Item 1. Business
The Corporation
DCS Capital Corporation (the "Corporation") was incorporated in November 1982 under Delaware law. The Corporation was organized to assist DCS Capital Partnership (the "Partnership") in raising funds in connection with the Partnership's contractual obligation to finance approximately 76% of the construction and start-up costs, and certain deferred costs, of an ethylene plant designed and constructed by Dow Chemical Canada Inc. near Joffre, Alberta, Canada, for Novacor Chemicals Ltd. The ethylene plant was completed in 1984 at a cost of approximately $337 million and is designed to produce 1.5 billion pounds per year of polymer grade ethylene using ethane as feedstock.
The Corporation's only business is to arrange financing for the Partnership through the issuance of debt securities to obtain funds for lending to the Partnership and to refinance prior borrowings. The interest cost charged to the Partnership is an amount that equals the interest cost incurred by the Corporation on its borrowings. In addition, the Partnership reimburses the Corporation for all its other costs. For this reason, the Corporation's revenues are always equal to its expenses.
See also Notes 1 and 2 to the financial statements for a further discussion of the business of the Corporation and the Partnership.
Item 2.
Item 2. Properties
The Corporation has no plants or other physical properties.
Item 3.
Item 3. Legal Proceedings
There are no claims or other legal proceedings against the Corporation.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Omitted pursuant to General Instruction J of Form 10-K.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The common stock of the Corporation is wholly owned by the Partnership and does not trade in any securities market. The Corporation has does not pay dividends and does not intend to pay dividends in the foreseeable future.
Item 6.
Item 6. Selected Financial Data
Omitted pursuant to General Instruction J of Form 10-K.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Corporation's only business has been to secure funds to loan to the Partnership. This has been accomplished through the issuance of debt securities as well as short-term borrowings. The proceeds from these activities have either been loaned to the Partnership or used to service the Corporation's outstanding debt. On October 15, 1984, the Corporation issued $100,000,000 of 12.375% Series B Debentures due October 15, 1996. In 1986, $11,300,000 of principal was redeemed. During 1992, $21,615,000 of principal was redeemed resulting in a $3,167,940 extraordinary loss on early redemption. On October 5, 1994, the Corporation entered into a $150,000,000 credit agreement with the Royal Bank of Canada. The agreement included a $100,000,000 term loan and a $50,000,000 revolving credit agreement. In addition to the proceeds from the term loan the Corporation borrowed $34,109,000 under the revolving credit agreement for total proceeds of $134,109,000 which were used to redeem outstanding debt. On October 15, 1994, the remaining $67,085,000 of 12.375% Series B Debentures were redeemed resulting in an extraordinary loss of $2,057,491. The redemption was made in accordance with the terms and conditions of the Debentures. As a result of the redemption of the Series B Debentures, the Corporation's debt will be held by fewer than 300 holders of record. Therefore, the Corporation does not intend to file future reports under Section 13 or 15(d) of the Securities Exchange Act of 1934. On October 15, 1994, the Corporation also retired a $35,000,000 loan from Swiss Bank Corporation and terminated a revolving credit agreement with Bank of America which required a final payment of $24,884,000 plus accrued interest. During 1994 Novacor Chemicals Ltd. continued repaying its loans from the Partnership, which in turn made payments to the Corporation.
Administrative expenses decreased from 1992 to 1993 by $68,263 due to the reduced financing activity during 1993 and administrative expenses increased $84,629 from 1993 to 1994 due to the refinancing that took place during October, 1994.
The Corporation believes that it has ample liquidity for its business. In addition, the terms of its agreement with the Partnership and the Partnership's relationship with the general partners, as described in Note 1 to the financial statements, assure that the Corporation's fixed charge coverage ratio will be maintained at 1.0.
Item 8.
Item 8. Financial Statements and Supplementary Data
(a) Index to financial statements presented elsewhere in this Annual Report:
Page Independent Auditors' Report........................ 9 Balance Sheets, December 31, 1994 and 1993.......... 10 Statements of Income and Expenses for the Years Ended December 31, 1994, 1993, and 1992................ 11 Statements of Cash Flows for the Years Ended December 31, 1994, 1993 and 1992.................... 12 Notes to Financial Statements....................... 13-15
(b) Selected Quarterly Financial Data - Unaudited (in thousands):
1994 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year Interest on Partnership advances...................$2,713 $2,819 $3,030 $2,107 $10,669
Reimbursement for early debt redemption(*) $ 0 $ 0 $ 0 $2,057 $ 2,057
Interest expense...........$2,713 $2,819 $3,030 $2,107 $10,669
Extraordinary loss on early debt redemption(*) $ 0 $ 0 $ 0 $2,057 $ 2,057
1993 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year Interest on Partnership advances...................$2,820 $2,855 $2,831 $2,767 $11,273
Interest expense.............$2,820 $2,855 $2,831 $2,767 $11,273
(*) See note 4 to the financial statements.
No dividends were paid and the Corporation's common stock does not trade in any securities market.
Note - other supplementary data is omitted because it is not applicable.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no reported disagreements on any matter of accounting principles, procedures or financial disclosures in 1994 with the independent auditors.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Omitted pursuant to the provisions of General Instruction J of Form 10-K.
Item 11.
Item 11. Executive Compensation
Omitted pursuant to the provisions of General Instruction J of Form 10-K.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Omitted pursuant to the provisions of General Instruction J of Form 10-K.
Item 13.
Item 13. Certain Relationships and Related Transactions
Omitted pursuant to the provisions of General Instruction J of Form 10-K.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial statements and independent auditors' report: See Item 8 of this Annual Report (page 5).
2. Financial statement schedules: Schedules are omitted because of the absence of the conditions under which they are required.
3. Exhibits - See the Exhibit Index on page 16 of this Annual Report.
The Corporation will provide a copy of any exhibit upon receipt of a written request for the particular exhibit or exhibits desired and upon receipt of payment of an amount equal to a charge of twenty-five cents for each exhibit page, with a minimum charge of two dollars per request. All requests should be addressed to the Secretary of the Corporation at the address of the Corporation's principal executive offices.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 23rd day of March, 1995.
DCS CAPITAL CORPORATION
By J. P. Reinhard, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed by the following persons in the capacities and on the dates indicated.
Signatures Title Date
Director R. C. Bass
Director C. L. Williams
Director B. Taylorson
President J. P. Reinhard (Principal Financial Officer, Principal Accounting Officer)
INDEPENDENT AUDITORS' REPORT
DCS Capital Corporation:
We have audited the accompanying balance sheets of DCS Capital Corporation as of December 31, 1994 and 1993, and the related statements of income and expenses, and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements 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 financial statements present fairly, in all material respects, the financial position of DCS Capital Corporation at December 31, 1994 and 1993 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP Midland, Michigan
March 13, 1995
DCS CAPITAL CORPORATION
BALANCE SHEETS
December 31, 1994 1993 ASSETS
CURRENT ASSETS: Cash $ 300 $ 300 Receivables from DCS Capital Partnership Current (Note 2) 43,297,895 46,387,812 Total Current Assets 43,298,195 46,388,112
Receivables from DCS Capital Partnership Long-term (Note 2) 86,800,000 95,022,269 TOTAL ASSETS $ 130,098,195 $141,410,381
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES: Accounts Payable $ 7,450 $ 3,500 Notes Payable (Note 3) 28,769,300 30,388,000 Long-term debt due within one year 13,200,000 14,000,000 (Note 4 ) Accrued Interest 1,321,145 1,996,312 Total Current Liabilities 43,297,895 46,387,812
LONG-TERM DEBT (Note 4) 86,800,000 95,022,269
STOCKHOLDER'S EQUITY: Common stock ($1 par value; authorized, issued and outstanding, 300 shares) (Note 1) 300 300 TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 130,098,195 $141,410,381
See notes to financial statements. DCS CAPITAL CORPORATION
STATEMENTS OF INCOME AND EXPENSES
Year Ended Year Ended Year Ended December 31, December 31, December 31, 1994 1993 1992 INTEREST AND OTHER INCOME: Interest earned on advances to DCS Capital Partnership (Note 1) $ 10,668,717 $ 11,273,404 $ 12,955,574 Reimbursement for early debt redemption 2,057,491 3,197,940 Administrative fees from DCS Capital Partnership 207,476 140,636 208,899 TOTAL INCOME $ 12,933,684 $ 11,414,040 $ 16,362,413
INTEREST AND OTHER EXPENSES: Interest on short-term debt $ 1,391,704 $ 1,060,018 $ 861,240 Interest on long-term debt 9,277,013 10,213,386 12,094,334 Administrative expenses (Note 5) 207,476 140,636 208,899 Total Expenses before extraordinary loss 10,876,193 11,414,040 13,164,473
Extraordinary loss on early redemption of debt (Note 4) $ 2,057,491 0 3,197,940
TOTAL EXPENSES $ 12,933,684 $ 11,414,040 $ 16,362,413
See notes to financial statements.
DCS CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended December 31, December 31, December 31, 1994 1993 1992 Cash Flows from Operating Activities:
Net Income $ 0 $ 0 $ 0 Amortization of Discount on Notes 17,789 22,470 24,245 Decrease (Increase) in Accounts Receivable 3,089,917 (779,805) (21,861,884) Increase (Decrease) in Accrued Interest (675,167) (91,695) (1,108,117) Increase (Decrease) in Accounts Payable 3,950 3,500 0
Net Cash Provided (Used) in Operating Activities 2,436,489 (845,530) (22,945,756)
Cash Flows from Financing Activities:
Proceeds from short-term loans 363,577,060 407,108,000 324,355,000 Repayment of short-term loans (365,195,759) (406,240,000)(301,385,000) Proceeds from long-term debt 100,000,000 0 0 Repayment of long-term debt (111,142,491) (14,000,000) (38,812,940) Discount on notes repaid 44,941 0 32,228 Loss on Early Redemption 2,057,491 3,197,940
Net Cash (Used) in Financing Activitites (10,658,758) (13,132,000) (12,612,772)
Cash Flows from Investing Activities:
Collections of Long-term Receivables 8,222,269 13,977,530 35,558,528
Net Change in Cash 0 0 0 Cash at Beginning of Year 300 300 300
Cash at End of Year $ 300 $ 300 $ 300
Supplemental Information Cash Payments for interest $ 11,326,094 $ 11,365,099 $ 14,063,691
DCS CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
DCS Capital Corporation (the "Corporation") is a Delaware corporation wholly owned by DCS Capital Partnership (the "Partnership"), a Delaware partnership, the general partners of which are Dofinco Inc., Prentiss Glycol Company and Scotlene, Inc. The general partners are wholly owned subsidiaries of The Dow Chemical Company ("Dow"), Union Carbide Chemicals and Plastics Company, Inc., and Shell Canada Limited, respectively. The Corporation was incorporated on November 22, 1982, and was organized to assist the Partnership in raising funds to finance approximately 76 percent of the construction and start-up costs and certain deferred costs of an ethylene plant near Joffre, Alberta, Canada for Novacor Chemicals Ltd. ("Novacor"), an unrelated party.
The Corporation's only business is to arrange financing for the Partnership through the issuance of debt securities to obtain funds for lending to the Partnership and to refinance prior borrowings. The interest cost charged to the Partnership is an amount that equals the interest cost incurred by the Corporation on its borrowings. In addition, the Partnership reimburses the Corporation for its administrative expenses as further discussed in Note 5 below. The Partnership in turn is reimbursed for its net expenses by Novacor.
2. RECEIVABLES FROM DCS CAPITAL PARTNERSHIP
Receivables from the Partnership represent the net proceeds from the Corporation's borrowings that have been loaned to the Partnership, related accrued interest and other amounts for reimbursement of expenses. Advances and accrued interest thereon are evidenced by Partnership notes that are due at the same times and in the same amounts as principal, earned discount, interest and premium, if any, on the Corporation's borrowings. The Partnership notes bear interest at a variable interest rate based on the aggregate interest and amortization of discount on the Corporation's borrowings, which was approximately 6.05 percent at December 31, 1994, 7.87 percent at December 31, 1993 and 8.03 percent at December 31, 1992, respectively. The fair value of the current portion of the receivables approximates the book value. The fair value of the long-term portion is equal to the fair value of the long-term debt as disclosed in footnote 4. The Partnership notes are secured by certain rights of the Partnership under a Cash Deficiency Agreement among the partners and the Partnership. In addition, the performance of each partner pursuant to the Cash Deficiency Agreement has been guaranteed by each partner's respective parent company (see Note 1). The Partnership notes are pledged as security for repayment of the Corporation's borrowings.
The summarized financial statements of the Partnership are as follows:
BALANCE SHEET
December 31, December 31, 1994 1993 Assets: Cash $ 587 $ 783 Due from Novacor Chemicals, Ltd.: Note receivable 127,235,630 140,512,391 Accrued interest and other 2,853,605 923,134 Investment in DCS Capital Corporation 300 300 Total Assets $ 130,090,122 $ 141,436,608
Liabilities and Partners' Capital: Payable to DCS Capital Corporation: Notes and accrued interest $ 127,851,927 $ 141,410,081 Accounts Payable 2,237,595 25,927 Partners' Capital 600 600 Total $ 130,090,122 $ 141,436,608
STATEMENTS OF INCOME AND EXPENSE
Year Ended Year Ended Year Ended December 31, December 31, December 31, 1994 1993 1992 Interest Income: Interest on loans to Novacor Chemicals Company Ltd. 12,909,894 11,427,708 16,369,133 TOTAL INCOME $12,909,894 $11,427,708 $16,369,133
Expenses: Reimbursement for Loss on early debt redemption by DCS Capital Corporation $ 2,057,491 $ 0 $ 3,197,940 Interest on advances from DCS Capital Corporation 10,668,717 11,273,404 12,955,574 Administrative expenses: Paid to DCS Capital Corporation 169,681 140,636 208,899 Paid to others 14,005 13,668 6,720 TOTAL EXPENSES $12,909,894 $11,427,708 $16,369,133
3. NOTES PAYABLE
During 1994, 1993 and 1992, the Corporation borrowed and repaid several short-term bank loans. The outstanding balances were $28,769,300, $30,388,000, and $29,520,000 at December 31, 1994, 1993 and 1992, respectively. The interest rates on outstanding loans were 6.28%, 3.56% and 3.75% at December 31, 1994, 1993 and 1992, respectively.
4. LONG-TERM DEBT
Long-term debt is comprised of the following:
December 31, December 31, 1994 1993
12.375% Series B Debentures, due in 1996 67,085,000 Swiss Bank Corp., N.Y..................... 28,000,000 Royal Bank of Canada, due in 1999......... 86,800,000 86,800,000 95,085,000 Less unamortized debt discount............ 0 (62,731) Total..................................... $86,800,000 $95,022,269
The notes are secured by related Partnership notes receivable which are in turn secured by the Cash Deficiency Agreement referred to in Note 2. The long-term debt of the Corporation had a fair value which approximated book value at December 31, 1994 and $14 million more than the book value at December 31, 1993, respectively, based upon market rates on those dates.
During 1992,the Corporation redeemed $21,615,000 of the outstanding principal amounts of the 12.375% Series B debentures, which was funded through short-term borrowings from a Bank. A $3,197,940 extraordinary loss on early redemption resulted from this transaction.
During 1994 the Corporation entered into a credit agreement with the Royal Bank of Canada. The agreement includes a $100,000,000 term loan and a $50,000,000 revolving facility. The Corporation received proceeds of $134,109,000 which were used to redeem the 12.375% Series B debentures and the Swiss Bank Corporation note. An extraordinary loss of $2,057,491 resulted on the early redemption of the 12.375% Series B debentures. The term loan is payable in quarterly installments of $3,300,000 beginning in January 1995. The average interest rate on the term loan is 5.98% at December 31, 1994.
5. RELATED PARTY TRANSACTIONS
The Corporation and the Partnership have no salaried employees and their officers are employees of Dow. Dow performs management services for both and is reimbursed for actual cash expenditures, including an allocation of general overhead and administrative expenses, none of which is material to the Corporation.
EXHIBIT INDEX
3.1 -- Certificate of Incorporation of the Corporation (incorporated by reference to Registration Statement No. 2-85622, Exhibit 3.1)
3.2 -- By-laws of the Corporation (incorporated by reference to Registration Statement No. 2-85622, Exhibit 3.2)
4.1 -- Form of Series B Notes (incorporated by reference to Registration Statement No. 2-93612, Exhibit A to Exhibit 4.3)
4.2 --Indenture dated as of February 15, 1984 between the Corporation and The Royal Bank and Trust Company, trustee (the "Trustee")(incorporated by reference to Registration Statement No. 2-85622,Exhibit 4.2)
4.3 --Form of Supplement No. 2 to Indenture (incorporated by reference to Registration Statement No. 2-93612, Exhibit 4.3)
4.4 -- Form of Partnership Note of the Partnership (incorporated by reference to Registration Statement No. 2-85622, exhibit A to Exhibit 4.9)
4.5 --Cash Deficiency Agreement dated as of March 1, 1983, among Dofinco, Inc., Pretiss Glycol Company and Scotlene, Inc. (the "Partners") and the Partnership (incorporated by reference to Registration Statement No. 2-85622, Exhibit 4.5)
4.6 --Guarantee Agreement dated as of March 1, 1983, between Dow and the Partnership (incorporated by reference to Registration Statement No. 2-85622, Exhibit 4.6)
4.7 --Guarantee Agreement dated as of March 1, 1983, between Union Carbide Corporation and the Partnership (incorporated by reference to Registration Statement No. 2-85622, Exhibit 4.7)
4.8 --Guarantee Agreement dated as of March 1, 1983, between Shell Canada Limited and the Partnership (incorporated by reference to Registration Statement No. 2-85622, Exhibit 4.8)
4.9 --Financing Agreement dated as of February 15, 1984 between the Corporation and the Partnership (incorporated by reference to Registration Statement No. 2-85622, Exhibit 4.9)
4.10 -- Form of Consent Assignment and Agreement among the Partners, the Partnership and the Trustee (incorporated by reference to Registration Statement No. 2-85622, Exhibit 4.9)
4.11 -- Partnership Agreement dated as of February 9, 1983, among the Partners (incorporated by reference to Registration Statement No. 2-85622, Exhibit 4.11)
26 -- Form T-l Statement of of Eligibility and Qualification under the Trust Indenture Act of 1939 of the Trustee (incorporated by reference to Registration Statement No. 2-93612, Exhibit 26)