an asphalt refinery. The Paulsboro refinery consists
of Unit I, which has a rated capacity of 44 MBPD, and Unit II, which has a rated
capacity of 40 MBPD.
Unit II, originally constructed in 1980 to produce asphalt
from high sulphur, heavy crude oil high in naphthenic acid, is a combination
atmospheric and vacuum distillation facility. The crude oil purchased by CITGO
from PDVSA to supply Unit II's crude oil requirements is particularly well
suited for the production of asphalt. Unit II produced an average of 20.5, 19.1
and 19.4 MBPD of asphalt in the years 1996, 1995, and 1994, respectively, which
accounted for 58%, 58% and 57% of Unit II's total production in such years. The
remaining Unit II production in 1996, 1995 and 1994 consisted of distillate
products such as naphthas, marine diesel oil and vacuum gas oils, which, in the
aggregate, averaged approximately 14.5, 13.7 and 14.9 MBPD, respectively, in
such years. Unit II crude oil runs were 35, 33 and 34 MBPD, representing
processing utilization rates of 88%, 83% and 85%, in 1996, 1995 and 1994,
respectively.
Unit I was constructed in 1979 to process low sulphur, light
crude oil. Unit I produces naphthas and diesel/#2 and #6 fuels and is run
primarily when (i) there is demand for toll processing of sweet crudes at
attractive economics and (ii) to produce asphalt when a crude oil, such as
"Boscan" (a heavy Venezuelan crude oil that is rich in asphalt), is available
for running on this unit. Crude oil runs for third party processing in 1996,
1995 and 1994 averaged 0.0, 2.1 and 0.0 MBPD, respectively, representing
processing utilization rates of 0%, 5% and 0%, respectively. In 1996 and 1995,
3.4 and 2.6 MBPD of crude oil was run on Unit I for CITGO's own account,
producing 2.4 and 1.9 MBPD of asphalt and 0.9 and 0.8 MBPD of other products,
respectively.
7
Savannah Refinery. The Savannah Refinery, located near
Savannah, Georgia, is an asphalt refinery. The facility includes two crude
distillation units, with a combined rated capacity of 28 MBPD. The primary crude
oil run by the refinery is Boscan.
The units produced an average of 11.4 MBPD of asphalt in the
year ending December 31, 1996, which accounted for 76% of total production. An
additional 3.7 MBPD of production included naphthas and light, medium and heavy
gas oils. Total crude runs for the period were 15.1 MBPD, representing a
utilization rate of 54%.
LYONDELL-CITGO. On July 1, 1993, subsidiaries of CITGO and
Lyondell Petrochemical Company ("Lyondell") executed definitive agreements with
respect to CITGO's investment in LYONDELL-CITGO, which owns and operates a
sophisticated 265 MBPD refinery previously owned by Lyondell and located on the
ship channel in Houston, Texas. Through December 31, 1996, CITGO had invested
approximately $579 million (excluding reinvested earnings) in LYONDELL-CITGO.
See "Consolidated Financial Statements of PDV America--Note 2". As of December
31, 1996, LYONDELL-CITGO has spent approximately $1,073 million on a refinery
enhancement project to increase the refinery's heavy crude oil high conversion
capacity and estimated that expenditures to complete this project will total
approximately $57 million to $67 million. This refinery enhancement project,
which was completed at the end of 1996, with an in-service date of March 1,
1997, is intended to increase the refinery's heavy crude oil high conversion
capacity from approximately 135 MBPD of 22o average API gravity crude oil to
approximately 200 MBPD of 17o average API gravity crude oil. LYONDELL-CITGO has
entered into a long-term oil supply agreement with PDVSA for the delivery of
approximately 135 MBPD of crude oil, which increased to 200 MBPD on March 1,
1997. In 1996, LYONDELL-CITGO purchased approximately 134 MBPD of crude oil from
PDVSA pursuant to this supply agreement. LYONDELL-CITGO also purchases crude oil
from third parties to supplement the PDVSA supplies. At December 31, 1996, CITGO
had an approximate 13% participation interest in LYONDELL-CITGO, as defined in
the agreements with Lyondell. CITGO's interest in LYONDELL-CITGO will increase
with its investment in the capital improvement program described above and
otherwise, up to approximately 42% at April 1, 1997 in accordance with the
agreements concerning such interest. CITGO has an option, for 18 months after
the completion date and for an additional investment, to increase its
participation interest up to a maximum of 50%. CITGO purchases substantially all
of the refined products, excluding petrochemicals, produced at the
LYONDELL-CITGO refinery, thereby significantly reducing CITGO's need to purchase
refined products from other sources to supply its distribution network. See
"--Crude Oil and Refined Product Purchases". See also "Factors Affecting Forward
Looking Statements".
Crude Oil and Refined Product Purchases
CITGO owns no crude oil reserves or production facilities and
must, therefore, rely on purchases of crude oil and feedstocks for its refinery
operations. In addition, because CITGO's refinery operations do not produce
sufficient refined products to meet the demands of its branded distributors,
CITGO purchases refined products, primarily gasoline, from other refiners,
including LYONDELL-CITGO.
8
Crude Oil Purchases. The following chart shows CITGO's
purchases of crude oil for the three years in the period ended December 31,
1996.
CITGO Crude Oil Purchases
Lake Charles, LA Corpus Christi, TX Paulsboro, NJ Savannah, GA
--------------------------------------------------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994 1996 1995 1994
--------------------------------------------------------------------------------
(MBPD) (MBPD) (MBPD) (MBPD)
PDVSA 142 150 129 130 122 128 39 35 36 17 14 12
PEMEX 44 33 63 0 0 0 0 0 0 0 0 0
Occidental 43 43 42 0 0 0 0 0 0 0 0 0
Other Sources 45 52 40 3 0 0 0 0 0 0 0 0
--------------------------------------------------------------------------------
Total 274 278 274 133 122 128 39 35 36 17 14 12
================================================================================
CITGO's largest supplier of crude oil is PDVSA, and CITGO has
entered into long-term crude oil supply agreements with PDVSA with respect to
the crude oil requirements for each of CITGO's refineries. See "Item 13--Certain
Relationships and Related Transactions". The following table shows the base and
incremental volumes of crude oil contracted for delivery and the volumes of
crude oil actually delivered under these contracts in the three years ended
December 31, 1996.
CITGO Crude Oil Supply Contracts with PDVSA
Volumes of Crude
Oil Purchased Contract
Contract Crude For the Year Ended Expiration
Oil Volume December 31, Date
---------------------------------------------------------------------------
Base Incremental(1) 1996 1995 1994
---------------------------------------------------------------------------
(MBPD) (MBPD) (year)
Lake Charles, LA 120 50 121(2) 125(2) 123(2) 2006
Corpus Christi, TX 130 -- 130 122 128 2012
Paulsboro, NJ 30 -- 34(2) 35 36 2010
Savannah, GA 12 -- 11(2) 14 12 2013
Houston, TX(3) 135 -- 134 136 135 2017
- --------------------
(1) The supply agreement for the Lake Charles refinery gives PDVSA the right to
sell to CITGO incremental volumes up to the maximum amount specified in the
table, subject to certain restrictions relating to the type of crude oil to
be supplied, refining capacity and other operational considerations at the
refinery.
(2) Volumes purchased under the supply agreements do not equal total purchases
from PDVSA shown in the previous table as a result of spot purchases.
(3) CITGO acquired a participation interest in LYONDELL-CITGO, the owner of the
Houston refinery, on July 1, 1993. In connection with such transaction,
LYONDELL-CITGO entered into a long-term crude oil supply agreement with
PDVSA that provided for delivery volumes of 135 MBPD until the completion
of a planned refinery enhancement project at which time the delivery
volumes increased to 200 MBPD.
9
Most of the crude oil and feedstocks purchased by CITGO from
PDVSA are delivered on tankers owned by PDV Marina, S.A. ("PDV Marina"), a
wholly owned subsidiary of PDVSA, or by other PDVSA subsidiaries. In 1996, 87%
of the PDVSA contract crude oil delivered to the Lake Charles and Corpus Christi
refineries was delivered on tankers operated by PDVSA subsidiaries.
CITGO purchases additional crude oil under a 90 day evergreen
agreement with an affiliate of Petroleos Mexicanos ("PEMEX"). CITGO's refineries
are particularly well suited to refine PEMEX's heavy sour "Maya" crude oil,
which is similar in many respects to several types of Venezuelan crude oil.
Effective January, 1996, PEMEX increased the crude contract to 27 MBPD of Maya
crude which increased to 35 MBPD effective July, 1996. This contract also
includes 8 MBPD of Olmeca, a light sour crude, for 1995 and 10 MBPD of Olmeca
for 1996.
CITGO is a party to a long-term contract with an affiliate of
Occidental Petroleum Corporation ("Occidental") for the purchase of light sweet
crude oil to produce lubricants. Purchases under this contract, which expires on
August 31, 1998, averaged 53 MBPD in 1996. CITGO also purchases sweet crude oil
under long-standing relationships with numerous other domestic producers.
Refined Product Purchases. Refined product purchases are
required to supplement the production of the Lake Charles and Corpus Christi
refineries in order to meet the demand of CITGO's marketing network. During
1996, CITGO's shortage in gasoline production approximated 319 MBPD. However,
due to logistical needs, timing differences and product grade imbalances, CITGO
purchased approximately 484 MBPD of gasoline and sold into the spot market, or
to refined product traders or other refiners, approximately 160 MBPD of
gasoline. The following table shows CITGO's purchases of refined products for
the three years in the period ended December 31, 1996.
CITGO Refined Product Purchases
Year Ended December 31,
---------------------------------------------------
1996 1995 1994
---------------------------------------------------
(MBPD)
Light Fuels
Gasoline 484 471 380
Jet Fuel 92 87 89
Diesel/#2 fuel 153 90 98
---------------------------------------------------
Total 729 648 567
===================================================
As of December 31, 1996, CITGO purchased substantially all of
the refined products, excluding petrochemicals, produced at the LYONDELL-CITGO
refinery under a long-term contract which expires in the year 2017.
LYONDELL-CITGO was a major supplier of refined products to CITGO in 1996,
providing 101 MBPD of gasoline, 47 MBPD of distillate and 25 MBPD of jet fuel.
See "--Refining--LYONDELL-CITGO".
10
Marketing
CITGO's major products are light fuels (including gasoline,
jet fuel and diesel fuel), industrial products and petrochemicals, asphalt and
lubricants and waxes. The following table shows revenue of each of these product
categories for the three years in the period ended December 31, 1996.
CITGO Refined Product Sales
Year Ended December 31,
------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------
($ in millions, except as otherwise indicated)
Light Fuels $11,252 88.1% $ 8,886 85.8% $ 7,845 86.0%
Petrochemicals,
Industrial Products,
and Other Products 846 6.6 831 8.0 707 7.8
Asphalt 257 2.0 238 2.3 194 2.1
Lubricants and Waxes 426 3.3 404 3.9 370 4.1
------------------------------------------------------------
Total $12,781 100.0% $10,359 100.0% $ 9,116 100.0%
============================================================
Light Fuels. CITGO markets gasoline, jet fuel and other
distillates through an extensive marketing network. The following table provides
a breakdown of the sales made by type of product for the three years in the
period ended December 31, 1996.
CITGO Light Fuel Sales
Year Ended December 31, Year Ended December 31,
---------------------------------------------------------
1996 1995 1994 1996 1995 1994
---------------------------------------------------------
($ in millions) (MM gallons)
Light Fuels
Gasoline $ 7,451 $ 6,367 $ 5,252 11,308 11,075 9,747
Jet Fuel 1,489 1,163 1,102 2,346 2,249 2,131
Diesel/#2 fuel 2,312 1,356 1,491 3,728 2,730 3,067
---------------------------------------------------------
Total $11,252 $ 8,886 $ 7,845 17,382 16,054 14,945
=========================================================
Gasoline sales accounted for 58%, 61% and 57% of CITGO's total
revenues in the years 1996, 1995 and 1994, respectively. CITGO markets CITGO
branded gasoline through over 14,000 independently owned and operated CITGO
branded retail outlets (including 12,720 branded retail outlets owned and
operated by approximately 790 independent distributors and 1,791 7-Eleven(TM)
convenience stores) located throughout the United States, primarily east of the
Rocky Mountains. In addition, CITGO itself owns, operates or leases 17 retail
outlets. CITGO purchases gasoline to supply its marketing network, as the
gasoline production from the Lake Charles and Corpus Christi refineries was only
equivalent to approximately 49%, 53% and 60% of the volume of CITGO branded
gasoline sold in 1996, 1995 and 1994, respectively. See "--Crude Oil and Refined
Product Purchases--Refined Product Purchases".
CITGO's strategy is to enhance the value of the CITGO brand in
order to obtain premium pricing for its products by appealing to consumer
preference for quality petroleum products and
11
services. As a result, CITGO has focused on a commitment to quality,
dependability and customer service to its independent distributors, which
constitute CITGO's primary distribution channel. The number of independent
distributor-owned or operated CITGO branded retail outlets has grown
significantly since 1986 when there were approximately 7,000 independently owned
and operated branded outlets, including 7-Eleven(TM) convenience stores, and has
increased approximately 3%, 7% and 6% in 1996, 1995 and 1994, respectively. In
1990, 1992, 1994 and 1996, customers voted CITGO the top branded supplier in
four successive biannual Supplier's Cup Competitions which are sponsored by the
Petroleum Marketers Association of America, an organization of independent
refined products distributors.
In 1994, CITGO began offering their distributors a program to
enhance their stations with new card reader pumps which allow customers to pay
for their gasoline at the pumps with their credit cards instead of going into
the stores to pay. As of December 31, 1996, approximately 3,500 retail outlets
had installed the card reader pumps.
Sales to independent branded distributors typically are made
under contracts that range from three to seven years. Sales to 7-Eleven(TM)
convenience stores are made under a contract that extends through the year 2006.
Under this contract, CITGO arranges all transportation and delivery of motor
fuels and handles all product ordering. CITGO also acts as processing agent for
the purpose of facilitating and implementing orders and purchases from
third-party suppliers. CITGO receives a processing fee for such services.
CITGO markets jet fuel directly to airline customers at 26
airports, including such major hub cities as Atlanta, Chicago, Dallas/Fort
Worth, New York and Miami. Jet fuel sales to airline customers have increased
approximately 6%, 2% and 18% in the years 1996, 1995 and 1994, respectively. The
volume increases in 1996, 1995 and 1994 were due to higher levels of purchases
by existing customers and sales to new customers. Sales of bonded jet fuel,
which are exempt from import duties as well as certain state and local taxes,
have increased from 531 million gallons in 1994 to 539 million gallons in 1996
(accounting for over 27% of total jet fuel sales volume to airline customers in
both years).
CITGO's diesel/#2 fuel marketing strategy is to obtain the
best value for the products manufactured at the Lake Charles and Corpus Christi
refineries, as well as those received from LYONDELL-CITGO. Growth in wholesale
rack sales to distributors has been the primary focus of marketing efforts. Such
efforts have resulted in increases in the wholesale rack sales volume from
approximately 1,179 million gallons in 1994 to approximately 1,561 million
gallons in 1996. The remaining diesel/#2 fuel production is sold either in bulk
through contract sales (primarily as heating oil in the Northeastern United
States) or on a spot basis.
CITGO's delivery of light fuels to its customers is
accomplished in part through 54 refined product terminals located throughout
CITGO's primary market territory. Of these terminals, 41 are wholly owned by
CITGO and 13 are jointly owned. CITGO's refined product terminals provide a
total of nearly 24 million barrels of storage capacity. Thirteen of CITGO's
product terminals have waterborne docking facilities, which greatly enhance the
flexibility of CITGO's logistical system. In addition, CITGO has active exchange
relationships with over 290 other refined product terminals, providing
flexibility and timely responses to distribution needs. CITGO operates fleets of
leased and owned trucks for delivery of refined products from the product
terminals to retail stations.
12
Petrochemicals and Industrial Products. CITGO sells
petrochemicals in bulk to a variety of U.S. manufacturers as raw materials for
finished goods. Sulphur is sold to the U.S. and international fertilizer
industry; cycle oils are sold for feedstock processing and blending; natural gas
liquids are sold to the U.S. fuel and petrochemical industry; petroleum coke is
sold primarily in international markets for use as kiln and boiler fuel; and
residual fuel blendstocks are sold to a variety of fuel oil blenders and
customers. The majority of CITGO's cumene production is sold to a joint venture
phenol production plant in which CITGO is a limited partner. The phenol plant
produces phenol and acetone for sale primarily to the principal partner in the
phenol plant for the production of plastics.
Asphalt. CITGO markets asphalt through 10 terminals located
along the East Coast, from Savannah, Georgia to Albany, New York. Asphalt is
sold primarily to independent contractors for use in the construction and
resurfacing of roadways. Demand for asphalt in the Northeastern United States
declines substantially in the winter months as a result of weather conditions.
Lubricants and Waxes. CITGO markets many different types,
grades and container sizes of lubricants and wax products, with the bulk of
sales consisting of automotive oil and lubricants and industrial lubricants.
Other major lubricant products include 2-cycle engine oil and automatic
transmission fluid. In April 1995, CITGO acquired Cato Oil & Grease Corporation
("Cato") for a purchase price of approximately $47 million.
CITGO sells its finished lubricant products through three
classes of trading partners: (i) independent distributors that specialize in
lubricant sales (representing 68% of 1996 sales), (ii) mass merchandisers
(representing 9% of 1996 sales) and (iii) directly to large industrial end users
(representing 23% of 1996 sales). CITGO emphasizes sales to independent
distributors in its lubricants marketing because of the higher margins realized
from these sales. Large industrial end users include steel manufacturers for
industrial lubricants and automobile manufacturers for "original equipment"
quantities of automotive oils and fluids.
CITGO markets the largest portion of its wax production as
coating materials for the corrugated container industry. CITGO also provides wax
for the manufacture of candles, drinking cups, waxed papers and a variety of
building and rubber products.
Pipeline Operations
CITGO owns and operates 884-miles of crude oil pipeline
systems and approximately 1,100 miles of products pipeline systems. The crude
oil pipeline provides CITGO with access to extensive gathering systems
throughout major production areas in Louisiana and Texas that provide the Lake
Charles refinery with domestic crude oil to supplement supplies delivered by
ship. CITGO also has joint equity interests in three crude oil pipeline
companies with a total of nearly 5,800 miles of pipeline plus equity interest in
six refined product pipeline companies with a total of approximately 8,000 miles
of refined product pipeline. One of the refined product pipelines in which CITGO
has an interest, Colonial Pipeline, is the largest refined product pipeline in
the United States. It transports gasoline, jet fuel and diesel/#2 fuel from the
Gulf Coast to the mid-Atlantic States. CITGO's pipeline interests provide CITGO
with access to substantial refinery feedstocks and reliable transportation to
refined product markets, as well as provide CITGO with cash flows from
dividends.
13
In early 1997, CITGO sold approximately 520 miles of crude
gathering/trunk lines in Texas and Louisiana.
Employees
CITGO and its subsidiaries have a total of approximately 4,900
employees, approximately 1,700 of whom are covered by 15 union contracts.
Approximately 1,600 of the union employees are employed in refining operations.
The remaining union employees are located primarily at a lubricant blending and
packaging plant and at other refined product terminals.
UNO-VEN
UNO-VEN was formed in 1989 as a joint venture between
subsidiaries of PDV America and Union Oil Company of California ("Unocal").
UNO-VEN manufactures and markets gasoline, diesel fuel, lubricants,
petrochemicals and industrial products primarily in the Midwestern United
States. On December 26, 1996, PDV America executed a Letter of Intent which sets
forth the intent of PDV America and Unocal to enter into a series of
transactions with respect to the distribution of certain assets, including
refining and marketing assets, a portion of inventory and accounts receivable,
and liabilities of UNO-VEN to a subsidiary of PDV America. It is currently
contemplated that such series of transactions will be completed during the
second quarter of 1997.
Refining
The Lemont refinery, which in its present configuration began
operations in 1970, is one of the most recently designed and constructed
refineries in the United States. Its high conversion design enables it to
convert crude oil input with high sulphur and high metal content into
transportation fuels, primarily gasoline, diesel fuel and jet fuel. The Lemont
refinery has a Solomon Process Complexity factor of 10.6 (as compared to an
average of 12.6 for U.S. refineries in the most recently available Solomon
Associates, Inc. survey). The Lemont refinery has a rated capacity of 153 MBPD
of crude oil and is capable of processing heavy crude oil with significant
operating flexibility, converting sour crudes into a flexible slate of higher
value-added refined products, such as high octane unleaded gasoline. During
1996, the Lemont refinery increased utilization due primarily to improved
maintenance of operating equipment and efficient methods of operation.
14
The following table shows refining capacity, refinery input
and product yield at the Lemont refinery for the three years in the period ended
December 31, 1996.
Lemont Refinery Production
Year Ended December 31,
------------------------------------------------
1996 1995 1994
------------------------------------------------
(MBPD, except as otherwise indicated)
Rated Refining Capacity (1) 153 153 153
Refinery Input
Crude oil 146 88.4% 139 87.4% 122 85.9%
Other feedstocks 19 11.6 20 12.6 20 14.1
------------------------------------------------
Total 165 100.0% 159 100.0% 142 100.0%
================================================
Product Yield
Light fuels
Gasoline 87 53.0% 86 54.5% 76 53.9%
Jet Fuel 7 4.3 8 5.1 7 4.9
Diesel/#2 Fuel 37 22.6 34 21.5 30 21.3
Industrial Products &
Petrochemicals 33 20.1 30 19.0 28 19.9
------------------------------------------------
Total 164 100.0% 158 100.0% 141 100.0%
================================================
Utilization of Rated
Refining Capacity 95% 91% 80%
- -----------------------
(1) At year end.
Sour crude oil runs were 100% of the total crude runs in each
of the years 1996, 1995 and 1994. UNO-VEN currently intends to continue to
process sour crude oil exclusively. Utilization was lower in 1994 than in 1995
and 1996 because of a scheduled major turn-around at the Lemont Refinery in
1994.
Petrochemical products at the Lemont refinery include benzene,
toluene and xylene, plus a range of different aliphatic solvents.
UNO-VEN owns a 50% interest in a partnership which operates a
needle coke production facility adjacent to the Lemont refinery (the "Needle
Coker"). The remaining 50% interest is held by a subsidiary of Unocal. The
Needle Coker, which began production in 1985 and has a production capacity of
100,000 tons per year, converts certain residual crude products into a highly
specialized form of coke known as "calcined needle coke". This product is used
exclusively as a raw material in the manufacturing of graphite electrodes, which
are used in electric arc furnaces to melt down and refine scrap steel. In 1996,
the Needle Coker produced approximately 102,000 tons of calcined needle coke.
15
Crude Oil and Refined Product Purchases
UNO-VEN owns no crude oil reserves or production facilities
and, therefore, relies on purchases of crude oil for its refining operations.
Substantially all crude oil refined at the Lemont refinery is supplied by PDVSA
to UNO-VEN under a crude oil supply agreement that expires in the year 2009. The
contract calls for delivery of a base volume of 135 MBPD. In 1996, 1995 and
1994, UNO-VEN purchased 143, 135 and 120 MBPD, respectively, under this
contract. Crude oil is supplied to the Lemont refinery mainly through the
LOCAP/Capline/Chicap common carrier pipeline system, which connects the Lemont
refinery to the LOOP where vessels discharge. Substantially all of the crude oil
sourced from Venezuela purchased by UNO-VEN from PDVSA is delivered on tankers
owned by PDVSA subsidiaries. The refinery also has access to two alternate
pipeline systems for the delivery of crude oil from the Gulf Coast and Canada.
UNO-VEN does not have any equity interest in any crude oil pipelines.
Marketing
UNO-VEN's major products are light fuels (including gasoline,
jet fuel and diesel fuel), lubricants, and industrial products and
petrochemicals. The following table shows revenues of each of these product
categories for the three years in the period ended December 31, 1996.
UNO-VEN Refined Product Sales
Year Ended December 31,
---------------------------------------------------
1996 1995 1994
---------------------------------------------------
($ in millions, except as otherwise indicated)
Light Fuels $1,406 85.7% $1,126 85.5% $1,021 85.2%
Industrial Products and
Petrochemicals 179 10.9 145 11.0 131 10.9
Lubricants 56 3.4 46 3.5 47 3.9
---------------------------------------------------
Total $1,641 100.0% $1,317 100.0% $1,199 100.0%
===================================================
The following table provides a breakdown of the light fuel
sales made by product type for the three years in the period ended December 31,
1996.
UNO-VEN Light Fuel Sales
Year Ended December 31, Year Ended December 31,
---------------------------------------------------
1996 1995 1994 1996 1995 1994
---------------------------------------------------
($ in millions) (MM gallons)
Light Fuels
Gasoline $ 952 $ 787 $ 718 $1,374 1,341 1,280
Jet Fuel 34 35 36 52 66 68
Diesel#2 fuel 420 304 267 647 585 504
---------------------------------------------------
Total $1,406 $1,126 $1,021 $2,073 1,992 1,852
===================================================
UNO-VEN markets gasoline, diesel fuel and lubricants under the
"76" brand through approximately 72 directly served branded retail outlets (58
of which are owned by UNO-VEN) and approximately 190 independent distributors,
which own, operate or supply over 2,300 branded retail
16
outlets. Branded retail outlets are located primarily in Illinois, Indiana,
Iowa, Michigan, Minnesota, Ohio and Wisconsin, with less extensive operations in
Kentucky, Missouri, Nebraska, New York, North Dakota, Pennsylvania, South Dakota
and West Virginia.
UNO-VEN operates a wholesale product terminal system
consisting of eleven owned distribution terminals. In addition, product is made
available to UNO-VEN's customers through approximately 123 exchange terminals
and 17 common carrier pipeline terminals. The Lemont refinery and its refined
product terminals provide a total of approximately 11 MMB of storage capacity.
Refined products are distributed to UNO-VEN's owned distribution terminals
primarily by pipeline. Trucks, rail tank cars and barges account for the
remainder of the Lemont refinery's product shipments.
UNO-VEN sells most of its industrial and petrochemical
products to Unocal pursuant to a long-term purchase and sale agreement.
Lubricants are sold mostly through branded distributors, gasoline retail outlets
and industrial customers through three proprietary lubricant distribution
terminals. Jet fuel is sold directly to airline customers.
Employees
UNO-VEN has a total of approximately 1,005 employees,
approximately 428 of whom are covered by union contracts. Approximately 400 of
the union employees are employed at the Lemont refinery and are represented by
the Oil, Chemical and Atomic Workers International Union Local 7-517 ("OCAW").
UNO-VEN and the OCAW were parties to a labor contract for a three-year term
ended February 1, 1996. That labor contract was extended by agreement of the
parties while they engaged in bargaining on a new contract. However, OCAW
terminated such extension effective March 23, 1996. On March 24, 1996 UNO-VEN's
managerial, supervisory and other salaried employees assumed all operating and
maintenance duties at the refinery. On December 21, 1996, OCAW ratified an
agreement in a labor contract effective through February 1, 1999 (subject to
mandatory extension). The union employees returned to work between January 6 and
January 29, 1997.
Environment and Safety
Environment - General
Beginning in 1994, the U.S. refining industry was required to
comply with stringent product specifications under the 1990 Clean Air Act
("CAA") Amendments for reformulated gasoline and low sulphur diesel fuel. These
requirements necessitated additional capital and operating expenditures and
altered significantly the U.S. refining industry and the return realized on
refinery investments. In addition, numerous other factors affect the Companies'
plans with respect to environmental compliance and related expenditures. See
"Factors Affecting Forward Looking Statements".
In addition, the Companies are subject to various federal,
state and local environmental laws and regulations which may require the
Companies to take action to correct or improve the effects on the environment of
prior disposal or release of petroleum substances by the Companies or other
parties. Management believes the Companies are in compliance with these laws and
regulations in all material aspects. Maintaining compliance with environmental
laws and regulations in the future could require significant capital
expenditures and additional operating costs.
17
Environment - CITGO
Pursuant to a 1992 agreement with a state agency, CITGO ceased
usage of certain surface impoundments at CITGO's Lake Charles, Louisiana
refinery in 1994. A mutually acceptable closure plan was filed with the state in
1993. CITGO and a former owner agreed to share closure costs. Final closure of
these impoundments is expected to be completed no earlier than 1998. Equipment
to replace these impoundments required approximately $146 million of capital
expenditures.
CITGO is in litigation with the contractor who performed
sludge removal and treatment work at one of the Lake Charles Refinery's surface
impoundments. CITGO is seeking contractual penalties for non-performance and
breach of contract, and is vigorously contesting claims and allegations for
additional compensation from the contractor. CITGO does not believe that this
litigation will affect the remediation and closure of the impoundments. See
"Item 3--Legal Proceedings".
Pursuant to New Jersey's Environmental Cleanup Responsibility
Act ("ECRA"), CITGO has entered into administrative consent orders with the New
Jersey Department of Environmental Protection and Energy to investigate and
remediate three New Jersey properties.
While CITGO is named as a potentially responsible party
("PRP") at a number of "Superfund" sites, pursuant to a 1992 agreement, OXY USA,
Inc. and Occidental have agreed to indemnify CITGO with respect to Superfund
damages where offsite hazardous waste disposal occurred prior to September 1,
1983. Based on publicly available information, PDV America believes that
Occidental has the financial capability to fulfill all of its responsibilities
under this agreement. Accordingly, PDV America believes that CITGO's offsite
liability exposure under the federal Superfund and similar state laws is not
material. In addition, under the 1992 agreement, CITGO assumed responsibility
for certain other environmental contamination at certain terminal properties in
return for cash payments and other agreements.
During 1994 and 1995, CITGO Asphalt Refining Company ("CARCO")
received two Notices of Violation and two Compliance Orders from the U.S.
Environmental Protection Agency ("EPA") relating to the operation of certain
units at the Paulsboro Refinery. A Consent Order resolving these issues was
entered by a federal court in February 1997. Under the terms of the Consent
Order, CARCO paid a $1,230,000 penalty. The Consent Order will terminate January
30, 1998.
On September 30, 1996, CITGO received a Notice of Violation
from the EPA, Washington, D.C., alleging violations of the CAA in the
Chicago-Gary-Lake County, Illinois-Indiana-Wisconsin area, arising from the sale
of gasoline that failed to meet the applicable minimum or maximum oxygen
content. The EPA has not yet proposed penalties, but CITGO anticipates that the
proposed penalty could possibly exceed $100,000. PDV America does not expect
that such penalties will have a material adverse effect on PDV America's
financial condition, results of operations or liquidity.
CITGO's accounting policy establishes environmental reserves
as probable site restoration and remediation obligations become reasonably
capable of estimation. At December 31, 1996 and 1995, CITGO had $56 million and
$60 million, respectively, of environmental accruals included in other
noncurrent liabilities. Based on currently available information, including the
continuing participation of former owners in remediation actions, PDV America
believes that these accruals are sufficient to address CITGO's environmental
clean-up obligations.
18
Conditions which require additional expenditures may exist
with respect to various Company sites including, but not limited to, CITGO's
operating refinery complexes, closed refineries, service stations and crude oil
and petroleum product storage terminals. The amount of such future expenditures,
if any, is indeterminable.
Increasingly stringent regulatory provisions periodically
require additional capital expenditures. During 1996, CITGO expended
approximately $69 million for environmental and regulatory capital improvements
in its operations. CITGO currently estimates that it will spend approximately
$320 million for environmental and regulatory capital projects over the
five-year period 1997-2001. These estimates may vary due to a variety of
factors. See "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources". See also
"Factors Affecting Forward Looking Statements".
Environment - UNO-VEN
UNO-VEN's operations are subject to extensive Federal, state
and local environmental laws and regulations governing air emissions, water
discharges, site remediation and the generation, handling and disposal of
wastes. UNO-VEN has informed PDV America that UNO-VEN believes its operations
are in substantial compliance with these laws and regulations. These matters
include, for example, properties requiring presently undeterminable amounts of
cleanup efforts and expenses (including the ongoing Resource Conservation and
Recovery Act ("RCRA") Corrective Action program requiring identification and
cleanup of Solid Waste Management Units), soil and/or water contamination
resulting from activities of the Partnership and/or its predecessors (including
past overflows and spills from refinery premises into the Illinois & Michigan
Canal and the Chicago Metropolitan Sanitary and Ship Canal and overflows and
spills at various terminals and retail locations), air pollution (including
emissions of carbon monoxide and particulates at the FCC unit), claims for
injuries allegedly caused by exposure to toxic materials (including illnesses or
diseases), and expenses to comply with regulatory requirements (including
Prevention of Significant Deterioration regulations and noise regulations).
However, the present state of these laws and regulations that impose joint and
several liability on defendants, the potential number of claimants for any given
site or exposure, the uncertainty related to the possible imposition of fines,
penalties or punitive damages, the imprecise and conflicting engineering
evaluations and estimates of proper clean-up methods and costs, and judicial
recognition of new causes of action all contribute to the practical
impossibility of making any reasonable estimate of UNO-VEN's potential liability
in connection with these claims and remediation projects. UNO-VEN is currently
negotiating with state and federal authorities in connection with certain claims
and remediation projects with regard to these matters. Settlements and costs
incurred in these matters that have been resolved in the past have not been
material to UNO-VEN's financial condition, liquidity or results of operations.
Past and present refining, storage, blending and distribution
activities have resulted in contamination at certain UNO-VEN properties. Upon
the discovery of contamination at refineries, terminals or other properties,
UNO-VEN investigates and, where required, undertakes remedial measures in
accordance with applicable laws and regulations. UNO-VEN has not been named as a
potentially responsible party at any Superfund sites.
Increasingly stringent regulatory provisions periodically
require additional capital expenditures. During 1996, UNO-VEN expended
approximately $3 million for environmental, health
19
and safety capital improvements in its operations. UNO-VEN anticipates budgeting
approximately $37 million for environmental, health and safety capital projects
over the next five years.
In addition to these costs, the CAA Amendments mandate a
series of changes in certain fuel specifications. UNO-VEN currently anticipates
spending approximately $18 million over the next five years to modify refinery
operations to produce reformulated fuels. These estimates may change as future
regulatory events under the CAA unfold.
Under the terms of the Asset Purchase and Contribution
Agreement among PDV America, Unocal, certain affiliates of each and UNO-VEN,
Unocal has agreed to indemnify UNO-VEN for certain environmental compliance and
clean-up costs identified during the first six years of UNO-VEN's operations
relating to conditions that existed as of December 1, 1989.
At the present time, UNO-VEN estimates that its share of any
liability from any of these known environmental matters would not be material to
its financial condition, liquidity or results of operations.
Safety
Due to the nature of petroleum refining and distribution, both
CITGO and UNO-VEN are subject to stringent occupational health and safety laws
and regulations. CITGO and UNO-VEN maintain comprehensive safety, training and
maintenance programs, and PDV America believes that both companies are in
substantial compliance with occupational health and safety laws.
ITEM 3. LEGAL PROCEEDINGS
Various lawsuits and claims arising in the ordinary course of
business are pending against the Companies. Among the lawsuits pending, CITGO is
involved in litigation in the United States District Court for the Western
District of Louisiana concerning a contract for sludge removal and treatment at
CITGO's Lake Charles, Louisiana refinery, in which CITGO is seeking contractual
penalties for non-performance and breach of contract, and also a determination
that a portion of any damages awarded would be recoverable from a former owner.
In this lawsuit, the contractor has counterclaimed seeking monetary damages of
$42,000,000, including interest and profits. A trial (previously scheduled for
March 1997) is currently scheduled for 1998, concerning the nonperformance and
breach of contract issues. In addition, CITGO is involved in litigation in the
United States District Court for the Northern District of Louisiana in which a
number of current and former employees and applicants, on behalf of themselves
and a class of similarly situated persons, have asserted claims under federal
and state laws of racial discrimination, in connection with the employment
practices at CITGO's Lake Charles, Louisiana refining complex. The plaintiffs
seek injunctive relief and monetary damages. The Court has denied a motion for
certification of similarly situated persons as a class, and the plaintiffs have
appealed the Court's denial of class certification. The initial trials relating
to this litigation are currently scheduled for July 1997.
In January 1997, the Louisiana Supreme Court ruled in favor of
certain Louisiana refiners in an industry case regarding an assessment of a use
tax on petroleum coke which accumulates on catalyst during refining operations
and a change to the calculation of the sales/use tax on fuel gas generated by
20
refinery operations. The Company believes that it has no further exposure to
losses related to these matters.
Following the announcement that PDV America and Unocal had
executed the Letter of Intent dated December 26, 1996, several independent
distributors notified UNO-VEN that the withdrawal of the "76" brand, which is
expected to occur after completion of the transactions contemplated by the
Letter of Intent, will result in significant economic injury to their business
operations. While the amount claimed is generally not specified, UNO-VEN
believes that the aggregate amount of these claims will substantially exceed $1
million. In addition, arbitration proceedings have been initiated against
UNO-VEN by a convenience store franchising company to recover $2.5 million in
liquidated damages for UNO-VEN's alleged breach of contract resulting from the
expected withdrawal of the "76" brand.
The Companies are vigorously contesting or pursuing, as
applicable, such lawsuits and claims and the Companies believe that their
positions are sustainable. The Companies have recorded accruals for losses they
consider probable and reasonably estimable. However, due to uncertainties
involved in litigation, there are cases including the significant matters noted
above, in which the ultimate outcomes are not reasonably predictable, and the
losses, if any, are not reasonably estimable. If such lawsuits and claims were
to be determined in a manner adverse to the Companies, and in amounts in excess
of the Companies' accruals, it is reasonably possible that such determinations
could have a material adverse effect on the Companies' results of operations in
a given year. The term "reasonably possible" is used herein to mean that the
chance of a future transaction or event occurring is more than remote but less
than likely. However, based upon management's current assessments of these
lawsuits and claims and those provided by counsel in such matters, and the
capital resources available to the Companies, management believes that the
ultimate resolution of these lawsuits and claims would not exceed the aggregate
of the amounts accrued in respect of such lawsuits and claims and the insurance
coverages available to the Companies by a material amount and should not have a
material adverse effect on the Companies' consolidated financial position,
results of operations, or liquidity. PDV America is not party to any material
claims or lawsuits.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
Not Applicable.
21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock is not publicly traded. All of the
Company's common stock is held by Propernyn B.V. ("Propernyn"), a Dutch limited
liability company whose ultimate parent is PDVSA. PDV America did not declare or
pay any dividends in 1996 and 1995.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth certain selected historical
consolidated financial and operating data of PDV America as of the end of and
for each of the five years in the period ended December 31, 1996. The following
tables should be read in conjunction with the consolidated financial statements
of PDV America as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996, included in Item 8. The audited
consolidated financial statements of PDV America for each of the five years in
the period ended December 31, 1996 have been prepared on the basis of United
States generally accepted accounting principles. The consolidated financial
statements of PDV America as of December 31, 1994, 1993 and 1992 and for the
years ended December 31, 1993 and December 31, 1992, not separately presented
herein, have been audited by Deloitte & Touche LLP, independent auditors.
22
Year Ended December 31,
------------------------------------------------------
1996 1995(7) 1994 1993(8) 1992
------------------------------------------------------
Income Statement Data
Sales $12,952 $10,522 $ 9,247 $ 9,112 $ 9,178
Equity in earnings (losses) of affiliates (1) 45 48 55 52 54
Net revenues 13,071 10,647 9,374 9,193 9,227
Income before extraordinary charges
and cumulative effect of accounting
changes 138 143 205 155 101
Extraordinary gain (charges) (2) -- 3 (2) -- --
Cumulative effect of accounting
changes (3) -- -- (4) (235) (86)
Net income (loss) 138 146 199 (80) (15)
Ratio of Earnings to Fixed Charges (4) 1.94x 2.04x 2.65x 2.57x 2.09x
Balance Sheet Data
Total assets $ 6,938 $ 6,220 $ 5,770 $ 5,138 $ 3,710
Long-term debt (excluding current
portion) (5) 2,595 2,297 2,155 2,069 1,655
Total debt (6) 2,755 2,428 2,279 2,117 1,672
Shareholder's equity 2,111 1,973 1,812 1,584 1,017
- -------------------------
(1) Includes the equity in the earnings of UNO-VEN $23 million, $15
million, $27 million, $22 million and $29 million for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
(2) Represents extraordinary gain or (charges) for the early extinguishment
of debt (net of related income tax provision of $2 million and income
tax benefits of $1 million in 1995 and 1994, respectively).
(3) Represents the cumulative effect of the accounting change to Statement
of Financial Accounting Standards ("SFAS") No. 112, "Employers'
Accounting for Postemployment Benefits" in 1994 (net of related income
tax benefits of $3 million), the cumulative effect of the accounting
change to SFAS No. 109, "Accounting for Income Taxes" in 1993 and the
cumulative effect of the accounting change to SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions" in 1992
(net of related income tax benefits of $51 million).
(4) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes and cumulative effect
of accounting changes plus fixed charges (excluding capitalized
interest), amortization of previously capitalized interest and certain
adjustments to equity in income of affiliates. "Fixed charges" include
interest expense, capitalized interest, amortization of debt issuance
costs and a portion of operating lease rent expense deemed to be
representative of interest.
(5) Includes long-term debt to third parties, note payable to affiliate and
capital lease obligations.
(6) Includes short-term bank loans, current portion of capital lease
obligations and long-term debt, long-term debt, capital lease
obligations and note payable to affiliate.
(7) Includes operations of Cato Oil and Grease Company since May 1, 1995.
(8) Includes operations of the Savannah Asphalt Refinery since April 30,
1993.
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion of the financial condition and
results of operations of PDV America should be read in conjunction with the
Consolidated Financial Statements of PDV America included elsewhere herein.
Petroleum industry operations and profitability are influenced
by a large number of factors, some of which individual petroleum refining and
marketing companies cannot entirely control. Governmental regulations and
policies, particularly in the areas of taxation, energy and the environment,
have a significant impact on petroleum activities, regulating how companies
conduct their operations and formulate their products, and, in some cases,
directly limiting their profits. PDV America's consolidated operating results
are affected both by industry-specific factors, such as movements in crude oil
and refined product prices, and by company-specific factors, such as the success
of wholesale marketing programs and refinery operations.
The earnings and cash flows of companies engaged in the
refining and marketing business in the United States are primarily dependent
upon producing and selling quantities of refined products at margins sufficient
to cover fixed and variable costs. The refining and marketing business is
characterized by high fixed costs resulting from the significant capital outlays
associated with refineries, terminals and related facilities and by substantial
fluctuations in variable costs, particularly costs of crude oil, feedstocks and
blending components, and by the prices realized for refined products. Crude oil
and refined products are commodities whose price levels are determined by market
forces beyond the control of the Companies.
In general, prices for refined products are significantly
influenced by the price of crude oil, feedstocks and blending components.
Although an increase or decrease in the price for crude oil, feedstocks and
blending components generally results in a corresponding change in prices for
refined products, there is usually a time lag in the realization of the
corresponding increase or decrease in prices for refined products. The effect of
changes in crude oil prices on PDV America's consolidated operating results
therefore depends in part on how quickly refined product prices adjust to
changes in crude oil, feedstock or blending component prices. A substantial or
prolonged increase in crude oil prices without a corresponding increase in
refined product prices, a substantial or prolonged decrease in refined product
prices without a corresponding decrease in crude oil prices, or a substantial or
prolonged decrease in demand for refined products could have a significant
negative effect on the Company's earnings and cash flows. PDV America is
insulated to a substantial degree from the price volatility that the industry
experiences due to the pricing mechanism in the long-term crude oil supply
agreements (expiring in the years 2006 through 2013) that CITGO has with PDVSA,
which are designed to provide a relatively stable level of gross margin on crude
oil supplied by PDVSA. These supply agreements are designed to reduce the
volatility of earnings and cash flows from CITGO's refining operations by
providing a relatively stable level of gross margin on crude oil supplied by
PDVSA. This supply represented approximately two-thirds of the crude oil
processed in refineries operated by CITGO in the year ended December 31, 1996.
However, CITGO also purchases significant volumes of refined products to
supplement the production from its refineries to meet marketing demands and to
resolve logistical issues. CITGO's earnings and cash flows are also affected by
the cyclical nature of petrochemical prices. Inflation was
24
not a significant factor in the operations of CITGO for the three years ended
1996. As a result of these factors, CITGO's earnings and cash flows may
experience substantial fluctuations.
CITGO's revenues accounted for over 99% of PDV America's
consolidated revenues in 1996, 1995 and 1994.
Effective January, 1, 1992, the supply agreements between
PDVSA and CITGO with respect to the Lake Charles, Corpus Christi and Paulsboro
refineries were modified to reduce the price levels to be paid by CITGO by a
fixed amount per barrel of crude oil purchased from PDVSA. Such reductions were
intended to defray CITGO's costs of certain environmental compliance
expenditures. This modification resulted in a decrease in the cost of crude oil
purchased under these agreements of approximately $70 million per year for the
years 1992 through 1994 as compared to the amount that would otherwise have been
payable thereunder. This modification was to expire at December 31, 1996;
however, in 1995, PDVSA and CITGO agreed to adjust this modification so that the
1992 fixed amount per barrel would be reduced and the adjusted modification
would not expire until December 31, 1999. The effect of this adjustment to the
original modification was to increase the cost of crude oil purchased under
these agreements by approximately $22 million and $44 million in 1995 and 1996,
respectively, as compared to the amount that would otherwise have been payable
thereunder based on the original modification (resulting in a net decrease of
approximately $48 million and $26 million in 1995 and 1996, respectively, from
the amount otherwise payable under the agreement prior to the 1992 original
modification). CITGO anticipates that the effect of the adjustments to the
original modifications will be to reduce the price of crude oil purchased from
PDVSA under these agreements by approximately $25 million per year in 1997
through 1999, in each case as compared to the original modification and without
giving effect to any other factors that may affect the price payable for crude
oil under these agreements. Due to the pricing formula under the supply
agreements, the aggregate price actually paid for crude oil purchased from PDVSA
under these agreements in each of these years will depend primarily upon the
current prices for refined products and certain actual costs of CITGO. These
estimates are also based on the assumption that CITGO will purchase the base
volumes of crude oil under the agreements.
The following table summarizes the sources of PDV America's
sales revenue and sales volumes.
PDV America Sales
Year Ended December 31, Year Ended December 31,
------------------------------ ------------------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
($ in millions) (MM gallons)
Gasoline $ 7,451 $ 6,367 $ 5,252 11,308 11,075 9,747
Jet fuel 1,489 1,163 1,102 2,346 2,249 2,131
Diesel/#2 fuel 2,312 1,356 1,491 3,728 2,730 3,067
Petrochemicals, industrial
products and other 846 831 707 1,408 1,572 1,509
Asphalt 257 238 194 569 503 506
Lubricants and waxes 426 404 370 202 215 213
---------- ---------- ---------- ------ ------ ------
Total refined product sales $ 12,781 $ 10,359 $ 9,116 19,579 18,344 17,173
Other sales 171 163 131 -- -- --
---------- ---------- ---------- ------ ------ ------
Total sales $ 12,952 $ 10,522 $ 9,247 19,579 18,344 17,173
========== ========== ========== ====== ====== ======
25
The following table summarizes PDV America's cost of sales and
operating expenses.
PDV America Cost of Sales and Operating Expenses
Year Ended December 31,
1996 1995 1994
------- ------- -------
($ in millions)
Crude oil $ 3,053 $ 2,428 $ 2,180
Refined products 7,139 5,504 4,547
Intermediate feedstocks 1,000 898 854
Refining and manufacturing costs 801 755 725
Other operating costs and expenses
and inventory changes 498 481 425
------- ------- -------
Total cost of sales and operating expenses $12,491 $10,066 $ 8,731
======= ======= =======
Results of Operations--1996 Compared to 1995
Sales revenues and volumes. Sales increased by $2,430 million,
representing a 23% increase from 1995 to 1996. The increase was primarily due to
an increase in sales volumes of 7% and an average increase in sales prices of
16%. Sales volumes of light fuels (gasoline, diesel/#2 fuel and jet fuel),
excluding bulk sales made for logistical reasons, were up 10% from 1995 to 1996,
and their average unit price increased $0.10. Gasoline sales volumes increased
primarily due to successful marketing efforts, including the net addition of
approximately 470 new independently owned CITGO branded outlets since December
31, 1995. Petrochemical sales volume rose 14% from 1995 to 1996. This increase,
combined with an average decrease in unit prices of $0.16, resulted in a 3%
decrease in petrochemical sales revenue from 1995 to 1996. Industrial products
sales volumes decreased 31% and average unit prices increased $0.02, resulting
in a 27% decrease in industrial products sales revenue from 1995 to 1996.
Asphalt sales revenue increased 8% from 1995 to 1996. This increase was
primarily due to increases in sales volumes. Lubricants and wax sales revenue
increased 5% from 1995 to 1996 due to increases in both sales price and volume.
Equity in earnings (losses) of affiliates. Equity in earnings
(losses) of affiliates decreased by approximately $3 million, representing a 7%
decrease, from $48 million in 1995 to $45 million in 1996. This decrease was
primarily due to a $13 million decrease in equity earnings of LYONDELL-CITGO,
partially offset by an increase in the equity earnings of UNO-VEN of $9 million.
Almost all of the shortfall in LYONDELL-CITGO's earnings was due to lower fuels
margins, lower aromatics prices, higher natural gas prices, operating problems
in the first half of the year and the impact of the expansion project startup on
existing operations. The increase in the earnings of UNO-VEN is due primarily to
higher refining product margins.
Interest income. Interest income from PDVSA represents
interest income on the $1 billion notes receivable (hereafter "Mirror Notes")
from PDVSA. The Mirror Notes were issued by PDVSA to PDV America in August 1993,
in connection with the Company's issuance of $1 billion of Senior Notes.
Cost of sales and operating expenses. Cost of sales and
operating expenses increased by $2,425 million, representing a 24% increase,
from 1995 to 1996. Higher crude oil purchases in 1996 as compared to 1995
resulted from a 22% increase in crude oil prices in 1996 as compared to 1995, or
26
approximately $3.21 per barrel which includes approximately $0.14 per barrel
related to the 1995 adjustments of the PDVSA crude and feedstock supply
agreements discussed in the overview, and a 3% increase in volumes in 1996 as
compared to 1995. Higher costs of intermediate feedstock purchases were
attributable to a 20% increase in prices, partially offset by a 7% decrease in
volumes purchased. Refinery production was higher in 1996 as compared to 1995;
however, due to the increased sales volumes mentioned above, the cost of refined
product purchases increased 30%. The increase in refined product purchases
results from a 13% increase in volumes and a 15% increase in refined product
prices. The increases in refining and manufacturing costs are due primarily to
increased costs of purchased fuel and electricity at CITGO's Lake Charles and
Corpus Christi refineries as well as the additional manufacturing costs related
to the lubricants plant acquired in May 1995.
CITGO purchases refined products to supplement the production
from its refineries to meet marketing demands and resolve logistical issues. The
refined product purchases represented 52%, 55% and 57% of cost of sales for the
years 1994, 1995 and 1996, respectively. CITGO estimates that margins on
purchased products, on average, are somewhat lower than margins on produced
products due to the fact that CITGO can only receive the marketing portion of
the total margin received on the produced refined products. However, purchased
products are not segregated from CITGO produced products and margins may vary
due to market conditions and other factors beyond the Company's control. As
such, it is difficult to measure the effects on profitability of changes in
volumes of purchased products. CITGO anticipates its purchased product
requirements will continue to increase, in volume and as a percentage of refined
products sold, in order to meet marketing demands. CITGO does not anticipate
operational actions or market conditions in the near term (other than normal
refinery turnaround maintenance) which might cause a material change in
anticipated purchased product requirements; however, there could be events
beyond the control of CITGO which impact the volume of refined products
purchased. See also "Factors Affecting Forward Looking Statements".
Gross margin. The gross margin for 1996 was $461 million, or
3.6%, compared to $456 million, or 4.3%, for 1995. Gross margins in 1996 have
been adversely affected by refinery operations in the first quarter, the
scheduled modifications to the pricing provisions in the crude and feedstock
supply agreements, the decline in petrochemical profitability, increased volumes
of refined products purchased as a percentage of sales volume and increased
costs of purchased fuel and electricity at the refineries throughout the year
(in each case, as discussed above).
Selling, general and administrative expenses. Selling, general
and administrative expenses increased by $3 million, representing a 2% increase,
due primarily to increases in salaries and benefits and increased marketing
expenses in 1996 including the effect of the change in focus of CITGO's
marketing programs initiated in April 1996. The primary program in effect
through March 1996 was designed to increase the number of branded outlets and
improve CITGO's overall image. Accordingly, costs were and continue to be
expensed as incurred. The program initiated in April 1996 primarily focuses on
defending market share and increasing volumes sold to existing distributors by
providing an incentive which is earned over time. The accounting for the new
program recognizes the program expenses when the incentives are earned.
Interest expense. Interest expense increased $7.8 million from
1995 to 1996. The increase was due primarily to increased borrowings, offset by
a slightly lower weighted average interest rate on indebtedness.
27
Income taxes. PDV America's provision for income taxes in 1996
was $78 million, representing an effective tax rate of 36%. In 1995, PDV
America's provision for income taxes was $84 million, representing an effective
tax rate of 37%.
Net income. Net income was $138 million for 1996. Net income
of $146 million for 1995 included an after-tax extraordinary gain of $3 million
on early extinguishment of debt.
Results of Operations--1995 Compared to 1994
Sales revenues and volumes. Sales increased by $1,275 million
representing a 14% increase, from 1994 to 1995. The increase was due to higher
sales volumes and a slight increase in market prices. Sales volumes of light
fuels (gasoline, diesel/#2 fuel and jet fuel), excluding bulk sales made for
logistical reasons, were up 8% from 1994 to 1995, and their average unit price
increased $0.03. Gasoline sales volumes increased primarily due to successful
marketing efforts, including the net addition of approximately 920 new
independently owned CITGO branded outlets since December 31, 1994. Petrochemical
sales volume rose 3% from 1994 to 1995. This increase, combined with an average
increase in unit prices of $0.14, resulted in a 19% increase in petrochemical
sales revenue from 1994 to 1995. Industrial products sales volumes increased
14%, and average unit prices increased $0.05, resulting in a 32% increase in
industrial products sales revenue from 1994 to 1995. Asphalt sales increased 23%
from 1994 to 1995 which increase was primarily due to increases in sales prices.
Lubricants and wax sales increased 9% from 1994 to 1995 due to increases in
sales prices.
Equity in earnings (losses) of affiliates. Equity in earnings
(losses) of affiliates decreased by approximately $7 million representing a 13%
decrease, from $55 million in 1994 to $48 million in 1995. This decrease was
primarily due to a $6 million decrease in equity earnings of Nelson Industrial
Steam Company ("NISCO") and a $12 million decrease in the equity in the earnings
of UNO-VEN, partially offset by increases in equity in the earnings of joint
interest pipelines and LYONDELL-CITGO, of $2 million and $8 million,
respectively. The decrease in NISCO earnings in 1995 is attributable to higher
interest costs in 1995 as a result of the NISCO debt refinancing in September
1994. The UNO-VEN decrease is due primarily to higher operating costs resulting
from additional waste disposal costs in 1995 related to a specific cleanup
project and an increase in 1995 depreciation expense as a result of an increase
in capital spending in 1994.
Cost of sales and operating expenses. Cost of sales and
operating expenses increased by $1,335 million, representing a 15% increase from
1994 to 1995. Higher crude oil costs in 1995 as compared to 1994 resulted from a
13% increase in crude oil prices in 1995 as compared to 1994, of approximately
$1.74 per barrel which includes approximately $0.13 per barrel related to the
1995 adjustments of the PDVSA crude and feedstock supply agreements, even though
volumes were down 2%. Higher refined product costs in 1995 as compared to 1994
resulted from a 7% increase in refined product purchase prices and a 14%
increase in purchased volumes. The increased purchased volumes were necessary
primarily to supply the increased sales to branded distributors.
In addition, in the third quarter of 1995, CITGO entered into
a contract with National Response Corporation ("NRC") for marine oil spill
removal services capability and terminated its relationship with the previous
provider of that service for which CITGO paid a cancellation fee of
approximately $16 million which is included in cost of sales and operating
expenses. Also, a fire damaged an operating unit at CITGO's Corpus Christi
refinery during the third quarter of 1995 resulting
28
in no injuries. Property and business interruption insurance policies were in
place and mitigated the losses. Approximately $6 million has been charged to
cost of sales to cover among other things the deductible amount under property
insurance policies. The fire did not materially affect the operations of CITGO.
Gross margin. The gross margin for 1995 was $456 million,
representing 4.3%, compared to $516 million, representing 5.6% for 1994. The
1995 gross margin percentage was adversely affected by the PDVSA agreement
changes, the oil spill removal services termination fee, the Corpus Christi fire
and increased volumes of refined product purchases as a percentage of sales
volumes.
Selling, general and administrative expenses. Selling, general
and administrative expenses increased by $6 million, representing a 4% increase,
due primarily to increases in marketing expenses partially offset by decreases
in the amortization of unrecognized net gain on post-retirement benefit
obligations during 1995.
Interest expense. Interest expense increased $29 million from
1994 to 1995. The increase was due to a decrease of the amount of interest
capitalized for 1995 as compared to 1994 and an increase in the level of
outstanding debt due to the acquisition of Cato for approximately $47 million
and investments in LYONDELL-CITGO.
Income taxes. PDV America's provision for taxes in 1995 was
$84 million, representing an effective tax rate of 37%. In 1994, PDV America's
provision for taxes was $118 million, also representing an effective tax rate of
37%.
Net income. Net income of $146 million in 1995 included an
extraordinary gain of $3 million, after taxes, related to the early
extinguishment of debt. Net income of $199 million in 1994 included an
extraordinary charge of $2 million, after taxes, for the write-off of deferred
loan fees and other costs related to the early extinguishment of debt reported
by NISCO and an after-tax charge of $4 million due to the adoption of Statement
of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
Postemployment Benefits".
Liquidity and Capital Resources
For the year ended December 31, 1996, PDV America's net cash
provided by operating activities totaled approximately $265 million, primarily
reflecting $138 million of net income and $193 million of depreciation and
amortization,partially offset by net cash used by other items of $66 million.
The more significant changes in other items included the increase in accounts
receivable, including receivables from affiliates, of approximately $198
million, the increase in accounts payable and other liabilities, including
payables to affiliates, of approximately $227 million and the increase of other
assets of approximately $84 million. The increase in accounts receivable is due
primarily to an increase in crude oil receivables and credit card receivables.
The increase in crude oil receivables is a result of an increase in crude oil
sales volumes and prices. The increase in credit card receivables is primarily
the result of an increase in the number of active accounts, higher gasoline
prices and increased use of revolving credit. The increase in accounts payable
is related primarily to purchases of domestic crude oil and refined products.
The increase in payables to affiliates is the result of the timing of cargo
shipments, higher crude oil costs and a specific year-end crude oil purchase
related to CARCO's planned 1997 production. The increase of other assets is due
primarily to refinery turnarounds.
29
Net cash used in investing activities in 1996 totaled $585
million, consisting primarily of capital expenditures of $438 million and
investments in LYONDELL-CITGO of $143 million.
During the same period, consolidated net cash provided from
financing activities totaled approximately $326 million, consisting primarily of
proceeds of approximately $200 million from the issuance of senior notes, the
issuance of $120 million in taxable revenue bonds, $60 million of net borrowings
under revolving bank facilities, $28 million net borrowings on short-term bank
loans and proceeds of $25 million from a tax-exempt bond issuance. Funds
received from these financing activities were partially offset by repayments of
$59 million on privately placed senior notes and $29 million on a term loan.
CITGO currently estimates capital expenditures for the years
1997-2001 will total approximately $1.6 billion, exclusive of investments in
LYONDELL-CITGO, as shown in the following table.
CITGO Estimated Capital Expenditures - 1997 through 2001 (1)
Strategic $ 880 million
Maintenance 400 million
Regulatory/Environmental 320 million
--------------
Total $1,600 million
==============
- -------------------------
(1) These estimates may change as future regulatory events unfold. See "Factors
Affecting Forward Looking Statements".
In addition, as of December 31, 1996, CITGO was committed to
make additional investments in LYONDELL-CITGO consisting of (i) $30 million at
the in-service date of the refinery enhancement project, which is currently
scheduled for early 1997, (ii) up to an additional approximately $10 million
through the in-service date and (iii) additional funding for operations in the
event that the refinery enhancement project startup did not proceed as
anticipated. In addition, CITGO is committed to fund up to $22 million for
certain maintenance and environmental costs, to the extent that such costs
exceed certain estimates. CITGO expects to fund its remaining commitment through
cash generated from operations and available credit facilities.
The LYONDELL-CITGO expansion project was completed at the end
of 1996 and the in-service date was March 1, 1997. CITGO has made its additional
investment of $30 million which was required at the in-service date.
PDV America's $1 billion senior notes issued in 1993 are
comprised of (i) $250 million 7 1/4% Senior Notes Due August 1, 1998, (ii) $250
million of 7 3/4% Senior Notes Due August 1, 2000 and (iii) $500 million 77/8%
Senior Notes Due August 1, 2003 (collectively the "Senior Notes"). Interest on
these notes is payable in semiannual installments of $38 million, or
approximately $77 million in total for 1996.
As of December 31, 1996, CITGO had an aggregate of $1,617
million of indebtedness outstanding that matures on various dates through the
year 2026. As of December 31, 1996, CITGO's contractual commitments to make
principal payments on this indebtedness were $148.2 million, $95.2 million and
$426.5 million for 1997, 1998 and 1999, respectively. CITGO's bank credit
facility consists of an $88.2 million term loan, payable in quarterly
installments of principal and interest through December 1999 and a $675 million
revolving credit facility maturing in December 1999, of which $350
30
million was outstanding at December 31, 1996. Cit-Con has a separate credit
agreement under which $35.7 million was outstanding at December 31, 1996.
CITGO's other principal indebtedness consists of (i) $199.7 million in senior
notes issued in 1996, (ii) $260 million in outstanding principal amount of
senior notes issued pursuant to a master shelf agreement with an insurance
company, (iii) $294 million in outstanding principal amount of senior notes
issued in 1991, (iv) $216.3 million in outstanding principal amount of
obligations related to tax exempt bonds issued by various governmental units and
(v) $120 million in outstanding principal amount of obligations related to
taxable bonds issued by a governmental unit. See Note 11 to "Consolidated
Financial Statements".
The debt instruments of PDV America and CITGO impose
significant restrictions on PDV America's and CITGO's ability to incur
additional debt, grant liens, make investments, sell or acquire fixed assets,
make restricted payments, including dividends, and engage in other transactions.
In addition, restrictions exist over the payment of dividends and other
distributions to PDV America. PDV America and CITGO were in compliance with all
their respective covenants under such debt instruments at December 31, 1996.
As of December 31, 1996, capital resources available to the
Companies include cash generated by operations, available borrowing capacity
under CITGO's revolving credit facility of $325 million and $127 million in
unused availability under uncommitted short-term borrowing facilities with
various banks. Additionally, the remaining $400 million from CITGO's shelf
registration with the Securities and Exchange Commission for $600 million of
debt securities may be offered and sold from time to time. The Companies believe
that they have sufficient capital resources to carry out planned capital
spending programs, including regulatory and environmental projects in the near
terms, anticipated operating needs, debt service and to meet currently
anticipated future obligations as they arise. In addition, PDV America intends
that payments received from PDVSA under the $1 billion Mirror Notes will provide
funds to service PDV America's Senior Notes. The Companies periodically evaluate
other sources of capital in the marketplace and anticipate that long-term
capital requirements will be satisfied with current capital resources and future
financing arrangements. Of course, the Companies' ability to obtain such
financings will depend on numerous factors, including market conditions and the
perceived creditworthiness of the Companies at that time. See "Factors Affecting
Forward Looking Statements".
PDV America and its direct subsidiaries are also party to a
tax allocation agreement, which is designed to provide PDV America with
sufficient cash to pay its consolidated income tax liabilities.
Derivative Commodity and Financial Instruments
CITGO enters into petroleum futures contracts primarily to
reduce its inventory exposure to price risk. CITGO also buys and sells commodity
options for delivery and receipt of crude oil and refined products. Such
contracts are entered into through major brokerage houses and traded on national
exchanges and although usually settled in cash, can be settled in cash or
through delivery of the commodity. Such contracts generally qualify for hedge
accounting and correlate to price movements of crude oil and refined products.
In order for a transaction to qualify as a hedge, CITGO requires that the item
to be hedged expose CITGO to price risk and that the commodity contract reduce
that risk and be designated as a hedge. The high correlation between price
movements of a product and the commodity contract in that product is well
demonstrated in the petroleum industry and, generally, CITGO relies on those
historical relationships and on periodic comparisons of market price changes to
price changes of
31
futures and options contracts accounted for as hedges. Gains or losses on
contracts which qualify as hedges are recognized when the related inventory is
sold or the hedged transaction is consummated. Changes in the market value of
futures and option positions which are not hedges are recorded as gains or
losses in the period in which they occur.
Since the contracts described above generally qualify for
hedge accounting and correlate to price movements of crude oil and refined
products, gains or losses resulting from market changes in these contracts will
generally be offset by losses or gains on CITGO's hedged inventory or future
purchases and sales. CITGO's derivative commodity activity is closely monitored
by its management. Contract periods are generally less than 30 days. Unrealized
and deferred gains and losses on these contracts at December 31, 1996 and 1995
and the effects on cost of sales and pretax earnings for 1996, 1995 and 1994
were not material. At times, CITGO enters into commodity futures and option
agreements that are not related to the hedging program discussed above. This
activity and its results were not material to CITGO's consolidated results of
operations in 1996, 1995 or 1994.
CITGO from time to time enters into other over-the-counter
derivative commodity agreements. No premiums are required for these agreements.
Gains and losses under these agreements, which primarily fix margins on
anticipated sales, are accrued as receivables or payables and as adjustments of
the carrying amount of inventories. The amounts are recognized in income through
cost of sales when the related petroleum products are sold, unless an earlier
write-down is required to recognize anticipated nonrecovery of deferred amounts.
At December 31, 1996 and 1995, CITGO had no such agreements in place.
CITGO has only limited involvement with other derivative
financial instruments and does not use them for trading purposes. They are used
to manage well defined interest rate and commodity price risks arising out of
CITGO's core activities. PDV America itself has no involvement with derivative
financial instruments.
CITGO has entered into various interest rate swap and cap
agreements to manage its risk related to interest rate changes on its debt.
Premiums paid for purchased interest rate swap and cap agreements are amortized
to interest expense over the terms of the agreements. Unamortized premiums are
included in other assets. The interest rate differentials received or paid by
CITGO related to these agreements are recognized as adjustments to interest
expense over the term of the agreements. Gains or losses on terminated swap
agreements are either amortized over the original term of the swap agreement if
the hedged borrowings remain in place or are recognized immediately if the
hedged borrowings are no longer held.
32
CITGO has entered into the following interest rate swap
agreements to reduce the impact of interest rate changes on its variable
interest rate debt:
CITGO Interest Rate Swap Agreements
Expiration Notional Principal Amount
Variable Rate Index Date Fixed Rate Paid 1996 1995
- ------------------- --------------- --------------- -------------------------
(in thousands)
One-month LIBOR September 1998 4.85% $ 25,000 $ 25,000
One-month LIBOR November 1998 5.09 25,000 25,000
One-month LIBOR May 2000 6.28 25,000 25,000
J. J. Kenny May 2000 4.72 25,000 25,000
J. J. Kenny February 2005 5.30 12,000 12,000
J. J. Kenny February 2005 5.27 15,000 15,000
J. J. Kenny February 2005 5.49 15,000 15,000
-------- --------
$142,000 $142,000
======== ========
The fair value of the interest rate swap agreements in place
at December 31, 1996 based on the estimated amount that CITGO would receive or
pay to terminate the agreements as of that date and taking into account current
interest rates, was an unrealized loss of approximately $1.1 million. In
connection with the determination of such fair market value, CITGO considers the
creditworthiness of the counterparties, but no adjustment was determined to be
necessary as a result.
Interest expense includes $1.1 million, $0.1 million and $0.4
million in 1996, 1995 and 1994, respectively, related to interest paid on these
agreements. During 1995, CITGO converted $25 million of variable rate debt to
fixed rate borrowings and terminated the interest rate swap agreement matched to
the variable rate debt. Other income in 1995 included a $2.4 million gain
related to the termination of this interest rate swap agreement. There were no
transactions of this type in 1996.
During 1995, CITGO entered into a 9% interest rate cap
agreement with a notional amount of $25 million, a reference rate of three-month
LIBOR, and an expiration date of February 1997. Other interest rate cap
agreements to which CITGO was a party expired in November 1994. The effect of
these agreements was not material in 1996, 1995 or 1994.
Neither CITGO nor the counterparties are required to
collateralize their obligations under these derivative commodity and financial
instruments. CITGO is exposed to credit loss in the event of nonperformance by
the counterparties to these agreements, but has no off-balance-sheet credit risk
of accounting loss for the notional amounts.
New Accounting Standard
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of".
SFAS 121 establishes the accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used and the accounting for long-lived assets and certain identifiable
intangibles to be disposed of. The adoption of SFAS 121 did not have a material
effect on the consolidated financial position or results of operations of the
Company.
33
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The Consolidated Financial Statements, the Notes to
Consolidated Financial Statements and the Independent Auditors' Report are
included in Item 14a of this report. The Quarterly results of Operations are
reported in Note 17 of the Notes to Consolidated Financial Statements included
in Item 14a.
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT
The directors and executive officers of PDV America are as
follows:
Name Age Position
- ---- --- --------
Claus Graf 58 Chairman of the Board and Director
Alonso Velasco 55 President, Chief Executive and Financial
Officer and Director
Angel E. Olmeta 59 Vice President and Director
Jose M. Portas 60 Secretary and Director
Francisco Bustillos 44 Treasurer and Chief Accounting Officer
Directors are elected to serve until their successors are duly
elected and qualified. Executive officers are appointed by and serve at the
discretion of the Board of Directors.
Claus Graf has been a director of PDV America and Chairman of
the Board since October 1994. In March 1994, Mr. Graf was appointed a Vice
President of PDVSA. From 1991 to 1994, he served as a Vice President of
Corpoven, S.A., and, prior to that time, he was Production and Exploration
Coordinator of PDVSA.
Alonso Velasco has been a director of PDV America since 1991
and President, Chief Executive and Financial Officer since 1993. Mr. Velasco was
Control and Finances Coordinator of PDVSA from 1991 until March 1994, at which
time he was appointed a director of PDVSA. Between 1987 and 1991, he was a
director of Interven, S.A., an affiliate of PDVSA.
Angel E. Olmeta has been a director of PDV America and Vice
President since October 1994. Mr. Olmeta has been a director of CITGO since 1986
and was its Executive Vice President and Chief Operating Officer from 1991 until
1994. He was Managing Director of Petroleos de Venezuela (USA) Corp. in New York
from 1987 to 1991.
Jose M. Portas has been a director of PDV America since 1986
and Secretary since 1987. Mr. Portas worked with various subsidiaries of PDVSA
in Venezuela from 1976 until 1986.
Francisco Bustillos has been Treasurer and Chief Accounting
Officer of PDV America since March 1996. Mr. Bustillos was appointed the
Corporate Finance Functional Manager of PDVSA in November 1995. Prior to that
time, he was a Finance Manager with Maraven, S.A., an affiliate of PDVSA, and,
throughout his career, he has held numerous positions in accounting and finance
at Maraven, S.A. and other PDVSA affiliates.
PDV America's Board of Directors currently has no committees.
35
ITEM 11. EXECUTIVE COMPENSATION
For the year ended December 31, 1996, the directors and
executive officers of PDV America received compensation in the aggregate of
approximately $850,000.
ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
PDV America is a wholly owned indirect subsidiary of PDVSA. As
a result, PDVSA, either directly or indirectly, nominates and selects the
members of the Board of Directors of PDV America and its subsidiaries. Certain
members of the Board of Directors of PDV America are also directors or executive
officers of PDVSA.
CITGO, UNO-VEN and LYONDELL-CITGO have entered into several
transactions with PDVSA or other affiliates of PDVSA, including crude oil and
feedstock supply agreements, agreements for the purchase of refined products and
transportation agreements. These crude oil supply agreements require PDVSA to
supply minimum quantities of crude oil and other feedstocks to CITGO, UNO-VEN
and LYONDELL-CITGO for a fixed period, usually 20 to 25 years. The supply
agreements differ somewhat for each entity and each CITGO refinery but generally
incorporate formula prices based on the market value of a slate of refined
products deemed to be produced from or for each particular grade of crude oil or
feedstock, less (i) certain deemed refining costs; (ii) certain actual costs,
including transportation charges, import duties and taxes; and (iii) a deemed
margin, which varies according to the grade of crude oil or feedstock delivered.
Under each supply agreement, deemed margins and deemed costs are adjusted
periodically by a formula primarily based on the rate of inflation. Because
deemed operating costs and the slate of refined products deemed to be produced
for a given barrel of crude oil or other feedstock do not necessarily reflect
the actual costs and yields in any period, the actual refining margin earned by
a purchaser under the various supply agreements will vary depending on, among
other things, the efficiency with which such purchaser conducts its operations
during such period. These supply agreements are designed to reduce the inherent
earnings volatility of the refining and marketing operations of CITGO, UNO-VEN
and LYONDELL-CITGO. Prior to 1995, certain costs were used in the CITGO supply
agreement formulas, aggregating approximately $70 million per year for the years
1992 through 1994 as compared to the amount that would otherwise have been
payable thereunder. This modification was to expire at December 31, 1996;
however, in the third quarter of 1995, PDVSA and CITGO agreed to adjust the
modification, so that the 1992 fixed amount per barrel would be reduced, and the
adjusted modification would not expire until December 31, 1999. The impact of
this adjustment was an increase in crude cost of $44 million for 1996 and $ 22
million for 1995, over what would otherwise have been payable under the original
1992 modification. CITGO anticipates that the effect of the adjustments to the
original modifications will be to reduce the price of crude oil purchased from
PDVSA under these agreements by $25 million per year in 1997 through 1999, in
each case without giving effect to any other
36
factors that may affect the price payable for crude oil under these agreements.
These estimates are also based on the assumption that CITGO will purchase the
base volumes of crude oil under the agreements.
Under such long-term supply agreements and refined product
purchase agreements, CITGO, UNO-VEN and LYONDELL-CITGO purchased approximately
$2.4 billion. $0.9 billion and $0.7 billion, respectively, of crude oil,
feedstocks and refined products at market related prices from PDVSA in 1996. At
December 31, 1996, $237 million was included in PDV America's current payable to
affiliates as a result of these transactions. The LYONDELL-CITGO crude oil
supply agreement increased to 200 MBPD on March 1, 1997.
During 1996, CITGO purchased approximately $1.6 billion of
crude oil, feedstocks and refined products from LYONDELL-CITGO primarily under a
long-term product sales agreement. Such agreement incorporates formula prices
based on published market prices, defined marketing discounts and variable
factors. At December 31, 1996, $38 million was included in payables to
affiliates as a result of these transactions.
The notes receivable from PDVSA are unsecured and comprised of
(i) $250 million 7.35% Notes Due August 1, 1998, (ii) $250 million 7.75% Notes
Due August 1, 2000 and (iii) $500 million 7.995% Notes Due August 1, 2003; all
such notes have maturities that are less one business day. Interest on these
notes is payable semiannually by PDVSA to PDV America on February 1 and August 1
of each year, less one business day. For the year ended December 31, 1996,
approximately $78 million of interest income is attributable to such notes with
$32 million included in due from affiliates at December 31, 1996. Due to the
related party nature of these notes receivable, it is not practicable to
estimate their fair value.
CITGO had refined product, feedstock and crude oil and other
product sales of $254 million to affiliates, including the Mount Vernon Phenol
plant and LYONDELL-CITGO, in 1996. At December 31, 1996, $28 million was
included in due from affiliates as a result of these transactions.
During 1995, the Company entered into a service agreement with
PDVSA to provide financial and foreign agency services. Income from these
services was $0.3 million in 1996.
Under a separate guarantee of rent agreement, PDVSA has
guaranteed payment of rent, stipulated loss value and termination value due
under the lease of the Corpus Christi refinery facilities by CITGO. See
"Consolidated Financial Statements--Note 15".
PDV America and its direct subsidiaries are parties to a tax
allocation agreement, which is designed to provide PDV America with sufficient
cash to pay its consolidated income tax liabilities.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND
REPORTS ON FORM 8-K
a. Certain Documents Filed as Part of this Report
(1) Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholder's Equity
for the years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994
Notes to the Consolidated Financial Statements
(2) Financial Statement Schedules:
Schedule I - Condensed Financial Information of the Registrant.
(3) Exhibits:
The Exhibit Index in part c., below lists the exhibits that
are filed as part of, or incorporated by reference into, this
report.
b. Reports on Form 8-K
* Form 8-K, dated November 5, 1996, reporting contemplation of
increases or decreases of investments in certain joint
ventures.
** Form 8-K, dated December 26, 1996, reporting the execution by
PDV America of a letter of intent for the restructuring of
UNO-VEN's refinery and marketing business.
- --------
* Previously filed with the Commission on November 5, 1996.
** Previously filed with the Commission on December 26, 1996.
38
c. Exhibits
*3.1 Certificate of Incorporation, Certificate of
Amendment of Certificate of Incorporation and By-laws
of PDV America.
*4.1 Indenture, dated as of August 1, 1993, among PDV
America, Propernyn, PDVSA and Citibank, N.A., as
trustee, relating to PDV America's 7-1/4% Senior
Notes Due 1998, 7-3/4% Senior Notes Due 2000 and
7-7/8% Senior Notes Due 2003.
*4.2 Form of Senior Note (included in Exhibit 4.1).
*10.1 Crude Supply Agreement, dated as of September 30,
1986, between CITGO Petroleum Corporation and
Petroleos de Venezuela, S.A.
*10.2 Supplemental Crude Supply Agreement, dated as of
September 30, 1986, between CITGO Petroleum
Corporation and Petroleos de Venezuela, S.A.
*10.3 Crude Oil and Feedstock Supply Agreement, dated as of
March 31, 1987, between Champlin Refining Company and
Petroleos de Venezuela, S.A.
*10.4 Supplemental Crude Oil and Feedstock Supply
Agreement, dated as of March 31, 1987, between
Champlin Refining Company and Petroleos de Venezuela,
S.A.
*10.5 Contract for the Purchase/Sale of Boscan Crude Oil,
dated as of June 2, 1994 between Tradecal, S.A., and
CITGO Asphalt Refining Company.
*10.6 Restated Contract for the Purchase/Sale of
Heavy/Extra Heavy Crude Oil, dated December 28, 1990,
among Maraven, S.A., Lagoven, S.A.. and Seaview Oil
Company.
*10.7 Sublease Agreement, dated as of March 31, 1987,
between Champlin Petroleum Company, as Sublessor, and
Champlin Refining Company, as Sublessee.
*10.8 Operating Agreement, dated as of May 1, 1984, among
Cit-Con Oil Corporation, CITGO Petroleum Corporation
and Conoco, Inc.
*10.9 Amended and Restated Limited Liability Company
Regulations of LYONDELL-CITGO Refining Company, Ltd.
dated July 1, 1993.
*10.10 Contribution Agreement between Lyondell Petrochemical
Company and LYONDELL-CITGO Refining Company, Ltd.
- --------
* Previously filed in connection with the Registrant's Registration
Statement on Form F-1, Registration No. 33-63742, originally filed with
the Commission on June 2, 1993.
39
*10.11 Crude Oil Supply Agreement, dated as of May 5, 1993,
between LYONDELL- CITGO Refining Company, Ltd. and
Lagoven, S.A.
*10.12 Supplemental Supply Agreement, dated as of May 5,
1993, between LYONDELL- CITGO Refining Company, Ltd.
and Petroleos de Venezuela, S.A.
*10.13 The UNO-VEN Company Partnership Agreement, dated as
of December 4, 1989, between Midwest 76, Inc. and
VPHI Midwest, Inc.
*10.14 Supply Agreement, dated as of December 1, 1989,
between The UNO-VEN Company and Petroleos de
Venezuela, S.A.
*10.15 Supplemental Supply Agreement, dated as of December
1, 1989, between The UNO-VEN Company and Petroleos de
Venezuela, S.A.
*10.16 Tax Allocation Agreement, dated as of June 24, 1993,
among PDV America, Inc., VPHI Midwest, Inc., CITGO
Petroleum Corporation and PDV USA, Inc., as amended.
**10.17 Amendment and Supplement to Supply Agreement, dated
as of May 11, 1994, between The UNO-VEN Company and
Tradecal, S.A., as assignee of Petroleos de
Venezuela, S.A.
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1 List of Subsidiaries of the Registrant
27.1 Financial Data Schedule
d. Financial Statement Schedules
The schedules filed by the Company are listed in Item 14a above as
required.
* Previously filed in connection with the Registrant's Registration
Statement on Form F-1, Registration No. 33-63742, originally filed with
the Commission on June 2, 1993.
** Previously filed in connection with the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act 1934, the Registrant has caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 28, 1997.
PDV AMERICA, INC.
By /s/Alonso Velasco
------------------------------
Alonso Velasco
President, Chief Executive and
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
By /s/ Claus Graf Chairman of the Board, March 28, 1997
------------------------------ Director
Claus Graf
By /s/ Alonso Velasco President, Chief Executive March 28, 1997
------------------------------ and Financial Officer,
Alonso Velasco Director
By /s/ Jose M. Portas Secretary, Director March 28, 1997
------------------------------
Jose M. Portas
By /s/ Francisco Bustillos Treasurer, Chief March 28, 1997
------------------------------ Accounting Officer
Francisco Bustillos
41
Deloitte &
Touche LLP
Two World Financial Center Telephone: (212) 436-2000
New York, New York 10281-1414 Facsimile: (212) 436-5000
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
PDV America, Inc.:
We have audited the accompanying consolidated balance sheets of PDV America,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholder's equity and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the Index as Item 14(a)2.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of PDV America, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Company changed its method of accounting for postemployment benefits to conform
with Statement of Financial Accounting Standards No. 112.
February 14, 1997
PDV AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 32,845 $ 25,794
Accounts receivable, net 1,004,098 817,990
Due from affiliates 60,123 61,376
Inventories 833,191 785,275
Prepaid expenses and other 25,093 37,625
---------- ----------
Total current assets 1,955,350 1,728,060
NOTES RECEIVABLE FROM PDVSA 1,000,000 1,000,000
PROPERTY, PLANT AND EQUIPMENT - Net 2,786,941 2,492,146
RESTRICTED CASH 9,369 1,258
INVESTMENTS IN AFFILIATES 1,040,525 881,960
OTHER ASSETS 146,142 116,860
---------- ----------
TOTAL $6,938,327 $6,220,284
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Short-term bank loans $ 53,000 $ 25,000
Accounts payable 530,758 438,664
Due to affiliates 275,551 176,800
Taxes other than income 200,863 173,915
Other current liabilities 237,115 241,796
Income taxes payable 21,137 6,068
Current portion of long-term debt 95,240 95,240
Current portion of capital lease obligation 11,778 10,562
---------- ----------
Total current liabilities 1,425,442 1,168,045
LONG-TERM DEBT 2,465,336 2,155,316
CAPITAL LEASE OBLIGATIONS 129,726 141,504
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 183,370 167,905
OTHER NONCURRENT LIABILITIES 196,979 188,707
DEFERRED INCOME TAXES 399,768 400,137
MINORITY INTEREST 26,631 25,618
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY
Common stock, $1.00 par value - authorized,
issued and outstanding, 1,000 shares 1 1
Additional capital 1,232,435 1,232,435
Retained earnings 878,639 740,616
---------- ----------
Total shareholder's equity 2,111,075 1,973,052
---------- ----------
TOTAL $6,938,327 $6,220,284
========== ==========
See notes to consolidated financial statements.
- 2 -
PDV AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED DECEMBER 31, 1996
(Dollars in Thousands)
- --------------------------------------------------------------------------------
1996 1995 1994
REVENUES:
Net sales $ 12,698,366 $ 10,279,579 $ 9,093,562
Sales to affiliates 253,694 242,581 153,147
------------ ------------ ------------
12,952,060 10,522,160 9,246,709
Equity in earnings (losses) of affiliates - net 44,906 48,130 55,369
Interest income from PDVSA 77,725 77,725 77,725
Other income (expense) - net (3,373) (1,289) (6,074)
------------ ------------ ------------
13,071,318 10,646,726 9,373,729
------------ ------------ ------------
COST OF SALES AND EXPENSES:
Cost of sales and operating expenses
(including purchases of $4,001,471,
$3,321,128 and $2,915,696 from affiliates) 12,491,003 10,066,012 8,730,971
Selling, general and administrative expenses 169,159 165,693 159,849
Interest expense:
Capital leases 16,818 17,913 18,893
Other 177,544 168,633 138,682
Minority interest 1,013 1,993 2,394
------------ ------------ ------------
12,855,537 10,420,244 9,050,789
------------ ------------ ------------
INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGES 215,781 226,482 322,940
INCOME TAXES 77,758 83,996 117,824
------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY
ITEMS AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 138,023 142,486 205,116
EXTRAORDINARY ITEMS:
Gain related to the early extinguishment of
debt, net of related income taxes of $2,160 -- 3,380 --
Charge related to the early extinguishment of
debt, net of related income tax benefit of
$956 -- -- (1,627)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGES:
Postemployment benefits, net of related
income tax benefit of $2,823 -- -- (4,477)
------------ ------------ ------------
NET INCOME $ 138,023 $ 145,866 $ 199,012
============ ============ ============
See notes to consolidated financial statements.
- 3 -
PDV AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
THREE YEARS ENDED DECEMBER 31, 1996
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Common Stock
Total
Additional Retained Shareholder's
Shares Amount Capital Earnings Equity
BALANCE, JANUARY 1, 1994 1 $ 1 $1,188,294 $ 395,738 $1,584,033
Capital contributions received from
Parent -- -- 29,141 -- 29,141
Net income -- -- -- 199,012 199,012
----- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1994 1 1 1,217,435 594,750 1,812,186
Capital contributions received
from Parent -- -- 15,000 -- 15,000
Net income -- -- -- 145,866 145,866
----- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1995 1 1 1,232,435 740,616 1,973,052
Net income -- -- -- 138,023 138,023
----- ---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 1 $ 1 $1,232,435 $ 878,639 $2,111,075
===== ========== ========== ========== ==========
See notes to consolidated financial statements.
- 4 -
PDV AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1996
(Dollars in Thousands)
- --------------------------------------------------------------------------------
1996 1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 138,023 $ 145,866 $ 199,012
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary items -- (3,380) 1,627
Cumulative effect of accounting changes -- -- 4,477
Depreciation and amortization 192,585 167,885 160,155
Provision for losses on accounts receivable 13,275 9,070 6,250
Deferred income taxes 5,159 18,777 44,706
Distributions in excess of (less than) equity
in earnings (losses) of affiliates (8,672) (19,090) (14,991)
Postretirement benefits 15,465 (7,404) 10,512
Other adjustments 2,549 3,661 5,583
Change in operating assets and liabilities,
exclusive of acquisitions of businesses:
Accounts receivable (199,333) (68,072) (170,939)
Due from affiliates 1,253 (9,340) 254
Inventories (47,916) 2,212 (46,878)
Prepaid expenses and other 6,525 (38,764) (40,652)
Accounts payable 92,265 36,995 78,723
Income taxes payable 3,725 3,076 (23,375)
Due to affiliates 98,580 27,185 27,455
Other assets (83,874) (24,565) 4,607
Other liabilities 35,833 85,809 45,022
--------- --------- ---------
Net cash provided by operating activities: 265,442 329,921 291,548
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (437,763) (314,230) (350,498)
Proceeds from sales of property, plant and
equipment 3,929 843 2,742
Decrease (increase) in restricted cash (8,111) 41,629 (42,887)
Return of partnership capital -- -- 49,256
Investments in LYONDELL-CITGO Refining
Company Ltd. (142,638) (178,875) (138,416)
Investments in subsidiary and advances to
other affiliates (10) (46,805) (1,531)
--------- --------- ---------
Net cash used in investing activities (584,593) (497,438) (481,334)
--------- --------- ---------
See notes to consolidated financial statements (Continued)
- 5 -
PDV AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1996
(Dollars in Thousands)
- --------------------------------------------------------------------------------
1996 1995 1994
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from (repayments of) short-term
bank loans $ 28,000 $ (28,500) $ 16,500
Net borrowings of revolving bank loan 60,000 95,000 55,000
Payments on term bank loan (29,412) (7,353) (150,000)
Payments on private placement senior notes (58,685) (47,321) --
Proceeds from issuance of senior notes 199,694 -- --
Proceeds from master shelf agreement -- 100,000 160,000
Proceeds from issuance of taxable bonds 120,000 -- --
Proceeds from issuance of tax-exempt bonds 25,000 90,700 70,000
Payments of tax-exempt bonds -- (40,237) --
Payments on capital lease obligations (11,252) (9,017) (8,722)
(Repayments) borrowings of other debt (7,143) 2,397 18,510
Capital contributions received from parent -- 15,000 29,141
--------- --------- ---------
Net cash paid by financing activities 326,202 170,669 190,429
--------- --------- ---------
INCREASE IN CASH AND
CASH EQUIVALENTS 7,051 3,152 643
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 25,794 22,642 21,999
--------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 32,845 $ 25,794 $ 22,642
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest (net of amount capitalized) $ 197,798 $ 175,515 $ 151,989
========= ========= =========
Income taxes, net of refunds of $546 and
$3,682 in 1996 and 1995, respectively $ 58,492 $ 64,204 $ 96,498
========= ========= =========
See notes to consolidated financial statements. (Concluded)
- 6 -
PDV AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - PDV America, Inc. (the "Company") was incorporated
on November 14, 1986 and is a wholly-owned subsidiary of Propernyn B.V.
("Propernyn"), a Dutch corporation. The Company's ultimate parent is
Petroleos de Venezuela, S.A. ("PDVSA"), the national oil company of the
Republic of Venezuela.
Description of Business - The Companies (as defined below) manufacture or
refine and market quality transportation fuels as well as lubricants,
refined waxes, petrochemicals, asphalt and other industrial products.
Transportation fuel customers include primarily CITGO (as defined below)
branded wholesale distributors, convenience stores and airlines located
primarily east of the Rocky Mountains. Crude oil and refined products are
also sold for refinery supply, logistical and marketing purposes. Such
sales are primarily to major and independent oil companies and traders.
Lubricants are sold to independent distributors, mass marketers and
industrial customers and petrochemical feedstocks and industrial products
are sold to various manufacturers and industrial companies throughout the
United States. Sales are made primarily on account, based on pre-approved
unsecured credit terms established by CITGO management, except sales to
airlines, which are made primarily on a prepaid basis. CITGO also has a
proprietary credit card program and a Companion Visa bank card program
which allow retail consumers to purchase fuel and convenience items at
CITGO branded outlets. Allowances for uncollectible accounts are
established based on several factors which include, but are not limited to,
analysis of specific customers, historical trends, current economic
conditions and other information.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company, its wholly-owned subsidiaries (including CITGO
Petroleum Corporation ("CITGO") and its wholly-owned subsidiaries and VPHI
Midwest, Inc. ("Midwest"), which has a 50 percent interest in The Uno-Ven
Company ("Uno-Ven"), an Illinois general partnership) and Cit-Con Oil
Corporation, which is 65 percent owned (collectively, the "Companies"). All
material intercompany transactions and accounts have been eliminated.
The Companies' investments in affiliates are accounted for by the equity
method. The excess of the investments over the equity in the underlying net
assets of the affiliates is amortized on a straight-line basis over 40
years, which is based upon the estimated useful lives of the affiliates'
assets.
Pervasiveness of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
- 7 -
Revenue Recognition - Revenue is recognized upon transfer of title to
products sold, based upon the terms of delivery.
Supply and Marketing Activities - The Companies engage in the buying and
selling of crude oil to supply their refineries. The net results of this
activity are recorded in cost of sales. The Companies also engage in the
buying and selling of refined products to facilitate the marketing of their
refined products. The results of this activity are recorded in cost of
sales and sales.
Refined product exchange transactions that do not involve the payment or
receipt of cash are not accounted for as purchases or sales. Any resulting
volumetric exchange balances are accounted for as inventory in accordance
with the Companies' LIFO (as defined below) inventory method. Exchanges
that are settled through payment or receipt of cash are accounted for as
purchases or sales.
Excise Taxes - The Companies collect excise taxes on sales of gasoline and
other motor fuels. Excise taxes of approximately $2.7 billion, $2.2 billion
and $2.1 billion were collected from customers and paid to various
governmental entities in 1996, 1995 and 1994, respectively. Excise taxes
are not included in sales.
Inventories - Crude oil and refined product inventories are stated at the
lower of cost or market and cost is primarily determined using the last-in,
first-out ("LIFO") method. Materials and supplies are valued primarily
using the average cost method.
Property, Plant and Equipment - Property, plant and equipment is reported
at cost, less accumulated depreciation. Depreciation is based upon the
estimated useful lives of the related assets using the straight-line
method. Depreciable lives are generally as follows: buildings and
leaseholds - 10 to 24 years; machinery and equipment - 5 to 24 years; and
vehicles - 3 to 10 years.
Upon disposal or retirement of property, plant and equipment, the cost and
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in income.
The Companies capitalize interest on projects when construction takes
considerable time and entails major expenditures. Such interest is
allocated to property, plant and equipment and amortized over the estimated
useful lives of the related assets. Capitalized interest totaled $12
million, $5 million and $12 million in 1996, 1995 and 1994, respectively.
Futures Contracts and Commodity Options Activity and Other Derivatives -
The Companies enter into petroleum futures contracts primarily to hedge a
portion of the price risk associated with crude oil and refined products.
The Companies also buy and sell commodity options for delivery and receipt
of crude oil and refined products. In order for a transaction to qualify as
a hedge, the Companies require that the item to be hedged expose the
Companies to price risk and that the commodity contract reduce that risk
and be designated as a hedge. The high correlation between price movements
of a product and the commodity contract in that product is well
demonstrated in the petroleum industry and generally the Companies rely on
those historical relationships and on periodic comparisons of market price
changes to price changes of futures and options contracts accounted for as
hedges. Gains or losses on contracts which
- 8 -
qualify as hedges are recognized when the related inventory is sold or the
hedged transaction is consummated. Changes in the market value of futures
and option positions which are not hedges are recorded as gains or losses
in the period in which they occur.
The Companies have only limited involvement with other derivative financial
instruments, and do not use them for trading purposes. They are used to
manage well defined interest rate and commodity price risks arising out of
the Companies' core activities.
The Companies have entered into various interest rate swap and cap
agreements to manage their risk related to interest rate changes on their
debt. Premiums paid for purchased interest rate swap and cap agreements are
amortized to interest expense over the terms of the agreements. Unamortized
premiums are included in other assets. The interest rate differentials
received or paid by the Companies related to these agreements are
recognized as adjustments to interest expense over the term of the
agreements. Gains or losses on terminated swap agreements are either
amortized over the original term of the swap agreement if the hedged
borrowings remain in place or are recognized immediately if the hedged
borrowings are no longer held.
The Companies from time to time enter into other over-the-counter
derivative commodity agreements. No premiums are required for these
agreements. Gains and losses under these agreements, which primarily fix
margins on anticipated sales, are accrued as receivables or payables and as
adjustments of the carrying amount of inventories. The amounts are
recognized in income through cost of sales when the related petroleum
products are sold, unless an earlier write-down is required to recognize
anticipated nonrecovery of deferred amounts.
Refinery Maintenance - Costs of refinery turnaround maintenance are charged
to operations over the average period between turnarounds. Turnaround
periods range approximately from one to seven years. Unamortized costs are
included in other assets. Amortization of refinery turnaround costs is
included in depreciation and amortization expense. Amortization was $53
million, $43 million, and $54 million for 1996, 1995, and 1994,
respectively. Ordinary maintenance is expensed as incurred.
Environmental Expenditures - Environmental expenditures that relate to
current or future revenues are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations
and do not contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments and/or cleanups are
probable, and the costs can be reasonably estimated. Environmental
liabilities are not discounted to their present value. Subsequent
adjustments to estimates, to the extent required, may be made as more
refined information becomes available.
Income Taxes - The Companies account for income taxes using an asset and
liability approach, in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Postretirement Benefits - In addition to pension benefits, the Companies,
at present, provide certain health care and life insurance benefits to
eligible employees at retirement. The Company accounts for these benefits
in accordance with SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." This statement requires costs
- 9 -
related to postretirement benefits to be accrued during the period an
employee provides service.
Postemployment Benefits - The Companies provide various postemployment
benefits for eligible former or inactive employees, including disability,
severance, and salary continuation benefits. Effective January 1, 1994, the
Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits." The principal effect of adopting this standard is the accrual of
postemployment benefits during the period the employees provide service
rather than expensing costs as paid. The cumulative effect of adopting this
standard was $4.5 million, which is net of an income tax benefit of $2.8
million. The effect on 1994 net income, excluding the cumulative effect,
was not material.
Restricted Cash - Restricted cash represents short-term, highly liquid
investments held in trust accounts in accordance with a tax-exempt bond
agreement. Funds are released solely for financing environmental facilities
as defined in the bond agreements.
Consolidated Statement of Cash Flows - For purposes of the consolidated
statement of cash flows, the Company considers highly liquid short-term
investments with original maturities of three months or less to be cash
equivalents. In addition, borrowings with original maturities of three
months or less are presented net of repayments.
Accounting for Long-Lived Assets - Effective January 1, 1996, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("SFAS 121"). SFAS 121 establishes the accounting for the
impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and the accounting for
long-lived assets and certain identifiable intangibles to be disposed of.
The adoption of SFAS 121 did not have a material effect on the consolidated
financial position or results of operations of the Company.
Reclassifications - Certain reclassifications have been made to the 1995
and 1994 financial statements to conform with the classifications used in
1996.
2. INVESTMENT IN LYONDELL-CITGO REFINING COMPANY LTD.
On July 1, 1993, subsidiaries of CITGO and Lyondell Petrochemical Company
("Lyondell") executed definitive agreements with respect to LYONDELL-CITGO
Refining Company Ltd. ("LYONDELL-CITGO"), a Texas limited liability company
which owns and operates a 265 MBPD refinery previously owned by Lyondell
and located in Houston, Texas. As of December 31, 1996, CITGO has invested
approximately $579 million in cash for a minority participation interest in
LYONDELL-CITGO and to fund the initial portion of CITGO's commitment to the
refinery enhancement project described below, while Lyondell contributed
the refinery and related assets in exchange for the remaining participation
interest in the new company. As of December 31, 1996, LYONDELL-CITGO has
spent approximately $1,073 million on a refinery enhancement project to
increase the refinery's heavy crude oil high conversion capacity. This
heavy crude oil will be entirely supplied by a subsidiary of PDVSA under a
long-term crude oil supply contract. CITGO purchases substantially all of
the refined products produced at the Houston refinery under a long-term
contract through the year 2017, thereby significantly reducing its need to
purchase refined products from third-
- 10 -
party sources to supply its distribution network. As of December 31, 1996,
LYONDELL-CITGO estimates expenditures to complete this project will total
approximately $57 million to $67 million.
As of December 31, 1996, CITGO is committed to invest an additional (i) $30
million at the in-service date (as defined in the definitive agreement) of
the refinery enhancement project, which is currently scheduled for early
1997, (ii) up to an additional approximately $10 million through the
in-service date, and (iii) additional funding for operations in the event
that the refinery enhancement project startup does not proceed as
anticipated. In addition, CITGO is required to fund certain fees, expenses
and interest on LYONDELL-CITGO's initial $450 million of construction
loans, and is committed to fund up to $22 million for certain maintenance
and environmental costs, to the extent that maintenance and environmental
costs exceed expectations. Although CITGO is committed to fund the
investments described above, CITGO does not currently expect that its
aggregate investments will exceed $626 million (including the initial
investment, but exclusive of reinvested earnings) through the in-service
date. CITGO's expected aggregate investment in LYONDELL-CITGO, plus its
share of LYONDELL-CITGO's earnings, which must be reinvested through the
in-service date, will give CITGO approximately a 42% participation interest
in LYONDELL-CITGO; CITGO also has a one-time option within 18 months of the
in-service date to make an additional investment which, if made, would
increase CITGO's participation interest to 50%. As of December 31, 1996,
the Company has made $258 million of equity contributions to CITGO to fund
its investments in LYONDELL-CITGO. CITGO expects to fund its remaining
commitment through cash generated from operations and available credit
facilities.
CITGO accounts for its investment in LYONDELL-CITGO using the equity method
based on allocations of income agreed to by the owners. At December 31,
1996 and 1995, CITGO's investment, including reinvested earnings, was $605
million and $461 million, which represented an approximate 13 percent and
12 percent participation interest, respectively, as defined by the
agreement. CITGO's equity in the earnings of LYONDELL-CITGO was $1 million,
$14 million and $6 million for 1996, 1995 and 1994, respectively.
3. ACQUISITION OF BUSINESS
On May 1, 1995, CITGO purchased Cato Oil & Grease Company ("Cato"). Cato is
primarily engaged in the manufacture and distribution of lubricants. The
results of operations of Cato are included in the accompanying financial
statements since the date of acquisition. Pro forma results of operations
for this business are not material to the Companies' consolidated statement
of income. The total cost of this acquisition was $46.805 million, which
was allocated as follows:
(000's Omitted)
Property, plant and equipment $27,000
Inventory 8,643
Accounts receivable 6,144
Other assets 5,018
-------
$46,805
=======
- 11 -
4. RELATED PARTY TRANSACTIONS
The Company's subsidiaries purchase approximately two-thirds of the crude
oil processed in Company refineries from subsidiaries of PDVSA under
long-term supply agreements. Under these supply agreements, which extend
through years 2006 and 2013, and other agreements, including feedstock and
product purchase agreements and vessel transportation contracts, the
Companies purchased $2.4 billion, $1.9 billion, and $1.8 billion of crude
oil, feedstocks and other products from wholly-owned subsidiaries of PDVSA
in 1996, 1995 and 1994, respectively. These crude oil, feedstock, and other
product purchases comprised 29 percent, 31 percent, and 34 percent of the
Company's total acquisitions in 1996, 1995 and 1994, respectively. The
crude oil supply contracts incorporate formula prices based on the market
value of a number of refined products deemed to be produced from each
particular crude oil, less (i) certain deemed refining costs adjustable for
inflation, (ii) certain actual costs, including transportation charges,
import duties and taxes and (iii) a deemed margin, which varies according
to the grade of crude oil. Effective January 1, 1992, the supply agreements
with respect to CITGO's Lake Charles, Corpus Christi and Paulsboro
refineries were modified to reduce the price levels to be paid by CITGO by
a fixed amount per barrel of crude oil purchased from PDVSA. Such
reductions were intended to defray CITGO's costs of certain environmental
compliance expenditures. This modification resulted in a decrease in the
cost of crude oil purchased under these agreements of approximately $70
million per year for the years 1992 through 1994 as compared to the amount
that would otherwise have been payable thereunder. This modification was to
expire at December 31, 1996; however, in the third quarter of 1995, PDVSA
and CITGO agreed to adjust this modification so that the 1992 fixed amount
per barrel would be reduced and the adjusted modification would not expire
until December 31, 1999. The impact of this adjustment was an increase in
crude cost of $44 million for 1996 and $22 million for 1995, over what
would otherwise have been payable under the original 1992 modification. The
Company anticipates that the effect of the adjustments to the original
modifications will be to reduce the price of crude oil purchased from PDVSA
under these agreements by $25 million per year in 1997 through 1999, in
each case without giving effect to any other factors that may affect the
price payable for crude oil under these agreements. Due to the pricing
formula under the supply agreements, the aggregate price actually paid for
crude oil purchased from PDVSA under these agreements in each of these
years will depend primarily upon the then current prices for refined
products and certain actual costs of CITGO. These estimates are also based
on the assumption that CITGO will purchase the base volumes of crude oil
under the agreements. At December 31, 1996 and 1995, $237 million and $146
million, respectively, were included in payables to affiliates as a result
of these transactions.
CITGO purchases substantially all of the refined products produced at the
LYONDELL-CITGO refinery under a long-term contract through the year 2017.
During 1996, 1995 and 1994, CITGO purchased $1.6 billion, $1.4 billion, and
$1.1 billion of crude oil, feedstocks and refined products from
LYONDELL-CITGO primarily under this product sales agreement. The products
sales agreement incorporates formula prices based on published market
prices and defined marketing discounts and variable factors. At December
31, 1996 and 1995, $38 million and $31 million were included in payables to
affiliates as a result of these transactions.
CITGO had refined product, feedstock, crude oil and other product sales of
$254 million, $243 million and $153 million to affiliates in 1996, 1995 and
1994, respectively. At
- 12 -
December 31, 1996 and 1995, $28 million and $29 million, respectively, were
included in due from affiliates as a result of these transactions.
During 1995, the Company entered into a service agreement with PDVSA to
provide financial and foreign agency services. Income from these services
was $.3 million and $1.3 million in 1996 and 1995, respectively.
Under a separate guarantee of rent agreement, PDVSA has guaranteed payment
of rent, stipulated loss value and terminating value due under the lease of
the Corpus Christi refinery facilities described in Note 15.
The notes receivable from PDVSA are unsecured and are comprised of $250
million of 7.35% notes maturing on August 1, 1998, $250 million of 7.75%
notes maturing on August 1, 2000, and $500 million of 7.995% notes maturing
on August 1, 2003. Interest on these notes is payable semiannually by PDVSA
to the Company on February 1 and August 1 of each year, less one business
day. For each of the years ended December 31, 1996, 1995 and 1994,
approximately $78 million of interest income is attributable to such notes
with $32 million included in due from affiliates at December 31, 1996 and
1995. Due to the related party nature of these notes receivable, it is not
practicable to estimate their fair value.
5. ACCOUNTS RECEIVABLE
1996 1995
(000's Omitted)
Trade $ 770,069 $ 620,690
Credit card 203,329 166,492
Other 48,406 9,105
---------- ----------
1,021,804 836,287
Less allowance for uncollectible accounts (17,706) (18,297)
---------- ----------
$1,004,098 $ 817,990
========== ==========
6. INVENTORIES
1996 1995
(000's Omitted)
Refined product $ 616,527 $ 588,696
Crude oil 165,564 149,414
Materials and supplies 51,100 47,165
---------- ----------
$ 833,191 $ 785,275
========== ==========
- 13 -
As of December 31, 1996 and 1995, replacement costs exceed LIFO carrying
values by approximately $294 million and $112 million respectively.
7. PROPERTY, PLANT AND EQUIPMENT
1996 1995
(000's Omitted)
Land $ 113,158 $ 112,542
Buildings and leaseholds 440,175 411,081
Machinery and equipment 2,421,803 2,185,277
Vehicles 42,977 44,211
Construction in process 373,006 218,146
---------- ----------
3,391,119 2,971,257
Less accumulated depreciation and amortization (604,178) (479,111)
---------- -----------
$2,786,941 $2,492,146
========== ==========
Depreciation expense for 1996, 1995 and 1994 was $136 million, $122 million
and $103 million, respectively.
Other income includes gains and losses on disposals and retirements of
property, plant and equipment. Such net losses were approximately $2
million, $4 million and $7 million in 1996, 1995, and 1994, respectively.
8. CITGO'S INVESTMENTS IN AFFILIATES
In addition to LYONDELL-CITGO (Note 2), CITGO's investments in affiliates
consist of equity interests of 6.8 to 50 percent in joint interest
pipelines and terminals, including a 13.98 percent interest in Colonial
Pipeline Company; a 49.5 percent partnership interest in Nelson Industrial
Steam Company ("NISCO"), which is a qualified cogeneration facility; and a
49 percent partnership interest in Mount Vernon Phenol Plant. The carrying
value of these investments exceeded the equity in the underlying net assets
by approximately $160 million and $164 million at December 31, 1996 and
1995, respectively.
In September 1994, NISCO refinanced its long-term debt. In connection with
this transaction, CITGO received a $75 million cash distribution from NISCO
and NISCO wrote off deferred loan fees and other costs associated with the
extinguished debt. CITGO's share of NISCO's write-off, $1.6 million, was
reported as an extraordinary after-tax charge in 1994. The distribution
received exceeded CITGO's investment and capital account in NISCO by
approximately $26 million. This amount was recorded in other noncurrent
liabilities based on the terms of the NISCO partnership agreement and has
subsequently been adjusted to reflect capital transactions and CITGO's
share of NISCO's earnings and losses. At December 31, 1996 and 1995, other
noncurrent liabilities include approximately $47 million and $40 million,
respectively, related to CITGO's partnership interest in NISCO.
- 14 -
CITGO's equity in net income of affiliates, excluding the NISCO
extraordinary charge, is included in equity in earnings (losses) of
affiliates. Information on CITGO's investments, including LYONDELL-CITGO,
follows:
1996 1995 1994
(000's Omitted)
Investments in affiliates $790,576 $650,360 $461,807
Equity in net income (losses) of affiliates 21,481 33,530 28,585
Dividends received from affiliates 31,157 29,040 26,282
Selected financial information provided by the affiliates is summarized as
follows:
1996 1995 1994
(000's Omitted)
Summary of financial position:
Current assets $ 543,692 $ 547,479 $ 529,206
Noncurrent assets 2,859,091 2,345,695 1,876,688
Current liabilities 697,046 596,723 510,613
Noncurrent liabilities 1,999,276 1,659,729 1,400,805
Summary of operating results:
Revenues $4,158,684 $3,900,653 $3,474,306
Gross profit 475,227 574,103 522,059
Net income 242,434 344,817 276,633
9. INVESTMENT IN UNO-VEN
On December 1, 1989, Midwest purchased an interest in a refinery in
Illinois, and a distribution and marketing system, located in various
midwestern states, from Union Oil Company of California ("Unocal"). Midwest
then contributed these assets to Uno-Ven in exchange for a 50 percent
interest in the partnership. Unocal contributed the balance of the refinery
and distribution assets, as well as approximately $172 million of
liabilities, to Uno-Ven. Information with respect to Uno-Ven is as follows:
1996 1995 1994
(000's Omitted)
Investment in Uno-Ven $249,949 $231,600 $217,000
Equity in net income 23,425 14,600 26,785
Dividends received from Uno-Ven 5,076 - 15,724
- 15 -
Financial information of Uno-Ven is as follows:
1996 1995 1994
(000's Omitted)
Summary of financial position:
Current assets $ 360,900 $ 319,800 $ 280,900
Noncurrent assets 562,700 570,100 573,900
Current liabilities 265,800 259,600 239,600
Noncurrent Liabilities 158,000 167,100 181,200
Summary of operating results:
Revenues $1,663,277 $1,352,100 $1,236,600
Gross profit 150,000 139,000 155,000
Net income 46,890 29,200 53,700
Under a long-term crude oil supply agreement through the year 2009, and
vessel transportation contracts, Uno-Ven purchased $964 million, $684
million and $571 million of crude oil from a wholly-owned subsidiary of
PDVSA in 1996, 1995 and 1994, respectively. The terms and pricing formulas
are similar to the Company's subsidiaries' crude oil supply agreements (see
Note 4). However, at the direction of the partners, in 1994 Uno-Ven entered
into an amendment of the supply agreement, in lieu of taking certain
actions provided in the supply agreement to change the method of
calculating the price of crude oil upon completion of the Agreed Capital
Improvements (as defined in the Uno-Ven Partnership Agreement). This
amendment increased the price payable by Uno-Ven for all crude oil
purchased under the supply agreement on and after May 1, 1993, by $0.2841
per barrel. As a result of this amendment, Uno-Ven's 1994 earnings reflect
a charge of $9.4 million for the price increase allocable to 1993. The
supply agreement does not require any future pricing adjustments.
Uno-Ven buys and sells refined products from/to Unocal. Agreements
underlying these transactions define the obligations and responsibilities
of the parties. Pricing is in accordance with formulas based, in part, upon
market-related prices of finished products. Uno-Ven also has a number of
agreements with Unocal covering certain marketing, administrative, and
technical functions.
Under the terms of the asset purchase and contribution agreement, Unocal
has agreed to indemnify Uno-Ven for certain environmental compliance and
cleanup costs identified during the first six years of the partnership's
operations relating to conditions that existed as of December 1, 1989. This
indemnification ended November 30, 1995. At the present time, Uno-Ven
estimates that its share of any ultimate liability from any known
environmental matters would not be material to its financial condition.
In December 1996, the Company signed a letter of intent with Unocal for the
Company or an affiliate to purchase the refining, distribution and
marketing assets representing Unocal's 50% interest in Uno-Ven. CITGO is
expected to operate the Illinois refinery and distribution network and
purchase refined products produced at the refinery under various agreements
with affiliates. The transaction is expected to close in the second quarter
of 1997.
- 16 -
10. SHORT-TERM BANK LOANS
CITGO has established $180 million of uncommitted, unsecured, short-term
borrowing facilities with various banks. Interest rates on these facilities
are determined daily based upon the Federal funds interest rates, and
maturity options vary up to 30 days. The weighted average interest rates
actually incurred in 1996, 1995 and 1994 were 5.7, 6.2 and 6.4 percent,
respectively. CITGO had $53 million and $25.0 million of borrowings
outstanding under these facilities at December 31, 1996 and 1995,
respectively.
11. LONG-TERM DEBT
1996 1995
(000's Omitted)
Senior Notes:
7.25% Senior Notes $250 million face amount due 1998 $ 249,631 $ 249,420
7.75% Senior Notes $250 million face amount due 2000 250,000 250,000
7.875% Senior Notes $500 million face amount due 2003 496,967 496,633
Shelf registration:
7.875% Senior Notes $200 million face amount due 2006 199,715 --
Revolving bank loan 350,000 290,000
Term bank loan 88,235 117,647
Private Placement:
8.75% Series A Senior Notes due 1998 37,500 56,250
9.03% Series B Senior Notes due 2001 142,857 171,429
9.30% Series C Senior Notes due 2006 113,637 125,000
Master Shelf Agreement:
8.55% Senior Notes due 2002 25,000 25,000
8.68% Senior Notes due 2003 50,000 50,000
7.29% Senior Notes due 2004 20,000 20,000
8.59% Senior Notes due 2006 40,000 40,000
8.94% Senior Notes due 2007 50,000 50,000
7.17% Senior Notes due 2008 25,000 25,000
7.22% Senior Notes due 2009 50,000 50,000
Tax Exempt Bonds:
Pollution control revenue bonds due 2004 15,800 15,800
Port facilities revenue bonds due 2007 11,800 11,800
Louisiana wastewater facility revenue bonds due 2023 3,020 3,020
Louisiana wastewater facility revenue bonds due 2024 20,000 20,000
Louisiana wastewater facility revenue bonds due 2025 40,700 40,700
Gulf Coast solid waste facility revenue bonds due 2025 50,000 50,000
Gulf Coast solid waste facility revenue bonds due 2026 50,000 50,000
Port of Corpus Christi sewage and solid waste disposal
revenue bonds due 2026 25,000 --
Taxable Louisiana wastewater facility revenue bonds due 2026 120,000 --
Cit-Con bank credit agreement 35,714 42,857
----------- -----------
2,560,576 2,250,556
Less current portion of long-term debt (95,240) (95,240)
----------- -----------
$ 2,465,336 $ 2,155,316
=========== ===========
- 17 -
In August 1993, the Company issued $1 billion principal amount of Senior
Notes (the "Senior Notes") with interest rates ranging from 7.25 to 7.875
percent with due dates ranging from 1998 to 2003. Interest on the Senior
Notes is payable semiannually, commencing February 1, 1994. The Senior
Notes represent senior unsecured indebtedness of the Company, and are
structurally subordinated to the liabilities of the Company's subsidiaries.
The Senior Notes are guaranteed by Propernyn and PDVSA. The Senior Notes
contain certain covenants that restrict, among other things, the ability of
the Company and its subsidiaries to incur additional debt, to pay
dividends, place liens on property, and sell certain assets. The Company
was in compliance with the debt covenants at December 31, 1996.
In April 1996, CITGO filed a registration statement with the Securities and
Exchange Commission relating to the shelf registration of $600 million of
debt securities that may be offered and sold from time to time. In May
1996, the registration became effective and CITGO sold a tranche of debt
securities with an aggregate offering price of $200 million. CITGO used the
net proceeds from the sale of the notes for working capital and the
repayment of borrowings under the Company's revolving credit facility. This
repayment will not permanently reduce CITGO's borrowing capacity
thereunder. CITGO may, in the future, borrow additional amounts under its
revolving credit facility to fund capital expenditures, to fund working
capital requirements, or for other corporate purposes.
CITGO's credit agreement with various banks was amended during 1994. The
primary result of the amendments was a reduction in borrowings under the
term bank loan of $150 million. At December 31, 1996, this agreement
consists of a $125 million term loan and a $675 million revolving loan. The
term loan is unsecured, has various interest rate options (year-end rate of
6.8, 6.3 and 6.6 percent at December 31, 1996, 1995 and 1994, respectively)
and principal amounts are payable in quarterly installments commencing in
December 1995. The revolving loan is unsecured, has various borrowing
maturities and interest rate options (year-end rate of 6.7, 6.4 and 6.7
percent at December 31, 1996, 1995 and 1994, respectively), and is
committed through December 31, 1999.
At December 31, 1996, CITGO has outstanding approximately $294 million of
privately placed, unsecured Senior Notes (the "Notes"). Guarantees of these
Notes by significant subsidiaries of CITGO were released during 1995.
Principal amounts are payable in annual installments commencing in November
1995 for the Series A and Series B Notes and November 1996 for the Series C
Notes. Interest is payable semiannually in May and November.
During 1994, CITGO entered into an unsecured Master Shelf Agreement with an
insurance company to place up to $260 million of senior notes in private
markets. A total of $260 million has been drawn under this facility as of
December 31, 1996, with various fixed interest rates and maturities.
The various CITGO agreements above contain certain covenants that,
depending upon the level of the Company's capitalization and earnings,
could impose limitations on the Company for paying dividends, incurring
additional debt, placing liens on property, and selling fixed assets. The
Company was in compliance with the debt covenants at December 31, 1996.
- 18 -
Through state entities, CITGO has issued $27.6 million of industrial
development bonds for certain Lake Charles, Louisiana port facilities and
pollution control equipment and $188.7 million of environmental revenue
bonds to finance a portion of the Company's environmental facilities at its
Lake Charles, Louisiana and Corpus Christi, Texas refineries and at the
LYONDELL-CITGO refinery.
The pollution control and port facilities revenue bonds are secured by
letters of credit. Interest rates vary weekly and the interest rates at
December 31, 1996, 1995 and 1994 were 4.1, 5.1 and 5.5 percent,
respectively. The Louisiana Revenue Bonds due in the year 2023 have a fixed
interest rate of 6 percent. Guarantees of these bonds by certain CITGO
subsidiaries were released during 1995. During 1995 CITGO repurchased
approximately $47 million of these bonds at a discount, resulting in an
extraordinary gain of approximately $3.4 million net of related income
taxes of approximately $2.2 million. The remaining tax-exempt revenue bonds
are secured by letters of credit and have a floating interest rate which
was 5.1 percent, 6.2 percent, and 5.7 percent at December 31, 1996, 1995,
and 1994, respectively, as applicable.
Through a state entity, the Company has issued $120 million of taxable
environmental revenue bonds to finance a portion of the Company's
environmental facilities at its Lake Charles, Louisiana refinery. Such
bonds are secured by a letter of credit and have a floating interest rate
which was 5.5% at December 31, 1996. At the option of the Company and upon
the occurrence of certain specified conditions, all or any portion of such
taxable bonds may be converted to tax-exempt bonds. At December 31, 1996,
no such bonds had been converted to tax-exempt bonds.
The Cit-Con Oil Corporation bank credit agreement was converted to a term
loan during 1995. The agreement is collateralized by throughput agreements
of the owner companies, has various interest rate options (weighted average
effective rates of 6.3, 6.8 and 6.7 percent in 1996, 1995 and 1994,
respectively), and requires quarterly principal payments through December
2001.
CITGO has entered into the following interest rate swap agreements to
reduce the impact of interest rate changes on its variable interest rate
debt:
Notional Principal
Amount
Expiration Fixed Rate 1996 1995
Variable Rate Index Date Paid (000's Omitted)
One-month LIBOR September 1998 4.85% $ 25,000 $ 25,000
One-month LIBOR November 1998 5.09 25,000 25,000
One-month LIBOR May 2000 6.28 25,000 25,000
J.J. Kenny May 2000 4.72 25,000 25,000
J.J. Kenny February 2005 5.30 12,000 12,000
J.J. Kenny February 2005 5.27 15,000 15,000
J.J. Kenny February 2005 5.49 15,000 15,000
--------- ---------
$ 142,000 $ 142,000
========= =========
- 19 -
Interest expense includes $1.1 million, $0.1 million, and $0.4 million in
1996, 1995 and 1994, respectively, related to interest paid on these
agreements. During 1995, CITGO converted $25 million of variable rate debt
to fixed rate borrowings and terminated the interest rate swap agreement
matched to the variable rate debt. Other income in 1995 includes a $2.4
million gain related to the termination of this interest rate swap
agreement.
During 1995, CITGO entered into a 9% interest rate cap agreement with a
notional amount of $25 million, a reference rate of three-month LIBOR and
an expiration date of February 1997. Other interest rate cap agreements to
which CITGO was a party expired in November 1994. The effect of these
agreements was not material in 1996, 1995 or 1994.
Future maturities of long-term debt as of December 31, 1996 are: 1997-$95.2
million; 1998-$345.2 million; 1999-$426.5 million; 2000-$297.1 million;
2001-$47.1 million and $1,353 million thereafter.
12. EMPLOYEE BENEFIT PLANS
Employee Savings - CITGO sponsors three qualified defined contribution
retirement and savings plans covering substantially all eligible salaried
and hourly employees. Participants make voluntary contributions to the
plans and CITGO makes contributions, including matching of employee
contributions, based on plan provisions. CITGO charged $16 million, $16
million and $15 million to operations related to its contributions to these
plans in 1996, 1995 and 1994, respectively.
Pension Benefits - CITGO sponsors three qualified noncontributory defined
benefit pension plans, two of which cover eligible hourly employees and one
of which covers eligible salaried employees. CITGO also sponsors three
nonqualified defined benefit plans for certain eligible employees. The
qualified plans' assets include corporate securities, a fixed income mutual
fund, and a short-term investment fund. The nonqualified plans are not
funded.
CITGO's policy is to fund the qualified pension plans in accordance with
applicable laws and regulations and not to exceed the tax deductible
limits. The nonqualified plans are funded as necessary to pay retiree
benefits. The plan benefits for each of the qualified pension plans are
primarily based on an employee's years of plan service and compensation as
defined by each plan.
The Company's net periodic pension costs for these plans included the
following components:
1996 1995 1994
(000's Omitted)
Service cost-benefits earned during the year $ 13,356 $ 11,498 $ 11,757
Interest cost on projected benefit obligation 12,787 11,496 10,164
Actual (return) loss on plan assets (24,645) (34,784) 3,166
Net amortization and deferral 10,068 23,777 (14,529)
--------- ---------- ---------
Net periodic pension cost $ 11,566 $ 11,987 $ 10,558
========= ========= =========
- 20 -
The following table summarizes the funded status of these plans and the
related amounts recognized in the Company's consolidated financial
statements:
1996 1995
Over- Under- Over- Under-
funded funded funded funded
Plans Plans Plans Plans
(000's Omitted) (000's Omitted)
Plan assets at fair value $ 184,236 $ -- $ 155,997 $ --
--------- --------- --------- ---------
Actuarial present value of
benefit obligation:
Vested benefits (114,259) (13,643) (103,046) (10,292)
Nonvested benefits (18,569) (85) (16,661) --
--------- --------- --------- ---------
Accumulated benefit obligation (132,828) (13,728) (119,707) (10,292)
Effect of projected long-term
compensation increases (46,140) (380) (41,012) (1,729)
--------- --------- --------- ---------
Total projected benefit obligation
("PBO") (178,968) (14,108) (160,719) (12,021)
--------- --------- ---------
Plan assets in excess of (less
than) PBO $ 5,268 $ (14,108) $ (4,722) $ (12,021)
========= ========= --------- =========
Pension liability recognized in the
consolidated balance sheets $ (27,974) $ (13,728) $ (27,467) $ (10,292)
Amounts not recognized:
Prior service costs 1,731 (1,956) 1,928 (1,786)
Net gain at date of adoption 1,816 -- 2,085 --
Net amount resulting from plan
experience and changes in
actuarial assumptions 29,695 (1,582) 18,732 (862)
Additional minimum liability -- 3,158 -- 919
--------- --------- --------- ---------
Funded status as of year end $ 5,268 $ (14,108) $ (4,722) $ (12,021)
========= ========= ========= =========
The underfunded plans relate to the plans in which assets at fair value are
exceeded by the accumulated benefit obligation.
- 21 -
Following are the significant assumptions used in determining the costs and
funded status of these plans:
1996 1995 1994
Discount rate:
Pension costs 7.5% 8.0% 7.5%
Benefit obligations 7.5 7.5 8.0
Rate of long-term compensation increase:
Pension costs 5.0 5.0 5.0
Benefit obligations 5.0 5.0 5.0
Expected long-term rate of return on assets 8.5 8.5 9.0
Postretirement Benefits Other Than Pensions - In addition to pension
benefits, CITGO also provides certain health care and life insurance
benefits for eligible salaried and hourly employees at retirement. These
benefits are subject to deductibles, copayment provisions and other
limitations and are primarily funded on a pay-as-you-go basis. The Company
reserves the right to change or to terminate the benefits at any time.
The following sets forth the funded status of the accumulated
postretirement benefit obligation reconciled with amounts reported in the
Company's consolidated balance sheet:
1996 1995
(000's Omitted)
Accumulated postretirement benefit obligation ("APBO"):
Retirees $ 45,793 $ 49,853
Fully eligible active employees 38,955 38,393
Other active employees 64,402 73,295
-------- --------
Total APBO 149,150 161,541
Trust assets at fair value 843 799
-------- --------
APBO in excess of trust assets 148,307 160,742
Plus unrecognized net gain 38,763 10,863
-------- --------
Postretirement benefit liability recognized in the
consolidated balance sheets including $3.7 million in
other current liabilities at December 31, 1996 and 1995 $187,070 $171,605
======== ========
- 22 -
The Company's net periodic benefit cost included the following components:
1996 1995 1994
(000's Omitted)
Service cost - benefits earned during the year $ 7,047 $ 5,819 $ 7,421
Interest cost on APBO 11,982 12,089 11,833
Actual return on trust assets (50) (43) (41)
Other - amortization of unrecognized net gain - (21,603) (5,333)
--------- --------- ---------
Net periodic postretirement benefit cost (credit) $ 18,979 $ (3,738) $ 13,880
========= ======== =========
The amortization of unrecognized net gain (or loss) is due to changes in
the APBO resulting from experience different from that assumed and from
changes in assumptions. Gains (or losses) are recognized as a component of
net postretirement benefit cost by the amount the beginning of year
unrecognized net gain (or loss) exceeds 7.5 percent of the APBO. Increases
in the per capita costs of covered health care benefits of 10 percent, 11
percent and 12 percent were assumed for 1996, 1995 and 1994, respectively,
gradually decreasing to a 5.5 percent ultimate rate by the year 2002.
Increasing the assumed health care cost trend rates by one percentage point
in each future year would increase the accumulated postretirement benefit
obligation as of December 31, 1996 by $26 million and increase the
aggregate of the service cost and interest cost components of net periodic
postretirement benefit cost for 1996 by $4.3 million. Discount rates of 7.5
percent, 8 percent and 7.5 percent for 1996, 1995 and 1994, respectively,
were used to determine the net periodic postretirement cost. A discount
rate of 7.5 percent for 1996 and 1995 was used to determine the accumulated
postretirement benefit obligation.
13. INCOME TAXES
The provisions for income taxes are comprised of the following:
1996 1995 1994
(000's Omitted)
Current:
Federal $ 69,698 $ 60,152 $ 67,443
State 2,901 5,067 5,675
-------- -------- --------
72,599 65,219 73,118
Deferred 5,159 18,777 44,706
-------- -------- --------
$ 77,758 $ 83,996 $117,824
======== ======== ========
- 23 -
The Federal statutory tax rate differs from the effective rate due to the
following:
1996 1995 1994
Federal statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of Federal benefit 3.2 3.4 2.7
Dividend exclusions (3.5) (3.2) (2.0)
Other 1.3 1.9 0.8
------ ------ ------
Effective tax rate 36.0% 37.1% 36.5%
====== ====== ======
Under SFAS 109, deferred income taxes reflect the net tax effects of (a)
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes, and (b) loss and tax credit carryforwards. The tax
effects of significant items comprising the Company's net deferred tax
liability as of December 31, 1996 and 1995 are as follows:
December 31,
1996 1995
(000's Omitted)
Deferred tax liabilities
Property, plant and equipment $ 466,889 $ 429,287
Inventories 70,420 65,650
Investments in affiliates 70,368 65,915
Other 30,513 8,423
----------- -----------
638,190 569,275
----------- -----------
Deferred tax assets:
Postretirement benefit obligations 77,905 71,579
Marketing and promotional accruals 23,236 23,603
Employee benefit accruals 30,027 27,280
Alternative minimum tax credit carryforward 59,543 21,277
Other 60,762 43,943
----------- -----------
251,473 187,682
----------- -----------
Net deferred tax liability (of which $13,051 and $18,544 is
included in prepaid expenses and other at December 31,
1996 and 1995, respectively) $ 386,717 $ 381,593
=========== ===========
The Company's alternative minimum tax credit carryforwards are available to
offset regular Federal income taxes in future years without expiration,
subject to certain alternative minimum tax limitations.
- 24 -
At December 31, 1996, the Company has capital loss carryforwards of $10.9
million, $9 million of which expire in 1998, $0.4 million of which expire
in 2000, and $1.5 million of which expire in 2001.
14. COMMITMENTS AND CONTINGENCIES
Litigation and Injury Claims - Various lawsuits and claims arising in the
ordinary course of business are pending against the Companies. Included
among these are: (i) litigation with a contractor who is claiming
additional compensation of approximately $42 million, including interest
and profits, for sludge removal and treatment at CITGO's Lake Charles,
Louisiana refinery; CITGO is seeking contractual penalties for
non-performance and breach of contract and also a determination that a
portion of any damages awarded would be recoverable from a former owner; a
trial is currently scheduled for March 1997 concerning the nonperformance
and breach of contract issues; and (ii) litigation against CITGO by a
number of current and former employees and applicants on behalf of
themselves and a class of similarly situated persons asserting claims under
Federal and state laws of racial discrimination in connection with the
employment practices at CITGO's Lake Charles, Louisiana refining complex;
the plaintiffs have appealed the Court's denial of class certification; the
initial trials on this litigation are scheduled for July 1997. The
Companies are vigorously contesting or pursuing, as applicable, such
lawsuits and claims and believes that its positions are sustainable. The
Companies have recorded accruals for losses it considers to be probable and
reasonably estimable. However, due to uncertainties involved in litigation,
there are cases, including the significant matters noted above, in which
the outcome is not reasonably predictable and the losses, if any, are not
reasonably estimable. If such lawsuits and claims were to be determined in
a manner adverse to the Companies, and in amounts in excess of the
Companies' accruals, it is reasonably possible that such determinations
could have a material adverse effect on the Companies' results of
operations in a given year. The term "reasonably possible" is used herein
to mean that the chance of a future transaction or event occurring is more
than remote but less than likely. However, based upon management's current
assessments of these lawsuits and claims and that provided by counsel in
such matters, and the capital resources available to the Companies,
management of the Companies believes that the ultimate resolution of these
lawsuits and claims would not exceed the aggregate of the amounts accrued
in respect of such lawsuits and claims and the insurance coverages
available to the Companies by a material amount and, therefore, should not
have a material adverse effect on the Companies, financial condition,
results of operations or liquidity.
In January 1997, the Louisiana Supreme Court ruled in favor of certain
Louisiana refiners in an industry case regarding an assessment of a use tax
on petroleum coke which accumulates on catalyst during refining operations
and a change to the calculation of the sales/use tax on fuel gas generated
by refinery operations. The Companies believe that they have no further
exposure to losses related to these matters.
Environmental Matters - The Companies are subject to various Federal, state
and local environmental laws and regulations which may require the
Companies to take action to correct or improve the effects on the
environment of prior disposal or release of petroleum substances by the
Companies or other parties. Management believes the Companies are in
compliance
- 25 -
with these laws and regulations in all material aspects. Maintaining
compliance with environmental laws and regulations could require
significant capital expenditures and additional operating costs.
In 1992, CITGO reached an agreement with a state agency to cease usage of
certain surface impoundments at CITGO's Lake Charles, Louisiana refinery by
1994. A mutually acceptable closure plan was filed with the state in 1993.
CITGO and a former owner are participating in the closure and sharing the
related costs based on estimated contributions of waste and ownership
periods. The remediation commenced in December 1993 and is expected to be
completed no earlier than 1998.
In 1992, an agreement was reached between CITGO and a former owner
concerning a number of environmental issues. The agreement consisted, in
part, of payments to CITGO totaling $46 million, of which $31 million was
received in 1992 and $5 million in each of the years 1993, 1994, and 1995.
The former owner will continue to share the costs of certain specific
environmental remediation and certain tort liability actions based on
ownership periods and specific terms of the agreement.
At December 31, 1996 and 1995 the Company had $56 million and $60 million,
respectively, of environmental accruals included in other noncurrent
liabilities. Based on currently available information, including the
continuing participation of former owners in remediation actions and other
environmental-related matters, management believes these accruals are
adequate. Conditions which require additional expenditures may exist for
various Company sites including, but not limited to, the Company's
operating refinery complexes, closed refineries, service stations and crude
oil and petroleum product storage terminals. The amount of such future
expenditures, if any, is indeterminable.
Capital Expenditures - CITGO's anticipated capital expenditures, excluding
CITGO's investments in LYONDELL-CITGO, for the five-year period 1997 to the
year 2001 total approximately $1.6 billion (unaudited). The expenditures
include environmental and regulatory capital projects as well as strategic
capital expenditures. At December 31, 1996, authorized expenditures on
incomplete capital projects totaled approximately $229 million.
Supply Agreements - CITGO has a long-term contract through August 31, 1998
which provides the option to purchase domestic crude oil at contract
reference prices from an independent supplier. Purchases under this
contract totaled $318 million, $261 million and $239 million in 1996, 1995
and 1994, respectively.
CITGO has various other crude oil, refined product and feedstock purchase
agreements with unaffiliated entities with terms ranging from monthly to
annual renewal. CITGO believes numerous sources of supply are readily
available on comparable terms.
Throughput Agreements - CITGO has throughput agreements with certain
pipeline affiliates (Note 8). These throughput agreements may be used to
secure obligations of the pipeline affiliates. Under these agreements,
CITGO may be required to provide its pipeline affiliates with additional
funds through advances against future charges for the shipping of petroleum
- 26 -
products. CITGO currently ships on these pipelines and has not been
required to advance funds in the past. At December 31, 1996, CITGO has no
fixed and determinable, unconditional purchase obligations under these
agreements.
Marine Spill Response Arrangements - During the third quarter of 1995 CITGO
entered into a contract with National Response Corporation for marine oil
removal services capability and terminated its relationship with the
previous provider of that service. CITGO paid a cancellation fee of
approximately $16 million, which is included in cost of sales and operating
expenses in 1995.
Derivative Commodity Activity - CITGO enters into petroleum futures
contracts primarily to reduce its inventory exposure to price risk. CITGO
also buys and sells commodity options for delivery and receipt of crude oil
and refined products. Such contracts are entered into through major
brokerage houses and traded on national exchanges and although usually
settled in cash, can be settled through delivery of the commodity. Such
contracts generally qualify for hedge accounting and correlate to price
movements of crude oil and refined products. Resulting gains or losses on
such contracts, therefore, will generally be offset by gains and losses on
CITGO's hedged inventory or future purchases and sales. CITGO's derivative
commodity activity is closely monitored by management. Contract periods are
generally less than 30 days. Unrealized and deferred gains and losses on
these contracts at December 31, 1996 and 1995 and the effects on cost of
sales and pretax earnings for 1996, 1995 and 1994 were not material. At
times, the Company enters into commodity futures and option agreements that
are not related to the hedging program discussed above. This activity and
its results were not material in 1996, 1995 or 1994.
From time to time, CITGO uses other over-the-counter derivative commodity
agreements to hedge exposure to changes in prices of refined products. At
December 31, 1996 and 1995, CITGO had no such agreements in place. At
December 31, 1993, CITGO had one turbine fuel price collar in effect which
effectively established a ceiling and floor price for 52 thousand barrels
of turbine fuel sales per month. The agreement expired in August 1994.
Other Credit and Off-Balance-Sheet Risk Information as of December 31, 1996
- CITGO has guaranteed approximately $13 million of debt of certain of its
distributors and an affiliate. Such debt is substantially collateralized by
assets of these entities. CITGO has outstanding letters of credit totaling
approximately $364 million which includes $218 million related to its
tax-exempt bonds. CITGO has also acquired surety bonds totaling $24 million
primarily due to requirements of various government entities. CITGO does
not expect liabilities to be incurred related to such guarantees, letters
of credit or surety bonds.
Neither CITGO nor the counterparties are required to collateralize their
obligations under interest rate swaps or caps or over-the-counter
derivative commodity agreements. CITGO is exposed to credit loss in the
event of nonperformance by the counterparties to these agreements, but has
no off-balance-sheet risk of accounting loss for the notional amounts.
CITGO does not anticipate nonperformance by the counterparties, which
consist primarily of major financial institutions at December 31, 1996.
- 27 -
Management considers the market risk to the Companies related to futures
contracts, commodity options activity, and other derivatives to be
insignificant during the periods presented.
15. LEASES
CITGO leases certain of its Corpus Christi refinery facilities under a
long-term lease. The basic term of the lease expires on January 1, 2004;
however, CITGO may renew the lease until January 31, 2011, the date of its
purchase option. Capitalized costs included in property, plant and
equipment related to the leased assets were approximately $209 million at
December 31, 1996 and 1995. Accumulated amortization related to the leased
assets was approximately $86 million and $78 million at December 31, 1996
and 1995, respectively. Amortization is included in depreciation expense.
The Companies also have various noncancellable operating leases, primarily
for product storage facilities, office space, computer equipment and
vehicles. Rent expense on all operating leases totaled $33 million, $33
million and $34 million in 1996, 1995 and 1994, respectively. Future
minimum lease payments for the capital lease and noncancellable operating
leases are as follows:
Capital Operating
Lease Leases Total
Year (000's Omitted)
1997 $ 27,375 $ 25,424 $ 52,799
1998 27,375 22,345 49,720
1999 27,375 16,880 44,255
2000 27,375 15,356 42,731
2001 27,375 14,165 41,540
Thereafter 90,750 48,131 138,881
----------
Total minimum lease payments 227,625 $ 142,301 $ 369,926
========== ==========
Amount representing interest (86,121)
----------
Present value of minimum lease payments 141,504
Current portion 11,778
----------
$ 129,726
==========
- 28 -
16. FAIR VALUE INFORMATION
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Companies, using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Companies could realize
in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts.
The carrying amounts of cash and cash equivalents, and restricted cash
approximate fair values because of the short maturity of these instruments.
The carrying amounts and estimated fair values of the Companies' other
financial instruments are as follows:
1996 1995
-------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
(000's Omitted)
Liabilities:
Short-term bank loans $ 53,000 $ 53,000 $ 25,000 $ 25,000
Long-term debt 2,560,576 2,597,556 2,250,556 2,289,733
Derivative and Off-Balance
Sheet Financial Instruments -
Unrealized Gains (Losses):
Interest rate swap agreements -- (1,093) -- (3,030)
Interest rate cap agreements -- -- -- --
Guarantees of debt -- (60) -- (48)
Letters of credit -- (1,741) -- (842)
Surety bonds -- (100) -- (90)
Short-Term Bank Loans and Long-Term Debt - The fair value of short-term
bank loans and long-term debt is based on interest rates that are currently
available to the Companies for issuance of debt with similar terms and
remaining maturities, except for the Company's $1 billion principle amount
senior notes which were based upon quoted market prices.
Interest Rate Swap and Cap Agreements - The fair value of these agreements
is based on the estimated amount that CITGO would receive or pay to
terminate the agreements at the reporting date, taking into account current
interest rates and the current creditworthiness of the counterparties.
Guarantees, Letters of Credit and Surety Bonds - The estimated fair value
of contingent guarantees of third-party debt, letters of credit and surety
bonds is based on fees currently
- 29 -
charged for similar one-year agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties
at the reporting dates.
The fair value estimates presented herein are based on pertinent
information available to management as of the reporting dates. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and
current estimates of fair value may differ significantly from the amounts
presented herein.
17. QUARTERLY RESULTS OF OPERATIONS - UNAUDITED
The following is a summary of the quarterly results of operations for the
years ended December 31, 1996 and 1995 (in thousands):
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
1996
Sales $2,607,195 $3,333,996 $3,310,456 $3,700,413
========== ========== ========== ==========
Cost of sales and operating expenses $2,521,101 $3,229,290 $3,186,413 $3,554,199
========== ========== ========== ==========
Net income $ 14,755 $ 36,002 $ 36,212 $ 51,054
========== ========== ========== ==========
1995
Sales $2,357,482 $2,952,144 $2,707,483 $2,505,051
========== ========== ========== ==========
Cost of sales and operating expenses $2,237,491 $2,848,045 $2,596,525 $2,383,951
========== ========== ========== ==========
Income before extraordinary gain $ 48,015 $ 30,756 $ 32,782 $ 30,933
Extraordinary gain 3,380 -- -- --
---------- ---------- ---------- ----------
Net income $ 51,395 $ 30,756 $ 32,782 $ 30,933
========== ========== ========== ==========
* * * * * *
- 30 -
SCHEDULE I
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Dollars in thousands)
Financial Position of Registrant
December 31,
------------
1996 1995
----------- ------------
Assets
Investment in and advances to affiliates $ 2,090,010 $ 1,948,959
Notes receivable from PDVSA 1,000,000 1,000,000
Other assets 50,653 53,134
----------- -----------
$ 3,140,663 $ 3,002,093
=========== ===========
Liabilities and shareholder's equity
Long-term debt $ 996,598 $ 996,053
Other liabilities 32,990 32,988
Shareholder's equity 2,111,075 1,973,052
----------- -----------
$ 3,140,663 $ 3,002,093
=========== ===========
Operations of the Registrant
Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
Revenues
Interest income from PDVSA $ 77,725 $ 77,725 $ 77,725
Other Income 8,231 9,168 8,953
----------- ----------- -----------
$ 85,956 $ 86,893 $ 86,678
----------- ----------- -----------
Expenses
Interest Expense 80,075 79,830 79,605
Other 2,676 3,020 1,713
----------- ----------- -----------
82,751 82,850 81,318
----------- ----------- -----------
Equity in net income of subsidiaries 136,008 139,959 201,643
----------- ----------- -----------
Income before income taxes, extraordinary
charge and cumulative effect of accounting
changes 139,213 144,002 207,003
Provision for income taxes 1,190 1,516 1,887
----------- ----------- -----------
Income before extraordinary charge and
cumulative effect of accounting change 138,023 142,486 205,116
Extraordinary gain (charge) - early
extinguishment of debt -- 3,380 (1,627)
Cumulative effect of accounting changes -
Postemployment benefits -- -- (4,477)
----------- ----------- -----------
Net Income $ 138,023 $ 145,866 $ 199,012
=========== =========== ===========
SCHEDULE I
PDV AMERICA, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Dollars in thousands)
Cash Flows of the Registrant
Year Ended December 31,
1996 1995 1994
-------- -------- --------
Cash provided by operating activities $ 5,517 $ 6,021 $ 6,112
-------- -------- --------
Cash used in investing activities
Investments in and advances to
subsidiaries (5,343) (21,317) (36,961)
-------- -------- --------
(5,343) (21,317) (36,961)
-------- -------- --------
Cash provided by financing activities -- 15,000 29,141
-------- -------- --------
Capital contribution from parent -- 15,000 29,141
-------- -------- --------
Net increase (decrease) in cash end cash
equivalents 174 (296) (1,708)
Cash and cash equivalents - beginning of year 5,207 5,503 7,211
-------- -------- --------
Cash and cash equivalents - end of year $ 5,381 $ 5,207 $ 5,503
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