Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Exact Name of Registrant as Specified in its
Commission File Charter, Principal Office Address and State of I.R.S. Employer
Number Telephone Number Incorporation Identification No.
- --------------- -------------------------------------------- ------------- ------------------
1-16827 Premcor Inc. Delaware 43-1851087
1700 East Putnam Avenue Suite 500
Old Greenwich, Connecticut 06870
(203) 698-7500
1-13514 Premcor USA Inc. Delaware 43-1495734
1700 East Putnam Avenue Suite 500
Old Greenwich, Connecticut 06870
(203) 698-7500
1-11392 The Premcor Refining Group Inc. Delaware 43-1491230
1700 East Putnam Avenue Suite 500
Old Greenwich, Connecticut 06870
(203) 698-7500
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.
Premcor Inc. Yes (X) No ( )
Premcor USA Inc. Yes (X) No ( )
The Premcor Refining Group Inc. Yes (X) No ( )
Number of shares of the registrant's common stock (only one class for each
registrant) outstanding as of November 1, 2002:
Premcor Inc. 57,926,435 shares
Premcor USA Inc. 100 shares (100% owned by Premcor Inc.)
The Premcor Refining Group Inc. 100 shares (100% owned by Premcor USA Inc.)
================================================================================
Form 10-Q
September 30, 2002
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Premcor Inc.:
Independent Accountants' Report ................................................................. 2
Condensed Consolidated Balance Sheets as of December 31, 2001 and September 30, 2002 ............ 3
Condensed Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 2001 and 2002 ............................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001
and 2002 .................................................................................... 5
Premcor USA Inc.:
Independent Accountants' Report ................................................................. 6
Condensed Consolidated Balance Sheets as of December 31, 2001 (as restated) and
September 30, 2002 .......................................................................... 7
Condensed Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 2001 (as restated) and 2002 ................................. 8
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001
(as restated) and 2002 ..................................................................... 9
The Premcor Refining Group Inc.:
Independent Accountants' Report ................................................................. 10
Condensed Consolidated Balance Sheets as of December 31, 2001 (as restated) and
September 30, 2002 .......................................................................... 11
Condensed Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 2001 (as restated) and 2002 ................................. 12
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001
(as restated) and 2002 ..................................................................... 13
Notes to Consolidated Financial Statements (Premcor Inc., Premcor USA Inc., and
The Premcor Refining Group Inc. Combined) ................................................... 14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............. 34
Item 3. Quantitative and Qualitative Disclosures about Market Risk ........................................ 54
Item 4. Controls and Procedures ........................................................................... 55
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................................................. 56
Item 2. Changes in Securities and Use of Proceeds ......................................................... 56
Item 6. Exhibits and Reports on Form 8-K .................................................................. 57
Signature
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
FORM 10-Q - PART I. FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q represents a combined report for three
registrants, Premcor Inc., Premcor USA Inc., or Premcor USA, and The Premcor
Refining Group Inc., or PRG. PRG is a wholly owned subsidiary of Premcor USA and
is the principal operating company. PRG, together with its wholly owned
subsidiary, Sabine River Holding Corp., or Sabine, own and operate two
refineries. Premcor USA is a wholly owned subsidiary of Premcor Inc.
The results of operations for Premcor Inc. and Premcor USA principally
reflect the results of operations of PRG. The consolidated financial statements
of PRG and Premcor USA differ primarily due to the effects of some minor
pipeline operations of Premcor USA, that mainly serve PRG, and long-term debt of
stand-alone Premcor USA. The consolidated financial statements of Premcor USA
and Premcor Inc. differ primarily due to the effects of Premcor Inc.'s
stand-alone general and administrative costs and interest income.
Included in this Quarterly Report on Form 10-Q are balance sheets,
statements of operations, and statements of cash flows for the applicable
periods for Premcor Inc., Premcor USA, and PRG. The information reflected in the
combined, consolidated footnotes is equally applicable to all three companies
except where indicated otherwise. The Management Discussion and Analysis of
Financial Condition and Results of Operations is presented at the Premcor Inc.
level and is also equally applicable to all three companies except where
otherwise noted.
1
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of Premcor Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Premcor Inc. (the "Company") as of September 30, 2002, the related condensed
consolidated statements of operations for the three-month and nine-month periods
ended September 30, 2001 and 2002, and the related condensed consolidated
statements of cash flows for the nine-month periods then ended. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 10 to the condensed consolidated financial statements, the
Company changed its method of accounting for stock based compensation issued to
employees.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of December 31, 2001, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 11, 2002 (March 29, 2002 as
to Note 15 and April 15, 2002 as to Notes 10 & 19), we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2001 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
St. Louis, Missouri
November 6, 2002
2
PREMCOR INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except share data)
December 31, September 30,
2001 2002
------------ -------------
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents ....................................................... $ 510.1 $ 156.3
Short-term investments .......................................................... 1.7 1.7
Cash and cash equivalents restricted for debt service ........................... 30.8 51.9
Accounts receivable, net of allowance of $1.3 and $3.2 .......................... 148.3 200.0
Inventories ..................................................................... 318.3 367.3
Prepaid expenses and other ...................................................... 52.3 30.7
Assets held for sale ............................................................ -- 61.2
-------- --------
Total current assets ......................................................... 1,061.5 869.1
PROPERTY, PLANT AND EQUIPMENT, NET ................................................ 1,299.6 1,213.7
DEFERRED INCOME TAXES ............................................................. -- 78.8
OTHER ASSETS ...................................................................... 148.7 130.9
-------- --------
$ 2,509.8 $ 2,292.5
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................ $ 366.4 $ 441.4
Accrued expenses ................................................................ 95.4 92.2
Accrued taxes other than income ................................................. 35.7 28.2
Current portion of long-term debt ............................................... 81.4 15.6
-------- --------
Total current liabilities .................................................... 578.9 577.4
LONG-TERM DEBT .................................................................... 1,391.4 909.7
DEFERRED INCOME TAXES ............................................................. 16.7 --
OTHER LONG-TERM LIABILITIES ....................................................... 109.1 146.8
COMMITMENTS AND CONTINGENCIES ..................................................... -- --
MINORITY INTEREST ................................................................. 24.2 --
EXCHANGEABLE PREFERRED STOCK
($0.01 par value per share; 250,000 shares authorized;
92,284 shares issued and outstanding in 2001) ................................... 94.8 --
COMMON STOCKHOLDERS' EQUITY:
Common, $0.01 par value per share, 53,000,000 authorized, 25,720,589 issued
and outstanding in 2001 and 150,000,000 authorized, 57,473,935 issued and
outstanding in 2002; Class F Common, $0.01 par value, 7,000,000 authorized,
6,101,010 issued and outstanding in 2001 ...................................... 0.3 0.6
Paid-in capital ................................................................... 323.7 851.6
Accumulated deficit ............................................................... (29.3) (193.6)
-------- --------
Total common stockholders' equity ............................................ 294.7 658.6
-------- --------
$ 2,509.8 $ 2,292.5
========= =========
The accompanying notes are an integral part of these financial statements.
3
PREMCOR INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; amounts in millions, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------- --------------------------------
2001 2002 2001 2002
--------------- ------------ -------------- --------------
NET SALES AND OPERATING REVENUES ...................... $ 1,666.2 $ 1,899.8 $ 5,170.9 $ 4,807.1
EXPENSES:
Cost of sales ...................................... 1,390.8 1,757.8 4,133.7 4,342.8
Operating expenses ................................. 104.9 109.6 355.8 338.2
General and administrative expenses ................ 16.1 11.9 45.3 40.8
Stock option compensation expense .................. -- 4.2 -- 9.9
Depreciation ....................................... 13.7 11.5 39.6 35.7
Amortization ....................................... 9.5 9.3 28.1 29.2
Refinery restructuring and other charges ........... 26.2 14.3 176.2 172.9
---------- --------- --------- ---------
1,561.2 1,918.6 4,778.7 4,969.5
OPERATING INCOME (LOSS) ............................... 105.0 (18.8) 392.2 (162.4)
Interest and finance expense ....................... (39.3) (22.0) (121.6) (89.4)
Gain (loss) on extinguishment of long-term debt .... 8.7 (0.2) 8.7 (19.5)
Interest income .................................... 5.5 1.5 15.3 7.9
---------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND MINORITY INTEREST ......................... 79.9 (39.5) 294.6 (263.4)
Income tax (provision) benefit ..................... (31.4) 15.0 (78.7) 99.9
Minority interest .................................. (1.5) -- (12.4) 1.7
---------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS .............. 47.0 (24.5) 203.5 (161.8)
Loss from discontinued operations, net of income tax
benefit of $5.5 .................................. -- -- (8.5) --
---------- --------- --------- ---------
NET INCOME (LOSS) ..................................... 47.0 (24.5) 195.0 (161.8)
Preferred stock dividends .......................... (2.7) -- (7.9) (2.5)
---------- --------- --------- ---------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS .... $ 44.3 $ (24.5) $ 187.1 $ (164.3)
========== ========= ========= =========
Basic net income (loss) per common share:
Income (loss) from continuing operations ............ $ 1.39 $ (0.43) $ 6.15 $ (3.57)
Discontinued operations ............................. -- -- (0.27) --
---------- --------- --------- ---------
Net income (loss) ................................... $ 1.39 $ (0.43) $ 5.88 $ (3.57)
========== ========= ========= =========
Weighted average common shares outstanding .......... 31.8 57.5 31.8 46.0
Diluted net income (loss) per common share:
Income (loss) from continuing operations ............ $ 1.28 $ (0.43) $ 5.67 $ (3.57)
Discontinued operations ............................. -- -- (0.25) --
---------- --------- --------- ---------
Net income (loss) ................................... $ 1.28 $ (0.43) $ 5.42 $ (3.57)
========== ========= ========= =========
Weighted average common shares outstanding .......... 34.5 57.5 34.5 46.0
Pro forma for adoption of SFAS No. 123:
Income (loss) from continuing operations ............ $ 46.9 $ (24.3) $ 203.1 $ (161.9)
Net income (loss) available to common stockholders .. $ 44.2 $ (24.3) $ 186.7 $ (164.4)
Net income (loss) per common share:
Basic ............................................ $ 1.39 $ (0.43) $ 5.87 $ (3.57)
Diluted .......................................... $ 1.28 $ (0.43) $ 5.41 $ (3.57)
The accompanying notes are an integral part of these financial statements.
4
PREMCOR INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, amounts in millions)
For the Nine Months
Ended September 30,
-------------------------------------
2001 2002
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................................. $ 195.0 $ (161.8)
Discontinued operations ........................................................... 8.5 --
Adjustments:
Depreciation ................................................................... 39.6 35.7
Amortization ................................................................... 37.1 36.9
Deferred income taxes .......................................................... 71.2 (100.5)
Inventory write-down to market ................................................. 8.7 --
Stock option compensation expense .............................................. -- 9.9
Minority interest .............................................................. 12.4 (1.7)
Refinery restructuring and other charges ....................................... 125.3 103.6
Write-off of deferred financing costs .......................................... 0.6 9.5
Write-off of equity investment ................................................. -- 4.2
Other, net ..................................................................... 0.4 15.8
Cash provided by (reinvested in) working capital -
Accounts receivable, prepaid expenses and other ................................ 41.9 (30.1)
Inventories .................................................................... (12.0) (49.0)
Accounts payable, accrued expenses, and taxes other than income ................ (105.4) 64.5
Cash and cash equivalents restricted for debt service .......................... (30.6) 24.1
------- --------
Net cash provided by (used in) operating activities of continuing operations . 392.7 (38.9)
Net cash used in operating activities of discontinued operations ............. (2.5) (3.3)
------- --------
Net cash provided by (used in) operating activities .......................... 390.2 (42.2)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment .................................... (57.8) (64.1)
Expenditures for turnaround ....................................................... (41.3) (33.4)
Cash and cash equivalents restricted for investment in capital additions .......... -- 5.5
Other ............................................................................. 0.6 0.2
------- --------
Net cash used in investing activities ........................................ (98.5) (91.8)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt and capital lease payments ......................................... (58.9) (645.2)
Proceeds from the issuance of common stock, net ................................... -- 482.0
Cash and cash equivalents restricted for debt repayment ........................... -- (45.2)
Deferred financing costs .......................................................... (9.6) (11.4)
Preferred stock dividend .......................................................... (0.3) --
------- --------
Net cash used in financing activities ........................................ (68.8) (219.8)
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................ 222.9 (353.8)
CASH AND CASH EQUIVALENTS, beginning of period ...................................... 290.1 510.1
------- --------
CASH AND CASH EQUIVALENTS, end of period ............................................ $ 513.0 $ 156.3
======= ========
The accompanying notes are an integral part of these financial statements.
5
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of Premcor USA Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Premcor USA Inc. (the "Company") as of September 30, 2002, the related condensed
consolidated statements of operations for the three-month and nine-month periods
ended September 30, 2001 and 2002, and the related condensed consolidated
statements of cash flows for the nine-month periods then ended. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 10 to the condensed consolidated financial statements, the
Company changed its method of accounting for stock based compensation issued to
employees. Additionally, the condensed consolidated financial statements have
been restated to give retroactive effect to the contribution of Sabine River
Holding Corp. common stock owned by Premcor Inc. to The Premcor Refining Group
Inc. (the "Sabine Restructuring"), which has been accounted for in a manner
similar to a pooling of interests as described in Notes 1 and 3 to the condensed
consolidated financial statements.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of December 31, 2001, and the related consolidated statements of
operations, stockholder's equity, and cash flows for the year then ended (not
presented herein). In our report dated February 11, 2002 (March 5, 2002 as to
Note 15 & 19), we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2001 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived after giving effect to the restatement for
the Sabine Restructuring described in Notes 1 and 3 to the condensed
consolidated financial statements.
Deloitte & Touche LLP
St. Louis, Missouri
November 6, 2002
6
PREMCOR USA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except share data)
December 31, September 30,
2001 2002
------------- -------------
ASSETS (as restated, (unaudited)
see Note 1)
CURRENT ASSETS:
Cash and cash equivalents ................................................. $ 508.0 $ 109.3
Short-term investments .................................................... 1.7 1.7
Cash and cash equivalents restricted for debt service ..................... 30.8 51.9
Accounts receivable, net of allowance of $1.3 and $3.2 .................... 148.3 199.9
Receivable from affiliates ................................................ 40.7 67.9
Inventories ............................................................... 318.3 367.3
Prepaid expenses and other ................................................ 42.7 30.7
Assets held for sale ...................................................... -- 61.2
----------- -----------
Total current assets ................................................... 1,090.5 889.9
PROPERTY, PLANT AND EQUIPMENT, NET .......................................... 1,299.6 1,213.7
DEFERRED INCOME TAXES ....................................................... -- 77.4
OTHER ASSETS ................................................................ 144.5 131.0
----------- -----------
$ 2,534.6 $ 2,312.0
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable .......................................................... $ 366.4 $ 441.3
Payable to affiliates ..................................................... 28.4 62.7
Accrued expenses .......................................................... 99.4 93.2
Accrued taxes other than income ........................................... 35.7 28.2
Current portion of long-term debt ......................................... 81.4 15.6
----------- -----------
Total current liabilities .............................................. 611.3 641.0
LONG-TERM DEBT .............................................................. 1,391.4 909.7
DEFERRED INCOME TAXES ....................................................... 16.7 --
OTHER LONG-TERM LIABILITIES ................................................. 109.1 146.8
COMMITMENTS AND CONTINGENCIES ............................................... -- --
MINORITY INTEREST ........................................................... 24.2 --
EXCHANGEABLE PREFERRED STOCK
($0.01 par value per share; 250,000 shares authorized;
92,284 shares issued and outstanding in 2001) ............................. 94.8 --
COMMON STOCKHOLDER'S EQUITY:
Common, $0.01 par value per share, 100 authorized, issued and outstanding . -- --
Paid-in capital ........................................................... 316.0 805.1
Accumulated deficit ....................................................... (28.9) (190.6)
----------- -----------
Total common stockholder's equity ...................................... 287.1 614.5
----------- -----------
$ 2,534.6 $ 2,312.0
=========== ===========
The accompanying notes are an integral part of these financial statements.
7
PREMCOR USA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, amounts in millions)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------------------- -------------------------------
2001 2002 2001 2002
--------------- -------------- ------------- --------------
(as restated, (as restated,
see Note 1) see Note 1)
NET SALES AND OPERATING REVENUES ........................ $ 1,666.2 $ 1,899.8 $ 5,170.9 $ 4,807.1
EXPENSES:
Cost of sales ......................................... 1,390.8 1,757.8 4,133.7 4,342.8
Operating expenses .................................... 104.9 109.6 355.8 338.2
General and administrative expenses ................... 16.1 11.7 45.2 40.5
Stock option compensation expense ..................... -- 4.2 -- 9.9
Depreciation .......................................... 13.7 11.5 39.6 35.7
Amortization .......................................... 9.5 9.3 28.1 29.2
Refinery restructuring and other charges .............. 26.2 10.1 176.2 168.7
--------- --------- --------- ---------
1,561.2 1,914.2 4,778.6 4,965.0
OPERATING INCOME (LOSS) ................................. 105.0 (14.4) 392.3 (157.9)
Interest and finance expense .......................... (39.3) (22.0) (121.6) (89.4)
Gain (loss) on extinguishment of long-term debt ....... 8.7 (0.2) 8.7 (19.5)
Interest income ....................................... 5.5 1.5 15.3 7.4
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND MINORITY INTEREST .......................... 79.9 (35.1) 294.7 (259.4)
Income tax (provision) benefit ....................... (31.4) 13.4 (78.2) 98.5
Minority interest .................................... (1.5) -- (12.4) 1.7
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS ............... 47.0 (21.7) 204.1 (159.2)
Loss from discontinued operations, net of income
tax benefit of $5.5 ................................ -- -- (8.5) --
--------- --------- --------- ---------
NET INCOME (LOSS) ...................................... 47.0 (21.7) 195.6 (159.2)
Preferred stock dividends ............................ (2.7) -- (7.9) (2.5)
--------- --------- --------- ---------
NET INCOME (LOSS) AVAILABLE TO
COMMON STOCKHOLDER ................................... $ 44.3 $ (21.7) $ 187.7 $ (161.7)
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
8
PREMCOR USA INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, amounts in millions)
For the Nine Months
Ended September 30,
---------------------------------------
2001 2002
----------------- -----------------
(as restated,
see Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................................... $ 195.6 $ (159.2)
Discontinued operations .............................................................. 8.5 --
Adjustments:
Depreciation ...................................................................... 39.6 35.7
Amortization ...................................................................... 37.1 36.9
Deferred income taxes ............................................................. 71.2 (99.1)
Inventory write-down to market .................................................... 8.7 --
Stock option compensation expense ................................................. -- 9.9
Minority interest ................................................................. 12.4 (1.7)
Refinery restructuring and other charges .......................................... 125.3 103.6
Write-off of deferred financing costs ............................................. 0.6 9.5
Other, net ........................................................................ 0.5 15.8
Cash provided by (reinvested in) working capital -
Accounts receivable, prepaid expenses and other ................................... 44.7 (39.6)
Inventories ....................................................................... (12.0) (49.0)
Accounts payable, accrued expenses, and taxes other than income ................... (99.3) 61.3
Affiliate receivables and payables ................................................ (11.7) 7.1
Cash and cash equivalents restricted for debt service ............................. (30.6) 24.1
------- --------
Net cash provided by (used in) operating activities of continuing operations .... 390.6 (44.7)
Net cash used in operating activities of discontinued operations ................ (2.5) (3.3)
------- --------
Net cash provided by (used in) operating activities ............................. 388.1 (48.0)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment ....................................... (57.8) (64.1)
Expenditures for turnaround .......................................................... (41.3) (33.4)
Cash and cash equivalents restricted for investment in capital additions ............. -- 5.5
Other ................................................................................ 0.6 0.2
------- --------
Net cash used in investing activities ........................................... (98.5) (91.8)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt and capital lease payments ............................................ (58.9) (645.2)
Capital contributions, net ........................................................... -- 442.9
Cash and cash equivalents restricted for debt repayment .............................. -- (45.2)
Deferred financing costs ............................................................. (9.6) (11.4)
Preferred stock dividend ............................................................. (0.3) --
------- --------
Net cash used in financing activities ........................................... (68.8) (258.9)
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................... 220.8 (398.7)
CASH AND CASH EQUIVALENTS, beginning of period ......................................... 290.1 508.0
------- --------
CASH AND CASH EQUIVALENTS, end of period ............................................... $ 510.9 $ 109.3
======= ========
The accompanying notes are an integral part of these financial statements.
9
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of The Premcor Refining Group Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of The
Premcor Refining Group Inc. and subsidiaries (the "Company") as of September 30,
2002, the related condensed consolidated statements of operations for the
three-month and nine-month periods ended September 30, 2001 and 2002, and the
related condensed consolidated statements of cash flows for the nine-month
periods then ended. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 10 to the condensed consolidated financial statements, the
Company changed its method of accounting for stock based compensation issued to
employees. Additionally, the condensed consolidated financial statements have
been restated to give retroactive effect to the contribution of Sabine River
Holding Corp. common stock owned by Premcor Inc. to The Premcor Refining Group
Inc. (the "Sabine Restructuring"), which has been accounted for in a manner
similar to a pooling of interests as described in Notes 1 and 3 to the condensed
consolidated financial statements.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of December 31, 2001, and the related consolidated statements of
operations, stockholder's equity, and cash flows for the year then ended (not
presented herein). In our report dated February 11, 2002 (March 5, 2002 as to
Note 18 and August 5, 2002 as to Notes 1 and 2), we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 2001 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived after giving
effect to the restatement for the Sabine Restructuring described in Notes 1 and
3 to the condensed consolidated financial statements.
Deloitte & Touche LLP
St. Louis, Missouri
November 6, 2002
10
THE PREMCOR REFINING GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in millions, except share data)
December 31, September 30,
2001 2002
------------- -------------
ASSETS (as restated, (unaudited)
see Note 1)
CURRENT ASSETS:
Cash and cash equivalents .................................................................... $ 482.5 $ 107.8
Short-term investments ....................................................................... 1.7 1.7
Cash and cash equivalents restricted for debt service ........................................ 30.8 51.9
Accounts receivable, net of allowance of $1.3 and $3.2 ....................................... 148.3 199.9
Receivable from affiliates ................................................................... 31.3 54.0
Inventories .................................................................................. 318.3 367.3
Prepaid expenses and other ................................................................... 42.7 30.6
Assets held for sale ......................................................................... -- 61.2
--------- ---------
Total current assets ...................................................................... 1,055.6 874.4
PROPERTY, PLANT AND EQUIPMENT, NET ............................................................. 1,298.7 1,212.8
DEFERRED INCOME TAXES .......................................................................... -- 42.0
OTHER ASSETS ................................................................................... 142.8 131.0
--------- ---------
$ 2,497.1 $ 2,260.2
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................................. $ 366.4 $ 441.3
Payable to affiliates ........................................................................ 49.8 84.3
Accrued expenses ............................................................................. 93.1 85.4
Accrued taxes other than income .............................................................. 35.7 28.2
Current portion of long-term debt ............................................................ 81.4 15.6
--------- ---------
Total current liabilities ................................................................. 626.4 654.8
LONG-TERM DEBT ................................................................................. 1,247.0 869.6
DEFERRED INCOME TAXES .......................................................................... 46.6 --
OTHER LONG-TERM LIABILITIES .................................................................... 109.1 146.8
COMMITMENTS AND CONTINGENCIES .................................................................. -- --
MINORITY INTEREST .............................................................................. 24.2 --
COMMON STOCKHOLDER'S EQUITY:
Common, $0.01 par value per share, 1000 authorized, 100 issued and outstanding................ -- --
Paid-in capital .............................................................................. 243.0 537.0
Retained earnings ............................................................................ 200.8 52.0
--------- ---------
Total common stockholder's equity ......................................................... 443.8 589.0
--------- ---------
$ 2,497.1 $ 2,260.2
========= =========
The accompanying notes are an integral part of these financial statements.
11
THE PREMCOR REFINING GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, amounts in millions)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ -------------------------
2001 2002 2001 2002
---- ---- ---- ----
(as restated, (as restated,
see Note 1) see Note 1)
NET SALES AND OPERATING REVENUES ......................................... $ 1,666.2 $ 1,899.8 $ 5,170.9 $ 4,807.1
EXPENSES:
Cost of sales .......................................................... 1,391.2 1,758.2 4,135.0 4,346.5
Operating expenses ..................................................... 104.8 109.3 355.3 337.6
General and administrative expenses .................................... 16.0 11.7 45.1 40.5
Stock option compensation expense ...................................... -- 4.2 -- 9.9
Depreciation ........................................................... 13.7 11.5 39.6 35.7
Amortization ........................................................... 9.5 9.3 28.1 29.2
Refinery restructuring and other charges ............................... 26.2 10.1 176.2 168.7
--------- --------- --------- ---------
1,561.4 1,914.3 4,779.3 4,968.1
OPERATING INCOME (LOSS) .................................................. 104.8 (14.5) 391.6 (161.0)
Interest and finance expense ........................................... (34.5) (20.8) (107.0) (78.8)
Gain (loss) on extinguishment of long-term debt ........................ 0.8 -- 0.8 (9.3)
Interest income ........................................................ 5.1 1.5 13.9 5.9
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
AND MINORITY INTEREST .................................................. 76.2 (33.8) 299.3 (243.2)
Income tax (provision) benefit ......................................... (30.1) 12.7 (97.4) 92.7
Minority interest ...................................................... (1.5) -- (12.4) 1.7
--------- --------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS ................................. 44.6 (21.1) 189.5 (148.8)
Loss from discontinued operations, net of income tax
benefit of $5.5 ..................................................... -- -- (8.5) --
--------- --------- --------- ---------
NET INCOME (LOSS) ........................................................ $ 44.6 $ (21.1) $ 181.0 $ (148.8)
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
12
THE PREMCOR REFINING GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, amounts in millions)
For the Nine Months
Ended September 30,
--------------------------
2001 2002
------------ --------
(as restated
see Note 1)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ...................................................................................... $ 181.0 $ (148.8)
Discontinued operations ................................................................................ 8.5 --
Adjustments:
Depreciation ........................................................................................ 39.6 35.7
Amortization ........................................................................................ 36.7 36.8
Deferred income taxes ............................................................................... 74.8 (93.5)
Inventory write-down to market ...................................................................... 8.7 --
Stock option compensation expense ................................................................... -- 9.9
Minority interest ................................................................................... 12.4 (1.7)
Refinery restructuring and other charges ............................................................ 125.3 103.6
Write-off of deferred financing costs ............................................................... 0.2 7.9
Other, net .......................................................................................... 0.4 15.1
Cash provided by (reinvested in) working capital -
Accounts receivable, prepaid expenses and other ..................................................... 44.7 (39.5)
Inventories ......................................................................................... (12.0) (49.0)
Accounts payable, accrued expenses, and taxes other than income ..................................... (105.5) 59.8
Affiliate receivables and payables .................................................................. 1.4 11.8
Cash and cash equivalents restricted for debt service ............................................... (30.6) 24.1
------- --------
Net cash provided by (used in) operating activities of continuing operations ...................... 385.6 (27.8)
Net cash used in operating activities of discontinued operations .................................. (2.5) (3.3)
------- --------
Net cash provided by (used in) operating activities ............................................... 383.1 (31.1)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment ......................................................... (57.8) (64.1)
Expenditures for turnaround ............................................................................ (41.3) (33.4)
Cash and cash equivalents restricted for investment in capital additions ............................... -- 5.5
Other .................................................................................................. 0.1 0.2
------- --------
Net cash used in investing activities ............................................................. (99.0) (91.8)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt and capital lease payments .............................................................. (22.4) (443.3)
Capital contributions, net ............................................................................. (25.8) 248.1
Cash and cash equivalents restricted for debt repayment ................................................ -- (45.2)
Deferred financing costs ............................................................................... (9.6) (11.4)
------- --------
Net cash used in financing activities ............................................................. (57.8) (251.8)
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................................................... 226.3 (374.7)
CASH AND CASH EQUIVALENTS, beginning of period ........................................................... 251.2 482.5
------- --------
CASH AND CASH EQUIVALENTS, end of period ................................................................. $ 477.5 $ 107.8
======= ========
The accompanying notes are an integral part of these financial statements.
13
FORM 10-Q - PART I
ITEM 1. FINANCIAL STATEMENTS (continued)
PREMCOR INC. AND SUBSIDIARIES
PREMCOR USA INC. AND SUBSIDIARIES
THE PREMCOR REFINING GROUP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002
(tabular dollar amounts in millions of U.S. dollars)
1. Basis of Preparation and Recent Developments
Premcor Inc. (the "Company"), a Delaware corporation, was incorporated in
April 1999. Premcor Inc. owns all of the outstanding common stock of Premcor USA
Inc. ("Premcor USA"). Premcor USA owns all of the outstanding common stock of
The Premcor Refining Group Inc. ("PRG"). Following the completion of the
restructuring described in Note 3, referred to as the Sabine restructuring, PRG
owns all of the outstanding common stock of Sabine River Holding Corp.
("Sabine"). Sabine is the 1% general partner of Port Arthur Coker Company L.P.
("PACC"), a limited partnership, and the 100% owner of Neches River Holding
Corp. ("Neches"), which is the 99% limited partner of PACC. PACC is the 100%
owner of Port Arthur Finance Corp. ("PAFC"). The restructuring of Sabine as a
wholly owned subsidiary of PRG constituted an exchange of ownership interest
between entities under common control, and therefore was accounted for similar
to a pooling of interests. Accordingly, Premcor USA's and PRG's historical
financial statements have been restated to include the consolidated financial
position, results of operations, and cash flows of Sabine for all periods
presented.
The Company is an independent petroleum refiner and supplier of unbranded
transportation fuels, heating oil, petrochemical feedstocks, petroleum coke and
other petroleum products in the United States. The Company owns and operates two
refineries with a combined crude oil throughput capacity of 420,000 barrels per
day ("bpd"). The refineries are located in Port Arthur, Texas and Lima, Ohio.
The Company ceased operations at its 70,000 bpd Hartford, Illinois refinery in
late September consistent with the Company's plan which was announced in
February 2002.
On May 3, 2002, Premcor Inc. completed an initial public offering of 20.7
million shares of common stock. The initial public offering, plus the concurrent
purchases of 850,000 shares in the aggregate by Thomas D. O'Malley, the
Company's chairman of the board, chief executive officer and president, and two
independent directors of the Company, netted proceeds to Premcor Inc. of
approximately $482 million. The proceeds from the offering were committed to
retire debt of Premcor Inc.'s subsidiaries. See Note 8 Long-term Debt for
details on the use of these proceeds. Prior to the initial public offering,
Premcor Inc.'s common equity was privately held and controlled by Blackstone
Capital Partners III Merchant Banking Fund L.P. and its affiliates
("Blackstone"). Premcor Inc.'s other principal shareholder was a subsidiary of
Occidental Petroleum Corporation ("Occidental"). As a result of these sales of
Premcor Inc.'s common stock and the Sabine restructuring described in Note 3,
Blackstone's ownership was reduced to approximately 48% and Occidental's
ownership was reduced to approximately 13%.
This Quarterly Report on Form 10-Q represents a combined report for three
registrants, Premcor Inc., Premcor USA and PRG. The accompanying unaudited
condensed consolidated financial statements of Premcor Inc., Premcor USA, and
PRG and their respective subsidiaries are presented pursuant to the rules and
regulations of the United States Securities and Exchange Commission in
accordance with the disclosure requirements for Form 10-Q. In the opinion of the
management of the Company, the unaudited condensed consolidated financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary to fairly state the results for the interim periods
presented. Operating results for the three-month and nine-month periods ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. These combined consolidated
notes apply equally to Premcor Inc., Premcor USA, and PRG, unless otherwise
noted. These unaudited financial statements should be read in conjunction with
the audited financial statements and notes for the years ended December 31, 2001
and 2000 included in Premcor Inc.'s Registration Statement on Form S-1/A dated
April 29, 2002, and Premcor USA's, PRG's, and Sabine's Annual Reports on Form
10-K for the year ended December 31, 2001. PAFC has filed a Registration
Statement on Form S-4 which includes audited financial statements and notes
14
for the year ended December 31, 2001 for PRG that were restated for
the Sabine restructuring. Certain reclassifications have been made to prior
periods in order to conform to the current period presentation.
2. New and Proposed Accounting Standards
On January 1, 2002, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 142, Goodwill and Other Intangible Assets, and SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. The
adoption of these standards did not have a material impact on the Company's
financial position and results of operations; however, SFAS No. 144 was utilized
in the accounting for the Company's closure of the Hartford, Illinois refinery.
See Note 4, Refinery Restructuring and Other Charges for details of the Hartford
refinery shutdown.
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses
when a liability should be recorded for asset retirement obligations and how to
measure this liability. The initial recording of a liability for an asset
retirement obligation will require the recording of a corresponding asset that
will be required to be amortized. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The Company is in the process of evaluating the
impact of the adoption of this standard on its financial position and results of
operations and believes that implementation will not have a material impact.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections.
SFAS 145 rescinds SFAS No. 4, Reporting Gains and Losses from the Extinguishment
of Debt; SFAS No. 44, Accounting for Intangible Assets of Motor Carriers; and
SFAS No. 64, Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements.
SFAS No. 145 also amends SFAS No. 13, Accounting for Leases, as it relates to
sale-leaseback transactions and other transactions structured similar to a
sale-leaseback as well as amends other pronouncements to make various technical
corrections. The provisions of SFAS No. 145 as they relate to the rescission of
SFAS No. 4 shall be applied in fiscal years beginning after May 15, 2002. The
provision of this statement related to the amendment to SFAS No. 13 shall be
effective for transactions occurring after May 15, 2002. All other provisions of
this statement shall be effective for financial statements on or after May 15,
2002. As permitted by SFAS No. 145, the Company has elected early adoption of
the rescission of SFAS No. 4. Accordingly, the Company has included the gain or
loss on extinguishment of long-term debt in "Income from continuing operations"
as opposed to as an extraordinary item, net of taxes, below "Income from
continuing operations" in its Statement of Operations.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires the
recognition of liabilities at fair value that are associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Such liabilities include lease
termination costs and certain employee severance costs that are associated with
a restructuring, discontinued operation, plant closing or other exit or disposal
activities. SFAS No. 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Company will adopt SFAS No.
146 for all restructuring, discontinued operations, plant closings or other exit
or disposal activities initiated after December 31, 2002.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued an exposure draft of a proposed
statement of position ("SOP") entitled Accounting for Certain Costs and
Activities Related to Property, Plant and Equipment. If adopted as proposed,
this SOP will require companies to expense as incurred turnaround costs, which
it terms as "the non-capital portion of major maintenance costs." Adoption of
the proposed SOP would require that any existing unamortized turnaround costs be
expensed immediately. If this proposed change were in effect at September 30,
2002, the Company would have been required to write-off unamortized turnaround
costs of approximately $97 million. Unamortized turnaround costs will change in
2002 as maintenance turnarounds are performed and past maintenance turnarounds
are amortized. If adopted in its present form, charges related to this proposed
change would be taken in the first quarter of 2003 and would be reported as a
cumulative effect of an accounting change, net of income tax, in the
consolidated statements of operations.
3. Sabine Restructuring
On June 6, 2002, PRG and Sabine completed a series of transactions ("the
Sabine restructuring") that resulted in Sabine and its subsidiaries becoming
wholly owned subsidiaries of PRG. Sabine, through its principal operating
15
subsidiary, PACC, owns and operates a heavy oil processing facility, which is
operated in conjunction with PRG's Port Arthur, Texas refinery. Prior to the
Sabine restructuring, Sabine was 90% owned by Premcor Inc. and 10% owned by
Occidental.
The Sabine restructuring was permitted by the successful consent
solicitation of the holders of PAFC's 12 1/2% Senior Notes due 2009. The Sabine
restructuring was accomplished according to the following steps, among others:
.. Premcor Inc. contributed $225.6 million in proceeds from its initial public
offering of common stock to Sabine. Sabine used the proceeds from the
equity contribution, plus cash on hand, to prepay $221.4 million of its
senior secured bank loan and to pay a dividend of $141.4 million to Premcor
Inc.;
.. Commitments under Sabine's senior secured bank loan, working capital
facility, and certain insurance policies were terminated and related
guarantees were released;
.. PRG's existing working capital facility was amended and restated to, among
other things, permit letters of credit to be issued on behalf of Sabine;
.. Occidental exchanged its 10% interest in Sabine for 1,363,636 newly issued
shares of Premcor Inc. common stock;
.. Premcor Inc. contributed its 100% ownership interest in Sabine to Premcor
USA and Premcor USA, in turn, contributed its 100% ownership interest in
Sabine to PRG; and
.. PRG fully and unconditionally guaranteed, on a senior unsecured basis, the
payment obligations under the PAFC 12 1/2% Senior Notes due 2009. The
guarantee was issued in a private placement made in reliance on an
exemption from the registration requirements of the Securities Exchange Act
of 1933, as amended. In September 2002, PAFC filed a registration statement
under the Securities Act to register the notes and the PRG guarantee and
has 120 additional days to finalize the registration process. Due to the
PRG guarantee, Sabine is no longer required to file periodic reports under
the Securities Exchange Act of 1934, as amended.
Premcor Inc.'s acquisition of Occidental's 10% ownership in Sabine was
accounted for under the purchase method. The purchase price was based on the
exchange of 1,363,636 shares of Premcor Inc. common stock for the 10% interest
in Sabine and was valued at $30.5 million or approximately $22 per share. The
purchase price of the 10% minority interest in Sabine exceeded the book value by
$8.0 million. Based on an appraisal of the Sabine assets, the excess of the
purchase price over the book value of the minority interest, along with a $5.0
million deferred income tax adjustment, was recorded as an investment in
property, plant and equipment and will be depreciated over the remaining useful
lives of the related Sabine assets. The income tax adjustment reflected the
temporary difference between the book and tax basis of property, plant and
equipment related to the excess of the purchase price over book value. Because
the purchase price did not exceed the fair value of the underlying assets, no
goodwill was recognized.
As discussed in Note 1, the contribution of Premcor Inc.'s 100% ownership
interest in Sabine to PRG was an exchange of ownership interest between entities
under common control, and therefore was accounted for at the book value of
Sabine, similar to a pooling of interests. Accordingly, Premcor USA's and PRG's
historical financial statements have been restated to include the consolidated
results of operations, financial position, and cash flows of Sabine for all
prior periods presented.
4. Refinery Restructuring and Other Charges
In 2002, the Company recorded refinery restructuring and other charges of
$172.9 million, of which $14.3 million was recorded in the third quarter. The
third quarter charge included $10.1 million related to the further restructuring
of the Company's management team, refinery operations and administrative
functions and $4.2 million related to the write-down of Premcor Inc.'s minority
interest in Clark Retail Group, Inc., the sole stockholder of Clark Retail
Enterprises, Inc. ("CRE"). Premcor Inc. acquired an interest in Clark Retail
Group, Inc. when PRG sold its retail business to CRE in 1999. Clark Retail
Group, Inc. and CRE filed a petition to reorganize under Chapter 11 of the U.S.
bankruptcy laws in October 2002.
The year-to-date charge consisted of the following:
.. a $137.4 million charge related to the shutdown of refining operations at
the Hartford, Illinois refinery,
16
.. a $32.4 million charge related to the restructuring of the Company's
management team, refinery operations and administrative functions,
.. income of $5.0 million related to the unanticipated sale of a portion of
the Blue Island refinery assets previously written off,
.. a $2.5 million charge related to the termination of certain guarantees at
PACC as part of the Sabine restructuring,
.. a $1.4 million loss related to idled assets held for sale, and
.. a $4.2 million write-down of Premcor Inc.'s 5% interest in Clark Retail
Group, Inc.
In 2001, refinery restructuring and other charges of $176.2 million
consisted of a $167.2 million charge related to the January 2001 closure of the
Blue Island, Illinois refinery and a $9.0 million charge related to the
write-off of idled coker units at the Port Arthur refinery. The write-off of the
Port Arthur coker units and a $17.2 million charge related to the Blue Island
refinery closure were recorded in the third quarter of 2001. The write-off of
the Port Arthur coker units included a charge of $5.8 million related to the net
asset value of the idled cokers and a charge of $3.2 million for future
environmental clean-up costs related to the coker unit site.
Hartford Refinery Closure
In late September 2002, the Company ceased operations at its Hartford
refinery after concluding there was no economically viable method of
reconfiguring the refinery to produce fuels meeting new gasoline and diesel fuel
specifications mandated by the federal government. Despite ceasing operations,
the Company continues to pursue all options, including the sale of the refinery,
to mitigate the loss of jobs and refinery capacity in the Midwest.
Since the Hartford refinery operation had been only marginally profitable
over the last 10 years and since substantial investment would be required to
meet new required product specifications in the future, the Company's reduced
refining capacity resulting from the shutdown is not expected to have a
significant negative impact on net income or cash flow from operations. The only
anticipated effect on net income and cash flow in the future will result from
the actual shutdown process, including recovery of realizable asset value, and
subsequent environmental site remediation, which will occur over a number of
years. Unless there is a need to adjust the shutdown reserve in the future as
discussed below, there should be no significant effect on net income beyond
2002.
A pretax charge of $137.4 million was recorded in 2002, which included
$70.7 million of non-cash long-lived asset write-offs to reduce the refinery
assets to their estimated net realizable value of $61.0 million. The net
realizable value was determined by estimating the value of the assets in a sale
or operating lease transaction. The Company has had preliminary discussions with
third parties regarding such a transaction, but there can be no assurance that
one will be completed. In the event that a sale or lease transaction is not
completed, the net realizable value may be less than $61.0 million and a further
write-down may be required. The net realizable value was recorded as a current
asset on the balance sheet. In the second quarter of 2002, the Company completed
an evaluation of its warehouse stock, catalysts, chemicals, and additives
inventories, and the Company determined that a portion of these inventories
would not be recoverable upon the closure or sale of the refinery. Accordingly,
the Company wrote-down these assets by $3.2 million.
The total charge also included a reserve for future costs of $62.5 million
as itemized below. The Hartford restructuring reserve balance and net cash
activity as of September 30, 2002 is as follows:
Reserve as of
September 30,
Initial Reserve Net Cash Outlay 2002
--------------- --------------- -------------
Employee severance ........................... $ 16.6 $ 0.2 $ 16.4
Plant closure/equipment remediation .......... 12.9 5.6 7.3
Site clean-up/environmental matters .......... 33.0 -- 33.0
------ ----- ------
$ 62.5 $ 5.8 $ 56.7
====== ===== ======
Management adopted an exit plan that details the shutdown of the process
units at the refinery and the subsequent environmental remediation of the site.
The Company expects the majority of the process unit shutdown and hydrocarbon
purging to be finalized in the fourth quarter of 2002. The Company terminated
approximately 300
17
of 315 employees, both hourly (covered by collective bargaining agreements) and
salaried, in October 2002. The site clean-up and environmental reserve takes
into account costs that are reasonably foreseeable at this time. As the final
disposition of the refinery is determined and a site remediation plan refined,
further adjustments of the reserve may be necessary, and such adjustments may be
material. The Company expects to spend approximately $20 million to $30 million
in 2002 related to employee severance and the process unit shutdown and
hydrocarbon purge.
Finally, the total charge included a $1.0 million reserve related to
post-retirement benefits that were extended to certain employees who were
nearing the retirement requirements. This liability was recorded in "Other
Long-term Liabilities" on the balance sheet together with the Company's other
post-retirement liabilities.
Management, Refinery Operations and Administrative Restructuring
In February 2002, the Company began the restructuring of its executive
management team and subsequently its administrative functions with the hiring of
Thomas D. O'Malley as chairman, chief executive officer, and president and
William E. Hantke as executive vice president and chief financial officer. In
the first quarter of 2002, as a result of the resignation of the officers who
previously held these positions, the Company recognized severance expense of
$5.0 million and non-cash compensation expense of $5.8 million resulting from
modifications of stock option terms. In addition, the Company incurred a charge
of $5.0 million for the cancellation of a monitoring agreement with an affiliate
of Blackstone.
In the second quarter of 2002, the Company commenced a restructuring of its
St. Louis-based general and administrative operations and recorded a charge of
$6.5 million for severance, outplacement and other restructuring expenses
relating to the elimination of 107 hourly and salaried positions. In the third
quarter of 2002, the Company announced plans to reduce its non-represented
workforce at its Port Arthur, Texas and Lima, Ohio refineries and make
additional staff reductions at its St. Louis administrative office. The Company
recorded a charge of $10.1 million for severance, outplacement, and other
restructuring expenses relating to the elimination of 140 hourly and salaried
positions. Included in this charge is $1.3 million related to post-retirement
benefits that were extended to certain employees who were nearing the retirement
requirements. This liability was recorded in "Other Long-term Liabilities" on
the balance sheet together with the Company's other post-retirement liabilities.
Reductions at the refineries occurred in October 2002 and those at the St. Louis
office will take place by the end of the first quarter of 2003. The reserve
relating to the refineries and St. Louis restructuring is as follows:
Reserve as of
Initial Additional Net Cash September 30,
Reserve Reserve Outlay 2002
---------------- ------------- -------------- ---------------
Refineries and St. Louis restructuring ........ $ 6.5 $ 8.8 $ 4.6 $ 10.7
The Company expects to spend approximately $11 million to $13 million in 2002
related to these refinery and St. Louis restructuring activities.
Blue Island Refinery Closure Reserve
In 2001, the Company recorded a first quarter pretax charge of $150.0
million and an additional third quarter pretax charge of $17.2 million related
to the January 2001 closure of the Blue Island, Illinois refinery. The Blue
Island restructuring reserve balance and net cash activity as of September 30,
2002 is as follows:
Reserve as of Reserve as of
December 31, 2001 Net Cash Outlay September 30, 2002
----------------- --------------- ------------------
Employee severance ............................ $ 2.1 $ 2.1 $ --
Plant closure/equipment remediation ........... 13.9 8.1 5.8
Site clean-up/environmental matters ........... 20.5 3.9 16.6
-------- ---------- ---------
$ 36.5 $ 14.1 $ 22.4
======== ========== =========
The Company expects to spend approximately $15 million to $16 million in
2002 related to the reserve for future costs, with the remainder to be spent
over the next several years. The Company is currently in discussions with
governmental agencies concerning a remediation program, which it believes will
likely lead to a final consent order
18
and remediation plan. The Company does not expect these discussions to be
concluded until 2003 at the earliest. The Company's site clean-up and
environmental reserve takes into account costs that are reasonably foreseeable
at this time, based on studies performed in conjunction with obtaining the
insurance policy mentioned below. As the site remediation plan is finalized and
work is performed, further adjustments of the reserve may be necessary.
In 2002, environmental risk insurance policies covering the Blue Island
refinery site were procured and bound, with final policies expected to be issued
within the first quarter of 2003. This insurance program will allow the Company
to quantify and, within the limits of the policy, cap its cost to remediate the
site, and provide insurance coverage from future third party claims arising from
past or future environmental releases. The remediation cost overrun policy has a
term of ten years and, subject to certain exceptions and exclusions, provides
$25 million in coverage in excess of a self-insured retention amount of $26
million. The pollution legal liability policy provides for $25 million in
aggregate coverage and per incident coverage in excess of a $100,000 deductible
per incident. The Company believes this program also provides governmental
agencies financial assurance that, once begun, remediation of the site will be
completed in a timely and prudent manner.
5. Gain or Loss on Extinguishment of Long-Term Debt
In the quarter and nine months ended September 30, 2002, Premcor USA
recorded a loss on extinguishment of long-term debt of $0.2 million and $19.5
million, respectively, related to the repurchase of certain long-term debt as
described in Note 8 Long-term Debt. The third quarter loss related to a premium
paid for the repurchase of a portion of the 11 1/2% Subordinated Debentures. The
loss recorded for the nine months ended September 30, 2002 included premiums
associated with the early repayment of long-term debt of $9.4 million, a
write-off of unamortized deferred financing costs related to this debt of $9.5
million, and the write-off of a prepaid premium for an insurance policy
guaranteeing the interest and principal payments on Sabine's long-term debt of
$0.6 million. In the nine months ended September 30, 2002, PRG recorded a loss
of $9.3 million related to this early redemption of long-term debt, of which
$0.9 million related to premiums, $7.8 million related to the write-off of
deferred financing costs, and $0.6 million related to the write-off of debt
guarantee fees at Sabine.
In the third quarter of 2001, Premcor USA repurchased in the open market
$21.3 million in face value of its 9 1/2% Senior Notes due September 15, 2004,
$30.6 million in face value of its 10 7/8% Senior Notes due December 1, 2005,
and $5.9 million in face value of its 11 1/2% Exchangeable Preferred Stock. As a
result of these transactions, Premcor USA recorded a gain of $8.7 million, which
included discounts of $9.3 million offset by the write-off of deferred financing
costs related to the notes. Related to the repurchase of a portion of its 9 1/2%
Senior Notes due September 15, 2004, PRG recorded a gain of $0.8 million, which
included a discount of $1.0 million offset by the write-off of deferred
financing costs.
6. Inventories
The carrying value of inventories consisted of the following:
December 31, September 30,
2001 2002
------------ ------------
Crude oil ........................................ $ 77.0 $ 93.1
Refined products and blendstocks ................. 218.7 253.4
Warehouse stock and other ........................ 22.6 20.8
------------ ----------
$ 318.3 $ 367.3
============ ==========
The market value of crude oil, refined products and blendstock inventories
at September 30, 2002 was approximately $150 million (December 31, 2001 - $5
million) above carrying value.
As of January 1, 2002, PACC changed its method of inventory valuation from
first-in first-out ("FIFO") to last-in first-out ("LIFO") for crude oil and
blendstock inventories. Management believes this change is preferable in that it
achieves a more appropriate matching of revenues and expenses. The adoption of
this inventory accounting method on January 1, 2002 did not have an impact on
pretax earnings. The adoption of the LIFO method resulted in no impact for the
three-month period and approximately $12 million less net income ($0.26 per
basic and diluted share) for the
19
nine-month period ended September 30, 2002 than if the FIFO method had been used
for the same periods. Cost for warehouse stock continues to be determined under
the FIFO method.
7. Other Assets
Other assets consisted of the following:
December 31, September 30,
2001 2002
------------ -------------
Deferred turnaround costs ................................... $ 97.9 $ 96.5
Deferred financing costs .................................... 32.6 27.0
Cash restricted for investment in capital additions ......... 9.9 4.4
Investment in affiliates .................................... 4.7 0.5
Other ....................................................... 3.6 2.5
--------- ---------
$ 148.7 $ 130.9
========= =========
Amortization of deferred financing costs for the three and nine-month
periods ended September 30, 2002 was $2.5 million (2001 - $2.9 million) and $7.5
million (2001 - $8.8 million), respectively, and was included in "Interest and
finance expense". In 2002, the Company incurred deferred financing costs of $1.1
million for fees to obtain a waiver related to insurance coverage required under
PACC's common security agreement with certain bondholders and $10.3 million
related to the consent solicitation process of the Sabine restructuring and
subsequent registration of the PACC senior notes with the Securities & Exchange
Commission. In the second quarter of 2002, the Company wrote-off $9.5 million of
deferred financing costs, including $1.6 million related to Premcor USA stand
alone long-term debt, as a result of the early repayment of long-term debt.
20
8. Long-term Debt and Exchangeable Preferred Stock
Long-term debt and exchangeable preferred stock consisted of the following:
December 31, September 30,
2001 2002
----------- -------------
8 5/8% Senior Notes due August 15, 2008
("8 5/8% Senior Notes") (1)............................. $ 109.8 $ 109.8
8 3/8% Senior Notes due November 15, 2007
("8 3/8% Senior Notes") (1)............................. 99.6 99.6
8 7/8% Senior Subordinated Notes due November 15, 2007
("8 7/8% Senior Subordinated Notes") (1)................ 174.2 174.4
Floating Rate Term Loan due November 15, 2003 and 2004
("Floating Rate Loan") (1).............................. 240.0 240.0
9 1/2% Senior Notes due September 15, 2004
("9 1/2% Senior Notes") (1)............................. 150.4 -
12 1/2% Senior Notes due January 15, 2009
("12 1/2% Senior Notes") (2)............................ 255.0 250.7
Bank Senior Loan Agreement (2)............................... 287.6 -
Ohio Water Development Authority Environmental Facilities
Revenue Bonds due December 01, 2031
("Series 2001 Ohio Bonds") (1).......................... 10.0 10.0
Obligations under capital leases (1)......................... 1.8 0.7
--------- -------
1,328.4 885.2
Less current portion of debt................................. 81.4 15.6
--------- -------
Total long-term debt at PRG.................................. 1,247.0 869.6
10 7/8% Senior Notes due December 1, 2005
("10 7/8% Senior Notes") (3)........................... 144.4 -
11 1/2% Subordinated Debentures due October 1, 2009
("11 1/2% Subordinated Debentures") (3)................. - 40.1
--------- -------
Total long-term debt at Premcor Inc. and Premcor USA......... $ 1,391.4 $ 909.7
========= =======
Exchangeable Preferred Stock (3)............................. $ 94.8 $ --
========= =======
(1) Issued or borrowed by PRG
(2) Issued or borrowed by PAFC
(3) Issued or borrowed by Premcor USA
In 2002, Premcor Inc. contributed $442.9 million of its initial public
offering proceeds to its subsidiaries for the early redemption and repurchase of
a portion of their outstanding long-term debt. In June 2002, PRG redeemed the
remaining $150.4 million of its 9 1/2% Senior Notes at par, and Premcor USA
redeemed the remaining $144.4 million of its 10 7/8% Senior Notes, including a
$5.2 million premium, from capital contributions received from Premcor Inc.
On April 1, 2002, Premcor USA exchanged all of its 11 1/2% Exchangeable
Preferred Stock for 11 1/2% Subordinated Debentures due October 2009. During the
second quarter of 2002, Premcor USA purchased, in the open market, $54.1 million
in aggregate principal amount of its 11 1/2% Subordinated Debentures at a $3.1
million premium from capital contributions received from Premcor Inc. In the
third quarter of 2002, Premcor USA purchased an additional $3.4 million of its
11 1/2% Subordinated Debentures due 2009 at a premium of $0.2 million from
capital contributions received from Premcor Inc.
In the third quarter of 2002, PACC made a $4.3 million principal payment on
its 12 1/2% Senior Notes. In January 2002, PACC made a $66.2 million principal
payment on its Bank Senior Loan Agreement, of which $59.7 million represented a
mandatory prepayment pursuant to the common security agreement and related
secured account structure. In June 2002, as part of the Sabine restructuring,
PACC prepaid the remaining balance of $221.4 million
21
on the Bank Senior Loan Agreement at a $0.9 million premium, with cash on hand
and an $84.2 million net capital contribution from Premcor Inc.
Prior to the Sabine restructuring, the common security agreement required
that PACC carry insurance coverage with specified terms. Due to the effects of
the events of September 11, 2001 on the insurance market, coverage meeting such
terms was not available on commercially reasonable terms, and as a result,
PACC's insurance program was not in full compliance with the required insurance
coverage at December 31, 2001. PACC received a waiver from the requisite
parties. Subsequently, the common security agreement has been amended and
restated as part of the Sabine restructuring and the new provisions regarding
insurance coverage take into consideration a changing economic environment and
its effects on the insurance markets in general. Under the amended and restated
common security agreement, PACC has some specific insurance requirements, but
principally must ensure that coverage is consistent with customary standards in
its industry. There is also a provision that allows for thirty days notice to
requisite parties of any inability to comply with the specific terms without any
event of a default. As of September 30, 2002, PACC was in compliance with the
insurance coverage requirements of the amended and restated common security
agreement.
9. Working Capital Facility
In March 2002, PRG received a waiver regarding the maintenance of the
tangible net worth covenant related to its $650 million working capital credit
agreement, which allows for the exclusion of $120 million of the pretax
restructuring charge related to the closure of the Hartford refinery.
As part of the Sabine restructuring, Sabine terminated its insurance policy
that guaranteed its Maya crude oil purchase obligations and its $35 million bank
working capital facility that supported Sabine's non-Maya crude oil purchase
obligations. In May 2002, PRG amended its $650 million working capital facility
principally to allow for the inclusion of Sabine crude oil purchase obligations.
As amended, the $650 million limit of the facility can be increased by $50
million, up to the borrowing base limitation, at the request of PRG and upon
securing additional commitments. Also under the amendment, the borrowing base
calculation was amended to include PACC inventory and the tangible net worth
covenant was increased to $400 million from $150 million.
10. Stock Option Plans
In conjunction with the management change discussed in Note 4 above,
Premcor Inc. adopted two new stock incentive plans. The 2002 Special Stock
Incentive Plan was adopted in connection with the employment of Thomas D.
O'Malley and allows for the issuance of options for the purchase of Premcor Inc.
common stock. Under this plan, options on 3,400,000 shares of Premcor Inc.
common stock may be awarded. As of September 30, 2002, options for 2,950,000
shares of Premcor Inc. common stock had been granted, options for 2,200,000
shares at an exercise price of $10 per share and options for 750,000 shares at
an exercise price of $22.50 per share. Options granted under this plan vest 1/3
on each of the first three anniversaries of the date of grant. The options for
750,000 shares referenced above were granted to Mr. O'Malley pursuant to his
employment agreement.
The 2002 Equity Incentive Plan was adopted to award key employees,
directors, and consultants with various stock options, stock appreciation
rights, restricted stock, performance-based awards and other common stock based
awards of Premcor Inc. common stock. Under the 2002 Equity Incentive Plan,
options for 1,500,000 shares of Premcor Inc. common stock may be awarded. As of
September 30, 2002, options for 1,036,000 shares of Premcor Inc. common stock
were granted as follows: options for 435,000 shares at an exercise price of $10
per share and options for 601,000 shares at an exercise price ranging from
$18.50 per share to $26 per share. Options granted under this plan vest 1/3 on
each of the first three anniversaries of the date of grant. These options
included options for 100,000 shares granted to two directors pursuant to
agreements with the Company.
During the second quarter of 2002, the Company elected to adopt the fair
value based expense recognition provisions of SFAS No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"). The Company previously applied the
intrinsic value based expense recognition provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees ("APB No. 25"). SFAS No. 123 provides
that the adoption of the fair value based method is a change to a preferable
method of accounting. As provided by SFAS No. 123, the stock option compensation
expense is calculated based only on stock options granted in the year of
election and thereafter. The fair value of these options was estimated on the
grant date using the Black-Sholes option-pricing model with the
22
following weighted average assumptions as of September 30, 2002: a) assumed
risk-free rate of 5.06% per annum, b) expected life of 3.7 years, c) expected
volatility of 38.9%, and d) no expected dividends. All stock options granted
prior to January 1, 2002 continue to be accounted for under APB No. 25.
In the period of adoption of SFAS No. 123, the adoption of this fair value
based method increased the Company's net loss by $0.6 million (less than $0.01
per basic share) and $0.8 million (less than $0.01 per basic share) for the
three-month and six-month periods ended June 30, 2002, respectively. The effects
of the adoption of SFAS No. 123 on loss from continuing operations, net loss
available to common stockholders, and net loss per share for the three-month
period ended March 31, 2002 are as follows:
Loss from continuing operations and net loss
available to common stockholders:
As reported $ (99.5)
Revised for adoption of SFAS No. 123 $ (99.7)
Net loss per common share (in whole dollars):
As reported $ (3.13)
Revised for adoption of SFAS No. 123 $ (3.14)
Since nonvested awards issued to employees prior to January 1, 2002
continue to be accounted for using the intrinsic value based provisions of APB
No. 25, employee stock-based compensation expense determined using the fair
value based method applied prospectively is not necessarily indicative of future
expense amounts when the fair value based method will apply to all outstanding
nonvested awards. With respect to all stock option grants outstanding at
September 30, 2002, the Company will record future non-cash stock option
compensation expense and additional paid-in capital of $40.4 million over the
applicable vesting periods of the grants.
11. Interest and Finance Expense
Interest and finance expense included in Premcor Inc.'s and Premcor USA's
statements of operations consisted of the following:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- --------------------
2001 2002 2001 2002
----- ----- ------ -----
Interest expense ....... $ 36.5 $ 20.6 $ 113.5 $ 83.4
Financing costs ........ 4.1 2.9 11.9 10.6
Capitalized interest ... (1.3) (1.5) (3.8) (4.6)
------ ------ ------- ------
$ 39.3 $ 22.0 $ 121.6 $ 89.4
====== ====== ======= ======
Interest and finance expense included in PRG's statements of operations
consisted of the following:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
2001 2002 2001 2002
----- ----- ------ -----
Interest expense ....... $ 31.8 $ 19.5 $ 99.3 $ 73.0
Financing costs ........ 3.9 2.8 11.5 10.4
Capitalized interest ... (1.2) (1.5) (3.8) (4.6)
------ ------ ------- ------
$ 34.5 $ 20.8 $ 107.0 $ 78.8
====== ====== ======= ======
Premcor USA's cash paid for interest for the three-month and nine-month
periods ended September 30, 2002 was $24.4 million (2001 - $42.1 million) and
$95.6 million (2001 - $120.9 million), respectively. PRG's cash paid for
interest for the three-month and nine-month periods ended September 30, 2002 was
$24.4 million (2001 - $41.0 million) and $87.5 million (2001 - $110.2 million),
respectively.
23
12. Income Taxes
Premcor USA made net cash income tax payments during the three-month period
ended September 30, 2002 of $0.1 million (2001 - $13.3 million) and received net
cash income tax refunds during the nine-month period ended September 30, 2002 of
$12.4 million (2001 - $13.6 million net cash income tax payments). PRG made net
cash income tax payments during the three-month period ended September 30, 2002
of $0.1 million (2001 - $13.3 million) and received net cash income tax refunds
during the nine-month period ended September 30, 2002 of $12.4 million (2001 -
$16.1 million net cash income tax payments).
The income tax provision on the income from continuing operations before
income taxes for the nine-month period ended September 30, 2001 of $78.7 million
for the Company and $78.2 million for Premcor USA included the effect of a
reversal during the first quarter of 2001 of the remaining deferred tax
valuation allowance of $30.0 million. The reversal of the remaining deferred tax
valuation allowance resulted from the analysis of the likelihood of realizing
the future tax benefit of federal and state tax loss carryforwards, alternative
minimum tax credits and federal and state business tax credits. The income tax
provision on the income from continuing operations before income taxes for the
nine-month period ended September 30, 2001 of $97.4 million for PRG included the
effect of the reversal during the first quarter of 2001 of the remaining
deferred tax valuation allowance as described above of $12.4 million.
13. Discontinued Operations
In 2001, the Company recorded a pretax charge of $14.0 million, $8.5
million net of income taxes, related to environmental liabilities of
discontinued retail operations. This charge represented an increase in estimates
regarding the Company's environmental clean-up obligation and was prompted by
the availability of new information concerning site by site clean-up plans and
changing postures of state regulatory agencies.
14. Earnings per share
The diluted share base for the three-month and nine-month periods ended
September 30, 2002 excluded incremental common stock equivalents of 598,310 and
2,027,715, respectively. These common stock equivalents were excluded due to
their antidilutive effect as a result of the Company's net loss available to
common stockholders. The dilutive shares for the quarter related to employee
stock options and the dilutive shares for year to date related to employee stock
options and shareholder warrants. The diluted weighted average shares
outstanding for the three-month and nine-month periods ended September 30, 2001
reflected the potential dilution that could have occurred if all outstanding
warrants were exercised. In the second quarter of 2002, all outstanding
shareholder warrants were exercised. In the earnings per share calculation, net
income (loss) available to common stockholders includes the deduction of
preferred stock dividends when applicable.
15. Consolidating Financial Statements of PRG as Co-guarantor of PAFC's Senior
Notes
Presented below are the PRG consolidating balance sheets, statement of
operations, and cash flows as required by Rule 3-10 of the Securities Exchange
Act of 1934. As part of the Sabine restructuring, PRG became a full and
unconditional guarantor of PAFC's 12 1/2% Senior Notes, along with PACC, Sabine,
and Neches. Under Rule 3-10, the condensed consolidating balance sheets,
statement of operations, and cash flows presented below meet the requirements
for financial statements of the issuer and each guarantor of the notes since the
issuer and guarantors are all direct or indirect subsidiaries of PRG as well as
full and unconditional guarantors. PAFC issued and then loaned to PACC the
proceeds from the 12 1/2% Senior Notes, in order to finance PACC's heavy oil
processing facility. PACC owns and operates the heavy oil processing facility,
which is fully integrated with PRG's Port Arthur refinery. Both Sabine and
Neches have no material assets or operations.
Under the amended and restated common security agreement related to PACC's
12 1/2% Senior Notes, PACC is required to restrict $45.0 million of cash for
debt service at all times plus restrict an amount equal to the next scheduled
principal and interest payment, prorated based on the number of months remaining
until that payment is due. Otherwise, there are no restrictions limiting
dividends from PACC to PRG and, under the amended working capital facility, PACC
is required to dividend to PRG all excess cash over $20 million, excluding the
restricted debt service amounts. Also, pursuant to the amended working capital
facility, if an aggregate intercompany payable from
24
PRG to PACC exceeds $40 million at any time, PACC shall forgive PRG such excess
amount, which would take the form of a non-cash dividend. No such dividends have
been made as of September 30, 2002.
THE PREMCOR REFINING GROUP INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2002
(unaudited, amounts in millions)