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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 JUNE 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-368-2
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CHEVRON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0890210
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
225 Bush Street, San Francisco, California 94104
- ------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 894-7700
---------------
NONE
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of June 30, 1995
----------------------------- -----------------------------------
Common stock, $1.50 par value 652,052,672
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Index
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income for the three months
and six months ended June 30, 1995 and 1994 2
Consolidated Balance Sheet at June 30, 1995 and
December 31, 1994 3
Consolidated Statement of Cash Flows for the six months
ended June 30, 1995 and 1994 4
Notes to Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Listing of Exhibits and Reports on Form 8-K 17
Signature 17
- 1 -
PART I. FINANCIAL INFORMATION
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
Millions of Dollars,
Except Per Share Amounts 1995 1994 1995 1994
- -----------------------------------------------------------------------------
REVENUES
Sales and other
operating revenues* $ 9,397 $ 8,702 $18,217 $16,807
Equity in net income of
affiliated companies 114 77 345 184
Other income 56 45 49 97
-----------------------------------------
TOTAL REVENUES 9,567 8,824 18,611 17,088
-----------------------------------------
COSTS AND OTHER DEDUCTIONS
Purchased crude oil and products 4,616 4,200 9,134 7,884
Operating expenses 1,346 1,603 2,711 3,100
Exploration expenses 71 73 142 178
Selling, general and
administrative expenses 342 325 643 633
Depreciation, depletion
and amortization 566 615 1,142 1,207
Taxes other than on income* 1,417 1,403 2,790 2,748
Interest and debt expense 104 83 214 156
-----------------------------------------
TOTAL COSTS AND OTHER DEDUCTIONS 8,462 8,302 16,776 15,906
-----------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 1,105 522 1,835 1,182
INCOME TAX EXPENSE 498 265 769 537
-----------------------------------------
NET INCOME $ 607 $ 257 $ 1,066 $ 645
-----------------------------------------
PER SHARE OF COMMON STOCK:
NET INCOME $ .93 $ .39 $ 1.63 $ .99
DIVIDENDS $ .4625 $ .4625 $ .925 $ .925
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000S) 652,017 651,675 651,956 651,650
* Includes consumer excise taxes. $ 1,227 $ 1,206 $2,412 $ 2,358
See accompanying notes to consolidated financial statements.
- 2 -
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, DECEMBER 31,
Millions of Dollars 1995 1994
- -----------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 824 $ 413
Marketable securities 532 893
Accounts and notes receivable 4,379 3,923
Inventories:
Crude oil and petroleum products 736 1,036
Chemicals 452 391
Materials and supplies 253 263
Other merchandise 23 20
------------------------
1,464 1,710
Prepaid expenses and other current assets 772 652
------------------------
TOTAL CURRENT ASSETS 7,971 7,591
Long-term receivables 133 138
Investments and advances 4,288 3,991
Properties, plant and equipment, at cost 47,573 46,810
Less: accumulated depreciation, depletion
and amortization 25,188 24,637
------------------------
22,385 22,173
Deferred charges and other assets 513 514
------------------------
TOTAL ASSETS $35,290 $34,407
------------------------
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $ 3,771 $ 4,014
Accounts payable 3,098 2,990
Accrued liabilities 1,111 1,274
Federal and other taxes on income 636 624
Other taxes payable 524 490
------------------------
TOTAL CURRENT LIABILITIES 9,140 9,392
Long-term debt and capital lease obligations 4,451 4,128
Deferred credits and other non-current obligations 2,034 2,043
Non-current deferred income taxes 2,803 2,674
Reserves for employee benefit plans 1,570 1,574
------------------------
TOTAL LIABILITIES 19,998 19,811
------------------------
Preferred stock (authorized 100,000,000
shares, $1.00 par value, none issued) - -
Common stock (authorized 1,000,000,000 shares,
$1.50 par value, 712,487,068 shares issued) 1,069 1,069
Capital in excess of par value 1,860 1,858
Deferred compensation - Employee Stock
Ownership Plan (ESOP) (850) (900)
Currency translation adjustment and other 340 175
Retained earnings 14,928 14,457
Treasury stock, at cost (shares 60,434,396
and 60,736,435 at June 30, 1995 and
December 31, 1994, respectively) (2,055) (2,063)
------------------------
TOTAL STOCKHOLDERS' EQUITY 15,292 14,596
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $35,290 $34,407
------------------------
See accompanying notes to consolidated financial statements.
- 3 -
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
June 30,
-----------------------
Millions of Dollars 1995 1994
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $1,066 $ 645
Adjustments
Depreciation, depletion and amortization 1,142 1,207
Dry hole expense related to prior years'
expenditures 6 26
Distributions less than equity in affiliates'
income (126) (22)
Net before-tax losses (gains) on asset
retirements and sales 16 (26)
Net currency translation losses 34 9
Deferred income tax provision 141 76
Net increase in operating working capital (432) (829)
Other (76) (73)
-----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,771 1,013
-----------------------
INVESTING ACTIVITIES
Capital expenditures (1,584) (1,407)
Proceeds from asset sales 354 140
Net sales (purchases) of marketable securities 378 (2)
-----------------------
NET CASH USED FOR INVESTING ACTIVITIES (852) (1,269)
-----------------------
FINANCING ACTIVITIES
Net (payments) borrowings of short-term obligations (261) 880
Proceeds from issuance of long-term debt 418 4
Repayments of long-term debt and other
financing obligations (62) (462)
Cash dividends paid (603) (602)
Purchases of treasury shares (2) (3)
-----------------------
NET CASH USED FOR FINANCING ACTIVITIES (510) (183)
-----------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 2 (2)
-----------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 411 (441)
CASH AND CASH EQUIVALENTS AT JANUARY 1 413 1,644
-----------------------
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 824 $1,203
-----------------------
See accompanying notes to consolidated financial statements.
- 4 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Chevron Corporation and
its subsidiaries (the company) have not been audited by independent
accountants, except for the balance sheet at December 31, 1994. In the
opinion of the company's management, the interim data include all adjustments
necessary for a fair statement of the results for the interim periods. These
adjustments were of a normal recurring nature, except for the special items
described in Note 2.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
company's 1994 Annual Report on Form 10-K.
The results for the three-month and six-month periods ended June 30, 1995 are
not necessarily indicative of future financial results.
NOTE 2. NET INCOME
Net income for the second quarter of 1995 included $4 million in special
charges for employee severance provisions connected with work force reduction
programs. The 1994 second quarter included $5 million in special charges for
estimated environmental remediation expenses at certain U.S. marketing
facilities.
Special items increased net income by $59 million for the six-month period
ended June 30, 1995. A net gain of $80 million, primarily related to the sale
of land by a Caltex affiliate, was offset by charges of $10 million for
environmental remediation provisions associated with U.S. marketing properties
formerly held by the company and charges of $11 million for employee severance
provisions.
Net income for the first half of 1994 included special charges of $41 million.
These charges were comprised of a $26 million provision for estimated
environmental assessment and cleanup liabilities at certain U.S. refining and
marketing facilities and $15 million for a reserve adjustment related to the
resolution of certain regulatory issues with the Minerals Management Service.
Foreign exchange gains were $6 million for the second quarter and first six
months of 1995, compared with losses of $21 million for both the second
quarter and first six months of 1994.
NOTE 3. INFORMATION RELATING TO THE STATEMENT OF CASH FLOWS
The "Net increase in operating working capital" is composed of the following:
SIX MONTHS ENDED
JUNE 30,
----------------------
Millions of Dollars 1995 1994
------------------------------------------------------------------------
Increase in accounts and notes receivable $ (447) $ (404)
Increase in inventories (28) (121)
Increase in prepaid expenses
and other current assets (101) (221)
Increase (decrease) in accounts payable and
accrued liabilities 82 (218)
Increase in income and other taxes payable 62 135
------------------------------------------------------------------------
Net increase in operating working capital $ (432) $ (829)
------------------------------------------------------------------------
- 5 -
"Net Cash Provided by Operating Activities" includes the following cash
payments for interest on debt and for income taxes:
SIX MONTHS ENDED
JUNE 30,
----------------------
Millions of Dollars 1995 1994
------------------------------------------------------------------------
Interest paid on debt (net of
capitalized interest) $ 175 $ 144
Income taxes paid 600 410
------------------------------------------------------------------------
The "Net sales (purchases) of marketable securities" consists of the following
gross amounts:
SIX MONTHS ENDED
JUNE 30,
----------------------
Millions of Dollars 1995 1994
------------------------------------------------------------------------
Marketable securities purchased $(1,073) $ (697)
Marketable securities sold 1,451 695
------------------------------------------------------------------------
Net sales (purchases) of marketable securities $ 378 $ (2)
------------------------------------------------------------------------
The Consolidated Statement of Cash Flows excludes the following non-cash
transactions:
The company's Employee Stock Ownership Plan (ESOP) repaid $50 million and $40
million of matured debt guaranteed by Chevron Corporation in January of 1995
and 1994, respectively. These payments were recorded by the company as a
reduction in its debt outstanding and in Deferred Compensation - ESOP.
In February 1994, the company took delivery of a new tanker under a capital
lease arrangement. This asset was recorded as a $65 million addition to
properties, plant and equipment and to capital lease obligations.
NOTE 4. SUMMARIZED FINANCIAL DATA - CHEVRON U.S.A. INC.
Chevron U.S.A. Inc. is Chevron Corporation's principal operating company,
consisting primarily of the company's United States integrated petroleum
operations (excluding most of the domestic pipeline operations). These
operations are conducted by three divisions: Chevron U.S.A. Production
Company, Chevron U.S.A. Products Company and Warren Petroleum Company.
Summarized financial information for Chevron U.S.A. Inc. and its consolidated
subsidiaries is presented below:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
Millions of Dollars 1995 1994 1995 1994
- -----------------------------------------------------------------------------
Sales and other operating revenues 6,310 $6,376 $12,243 $12,458
Costs and other deductions 6,062 6,342 12,105 12,203
Net income 191 63 158 236
- -----------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
Millions of Dollars 1995 1994
- ----------------------------------------------------------------------------
Current assets $ 3,486 $ 3,341
Other assets 14,016 14,136
Current liabilities 5,992 6,347
Other liabilities 5,426 5,599
Net worth 6,084 5,531
- ----------------------------------------------------------------------------
- 6 -
NOTE 5. SUMMARIZED FINANCIAL DATA - CHEVRON TRANSPORT CORPORATION
Chevron Transport Corporation (CTC), a Liberian corporation, is an indirect,
wholly-owned subsidiary of Chevron Corporation. CTC is the principal operator
of Chevron's international tanker fleet and is engaged in the marine
transportation of oil and refined petroleum products. Most of CTC's shipping
revenue is derived by providing transportation services to other Chevron
companies. Chevron Corporation has guaranteed this subsidiary's obligations in
connection with certain debt securities where CTC is deemed to be an issuer.
In accordance with the Securities and Exchange Commission's disclosure
requirements, summarized financial information for CTC and its consolidated
subsidiaries is presented below. This summarized financial data was derived
from the financial statements prepared on a stand alone basis in conformity
with generally accepted accounting principles.
SIX MONTHS ENDED
JUNE 30,
----------------------
Millions of Dollars 1995 1994
- ----------------------------------------------------------------------------
Sales and other operating revenues $223 $224
Costs and other deductions 241 258
Net (loss) income (25) (22)
- ----------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
Millions of Dollars 1995 1994
- ----------------------------------------------------------------------------
Current assets $ 169 $ 75
Other assets 1,010 851
Current liabilities 432 404
Other liabilities 458 208
Net worth 289 314
- ----------------------------------------------------------------------------
Separate financial statements and other disclosures with respect to CTC are
omitted as such separate financial statements and other disclosures are not
material to investors in the debt securities deemed issued by CTC. There were
no restrictions on CTC's ability to pay dividends or make loans or advances at
June 30, 1995.
NOTE 6. SUMMARIZED FINANCIAL DATA - CALTEX GROUP OF COMPANIES
Summarized financial information for the Caltex Group of Companies, owned 50
percent by Chevron and 50 percent by Texaco Inc., is as follows (amounts
reported are on a 100 percent Caltex Group basis):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
Millions of Dollars 1995 1994 1995 1994
- -----------------------------------------------------------------------------
Sales and other operating revenues $3,831 $3,518 $7,873 $6,816
Operating income 238 182 495 427
Net income 164 119 580 297
- -----------------------------------------------------------------------------
In the first quarter of 1995, Caltex recorded a net gain for U.S. financial
reporting of $171 million relating to the sale of a portion of land and air
utility rights by a Caltex affiliate in Japan required for a public project.
The proceeds include compensation that will be used to remove and relocate or
replace existing assets affected by the sale.
The merger of the refining and marketing assets of Caltex Australia Limited
(CAL), a 75 percent owned subsidiary of Caltex Petroleum Corporation, with
the refining and marketing assets of Ampol Limited, a unit of Pioneer
International Limited, was completed during the second quarter of 1995 with
an effective date of May 1, 1995. CAL and Pioneer each hold a 50 percent
stake in the new company, Australian Petroleum Pty Ltd.
- 7 -
NOTE 7. INCOME TAXES
The effective income tax rate for the first half of 1995 decreased to 41.9
percent from 45.4 percent in the 1994 first half. A proportionate shift in
international earnings to lower taxed income areas coupled with increases in
tax credits and equity income recorded on an after-tax basis were the primary
reasons for the lower effective tax rate.
NOTE 8. CONTINGENT LIABILITIES
LITIGATION -
The company is a defendant in numerous lawsuits, including an action brought
against the company by OXY U.S.A. in an Oklahoma state court. Plaintiffs may
seek to recover large and sometimes unspecified amounts, and some matters may
remain unresolved for several years. It is not practical to estimate a range
of possible loss for the company's litigation matters, and losses could be
material with respect to earnings in any given period. However, management is
of the opinion that resolution of the lawsuits will not result in any
significant liability to the company in relation to its consolidated financial
position or liquidity.
The OXY lawsuit is brought in its capacity as successor in interest to Cities
Services Company, and involves claims for damages resulting from the allegedly
improper termination of a tender offer to purchase Cities' stock in 1982 made
by Gulf Oil Corporation (which was acquired by Chevron in 1984). OXY also
asserts that the company improperly interfered with a proposed settlement of
claims brought against OXY by the Department of Energy. A trial with respect
to the first set of claims is expected to occur next year.
OTHER CONTINGENCIES -
The U.S. federal income tax and California franchise tax liabilities of the
company have been settled through 1976 and 1987, respectively. For federal
income tax purposes, all issues other than the allocation of state income
taxes and the creditability of taxes paid to the Government of Indonesia have
been resolved through 1987. A recent Tax Court decision confirmed the
validity of tax regulations for allocating state income taxes. The company is
currently working with the Internal Revenue Service to agree on a methodology
that could apply to all years. The Indonesia issue applies only to years
after 1982. Settlement of open tax matters is not expected to have a material
effect on the consolidated net assets or liquidity of the company and, in the
opinion of management, adequate provision has been made for income and
franchise taxes for all years either under examination or subject to future
examination.
The company and its subsidiaries have certain other contingent liabilities
with respect to guarantees, direct or indirect, of debt of affiliated
companies or others and long-term unconditional purchase obligations and
commitments, throughput agreements and take-or-pay agreements, some of which
relate to suppliers' financing arrangements.
In March 1992, an agency within the Department of Energy (DOE) issued a
Proposed Remedial Order (PRO) claiming Chevron failed to comply with DOE
regulations in the course of its participation in the Tertiary Incentive
Program. Although the DOE regulations involved were rescinded in March 1981,
following decontrol of crude oil prices in January 1981, and the statute
authorizing the regulations expired in September 1981, the PRO purports to be
for the period April 1980 through April 1990. The DOE claimed the company
overrecouped under the regulations by $125 million during the period in
question but is currently requesting that the DOE's Office of Hearings and
Appeals amend the amount to $167 million. If the amendment is granted, the
total claim, including interest through June 1995, amounts to $423 million.
The company asserts that in fact it incurred a loss through participation in
the DOE program. Evidentiary hearings on the no benefit argument began in
mid-December 1994 and were concluded in March 1995. Oral arguments were held
on August 9, 1995.
- 8 -
The company is subject to loss contingencies pursuant to environmental laws
and regulations that in the future may require the company to take action to
correct or ameliorate the effects on the environment of prior disposal or
release of chemical or petroleum substances by the company or other parties.
Such contingencies may exist for various sites including, but not limited to:
Superfund sites and refineries, oil fields, service stations, terminals and
land development areas, whether operating, closed or sold. The amount of such
future cost is indeterminable due to such factors as the unknown magnitude of
possible contamination, the unknown timing and extent of the corrective
actions that may be required, the determination of the company's liability in
proportion to other responsible parties and the extent to which such costs are
recoverable from third parties. While the company has provided for known
environmental obligations that are probable and reasonably estimable, the
amount of future costs may be material to results of operations in the period
in which they are recognized. The company does not expect these costs to have
a material effect on its consolidated financial position or liquidity. Also,
the company does not believe its obligations to make such expenditures has had
or will have any significant impact on the company's competitive position
relative to other domestic or international petroleum or chemical concerns.
The company's operations, particularly oil and gas exploration and production,
can be affected by changing economic, regulatory and political environments in
the various countries, including the United States, in which it operates. In
certain locations, host governments have imposed restrictions, controls and
taxes, and, in others, political conditions have existed that may threaten the
safety of employees and the company's continued presence in those countries.
Internal unrest or strained relations between a host government and the
company or other governments may affect the company's operations. Those
developments have, at times, significantly affected the company's related
operations and results, and are carefully considered by management when
evaluating the level of current and future activity in such countries.
Areas in which the company has significant operations include the United
States, Australia, United Kingdom, Canada, Nigeria, Angola, Congo, Papua New
Guinea, China, Indonesia and Zaire. The company's Caltex affiliates have
significant operations in Indonesia, Japan, Korea, Australia, the Philippines,
Thailand and South Africa. The company's Tengizchevroil affiliate operates in
Kazakhstan.
- 9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 1995 COMPARED WITH SECOND QUARTER 1994
AND FIRST HALF 1995 COMPARED WITH FIRST HALF 1994
OVERVIEW AND OUTLOOK
- --------------------
Net income for the second quarter of 1995 was $607 million ($.93 per share),
up sharply from the $257 million ($.39 per share), earned in last year's
second quarter. Net income for the first six months of 1995 was $1.066
billion ($1.63 per share) up 65 percent from $645 million ($.99 per share)
reported for the 1994 first half.
The 1995 six month results benefited $59 million from special items while
earnings for the comparable period in 1994 were reduced $41 million by special
charges. Special items reduced second quarter earnings $4 million and $5
million in 1995 and 1994, respectively.
For the quarter, chemicals reported record earnings for the second consecutive
quarter, reflecting continued strong industry demand for petrochemicals. The
U.S. downstream business returned to profitability in the second quarter
following a poor first quarter, as refinery operations improved and product
prices strengthened. International upstream operations once again turned in
strong results, up 45 percent from the 1994 second quarter, driven by higher
crude oil prices and increased production. And despite low natural gas
prices, the U.S. upstream business maintained steady profitability.
Total revenues were $9.6 billion in the 1995 second quarter, up 8 percent from
$8.8 billion in last year's second quarter. Revenues for the first six months
of 1995 were $18.6 billion, a 9 percent increase over 1994 first half revenues
of $17.1 billion. In both 1995 periods, sales and other operating revenues
and purchased crude oil and products costs increased from higher crude oil,
refined product and chemicals prices. The sales revenue increase was
mitigated by lower refined product sales volumes and lower natural gas prices.
Operating, general and administrative expenses, adjusted for special items,
declined $240 million in the quarter and $349 million in the first half to
$1.680 billion and $3.319 billion, respectively, compared with $1.920 billion
and $3.668 billion in the comparable periods of 1994. About half the decline
in both periods was due to the absence of expenses related to the company's
Philadelphia and Port Arthur refineries, which were sold in August 1994 and
February 1995, respectively. The balance of the reduction was the result of
the company's continuing cost reduction initiatives.
Chevron has lowered its cost structure since 1991 by over $1.3 billion,
including a reduction in its work force of over 11,000 employees, positioning
itself to weather industry downturns and to get an extra boost when industry
conditions are good. An integral component of the company's strategy is the
continued pursuit of additional cost reduction opportunities.
Taxes on income for the second quarter and first half of 1995 were $498
million and $769 million, respectively, compared with $265 million and $537
million for the comparable 1994 periods. The effective income tax rate for
the first half of 1995 decreased to 41.9 percent from 45.4 percent in the 1994
first half. The primary reasons for the decrease were a proportional shift in
international earnings from higher taxed areas to lower taxed areas and an
increase in tax credits and equity income recorded on an after-tax basis.
Net foreign exchange gains of $6 million were included in both the 1995 second
quarter and six months results. Foreign exchange losses totaling $21 million
were included in both the 1994 second quarter and first half net income.
Crude oil prices declined about $1.00 per barrel in June and fell about
another $1.00 in July before leveling off. U.S. natural gas prices have
continued their downward drift, showing little reaction to unusually hot
weather in much of the country in July. Refined product prices have declined
in line with lower crude oil costs. Prices for many of the company's major
chemical products have slowed their upward momentum, and for some, are
beginning to soften, as supply and demand in the petrochemical industry come
into balance. To prepare for the March 1996 introduction of California-
mandated reformulated gasolines, the company's Richmond, California refinery
is scheduled for extensive downtime in the fourth quarter of 1995.
- 10 -
CURRENT DEVELOPMENTS
- --------------------
In March 1995, the Financial Accounting Standards Board issued a new financial
accounting standard, FAS 121, "Accounting For Impairment Of Long-Lived Assets
And For Long-Lived Assets To Be Disposed Of". Chevron is currently studying
the standard, which must be adopted by the first quarter of 1996, but has not
yet determined when it will be implemented or its effect on the company's
financial position and results of operations. There will be no effect on the
company's liquidity.
In May 1995, Chevron introduced its new gasoline containing Techron, a
proprietary fuel additive. The products were launched with an extensive
advertising campaign in the company's marketing areas. In August 1995, the
company and McDonald's announced their intent to develop co-branded retail
sites throughout the western and southwestern United States. The company's
objective is to improve brand loyalty and to increase market share.
In June 1995, Chevron entered into a production sharing contract with
Pertamina, the Indonesian national oil company, to explore for oil and gas on
the western coast of the Indonesian island of Sulawesi. Also in June, the
company farmed-out 35 percent of its interest in its 2.5 million acre
Caipipendi exploration tract in Bolivia and an additional 25 percent was
farmed-out in July. Chevron's proposal to explore 1.77 million acres in Peru
adjacent to the giant Camisea gas and condensate fields was accepted by
Perupetro S.A., the state owned oil company, in July. The proposal is subject
to approval by the Peruvian government.
In June 1995, Chevron and its partners announced the start-up of crude oil
production from two new fields offshore China. With this production the
consortium is China's largest offshore producer, with total production
exceeding 100,000 barrels per day. Chevron's equity share is 16 1/3 percent.
There have been no recent developments in the status of Tengizchevroil, the
company's joint venture with Kazakhstan to develop the Tengiz oil field.
Production levels continue to be restrained by lack of adequate export
capabilities. Chevron's cash investment in the Tengiz project at June 30,
1995 was $714 million. The pace of further capital spending and development is
dependent on the availability of additional export capability.
The company's producing operations in Nigeria and Angola continue to be
generally unaffected by the civil unrest and political uncertainty in those
countries. Significant development projects are underway in both countries.
Chevron's share of current production is in excess of 130,000 barrels per day
in Nigeria and about 120,000 barrels per day in Angola.
In August 1995, the company reached an agreement with the U.S. Federal
Government to resolve Chevron's claims over certain offshore oil and gas
leases in Florida and Alaska where the company was prohibited from exploring.
As a result of the settlement, the company will receive approximately $65
million from the U.S. government and will relinquish its interest in these
leases. A claim over leases off the coast of North Carolina has yet to be
resolved. Upon receipt of the proceeds, the company expects to record a gain
on the settlement, which represents the difference between the settlement
amount and the company's carrying value of its interest in the leases.
In the United States, the company continues significant exploration activities
in the Gulf of Mexico.
In March 1995, Chevron announced the possible sale of its California real
estate subsidiaries and affiliates, assuming satisfactory prices and terms
could be obtained. Bids for the properties have been received and the company
is currently in the process of evaluating them. If the company decides to
sell the properties, it is likely the sales price will be less than their
carrying value, resulting in a charge against future earnings.
The company continues to review and analyze its operations and may incur
charges related to future restructurings of its businesses and disposition of
marginal or non-strategic assets.
- 11 -
REVIEW OF OPERATIONS
- --------------------
The following tables detail the company's after-tax earnings by major
operating area and selected operating data.
EARNINGS BY MAJOR OPERATING AREA
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
(Millions of Dollars) 1995 1994 1995 1994
- -----------------------------------------------------------------------------
Exploration and Production
United States $150 $152 $300 $276
International 194 134 366 245
- -----------------------------------------------------------------------------
Total Exploration and Production 344 286 666 521
- -----------------------------------------------------------------------------
Refining, Marketing and Transportation
United States 108 (42) 6 56
International 36 27 192 90
- -----------------------------------------------------------------------------
Total Refining, Marketing
and Transportation 144 (15) 198 146
- -----------------------------------------------------------------------------
Total Petroleum Operations 488 271 864 667
Chemicals 175 49 338 75
Coal and Other Minerals 2 12 14 27
Corporate and Other (58) (75) (150) (124)
- -----------------------------------------------------------------------------
NET INCOME $607 $257 $1,066 $645
=============================================================================
SELECTED OPERATING DATA
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -------------------
1995 1994 1995 1994
- -----------------------------------------------------------------------------
U.S. EXPLORATION AND PRODUCTION
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 352 371 354 372
Net Natural Gas Production (MMCFPD) 1,927 2,146 1,931 2,168
Sales of Natural Gas Liquids (MBPD) 192 185 220 198
Revenue from Net Production
Crude Oil ($/Bbl.) $16.41 $14.34 $15.76 $12.95
Natural Gas ($/MCF) $ 1.52 $ 1.79 $ 1.48 $ 1.96
INTERNATIONAL EXPLORATION
AND PRODUCTION (1)
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 644 613 646 608
Net Natural Gas Production (MMCFPD) 556 519 574 525
Revenue from Liftings
Liquids ($/Bbl.) $17.12 $14.84 $16.59 $14.01
Natural Gas ($/MCF) $ 1.63 $ 1.86 $ 1.73 $ 1.95
U.S. REFINING AND MARKETING
Sales of Gasoline (MBPD) 556 625 551 633
Sales of Other Refined Products (MBD) 550 719 551 693
Refinery Input (MBPD) 997 1,237 953 1,195
Average Refined Product Sales
Price ($/Bbl.) $27.32 $23.94 $26.28 $23.34
INTERNATIONAL REFINING AND MARKETING (1)
Sales of Refined Products (MBPD) 944 891 964 918
Refinery Input (MBPD) 551 625 584 632
CHEMICAL SALES AND OTHER
OPERATING REVENUES (2)
United States $939 $665 $1,812 $1,262
International 167 136 319 264
-----------------------------------
Worldwide $1,106 $801 $2,131 $1,526
=============================================================================
(1) Includes equity in affiliates.
(2) Millions of dollars. Includes sales to other Chevron companies. 1994
amounts restated to conform with 1995 presentation.
----------------
MBPD=thousand barrels per day; MMCFPD=million cubic feet per day;
Bbl.=barrel; MCF=thousand cubic feet
- 12 -
WORLDWIDE EXPLORATION AND PRODUCTION earned $344 million in the second quarter
of 1995 compared with $286 million in the corresponding 1994 period. Earnings
of $666 million in the first six months of 1995 were 28 percent higher than
the $521 million earned in the 1994 first half. U.S. EXPLORATION AND
PRODUCTION net quarterly earnings of $150 million were about flat with the
$152 million earned in the 1994 second quarter. Six-month 1995 earnings were
$300 million compared with $276 million earned in the 1994 six months. A
special charge related to settlement of a regulatory issue reduced 1994 six
month earnings by $15 million.
Higher average crude oil realizations were offset by lower natural gas prices
and lower production volumes of crude oil and natural gas. Operating and
exploration expenses were lower; depreciation expense declined in line with
the lower production volumes.
Average crude oil realizations for the second quarter were $16.41 per barrel,
up 14 percent from $14.34 in the 1994 second quarter. The company's average
natural gas price in this year's second quarter declined 15 percent to $1.52
per thousand cubic feet from $1.79 in the prior year second quarter. On a
year-to-date basis, crude oil realizations were up 22 percent to $15.76 per
barrel, but natural gas prices were off 24 percent to $1.48 per thousand cubic
feet. On an equivalent barrel basis, natural gas accounts for almost half of
the company's U.S. production.
Net liquids production declined to 352,000 barrels per day in the second
quarter and to 354,000 barrels per day for the first six months, a 5 percent
decline from the prior year comparable periods; net natural gas production of
1.9 billion cubic feet per day in both 1995 periods decreased from 2.1 billion
cubic feet per day in the prior year periods. The decline in production
volumes was largely the result of normal field declines, partially offset by
new field production.
INTERNATIONAL EXPLORATION AND PRODUCTION net earnings for the 1995 second
quarter were $194 million, up 45 percent from $134 million in last year's
second quarter. Earnings of $366 million in the first six months of 1995 were
49 percent higher than the $245 million earned in the 1994 first half. Higher
crude oil prices and higher production volumes combined for the earnings
increases. Earnings in 1995 included special charges of $3 million in the
second quarter and $10 million year-to-date for employee severance provisions
in connection with work force reduction programs.
Net liquids production increased 5 percent to 644,000 barrels per day,
quarter-to-quarter, and averaged 646,000 barrels per day in the 1995 first
half. The increase was primarily due to new fields coming on stream in
Angola. Net natural gas production in the second quarter was up 7 percent to
556 million cubic feet per day, and averaged 574 million cubic feet for the
first six months.
Foreign exchange gains were $3 million in the 1995 second quarter, offsetting
a $3 million loss in 1995's first quarter. In 1994, foreign exchange losses
were $5 million and $1 million in the second quarter and six months,
respectively.
WORLDWIDE REFINING AND MARKETING operations reported earnings of $144 million
in the 1995 second quarter compared with a loss of $15 million in last year's
second quarter. The 1995 first half earnings were $198 million compared with
$146 million in the corresponding 1994 period. U.S. refining and marketing
net earnings were $108 million in the second quarter, compared with a loss of
$42 million in the 1994 second quarter, and were a dramatic turnaround from
the $102 million loss incurred in this year's first quarter.
Six month earnings for 1995 were $6 million compared with $56 million in the
1994 six months. The six month results included special charges for
environmental remediation provisions of $10 million in 1995 and $26 million in
1994.
Sales margins improved in the second quarter on better refinery operations and
higher product sales prices. Last year's second quarter, as well as the first
quarter of 1995, suffered from extensive refinery downtime and operating
problems, coupled with the failure of product prices to keep pace with the
increasing crude oil costs during those periods. Second quarter 1994 results
also included a special charge of $5 million for environmental remediation
programs.
- 13 -
Refined product sales volumes declined 18 percent from last year's second
quarter to 1.1 million barrels per day, reflecting the sale of the company's
Port Arthur, Texas and Philadelphia refineries. Most of the volume decline
occurred in unbranded bulk sales. Branded gasoline sales through the
company's marketing system increased slightly.
INTERNATIONAL REFINING AND MARKETING net second quarter earnings were $36
million, compared with $27 million in the second quarter of 1994. Results in
both periods reflected low sales margins. Also, in the 1995 period the
company's U.K. refinery was shut down for extended maintenance, which
adversely affected earnings and sales volumes. Favorable foreign exchange
fluctuations, primarily related to the company's Caltex affiliate, and
improved shipping and trading operations more than offset the decreased U.K.
results.
Six month earnings for 1995 were $192 million compared with $90 million in the
1994 six months. However, the 1995 results benefited a net $80 million from
special items, principally a gain related to the sale of land by a Caltex
affiliate in Japan.
Total international sales volumes in the second quarter increased 6 percent to
944,000 barrels per day due to higher Caltex sales and increased volumes from
the company's trading activities, which more than offset the lower U.K.
volumes. For the first six months of 1995, sales volumes averaged 964,000
barrels per day.
The 1995 second quarter and six month results included foreign exchange gains
of $5 million and $26 million, respectively, whereas the prior-year periods
had foreign exchange losses of $9 million and $8 million.
CHEMICALS earned a record $175 million in the quarter, more than triple last
year's second quarter net earnings of $49 million. Six month earnings were
$338 million compared with $75 million in last year's six months. The
company has experienced dramatic improvements in both its olefins and
aromatics divisions due to continued strong industry demand, which has
resulted in strong prices and volumes. Olefins operations have particularly
benefited from strong ethylene demand, where prices nearly doubled from last
year's second quarter. Aromatics earnings reflected strong demand and prices
for styrene.
COAL AND OTHER MINERALS net earnings fell to $2 million from $12 million in
the 1994 second quarter and to $14 million in the 1995 six months from $27
million in the prior year period. Earnings declined on lower average sales
prices and volumes. Increased competition from lower priced natural gas
reduced demand. Prices were also affected by contractual terms with a large
utility customer. Operating expenses increased because of the periodic move
of a continuous longwall mining machine. A special charge of $1 million for
employee severance costs was recorded in the 1995 second quarter.
CORPORATE AND OTHER includes interest expense, interest income on cash and
marketable securities, corporate cost centers and real estate and insurance
operations. These activities incurred net charges of $58 million, compared
with charges of $75 million in the 1994 second quarter. Year-to-date charges
were $150 million in 1995 compared with $124 million in 1994. Lower corporate
expenses and favorable consolidating income tax adjustments more than offset
increased interest expense and lower real estate earnings in the 1995 second
quarter. For the 1995 year-to-date, higher interest expense was the primary
reason corporate and other charges increased. Higher average interest rates
and higher average debt levels caused interest expense to increase.
- 14 -
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents totaled $824 million at June 30, 1995, a $411
million increase from year-end 1994. Cash from operations and proceeds from
asset sales were used to fund the company's capital expenditures and dividend
payments to stockholders.
In July, the company increased its quarterly dividend of 46.25 cents a share
on its common stock by 3.75 cents a share, or 8 percent, to 50 cents a share.
This dividend increase brings Chevron's annual dividend rate to $2.00 a share.
The company's debt and capital lease obligations totaled $8.222 billion at
June 30, 1995, up a net $80 million from $8.142 billion at year-end 1994. The
increase is primarily due to $418 million of new long-term obligations,
largely the sale and capital lease back of four of the company's ocean-going
vessels, partially offset by the repayment of approximately $261 million of
short-term commercial paper debt. The company also retired, in January 1995,
$50 million of 6.51 percent debt related to the Employee Stock Ownership Plan.
Although the company benefits from lower interest rates on short-term debt,
the large amount of short-term debt has kept Chevron's ratio of current assets
to current liabilities at relatively low levels and was .87 at June 30, 1995.
The company's short-term debt, consisting of commercial paper and current
portion of long-term debt, totaled $5.571 billion at June 30, 1995. This
amount includes $1.8 billion that was reclassified as long-term since the
company has both the intent and ability, as evidenced by revolving credit
agreements, to refinance it on a long-term basis. The company's practice has
been to continually refinance its commercial paper, maintaining levels it
believes to be appropriate.
The company's debt ratio (total debt to total debt plus equity) was 35.0
percent at June 30, 1995, down slightly from 35.8 percent at year-end 1994.
The company continually monitors its spending levels, market conditions and
related interest rates to maintain what it perceives to be reasonable debt
levels.
In order to help manage Chevron's exposure to interest rate fluctuations, the
company has entered into various interest rate swaps on both its long- and
short-term debt. At June 30, the notional principal amount of these financial
instruments totaled approximately $1.225 billion, including a $350 million
swap entered into in June 1995. Under the terms of the agreements, Chevron
has agreed to swap $1.05 billion of floating rate debt for fixed rates and
approximately $175 million of fixed rate debt for a floating rate.
Worldwide capital and exploratory expenditures for the first half of 1995,
including the company's share of affiliates' expenditures, totaled $2.147
billion, up slightly from $2.132 billion spent in the 1994 first half. Total
expenditures for exploration and production activities were about 60 percent
of total outlays in the 1995 period compared with 58 percent in 1994.
Expenditures outside the United States were about 60 percent of total outlays
in both 1995 and 1994.
- 15 -
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CITIES SERVICE TENDER OFFER CASES -
The description contained in Part I, Item 3, Paragraph A of the company's
Annual Report on Form 10-K for the year ended December 31, 1994 is hereby
amended as follows:
The court has established a cut-off date of November 1, 1995 for discovery in
the case. Jury selection for the first trial is scheduled to begin March 31,
1996, with trial to commence thereafter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of stockholders at the Annual
Meeting on May 2, 1995 and by proxy.
Voters elected 10 incumbent directors for one year terms. S. Bruce Smart Jr.,
a director since 1988, reached the mandatory retirement age for non-employee
directors and did not stand for re-election at the Annual Meeting. Mr.
Smart's retirement reduced the number of Board members to ten. The vote
tabulation for individual directors was:
SHARES SHARES
DIRECTORS FOR WITHHELD
--------------------------------------------------
S.H. Armacost 527,407,391 7,429,795
J.D. Bonney 528,718,358 6,118,827
K.T. Derr 527,941,208 6,895,981
S. Ginn 529,591,346 5,245,782
C.A. Hills 528,846,292 5,990,837
C.M. Pigott 529,624,373 5,212,813
C. Rice 527,852,264 6,983,951
J.N. Sullivan 528,558,170 6,279,016
G.H. Weyerhaeuser 529,257,429 5,579,699
J.A. Young 529,390,685 5,446,501
Voters also approved the appointment of Price Waterhouse LLP as the company's
independent accountants by a vote of 528,229,789 (99.2 percent) for and
4,020,142 (.8 percent) against. There were also 2,586,873 abstentions.
A proposal presented by the Board of Directors to permit the company to merge
its two existing broad-based employee profit-sharing plans was approved by a
vote of 445,780,785 (96.0 percent) for and 18,455,408 (4.0 percent) against.
There were also 4,824,453 abstentions and 65,776,158 broker non-votes.
Voters rejected two stockholder proposals. One proposal to compensate
directors solely in the form of common stock was rejected with a vote of
421,320,849 (91.6 percent) against and 38,578,975 (8.4 percent) for. There
were also 9,162,264 abstentions and 65,774,716 broker non-votes.
A second proposal asking Chevron to adopt a policy to make publicly available
certain environmental and safety information for each of its facilities was
defeated with a vote of 418,110,796 (94.4 percent) against and 24,575,386 (5.6
percent) for. There were also 26,377,345 abstentions and 65,773,277 broker
non-votes.
- 16 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) Pursuant to the Instructions to Exhibits, certain instruments
defining the rights of holders of long-term debt securities of the
company and its consolidated subsidiaries are not filed because
the total amount of securities authorized under any such instrument
does not exceed 10 percent of the total assets of the company
and its subsidiaries on a consolidated basis. A copy of any such
instrument will be furnished to the Commission upon request.
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHEVRON CORPORATION
----------------------------
(Registrant)
Date August 11, 1995 /s/ DONALD G. HENDERSON
---------------------- ----------------------------
Donald G. Henderson,
Vice-President & Comptroller
(Principal Accounting Office
and Duly Authorized Officer)
- 17 -
CHEVRON CORPORATION - TOTAL ENTERPRISE BASIS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------
1995 1994 1993 1992 1991 1990
------------- ------ ------- ------- ------- -------
Net Income before
Cumulative Effect of
Changes in Accounting
Principles (1) $1,066 $1,693 $1,265 $2,210 $1,293 $2,157
Income Tax Expense 896 1,322 1,389 1,508 1,302 2,387
Distributions Greater
Than (Less Than) Equity
in Earnings of Less
Than 50% Owned
Affiliates 4 (3) 6 (9) (20) (6)
Minority Interest (1) 3 (2) 2 2 6
Previously Capitalized
Interest Charged to
Earnings During Period 15 32 20 18 17 15
Interest and Debt Expense 295 453 390 490 585 707
Interest Portion of
Rentals (2) 74 156 169 152 153 163
------- ------- ------- ------- ------- -------
EARNINGS BEFORE PROVISION
FOR TAXES AND
FIXED CHARGES $2,349 $3,656 $3,237 $4,371 $3,332 $5,429
======= ======= ======= ======= ======= =======
Interest and Debt Expense $295 $ 453 $ 390 $ 490 $ 585 $ 707
Interest Portion of
Rentals(2) 74 156 169 152 153 163
Capitalized Interest 65 80 60 46 30 24
------- ------- ------- ------- ------- -------
TOTAL FIXED CHARGES $434 $ 689 $ 619 $ 688 $ 768 $ 894
======= ======= ======= ======= ======= =======
- -----------------------------------------------------------------------------
RATIO OF EARNINGS
TO FIXED CHARGES 5.41 5.31 5.23 6.35 4.34 6.07
- -----------------------------------------------------------------------------
(1) The information for 1992 and subsequent periods reflects the company's
adoption of the Financial Accounting Standards Board Statements No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions"
and No. 109, "Accounting for Income Taxes," effective January 1, 1992.
(2) Calculated as one-third of rentals.