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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 March 31, 2001
--------------
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)
575 Market Street, San Francisco, California 94105
-------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 894-7700
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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 March 31, 2001
- ---------------------------------- --------------------------------
Common stock, $0.75 par value 641,498,989
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INDEX
Page No.
Cautionary Statements Relevant to Forward-Looking
Information for the Purpose of "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995 1
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statement of Income for the three months
ended March 31, 2001 and 2000 2
Consolidated Statement of Comprehensive Income for the
three months ended March 31, 2001 and 2000 2
Consolidated Balance Sheet at March 31, 2001 and
December 31, 2000 3
Consolidated Statement of Cash Flows for the three months
ended March 31, 2001 and 2000 4
Notes to Consolidated Financial Statements 5-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 6. Listing of Exhibits and Reports on Form 8-K 25
Signature 25
Exhibit: Computation of Ratio of Earnings to Fixed Charges 26
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR
THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report on Form 10-Q contains forward-looking statements relating
to Chevron's operations that are based on management's current expectations,
estimates and projections about the petroleum and chemicals industries. Words
such as "anticipates," "expects," "intends," "plans," "projects," "believes,"
"seeks," "estimates" and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and other factors,
some of which are beyond our control and are difficult to predict. Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in such forward-looking statements. You should not place undue
reliance on these forward-looking statements, which speak only as of the date of
this report. Unless legally required, Chevron undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new information,
future events or otherwise.
Among the factors that could cause actual results to differ materially are crude
oil and natural gas prices; refining and marketing margins; chemicals prices and
competitive conditions affecting supply and demand for aromatics, olefins and
additives products; actions of competitors; the competitiveness of alternate
energy sources or product substitutes; technological developments; inability of
the company's joint-venture partners to fund their share of operations and
development activities; potential failure to achieve expected production from
existing and future oil and gas development projects; potential delays in the
development, construction or start-up of planned projects; the ability to
successfully consummate the proposed merger with Texaco and successfully
integrate the operations of both companies; potential disruption or interruption
of the company's production or manufacturing facilities due to accidents or
political events; potential liability for remedial actions under existing or
future environmental regulations and litigation; significant investment or
product changes under existing or future environmental regulations (including,
particularly, regulations and litigation dealing with gasoline composition and
characteristics); and potential liability resulting from pending or future
litigation. In addition, such statements could be affected by general domestic
and international economic and political conditions. Unpredictable or unknown
factors not discussed herein also could have material adverse effects on
forward-looking statements.
-1-
PART I. FINANCIAL INFORMATION
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
March 31,
---------------------------
Millions of Dollars, Except Per-Share Amounts 2001 2000
- ----------------------------------------------------------------------------------------------
Revenues and Other Income
Sales and other operating revenues* $ 11,965 $ 11,385
Income from equity affiliates 220 196
Other income 113 146
---------------------------
Total Revenues and Other Income 12,298 11,727
---------------------------
Costs and Other Deductions
Purchased crude oil and products 5,961 6,249
Operating expenses 1,183 1,238
Selling, general and administrative expenses 441 377
Exploration expenses 107 96
Depreciation, depletion and amortization 682 651
Taxes other than on income * 1,189 1,138
Interest and debt expense 87 129
---------------------------
Total Costs and Other Deductions 9,650 9,878
---------------------------
Income Before Income Tax Expense 2,648 1,849
Income Tax Expense 1,048 805
---------------------------
Net Income $ 1,600 $ 1,044
===========================
Per Share of Common Stock:
Net Income - Basic $ 2.49 $ 1.59
- Diluted $ 2.49 $ 1.59
Dividends $ .65 $ .65
Weighted Average Number of
Shares Outstanding (000s) - Basic 642,025 656,132
- Diluted 643,143 658,124
* Includes consumer excise taxes; 2000 conformed to
2001 presentation $ 1,001 $ 942
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
--------------------------
Millions of Dollars 2001 2000
- ----------------------------------------------------------------------------------------------
Net Income $ 1,600 $ 1,044
--------------------------
Unrealized holding gain on securities 10 10
Minimum pension liability adjustment - (15)
Currency translation adjustment 1 -
--------------------------
Other Comprehensive Income (Loss), net of tax 11 (5)
--------------------------
Comprehensive Income $ 1,611 $ 1,039
==========================
See accompanying notes to consolidated financial statements.
-2-
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31,
2001 December 31,
Millions of Dollars (Unaudited) 2000
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 2,315 $ 1,896
Marketable securities 1,471 734
Accounts and notes receivable 3,424 3,837
Inventories:
Crude oil and petroleum products 694 631
Chemicals 192 191
Materials, supplies and other 247 250
-----------------------------------
1,133 1,072
Prepaid expenses and other current assets 868 674
-----------------------------------
Total Current Assets 9,211 8,213
Long-term receivables 732 802
Investments and advances 8,735 8,107
Properties, plant and equipment, at cost 52,486 51,908
Less: accumulated depreciation, depletion and amortization 29,629 29,014
-----------------------------------
22,857 22,894
Deferred charges and other assets 1,282 1,248
-----------------------------------
Total Assets $42,817 $41,264
===================================
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $ 1,876 $ 1,079
Accounts payable 3,100 3,163
Accrued liabilities 1,372 1,530
Federal and other taxes on income 1,706 1,479
Other taxes payable 409 423
-----------------------------------
Total Current Liabilities 8,463 7,674
Long-term debt 4,525 4,872
Capital lease obligations 279 281
Deferred credits and other noncurrent obligations 1,602 1,768
Noncurrent deferred income taxes 4,871 4,908
Reserves for employee benefit plans 1,827 1,836
-----------------------------------
Total Liabilities 21,567 21,339
-----------------------------------
Preferred stock (authorized 100,000,000
shares, $1.00 par value, none issued) - -
Common stock (authorized 2,000,000,000 shares,
$0.75 par value, 712,487,068 shares issued) 534 534
Capital in excess of par value 2,761 2,758
Deferred compensation (511) (611)
Accumulated other comprehensive income (169) (180)
Retained earnings 22,098 20,909
Treasury stock, at cost (70,988,079 and 71,427,097 shares
at March 31, 2001 and December 31, 2000, respectively) (3,463) (3,485)
-----------------------------------
Total Stockholders' Equity 21,250 19,925
-----------------------------------
Total Liabilities and Stockholders' Equity $42,817 $41,264
===================================
See accompanying notes to consolidated financial statements.
-3-
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-------------------------
Millions of Dollars 2001 2000
- ---------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 1,600 $ 1,044
Adjustments
Depreciation, depletion and amortization 682 651
Dry hole expenses* 53 45
Distributions less than income from equity affiliates (14) (129)
Net before-tax losses (gains) on asset retirements and sales 1 (56)
Net foreign currency gains (38) (27)
Deferred income tax provision 75 94
Net decrease (increase) in operating working capital 157 (325)
Other, net (13) 30
---------------------------
Net Cash Provided by Operating Activities 2,503 1,327
---------------------------
Investing Activities
Capital expenditures* (1,336) (912)
Proceeds from asset sales 45 146
Net (purchases) sales of marketable securities (71) 75
Net purchases of other short-term investments (656) -
Other investing cash flows, net - (5)
---------------------------
Net Cash Used for Investing Activities (2,018) (696)
---------------------------
Financing Activities
Net borrowings of short-term obligations 845 68
Proceeds from issuance of long-term debt 28 19
Repayments of long-term debt and other financing obligations (535) (80)
Cash dividends (417) (427)
Net sales (purchases) of treasury shares 16 (370)
----------------------------
Net Cash Used for Financing Activities (63) (790)
---------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (3) (1)
----------------------------
Net Change in Cash and Cash Equivalents 419 (160)
Cash and Cash Equivalents at January 1 1,896 1,345
---------------------------
Cash and Cash Equivalents at March 31 $ 2,315 $ 1,185
===========================
* Certain 2000 amounts have been reclassified to conform to the 2001 presentation
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, 2000. 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 charge 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 2000 Annual Report on Form 10-K.
The results for the three-month period ended March 31, 2001, are not necessarily
indicative of future financial results.
Note 2. Net Income
Net income for the first quarter of 2000 included a $62 million special charge
related to a patent litigation issue.
Net income in the first quarters 2001 and 2000 included foreign currency gains
of $71 million and $46 million, respectively.
Note 3. Information Relating to the Statement of Cash Flows
The "Net decrease (increase) in operating working capital" is composed of the
following:
Three Months Ended
March 31,
------------------
Millions of Dollars 2001 2000
- --------------------------------------------------------------------------------------------
Decrease (increase) in accounts and notes receivable $ 401 $(325)
Increase in inventories (61) (46)
Increase in prepaid expenses and other current assets (198) (87)
Decrease in accounts payable and accrued liabilities (227) (186)
Increase in income and other taxes payable 242 319
- --------------------------------------------------------------------------------------------
Net decrease (increase) in operating working capital $ 157 $(325)
- --------------------------------------------------------------------------------------------
-5-
"Net Cash Provided by Operating Activities" includes the following cash payments
for interest on debt and for income taxes:
Three Months Ended
March 31,
------------------
Millions of Dollars 2001 2000
- -------------------------------------------------------------------------------------------
Interest paid on debt (net of capitalized interest) $ 69 $ 143
Income taxes paid $ 748 $ 380
- -------------------------------------------------------------------------------------------
The "Net (purchases) sales of marketable securities" consists of the following
gross amounts:
Three Months Ended
March 31,
------------------
Millions of Dollars 2001 2000
- -------------------------------------------------------------------------------------------
Marketable securities purchased $ (717) $ (866)
Marketable securities sold 646 941
- -------------------------------------------------------------------------------------------
Net (purchases) sales of marketable securities $ (71) $ 75
- -------------------------------------------------------------------------------------------
"Net purchases of other short-term investments," of $656 million in 2001 were in
a variety of short-term money market instruments with maturities similar to the
company's commercial paper portfolio.
The major components of "Capital expenditures" and the reconciliation of this
amount to the capital and exploratory expenditures, excluding equity in
affiliates, presented in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are presented in the following table.
Three Months Ended
March 31,
------------------
Millions of Dollars 2001 2000
- -------------------------------------------------------------------------------------------
Additions to properties, plant and equipment $ 683 $ 606
Additions to investments 603 291
Current year dry hole expenditures 45 31
Payments for other liabilities and assets, net 5 (16)
- -------------------------------------------------------------------------------------------
Capital expenditures 1,336 912
Other exploration expenditures 53 51
Repayments of long-term debt and other financing obligations 210* 7
- -------------------------------------------------------------------------------------------
Capital and exploratory expenditures, excluding equity affiliates $1,599 $ 970
- -------------------------------------------------------------------------------------------
* Deferred payment related to 1993 acquisition of an interest
in the Tengizchevroil joint venture.
The Consolidated Statement of Cash Flows excludes the following non-cash
transactions:
The company's Employee Stock Ownership Plan (ESOP) repaid $100 million and $10
million of matured debt guaranteed by Chevron Corporation in January of 2001 and
2000, respectively. These payments were recorded by the company as reductions to
"Short-term debt" and "Deferred Compensation."
-6-
Note 4. Operating Segments and Geographic Data
Chevron manages its exploration and production; refining, marketing and
transportation; and chemicals businesses separately.
"All Other" activities include the company's share of earnings from and
investment in Dynegy Inc., corporate administrative costs, worldwide cash
management and debt financing activities, coal mining operations, insurance
operations, real estate activities and certain e-businesses. The company's
primary country of operation is the United States of America, its country of
domicile. Activities in no other country meet the materiality requirements for
separate disclosure.
The company evaluates the performance of its operating segments on an after-tax
basis, excluding the effects of debt financing interest expense or investment
interest income, both of which are managed by Chevron Corporation on a worldwide
basis. Corporate administrative costs and assets are not allocated to the
operating segments; however, operating segments are billed for direct corporate
services. Nonbillable costs remain as corporate center expenses. After-tax
income (loss) by segment for the three-month month periods ended March 31, 2001
and 2000, are presented in the following table.
Three Months Ended
March 31,
--------------------
Millions of Dollars 2001 2000
- -----------------------------------------------------------------------------------
Exploration and Production
- --------------------------
United States $ 720 $ 365
International 689 653
-------------------
Total Exploration and Production 1,409 1,018
-------------------
Refining, Marketing and Transportation
- --------------------------------------
United States 141 (7
International 147 9
-------------------
Total Refining, Marketing and Transportation 288 2
-------------------
Chemicals
- ---------
United States (43) 47
International 7 21
-------------------
Total Chemicals (36) 68
-------------------
-------------------
Total Segment Income 1,661 1,088
-------------------
Interest Expense (57) (89
Interest Income 27 15
Other (31) 30
- -----------------------------------------------------------------------------------
Net Income $1,600 $1,044
===================================================================================
-7-
Reportable operating segment sales and other operating revenues, including
internal transfers, for the three-month periods ended March 31, 2001 and 2000,
are presented in the following table. Chemicals segment revenues for the 2000
period were derived from the manufacture and sale of petrochemicals, plastic
resins, and lube oil and fuel additives. In 2001, only revenues from the
manufacture and sale of lube oil and fuel additives are included, following the
formation of the Chevron Phillips chemicals joint venture in July 2000
(accounted for under the equity method).
Three Months Ended
March 31,
--------------------
Millions of Dollars 2001 2000
- -----------------------------------------------------------------------------------
Exploration and Production
- --------------------------
United States $ 2,164 $ 1,221
International 2,435 2,360
--------------------
Sub-total 4,599 3,581
Intersegment Elimination - United States (763) (756)
Intersegment Elimination - International (1,021) (1,019)
--------------------
Total Exploration and Production 2,815 1,806
--------------------
Refining, Marketing and Transportation
- --------------------------------------
United States 7,039 6,715
International* 1,796 1,794
--------------------
Sub-total 8,835 8,509
Intersegment Elimination - United States (24) (130)
Intersegment Elimination - International (4) (4)
--------------------
Total Refining, Marketing and Transportation 8,807 8,375
--------------------
Chemicals
- ---------
United States 84 917
International 184 250
--------------------
Sub-total 268 1,167
Intersegment Elimination - United States (21) (53)
--------------------
Total Chemicals 247 1,114
--------------------
All Other
- ---------
United States 106 113
International 4 4
--------------------
Sub-total 110 117
Intersegment Elimination - United States (12) (24)
Intersegment Elimination - International (2) (3)
--------------------
Total All Other 96 90
--------------------
Sales and Other Operating Revenues
- ----------------------------------
United States 9,393 8,966
International 4,419 4,408
- -----------------------------------------------------------------------------------
Sub-total 13,812 13,374
Intersegment Elimination - United States (820) (963)
Intersegment Elimination - International (1,027) (1,026)
- -----------------------------------------------------------------------------------
Total Sales and Other Operating Revenues $11,965 $11,385
===================================================================================
* 2000 conformed to the 2001 presentation.
-8-
Segment assets at March 31, 2001, and year-end 2000 are presented in the
following table. Segment assets do not include intercompany investments or
intercompany receivables.
March 31, December 31,
Millions of Dollars 2001 2000
- ------------------------------------------------------------------------------------------------------
Exploration and Production
- --------------------------
United States $ 5,643 $ 5,568
International 14,899 14,493
---------------------------
Total Exploration and Production 20,542 20,061
---------------------------
Refining, Marketing and Transportation
- --------------------------------------
United States 8,116 8,365
International 4,167 3,941
---------------------------
Total Refining, Marketing and Transportation 12,283 12,306
---------------------------
Chemicals
- ---------
United States 2,290 2,342
International 715 728
---------------------------
Total Chemicals 3,005 3,070
---------------------------
---------------------------
Total Segment Assets 35,830 35,437
---------------------------
All Other
- ---------
United States 5,064 4,398
International 1,923 1,429
---------------------------
Total All Other 6,987 5,827
---------------------------
Total Assets - United States 21,113 20,673
Total Assets - International 21,704 20,591
- ------------------------------------------------------------------------------------------------------
Total Assets $42,817 $41,264
======================================================================================================
Note 5. Summarized Financial Data - Chevron U.S.A. Inc.
At March 31, 2001, Chevron U.S.A. Inc. was Chevron Corporation's principal U.S.
operating subsidiary, consisting primarily of the company's U.S. integrated
petroleum operations (excluding most of the domestic pipeline operations).
Through the first half of 2000, these operations were conducted primarily by
three divisions: Chevron U.S.A. Production Company, Chevron Products Company and
Chevron Chemical Company LLC. Chevron combined most of its petrochemicals
businesses with those of Phillips Petroleum Company on July 1, 2000. Chevron
U.S.A. Inc. holds the investment in this joint venture, which is accounted for
using the equity method. Summarized financial information for Chevron U.S.A.
Inc. and its consolidated subsidiaries is presented in the following table.
Three Months Ended
March 31,
----------------------
Millions of Dollars 2001 2000
- ---------------------------------------------------------------
Sales and other operating revenues $9,576 $9,145
Costs and other deductions* 8,623 8,865
Net income 704 336
===============================================================
* Certain 2000 costs have been reclassified to conform to the 2001 presentation
-9-
March 31, December 31,
Millions of Dollars 2001 2000
- ---------------------------------------------------------------------------
Current assets $ 4,851 $ 4,396
Other assets 21,155 20,738
Current liabilities 4,080 4,094
Other liabilities 10,435 10,251
Net worth 11,491 10,789
===========================================================================
Memo: Total Debt $ 7,161 $ 6,728
Note 6. Summarized Financial Data - Chevron Transport Corporation Limited
Chevron Transport Corporation Limited (CTC), a Bermuda 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 crude 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 issued by a third party.
Summarized financial information for CTC and its consolidated subsidiaries is
presented below. This information was derived from the financial statements
prepared on a stand-alone basis in conformity with accounting principles
generally accepted in the United States of America.
Three Months Ended
March 31,
----------------------
Millions of Dollars 2001 2000
- ------------------------------------------------------------------------------------------------------
Sales and other operating revenues $259 122
Costs and other deductions 209 150
Net income (loss) 51 (28)
======================================================================================================
March 31, December 31,
Millions of Dollars 2001 2000
- ------------------------------------------------------------------------------------------------------
Current assets $ 235 $ 205
Other assets 538 530
Current liabilities 323 309
Other liabilities 334 361
Net worth 116 65
======================================================================================================
There were no restrictions on CTC's ability to pay dividends or make loans or
advances at March 31, 2001.
-10-
Note 7. 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
March 31,
----------------------
Millions of Dollars 2001 2000
- ----------------------------------------------------------------
Gross revenues* $3,977 $4,253
Income before income taxes 345 219
Net income 206 102
- ----------------------------------------------------------------
* 2000 restated to conform to the 2001 presentation.
Note 8. Income Taxes
Taxes on income for the first quarter of 2001 were $1,048 million compared with
$805 million in last year's first quarter. The effective tax rate for the first
quarter of 2000 was 40 percent, compared with 44 percent in last year's first
quarter. The decrease in the effective tax rate was primarily the result of a
shift in international before-tax income from countries with higher income tax
rates to countries with lower income tax rates. Partially offsetting this
decrease were higher state taxes and lower equity affiliates' earnings as a
proportion of before-tax income.
Note 9. Litigation
Chevron and five other oil companies filed suit in 1995 contesting the validity
of a patent granted to Unocal Corporation for reformulated gasoline, which
Chevron sells in California in certain months of the year. In March 2000, the U.
S. Court of Appeals for the Federal Circuit upheld a September 1998 District
Court decision that Unocal's patent was valid and enforceable and assessed
damages of 5.75 cents per gallon for gasoline produced in infringement of the
patent. In May 2000, the Federal Circuit Court denied a petition for rehearing
with the U.S. Court of Appeals for the Federal Circuit filed by Chevron and five
other defendants in this case. The defendant companies petitioned the U.S.
Supreme Court in August 2000 for the case to be heard. In February 2001, the
Supreme Court denied the petition to review the lower court's ruling and the
case has gone back to the District Court for an accounting of all infringing
gasoline produced from August 1, 1996 to the present. The defendants have
advised the Court that they intend to seek a new trial on the issues of damages
and infringement. Additionally, the defendants have petitioned the U.S. Patent
Office to reexamine the validity of Unocal's patent.
If Unocal's patent ultimately is upheld, the company's financial exposure
includes royalties, plus interest, for production of gasoline that is proven to
have infringed the patent. As a result of the March 2000 ruling, the company
recorded in the first quarter 2000 an after-tax charge of $62 million. The
majority of this charge pertained to the estimated royalty on gasoline
production in the earlier part of a four-year period ending December 31, 1999,
before Chevron modified its manufacturing processes to minimize the production
of gasoline that allegedly infringed on Unocal's patented formulations.
Subsequently, the company has been accruing in the normal course of business any
future estimated liability for potential infringement of the patent covered by
the trial court's ruling. In June 2000, Chevron paid $22.7 million to Unocal -
$17.2 million for the original court judgement for California gasoline produced
in violation of Unocal's patent from March through July 1996 and $5.5 million of
interest and fees. Unocal has obtained additional patents for alternate
formulations that could affect a larger share of U.S. gasoline production.
Chevron believes these additional patents are invalid and unenforceable.
However, if such patents are ultimately upheld, the competitive and financial
effects on the company's refining and marketing operations, while presently
indeterminable, could be material.
Another issue involving the company is the ongoing public debate concerning the
petroleum industry's use of MTBE and its potential environmental impact through
seepage into groundwater. Along with other oil companies, the company is a party
to lawsuits and claims related to the use of the chemical MTBE in certain
oxygenated gasolines. These actions may require the company to correct or
ameliorate the alleged effects on the environment of
-11-
prior disposal or release of MTBE by the company or other parties. Additional
lawsuits and claims related to the use of MTBE may be filed in the future. Costs
to the company related to these lawsuits and claims are not currently
determinable. Chevron has eliminated the use of MTBE in gasoline it sells in
certain areas.
Note 10. Other Contingencies and Commitments
The company's U.S. federal income tax have been settled through 1993. The
company's California franchise tax liabilities have been settled through 1991.
Settlement of open tax years, as well as tax issues in other countries where the
company conducts its businesses, is not expected to have a material effect on
the consolidated financial position or liquidity of the company and, in the
opinion of management, adequate provision has been made for income and franchise
taxes for all years 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.
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, including MTBE, 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
have 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 believes it has no material market or credit risk to its operations,
financial position or liquidity as a result of its commodities, and other
derivatives activities. However, the results of operations and financial
position of certain equity affiliates may be affected by their business
activities involving the use of derivative instruments.
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 operations and related
results, and are carefully considered by management when evaluating the level of
current and future activity in such countries.
For oil and gas producing operations, ownership agreements may provide for
periodic reassessments of equity interests in estimated oil and gas reserves.
These activities, individually or together, may result in gains or losses that
could be material to earnings in any given period. One such equity
redetermination process has been under way since 1996 for Chevron's interests in
four producing zones at the Naval Petroleum Reserve at Elk Hills in California,
for the time when the remaining interests in these zones were owned by the U.S.
Department of Energy (DOE). A wide range remains for a possible net settlement
amount for the four zones. Chevron currently estimates its maximum possible net
before-tax liability at less than $400 million. At the same time, a possible
maximum net
-12-
amount that could be owed to Chevron is estimated at more than $200
million. The timing of the settlement and the exact amount within this range of
estimates are uncertain.
Areas in which the company has significant operations include the United States
of America, Canada, Australia, the United Kingdom, Norway, Republic of Congo,
Angola, Nigeria, Chad, Equatorial Guinea, Democratic Republic of Congo, Papua
New Guinea, China, Venezuela, Thailand, Argentina and Brazil. The company's
Caltex affiliates have significant operations in Indonesia, Korea, Australia,
Thailand, the Philippines, Singapore, and South Africa. The company's
Tengizchevroil affiliate operates in Kazakhstan. The company's Dynegy affiliate
has operations in the United States of America, Canada, the United Kingdom and
other European countries.
Note 11. New Accounting Standards
The company adopted The Financial Accounting Standards Board (FASB) Statement
No. 133, "Accounting for Derivative Instruments and Hedging Transactions" (FAS
133), as amended by FAS 138, "Accounting for Derivative Instruments and Hedging
Transactions - An Amendment of FASB Statement No. 133," effective January 1,
2001. The company uses, on a limited basis, a variety of derivative instruments,
principally swaps and futures, to manage a small portion of its exposure to
price volatility stemming from its integrated petroleum activities. All of these
instruments are commonly used in oil and gas trading activities and involve
little complexity. The adoption of FAS 133 and FAS 138 did not have a
significant impact on the company's results of operations or financial position.
Because of Chevron's limited use of derivative instruments, the company elected
not to account for its derivative instruments as hedges. Accordingly, upon
adoption, the fair values of the derivative instruments were recorded as assets
or liabilities, with the associated immaterial gains or losses reported in
income. Changes in fair values of these instruments beyond normal sales and
purchases were also reflected in current income. The company may elect in the
future to apply the hedge accounting prescribed by FAS 133 and FAS 138 if the
use of derivative instruments changes significantly. Such an election would
reduce earnings volatility that might otherwise result if changes in fair values
were recognized in current income.
In September 2000, the FASB issued Statement No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities - A
Replacement of FASB Statement No. 125" (FAS 140). FAS 140 is effective for
transfers occurring after March 31, 2001, and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. Adoption of FAS 140 will have no significant effect on
Chevron's accounting or disclosures for the types of transactions in the scope
of the new standard.
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter 2001 Compared With First Quarter 2000
Financial Results
- -----------------
EARNINGS SUMMARY
Three Months Ended
March 31,
Millions of Dollars 2001 2000
- ---------------------------------------------------------------------------------------
Earnings, Excluding Special Items
Exploration and Production $1,409 $1,018
Refining, Marketing and Transportation 288 64
Chemicals (36) 68
All Other * (61) (44)
- ---------------------------------------------------------------------------------------
Total * 1,600 1,106
Special Items - (62)
- ---------------------------------------------------------------------------------------
Net Income * $1,600 $1,044
- ---------------------------------------------------------------------------------------
* Includes Foreign Currency Gains $ 71 $ 46
Net income for the first quarter of 2001 was $1.600 billion ($2.49 per
share-diluted and basic), an increase of 53 percent from 2000 first quarter net
income of $1.044 billion ($1.59 per share-diluted and basic). Net income for the
first quarter of 2000 included a special charge of $62 million for a patent
litigation matter. Excluding the effect of the special item, operating earnings
were up 45 percent from last year's first quarter results.
The company's exploration and production operations benefited from a sharp rise
in U.S. natural gas prices and higher worldwide oil equivalent production to
earn $1.409 billion in the 2001 first quarter. The company's refining, marketing
and transportation businesses contributed $288 million, recovering from the
depressed earnings of a year ago. Margins strengthened particularly in the
United States, with higher product prices offsetting the higher costs of fuel
and utilities used in refining operations. Also contributing to profits in the
United States was higher refinery production - the result of less downtime for
planned and unplanned maintenance than in last year's quarter.
Operating Environment and Outlook
- ---------------------------------
Chevron's earnings are affected significantly by fluctuations in industry price
levels for crude oil and natural gas. Average U.S. natural gas prices in the
first quarter of 2001 were significantly higher than in last year's quarter.
Henry Hub spot natural gas prices increased 158 percent to $6.69 per thousand
cubic feet compared with $2.59 in the first quarter of 2000. The average spot
price for West Texas Intermediate (WTI), a benchmark crude oil, remained
relatively strong at $28.76 per barrel in the first quarter of 2001 - compared
with $28.91 for last year's first quarter - although down from an average of
just over $30 per barrel for all of 2000. In an effort to support crude oil
prices, OPEC reached agreement in April 2001 to lower production for the second
time this year. The near-term industry price effect of these curtailment
agreements is uncertain.
Chevron's production levels have not been materially affected by production
curtailments or increases by OPEC and non-OPEC producers. The company believes
that in the current industry environment, the net effect of any production
changes directed by host countries will not be significant to its overall
production levels. However, limits on production may have an adverse effect on
the level of new production from current and future development projects. In
addition, civil unrest, political uncertainty and economic conditions may affect
the company's producing operations. Community protests have disrupted the
company's production in the past, most recently in Nigeria and Indonesia. The
company continues to monitor developments closely in the countries in which it
operates.
-14-
Both Chevron's domestic and international downstream businesses recovered from
the depressed earnings of a year ago. Margins strengthened this year
particularly in the United States, with higher product prices helping to offset
the higher costs of fuel and utilities used in refining operations. Also
contributing to profits in the United States was higher refinery production -
the result of less downtime for planned and unplanned maintenance than in last
year's quarter. International earnings also benefited from improved freight
rates and increased tonnage in the company's international shipping operations
Chemicals earnings continue to suffer from higher raw material and energy costs,
which are not fully recovered in prices of commodity chemicals because of
industry over-capacity. Chemical margins remain weak, and no significant
near-term improvement is expected.
Significant Developments Since the Beginning of 2001
- ----------------------------------------------------
ChevronTexaco Merger: Chevron continues to work cooperatively with various
federal and state regulatory bodies, including the U.S. Federal Trade Commission
and the U.S. Securities and Exchange Commission, in their review of the merger
proposal. Concurrent with these reviews, integration teams from both Chevron and
Texaco have developed plans and an organizational structure that will be used to
help ensure a smooth post-merger transition. The combined companies expect to
capitalize upon each other's strengths, with $1.2 billion in annual synergy
savings targeted for realization within six to nine months of the merger.
Tengiz: In early January, Chevron closed on the purchase of an additional 5
percent equity stake in Tengizchevroil (TCO), increasing the company's ownership
interest to 50 percent and adding 177 million barrels of proved oil-equivalent
reserves. Total crude oil production from the Tengiz Field in Kazakhstan
averaged about 280,000 barrels per day in the first quarter 2001 and is expected
to average 260,000 barrels per day for the full year, reflecting the effect of
planned shutdowns for maintenance.
Australia: Chevron will participate in a $1.6 billion expansion of the North
West Shelf Venture liquefied natural gas (LNG) project in Western Australia, in
which the company has a one-sixth interest. The expansion project will encompass
construction of a fourth LNG processing train, development of an 80-mile
pipeline from the offshore gas fields to onshore facilities and the design and
construction of the venture's ninth LNG tanker.
Thailand: Chevron announced the discovery of the Chaba Field, which is located
in the southern portion of the Chevron-operated B8/32 offshore concession in the
Gulf of Thailand. Chevron has drilled three successful wells on Chaba. The
recent discovery further confirms the crude oil reserve potential in the Gulf of
Thailand, which historically has been an area known for its reserves of natural
gas.
Bangladesh: In April, Chevron and its partners were awarded the rights to
explore an onshore tract in Bangladesh. The tract, Block 9, surrounds the
Bakhrabad gas field and lies adjacent to other gas-producing areas. Chevron has
a 30 percent interest in the block.
U.S. Gulf of Mexico: Chevron, as operator and owner of a 57 percent interest,
completed its tenth development well at the Genesis floating-spar platform in
deepwater U.S. Gulf of Mexico. Total daily production for Genesis for 2001 is
expected to average 42,000 barrels of oil and 54 million cubic feet of natural
gas.
Contingencies and Significant Litigation
- ----------------------------------------
Chevron and five other oil companies filed suit in 1995 contesting the validity
of a patent granted to Unocal Corporation for reformulated gasoline, which
Chevron sells in California in certain months of the year. In March 2000, the U.
S. Court of Appeals for the Federal Circuit upheld a September 1998 District
Court decision that Unocal's patent was valid and enforceable and assessed
damages of 5.75 cents per gallon for gasoline produced in infringement of the
patent. In May 2000, the Federal Circuit Court denied a petition for rehearing
with the U.S. Court of Appeals for the Federal Circuit filed by Chevron and five
other defendants in this case. The defendant companies petitioned the U.S.
Supreme Court in August 2000 for the case to be heard. In February 2001, the
Supreme Court denied the petition to review the lower court's ruling and the
case has gone back to the District Court for an accounting of all infringing
gasoline produced from August 1, 1996 to the present. The defendants have
-15-
advised the Court that they intend to seek a new trial on the issues of damages
and infringement. Additionally, the defendants have petitioned the U.S. Patent
Office to reexamine the validity of Unocal's patent.
If Unocal's patent ultimately is upheld, the company's financial exposure
includes royalties, plus interest, for production of gasoline that is proven to
have infringed the patent. As a result of the March 2000 ruling, the company
recorded in the first quarter 2000 an after-tax charge of $62 million. The
majority of this charge pertained to the estimated royalty on gasoline
production in the earlier part of a four-year period ending December 31, 1999,
before Chevron modified its manufacturing processes to minimize the production
of gasoline that allegedly infringed on Unocal's patented formulations.
Subsequently, the company has been accruing in the normal course of business any
future estimated liability for potential infringement of the patent covered by
the trial court's ruling. In June 2000, Chevron paid $22.7 million to Unocal -
$17.2 million for the original court judgement for California gasoline produced
in violation of Unocal's patent from March through July 1996 and $5.5 million of
interest and fees. Unocal has obtained additional patents for alternate
formulations that could affect a larger share of U.S. gasoline production.
Chevron believes these additional patents are invalid and unenforceable.
However, if such patents are ultimately upheld, the competitive and financial
effects on the company's refining and marketing operations, while presently
indeterminable, could be material.
Another issue involving the company is the ongoing public debate concerning the
petroleum industry's use of MTBE and its potential environmental impact through
seepage into groundwater. Along with other oil companies, the company is a party
to lawsuits and claims related to the use of the chemical MTBE in certain
oxygenated gasolines. These actions may require the company to correct or
ameliorate the alleged effects on the environment of prior disposal or release
of MTBE by the company or other parties. Additional lawsuits and claims related
to the use of MTBE may be filed in the future. Costs to the company related to
these lawsuits and claims are not currently determinable. Chevron has eliminated
the use of MTBE in gasoline it sells in certain areas.
The company's U.S. federal income tax have been settled through 1993. The
company's California franchise tax liabilities have been settled through 1991.
Settlement of open tax years, as well as tax issues in other countries where the
company conducts its businesses, is not expected to have a material effect on
the consolidated financial position or liquidity of the company and, in the
opinion of management, adequate provision has been made for income and franchise
taxes for all years 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.
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, including MTBE, 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
have had, or will have, any significant impact on the company's competitive
position relative to other domestic or international petroleum or chemical
concerns.
-16-
The company believes it has no material market or credit risk to its operations,
financial position or liquidity as a result of its commodities, and other
derivatives activities. However, the results of operations and financial
position of certain equity affiliates may be affected by their business
activities involving the use of derivative instruments.
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 operations and related
results, and are carefully considered by management when evaluating the level of
current and future activity in such countries.
For oil and gas producing operations, ownership agreements may provide for
periodic reassessments of equity interests in estimated oil and gas reserves.
These activities, individually or together, may result in gains or losses that
could be material to earnings in any given period. One such equity
redetermination process has been under way since 1996 for Chevron's interests in
four producing zones at the Naval Petroleum Reserve at Elk Hills in California,
for the time when the remaining interests in these zones were owned by the U.S.
Department of Energy (DOE). A wide range remains for a possible net settlement
amount for the four zones. Chevron currently estimates its maximum possible net
before-tax liability at less than $400 million. At the same time, a possible
maximum net amount that could be owed to Chevron is estimated at more than $200
million. The timing of the settlement and the exact amount within this range of
estimates are uncertain.
Areas in which the company has significant operations include the United States,
Canada, Australia, the United Kingdom, Norway, Republic of Congo, Angola,
Nigeria, Chad, Equatorial Guinea, Democratic Republic of Congo, Papua New
Guinea, China, Venezuela, Thailand, Argentina and Brazil. The company's Caltex
affiliates have significant operations in Indonesia, Korea, Australia, Thailand,
the Philippines, Singapore, and South Africa. The company's Tengizchevroil
affiliate operates in Kazakhstan. The company's Dynegy affiliate has operations
in the United States, Canada, the United Kingdom and other European countries.
Chevron receives claims from and submits claims to customers, trading partners,
host governments, contractors, insurers and suppliers. The amounts of these
claims, individually and in the aggregate, may be significant and take lengthy
periods to resolve. The company also suspends the costs of exploratory wells
pending a final determination of the commercial potential of the related oil and
gas fields. The ultimate disposition of these well costs is dependent on the
results of future drilling activity and/or development decisions. If the company
decides not to continue development, the costs of these wells are expensed. The
company and its affiliates also continue to review and analyze their operations
and may close, abandon, sell, exchange, acquire or restructure assets to achieve
operational or strategic benefits and to improve competitiveness and
profitability. These activities, individually or together, may result in gains
or losses in future periods.
New Accounting Standards
- ------------------------
The company adopted The Financial Accounting Standards Board (FASB) Statement
No. 133, "Accounting for Derivative Instruments and Hedging Transactions" (FAS
133), as amended by FAS 138, "Accounting for Derivative Instruments and Hedging
Transactions - An Amendment of FASB Statement No. 133," effective January 1,
2001. The company uses, on a limited basis, a variety of derivative instruments,
principally swaps and futures, to manage a small portion of its exposure to
price volatility stemming from its integrated petroleum activities. All of these
instruments are commonly used in oil and gas trading activities and involve
little complexity. The adoption of FAS 133 and FAS 138 did not have a
significant impact on the company's results of operations or financial position.
Because of Chevron's limited use of derivative instruments, the company elected
not to account for its derivative instruments as hedges. Accordingly, upon
adoption, the fair values of the derivative instruments were recorded as assets
or liabilities, with the associated immaterial gains or losses reported in
income. Changes in fair values of these instruments beyond normal sales and
purchases were also reflected in current income. The company may elect in the
future to apply the hedge accounting prescribed by FAS 133 and FAS 138 if
-17-
the use of derivativeinstruments changes significantly. Such an election
would reduce earnings volatility that might otherwise result if changes in fair
values were recognized in current income.
In September 2000, the FASB issued Statement No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities - A
Replacement of FASB Statement No. 125" (FAS 140). FAS 140 is effective for
transfers occurring after March 31, 2001, and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. Adoption of FAS 140 will have no significant effect on
Chevron's accounting or disclosures for the types of transactions in the scope
of the new standard.
Review of Operations
- --------------------
First quarter 2001 operating earnings were $1.600 billion, compared with $1.106
billion in last year's first quarter. Last year's net income included a $62
million special charge for a patent litigation issue. Return on capital
employed, excluding special items, improved to 22.6 percent for the 12 months
ended March 31, 2001, up from 13.2 percent for the similar period last year.
Total revenues for the quarter were up 5 percent to $12.3 billion. The increase
was primarily attributable to higher realizations from the sales of natural gas
and refined products and higher sales volumes of natural gas in the United
States and refined products worldwide. Partially offsetting the effect of higher
sales realizations was the absence of sales revenues from Chevron's
petrochemicals business, which was contributed to the formation of the Chevron
Phillips Chemical Company LLC in July 2000 and subsequently accounted for as an
equity affiliate.
Taxes on income for the first quarter of 2001 were $1,048 million, compared with
$805 million in last year's first quarter. The effective tax rate for the first
quarter of 2001 was 40 percent compared with 44 percent in last year's first
quarter. The decrease in the effective tax rate was primarily the result of a
shift in international before-tax income from countries with higher income tax
rates to countries with lower income tax rates. Partially offsetting this
decrease were higher state taxes and lower equity income from the company's
share of affiliates' earnings as a proportion of before-tax income.
Foreign currency gains increased net income by $71 million, compared with $46
million in the year-ago quarter. The 2001 gains were primarily attributable to
strengthening of the U.S. dollar against the currencies of Australia and Canada.
The following table details Chevron's net income by major operating area.
NET INCOME BY MAJOR OPERATING AREA
Three Months Ended
March 31,
--------------------
Millions of Dollars 2001 2000
- --------------------------------------------------------------------------------
Exploration and Production
United States $ 720 $ 365
International 689 653
- --------------------------------------------------------------------------------
Total Exploration and Production 1,409 1,018
- --------------------------------------------------------------------------------
Refining, Marketing and Transportation
United States 141 (7)
International 147 9
- --------------------------------------------------------------------------------
Total Refining, Marketing and Transportation 288 2
- --------------------------------------------------------------------------------
Chemicals (36) 68
All Other * (61) (44)
- --------------------------------------------------------------------------------
Net Income $1,600 $1,044
================================================================================
* Includes coal-mining operations, the company's ownership interest in Dynegy
Inc., worldwide cash management and debt financing activities, corporate
administrative costs, insurance operations, real estate activities and
certain e-businesses.
-18-
U.S. Exploration and Production
- -------------------------------
Three Months Ended
March 31,
-------------------
Millions of Dollars 2001 2000
- ----------------------------------------------------------
Earnings, Excluding Special Items $720 $365
Special Items - -
- ----------------------------------------------------------
Segment Income $720 $365
- ----------------------------------------------------------
U.S. exploration and production operating earnings were $720 million, nearly
double the 2000 first quarter. Earnings rose on sharply higher natural gas
prices and increased natural gas production and sales.
The company's average U.S.natural gas realization of $7.57 per thousand cubic
feet more than tripled from $2.40 in last year's first quarter. Net natural gas
production rose 6 percent to 1.6 billion cubic feet per day, primarily from
higher output from the Viosca Knoll Carbonate Trend and the Genesis Field - both
in the Gulf of Mexico.
Chevron's average U.S. crude oil realization declined $1.68 to $24.51 per
barrel. Net liquids production of 299,000 barrels per day was down slightly
compared with the same period last year. Liquids production was reduced somewhat
in the first quarter 2001 due to operating decisions to maximize natural gas
sales to capitalize on the high demand for natural gas in the United States.
International Exploration and Production
- ----------------------------------------
Three Months Ended
March 31,
-------------------
Millions of Dollars 2001 2000
- -------------------------------------------------------------
Earnings, Excluding Special Items* $689 $653
Special Items - -
- -------------------------------------------------------------
Segment Income* $689 $653
- -------------------------------------------------------------
* Includes Foreign Currency Gains $ 49 $ 28
International exploration and production operating earnings were $689 million,
an increase of $36 million from 2000. The major driver of the earnings
improvement was an increase in net oil-equivalent production of over 4 percent,
more than offsetting a $1.32 per barrel decline in realizations.
Net international liquids production increased 25,000 barrels per day to 869,000
barrels per day, primarily due to higher production in Kazakhstan, Nigeria and
Angola. These increases were partially offset by declines in the United Kingdom,
Canada and Indonesia. Net natural gas production increased 12 percent to more
than 1 billion cubic feet per day, reflecting higher volumes in Kazakhstan and
Canada.
Foreign currency gains of $49 million in the 2001 quarter occurred mainly in the
company's Canadian and Australian operations. In the first quarter of 2000, more
than half of the foreign currency gains of $28 million was generated by
fluctuations in the value of the Australian dollar.
-19-
U.S. Refining, Marketing and Transportation
- -------------------------------------------
Three Months Ended
March 31,
--------------------
Millions of Dollars 2001 2000
- ----------------------------------------------------------
Earnings, Excluding Special Items $141 $55
Special Items - (62)
- ----------------------------------------------------------
Segment Income (Losses) $141 $ (7)
- ----------------------------------------------------------
U.S. refining, marketing and transportation operating earnings were $141 million
compared with $55 million in the first quarter 2000. The $62 million special
item in 2000 was for a patent litigation matter.
Higher earnings in 2001 primarily reflected higher sales margins for gasoline
and other refined products. In addition, total refined product sales volumes
were up more than 6 percent. This year's quarter also benefited from improved
refining operations, which allowed the company to fulfill more of its supply
commitments from refinery production rather than through higher cost product
purchases in the open market, as was necessary in the first quarter of 2000.
Total refined product sales volumes were 1,286,000 barrels per day. Branded
motor gasoline sales of 543,000 barrels per day rose nearly 6 percent. First
quarter 2000 branded motor gasoline sales were constrained by the effect of late
1999 stockpiling in anticipation of possible Y2K-related supply disruptions. In
early 2000, distributors deferred purchases while working off these excess
inventories.
International Refining, Marketing and Transportation
- ----------------------------------------------------
Three Months Ended
March 31,
Millions of Dollars 2001 2000
- --------------------------------------------------------------
Earnings, Excluding Special Items* $147 $ 9
Special Items - -
- --------------------------------------------------------------
Segment Income* $147 $ 9
- --------------------------------------------------------------
* Includes Foreign Currency Gains $ 33 $20
International refining, marketing and transportation operating earnings were
$147 million, up from $9 million for the first quarter of 2000. The increase was
attributable to higher profits from improved freight rates and increased tonnage
in the company's international shipping operations, as well as a net improvement
in combined refining and marketing margins in the Caltex areas of operation.
Sales volumes increased to 804,000 barrels per day, compared with 770,000
barrels per day in last year's quarter. The increase was mainly attributable to
sales by the company's marine fuels and lubricants affiliate.
Chevron's share of earnings from Caltex was $48 million, compared with losses of
$7 million in last year's first quarter. Included were foreign currency gains of
$30 million in 2001 and $18 million in 2000. Operations in Australia and Korea
accounted for most of the 2001 foreign currency gains.
-20-
Chemicals
- ---------
Three Months Ended
March 31,
--------------------
Millions of Dollars 2001 2000
- --------------------------------------------------------------
Earnings, Excluding Special Items* $(36) $68
Special Items - -
- --------------------------------------------------------------
Segment (Losses) Income* $(36) $68
- --------------------------------------------------------------
* Includes Foreign Currency Losses $ (4) $ -
Chemicals operating losses were $36 million compared with earnings of $68
million in the 2000 first quarter. Higher raw material and energy costs were not
fully recovered in prices of commodity chemicals. Chemical margins remain weak
because of higher feedstock and natural gas costs; no significant near-term
improvement is expected.
All Other
- ---------
Three Months Ended
March 31,
-------------------
Millions of Dollars 2001 2000
- ----------------------------------------------------------------
Net Charges, Excluding Special Items* $(61) $(44)
Special Items - -
- ----------------------------------------------------------------
Segment Charges* $(61) $(44)
- ----------------------------------------------------------------
* Includes Foreign Currency Losses $(7) $(2)
All Other consists of the company's ownership interest in Dynegy Inc., coal
mining operations, worldwide cash management and debt financing activities,
corporate administrative costs, insurance operations, real estate activities and
certain e-businesses. In the first quarter of 2001, these activities incurred
net charges of $61 million, compared with $44 million last year.
Chevron's share of Dynegy's operating earnings increased by $15 million to $34
million on the strength of Dynegy's core energy marketing and trading business.
Coal mining operations earned $6 million, compared with $3 million in the 2000
quarter. Higher earnings in 2001 were attributable to improved margins.
Net charges from other activities were $101 million, compared with $66 million
in 2000. The favorable effects of lower interest expense and higher interest
income were more than offset by increases to other corporate charges, including
expenses associated with the pending merger with Texaco. Foreign currency losses
contributed $7 million to the charges in 2001 compared with losses of $2 million
in 2000.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents totaled $2.315 billion at March 31, 2001 - a $419
million increase from year-end 2000. Cash provided by operating activities of
$2.503 billion in the first quarter of 2001 - versus $1.327 billion in the
year-ago quarter - benefited from the higher natural gas and refined products
prices and the resulting impact on revenues and net income. Cash provided by
operating activities in the first quarter of 2001 exceeded total net cash used
for investing and financing activities.
Total debt and capital lease obligations were $6.680 billion at March 31, 2001,
$448 million higher than at year-end 2000. A net increase of about $850 million
in short-term debt (excluding the current portion of long-term debt due within
12 months) was partially offset by a decrease of about $400 million in long-term
debt (including the current portion of long-term debt due within 12 months),
which included a non-cash reduction of $100 million of ESOP debt.
-21-
In order to allow Chevron to maintain active relationships with institutional
investors in its commercial paper, the company continues a program instituted in
2000 under which it sells commercial paper and reinvests the borrowed funds in
money market instruments with similar terms. As a result of this program, net
commercial paper borrowings in the first quarter 2001 and net purchases of
short-term investments rose about $650 million. The company's debt ratio (total
debt to total-debt-plus-equity) was 24 percent at March 31, 2001, about the same
as at year-end 2000. The company continually monitors its spending levels,
market conditions and related interest rates to maintain what it perceives to be
reasonable debt levels.
In February 2001, the company repurchased $235 million of its 7.45 percent notes
due 2004. Also during the first quarter, Chevron made a scheduled repayment of
$90 million of other long-term debt. These repayments were slightly offset by
approximately $30 million of new long-term debt. The company also effected a
non-cash reduction of $100 million of ESOP debt during the first quarter 2001.
At March 31, 2001, Chevron had $3.2 billion in committed credit facilities with
various major banks, $2.725 billion of which had termination dates beyond one
year. These facilities support commercial paper borrowing and also can be used
for general requirements. No borrowings were outstanding under these facilities
at March 31, 2001. The company's short-term debt, consisting primarily of
commercial paper and the current portion of long-term debt, totaled $4.601
billion at March 31, 2001. Of the total short-term debt, $2.725 billion was
reclassified to long-term debt. The settlement of these obligations is not
expected to require the use of working capital during the next twelve months,
since the company has the intent and the ability, as evidenced by committed
credit arrangements, to refinance them 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 benefits from lower interest rates available on short-term debt;
however, Chevron's proportionately large amount of short-term debt keeps its
ratio of current assets to current liabilities at relatively low levels. The
current ratio was 1.09 at March 31, 2001, about the same level as at December
31, 2000.
The company's future debt level is dependent primarily on its results of
operations and capital-spending program. The company believes it has substantial
borrowing capacity to meet unanticipated cash requirements. The company's senior
debt is rated AA by Standard & Poor's Corporation, and Aa2 by Moody's Investors
Service. Chevron's U.S. commercial paper is rated A-1+ by Standard & Poor's and
Prime-1 by Moody's, and Chevron's Canadian commercial paper is rated R-1
(middle) by Dominion Bond Rating Service. Moody's counterparty rating for
Chevron is also Aa2. All of these ratings denote high quality, investment-grade
securities.
In December 1997, Chevron's Board of Directors approved the repurchase of up to
$2 billion of its outstanding common stock, providing shares for use in its
employee stock option programs. Prior to suspending the program in October 2000
upon announcement of the merger agreement with Texaco, Chevron had repurchased
23.3 million shares at a cost of $1.890 billion.
In April 2001, Chevron loaned $392 million to Caltex Corporation, and its
subsidiaries, for the purpose of replacing existing Caltex bank financing. These
loans, which bear interest at market-based floating rates, mature prior to the
end of 2001 and are subject to mandatory prepayment on short notice at Chevron's
election.
On April 25, 2001, Chevron declared a quarterly dividend of 65 cents per share,
unchanged from the preceding quarter.
-22-
Worldwide capital and exploratory expenditures, including the company's share of
- ----------------------------------------------
affiliates' expenditures, were $1.736 billion in the first quarter of 2001,
compared with $1.195 billion in last year's first quarter. Expenditures for
international exploration and production projects were $1.056 billion, or 61
percent of the total expenditures - reflecting the company's continued emphasis
on increasing international oil and gas production. In the first quarter 2001,
expenditures included the acquisition of an additional 5 percent interest in the
Tengizchevroil affiliate and increased spending in the Gulf of Mexico. Chemicals
spending is lower this year due to poor market conditions. First quarter 2000
expenditures included an additional investment of $200 million in Dynegy Inc.
CAPITAL AND EXPLORATORY EXPENDITURES BY MAJOR OPERATING AREA
------------------------------------------------------------
Three Months Ended
March 31,
-------------------
Millions of Dollars 2001 2000
- --------------------------------------------------------------------------
United States
Exploration and Production $ 369 $ 210
Refining, Marketing and Transportation 94 81
Chemicals 12 23
All Other 86 301
- --------------------------------------------------------------------------
Total United States 561 615
- --------------------------------------------------------------------------
International
Exploration and Production 1,056 456
Refining, Marketing and Transportation 115 108
Chemicals 4 16
------------------------------------------------------------------------
Total International 1,175 580
- --------------------------------------------------------------------------
Worldwide $1,736 $1,195
==========================================================================
-23-
SELECTED OPERATING DATA (1) (2)
Three Months Ended
March 31,
----------------------
2001 2000
- -----------------------------------------------------------------------------------------
U.S. Exploration and Production
Net Crude Oil and Natural Gas Liquids Production (MBPD) 299 307
Net Natural Gas Production (MMCFPD) 1,605 1,515
Sales of Natural Gas (MMCFPD) 3,640 3,331
Sales of Natural Gas Liquids (MBPD) 187 113
Revenue from Net Production
Crude Oil ($/Bbl.) $24.51 $26.19
Natural Gas ($/MCF) $ 7.57 $ 2.40
International Exploration and Production
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 869 844
Net Natural Gas Production (MMCFPD) 1,027 915
Sales of Natural Gas (MMCFPD) 1,720 2,050
Sales of Natural Gas Liquids (MBPD) 64 70
Revenue from Liftings
Liquids ($/Bbl.) $24.44 $25.76
Natural Gas ($/MCF) $ 3.07 $ 2.22
Other Produced Volumes (MBPD) (3) 111 112
U.S. Refining, Marketing and Transportation
Sales of Gasoline (MBPD) (4) 664 646
Sales of Other Refined Products (MBPD) 622 568
Refinery Input (MBPD) 894 816
Average Refined Product Sales Price ($/Bbl.) $38.01 $36.47
International Refining, Marketing and Transportation
Sales of Refined Products (MBPD) 804 770
Refinery Input (MBPD) 414 399
(1) Includes equity in affiliates.
(2) MBPD = thousand barrels per day; MMCFPD=million cubic feet per day;
Bbl.=barrel; MCF=thousand cubic feet
(3) Represents total field production under the Boscan operating service
agreement in Venezuela and in 2000, included a Colombian operating service
agreement.
(4) Includes branded and unbranded gasoline.
-24-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) By-laws of Chevron Corporation, as amended April 25, 2001
(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
Copies of above exhibits not contained herein are available, at a fee of
$2 per document, to any security holder upon written request to the
Secretary's Department, Chevron Corporation, 575 Market Street, San
Francisco, California 94105.
(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 May 11, 2001 /s/ S.J. CROWE
------------------- -------------------------------------------
S. J. Crowe, Vice President and Comptroller
(Principal Accounting Officer and
Duly Authorized Officer)
-25-
Exhibit 12
CHEVRON CORPORATION - TOTAL ENTERPRISE BASIS
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
Three Months
Ended Year Ended December 31,
-----------------------------------------------------
March 31, 2001 2000 1999 1998 1997 1996
-------------- --------- --------- --------- --------- ---------
Net Income $1,600 $5,185 $2,070 $1,339 $3,256 $2,607
Income Tax Expense 1,048 4,085 1,578 495 2,246 2,133
Distributions (Less Than) Greater Than
Equity in Earnings of Affiliates (14) (154) (258) 25 (353) 83
Minority Interest 1 6 4 7 11 4
Previously Capitalized Interest
Charged to Earnings During Period 11 48 59 35 28 24
Interest and Debt Expense 87 460 472 405 312 364
Interest Portion of Rentals* 68 246 160 172 151 143
--------- --------- --------- --------- --------- ---------
Earnings Before Provision for
Taxes And Fixed Charges $2,801 $9,876 $4,085 $2,478 $5,651 $5,358
========= ========= ========= ========= ========= =========
Interest and Debt Expense $87 $ 460 $ 472 $ 405 $ 312 $ 364
Interest Portion of Rentals* 68 246 160 172 151 143
Capitalized Interest 14 32 9 39 82 108
--------- --------- --------- --------- --------- ---------
Total Fixed Charges $ 169 $ 738 $ 641 $ 616 $ 545 $ 615
========= ========= ========= ========= ========= =========
=======================================================================
Ratio Of Earnings To Fixed Charges 16.57 13.38 6.37 4.02 10.37 8.71
=======================================================================
* Calculated as one-third of rentals.
-26-
Exhibit 3
BY-LAWS
of
CHEVRON CORPORATION
As Amended
April 25, 2001
ARTICLE I.
The Board of Directors
SECTION 1. Authority of Board. The business and affairs of Chevron
Corporation (herein called the "Corporation") shall be managed by or under the
direction of the Board of Directors (the "Board") or, if authorized by the
Board, by or under the direction of one or more committees thereof, to the
extent permitted by law and by the Board. Except as may be otherwise provided by
law or these By-Laws or, in the case of a committee of the Board, by applicable
resolution of the Board or such committee, the Board or any committee thereof
may act by unanimous written consent or, at an authorized meeting at which a
quorum is present, by the vote of the majority of the Directors present at the
meeting. Except as may be otherwise provided by law, the Board shall have power
to determine from time to time whether, and if allowed, when and under what
conditions and regulations any of the accounts and books of the Corporation
shall be open to inspection.
SECTION 2. Number of Directors; Vacancies. The authorized number of
Directors who shall constitute the Board shall be fixed from time to time by
resolution of the Board approved by at least a majority of the Directors then in
office, provided that no such resolution other than a resolution to take effect
as of the next election of Directors by the stockholders shall have the effect
of reducing the authorized number of Directors to less than the number of
Directors in office as of the effective time of the resolution.
Whenever there shall be fewer Directors in office than the authorized
number of Directors, the Board may, by resolution approved by a majority of the
Directors then in office, choose one or more additional Directors, each of whom
shall hold office until the next annual meeting of stockholders and until his or
her successor is duly elected.
SECTION 3. Authorized Meetings of the Board. The Board shall have
authority to hold annual, regular and special meetings. An annual meeting of the
Board may be held immediately after the conclusion of the annual meeting of the
stockholders. Regular meetings of the Board may be held at such times as the
Board may determine. Special meetings may be held if called by the Chairman of
the Board, a Vice-Chairman of the Board, or by at least one third of the
Directors then in office.
Notice of the time or place of a meeting may be given in person or by
telephone by any officer of the Corporation, or transmitted electronically to
the Director's home or office, or entrusted to a third party company or
governmental entity for delivery to the Director's business address. Notice of
annual or regular meetings is required only if the time for the meeting is
changed or the meeting is not to be held at the principal executive offices of
the Corporation. When notice is required, it shall be given not less than four
hours prior to the time fixed for the meeting; provided, however, that if
-1-
notice is transmitted electronically or entrusted to a third party for delivery,
the electronic transmission shall be effected or the third party shall promise
delivery by not later than the end of the day prior to the day fixed for the
meeting. The Board may act at meetings held without required notice if all
Directors consent to the holding of the meeting before, during or after the
meeting.
At all meetings of the Board, a majority of the Directors then in office
shall constitute a quorum for all purposes. If any meeting of the Board shall
lack a quorum, a majority of the Directors present may adjourn the meeting from
time to time, without notice, until a quorum is obtained.
SECTION 4. Committees. The Board may, by resolution approved by at least a
majority of the authorized number of Directors, establish committees of the
Board with such powers, duties and rules of procedure as may be provided by the
resolutions of the Board establishing such committees. Any such committee shall
have a secretary and report its actions to the Board.
SECTION 5. Compensation. Directors who are not also employees of the
Corporation shall be entitled to such compensation for their service on the
Board or any committee thereof as the Board may from time to time determine.
ARTICLE II
Officers
SECTION 1. Executive Committee. The Board may, by resolution approved by
at least a majority of the authorized number of Directors, establish and appoint
one or more officers of the Corporation to constitute an Executive Committee
(the "Executive Committee"), which, under the direction of the Board and subject
at all times to its control, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, except as may be provided in the resolution establishing the
Executive Committee or in another resolution of the Board or by the General
Corporation Law of the State of Delaware. The Executive Committee shall have a
secretary and report its actions to the Board.
SECTION 2. Designated Officers. The officers of the Corporation shall be
elected by, and serve at the pleasure of, the Board and shall consist of a
Chairman of the Board and a Secretary and such other officers, including,
without limitation, one or more Vice-Chairmen of the Board, a Vice-President and
Chief Financial Officer, a Vice-President and General Counsel, one or more other
Vice-Presidents, one or more Assistant Secretaries, a Treasurer, one or more
Assistant Treasurers, a Comptroller and a General Tax Counsel, as may be elected
by the Board to hold such offices or such other offices as may be created by
resolution of the Board.
SECTION 3. Chairman of the Board. The Chairman of the Board shall be the
chief executive officer of the Corporation. He shall be a member of the Board
and Chairman of the Executive Committee. He shall preside at meetings of the
stockholders, the Board and the Executive Committee, and shall have such other
powers and perform such other duties as may from time to time be granted or
assigned to him by the Board or, subject to the control of the Board, by a
committee thereof or by the Executive Committee, or otherwise be in accordance
with the direction of the Board. In his absence, each Vice-Chairman of the
Board, as available, shall rotate in presiding at meetings of the stockholders,
the Board and the Executive Committee.
SECTION 4. Vice-Chairman of the Board. Each Vice-Chairman of the Board
shall be a member of the Board and a Vice-Chairman of the Executive Committee,
and shall have such other powers and perform such other duties as may from time
to time be granted or assigned to him by the Board or, subject to the control of
the Board, by a committee thereof or by the Executive Committee, or otherwise be
in accordance with the direction of the Board.
SECTION 5. Vice-President and Chief Financial Officer. The Vice-President
and Chief Financial Officer shall consider the adequacy of, and make
recommendations to the Board and Executive Committee concerning, the capital
resources available to the Corporation to meet its
-2-
projected obligations and business plans; report periodically to the Board on
financial results and trends affecting the business; and shall have such other
powers and perform such other duties as may from time to time be granted or
assigned to him by the Board or, subject to the control of the Board, by a
committee thereof or by the Executive Committee, or otherwise be in accordance
with the direction of the Board.
SECTION 6. Vice-President and General Counsel. The Vice-President and
General Counsel shall supervise and direct the legal affairs of the Corporation
and shall have such other powers and perform such other duties as may from time
to time be granted or assigned to him by the Board or, subject to the control of
the Board, by a committee thereof or by the Executive Committee, or otherwise be
in accordance with the direction of the Board.
SECTION 7. Vice-Presidents. In the event of the absence or disability of
the Chairman of the Board and the Vice-Chairmen of the Board, one of the
Vice-Presidents may be designated by the Board to exercise their powers and
perform their duties, and the Vice-Presidents shall have such other powers and
perform such other duties as may from time to time be granted or assigned to
them by the Board or, subject to the control of the Board, by a committee
thereof or by the Executive Committee, or otherwise be in accordance with the
direction of the Board.
SECTION 8. Secretary. The Secretary shall keep full and complete records of
the proceedings of the Board, the Executive Committee and the meetings of the
stockholders; keep the seal of the Corporation, and affix the same to all
instruments which may require it; have custody of and maintain the Corporation's
stockholder records; and shall have such other powers and perform such other
duties as may from time to time be granted or assigned to him by the Board or,
subject to the control of the Board, by a committee thereof or by the Executive
Committee, or otherwise be in accordance with the direction of the Board.
SECTION 9. Assistant Secretaries. The Assistant Secretaries shall assist
the Secretary in the performance of his duties and shall have such other powers
and perform such other duties as may from time to time be granted or assigned to
them by the Board or, subject to the control of the Board, by a committee
thereof or by the Executive Committee, or otherwise be in accordance with the
direction of the Board.
SECTION 10. Treasurer. The Treasurer shall have custody of the funds of the
Corporation and deposit and pay out such funds, from time to time, in such
manner as may be prescribed by, or be in accordance with the direction of, the
Board, and shall have such other powers and perform such other duties as may
from time to time be granted or assigned to him by the Board or, subject to the
control of the Board, by a committee thereof or by the Executive Committee, or
otherwise be in accordance with the direction of the Board.
SECTION 11. Assistant Treasurers. The Assistant Treasurers shall assist
the Treasurer in the performance of his duties and shall have such other powers
and perform such other duties as may from time to time be granted or assigned to
them by the Board or, subject to the control of the Board, by a committee
thereof or by the Executive Committee, or otherwise be in accordance with the
direction of the Board.
SECTION 12. Comptroller. The Comptroller shall be the principal accounting
officer of the Corporation and shall have charge of the Corporation's books of
accounts and records; and shall have such other powers and perform such other
duties as may from time to time be granted or assigned to him by the Board or,
subject to the control of the Board, by a committee thereof or by the Executive
Committee, or otherwise be in accordance with the direction of the Board.
SECTION 13. General Tax Counsel. The General Tax Counsel shall supervise
and direct the tax matters of the Corporation and shall have such other powers
and perform such other duties as may from time to time be granted or assigned to
him by the Board or, subject to the control of the Board, by a committee thereof
or by the Executive Committee, or otherwise be in accordance with the direction
of the Board.
-3-
SECTION 14. Other Officers. Any other elected officer shall have such
powers and perform such duties as may from time to time be granted or assigned
to him by the Board or, subject to the control of the Board, by a committee
thereof or by the Executive Committee, or otherwise be in accordance with the
direction of the Board.
SECTION 15. Powers of Attorney. Whenever an applicable statute, decree,
rule or regulation requires a document to be subscribed by a particular officer
of the Corporation, such document may be signed on behalf of such officer by a
duly appointed attorney-in-fact, except as otherwise directed by the Board or
the Executive Committee or limited by law.
SECTION 16. Compensation. The officers of the Corporation shall be entitled
to compensation for their services. The amounts and forms of compensation which
each of such officers shall receive, and the manner and times of its payment,
shall be determined by, or be in accordance with the direction of, the Board.
ARTICLE III
Stock and Stock Certificates
SECTION 1. Stock. The Board or, to the extent permitted by the General
Corporation Law of the State of Delaware, any committee of the Board expressly
so authorized by resolution of the Board may authorize from time to time the
issuance of new shares of the Corporation's Common Stock ("Common Stock") or any
series of Preferred Stock ("Preferred Stock"), for such lawful consideration as
may be approved by the Board or such committee, up to the limit of authorized
shares of Common Stock or such series of Preferred Stock. The Board, the
Executive Committee or any committee of the Board expressly so authorized by
resolution of the Board may authorize from time to time the purchase on behalf
of the Corporation for its treasury of issued and outstanding shares of Common
Stock or Preferred Stock and the resale, assignment or other transfer by the
Corporation of any such treasury shares.
SECTION 2. Stock Certificates. Shares of Stock shall be represented by
certificates, which shall be registered upon the books of the Corporation;
provided, that the Board may provide by resolution that some or all of any or
all classes or series of the Corporation's Stock shall be uncertificated shares.
Any such resolution shall not apply to shares represented by a certificate until
such certificate is surrendered to the Corporation. Notwithstanding the adoption
of such a resolution by the Board, every holder of stock represented by a
certificate and, upon request, every holder of uncertificated shares shall be
entitled to have a certificate signed by the Chairman of the Board, a
Vice-Chairman of the Board or a Vice-President, together with the Secretary or
an Assistant Secretary of the Corporation representing the number of shares
owned by him or her. Certificates of Stock shall not have any validity
whatsoever until and unless they have been signed and countersigned as herein
provided. All such certificates shall bear the seal of the Corporation or a
facsimile thereof, and shall be countersigned by a Transfer Agent and the
Registrar for the Stock, each of whom shall by resolution of the Board be
appointed with authority to act as such at the pleasure of the Board. No
certificate for a fractional share of Common Stock shall be issued.
Certificates of Stock signed by the Chairman of the Board, a Vice-Chairman
of the Board or a Vice-President, together with the Secretary or an Assistant
Secretary, being such at the time of such signing, if properly countersigned as
set forth above by a Transfer Agent and the Registrar, and if regular in other
respects, shall be valid, whether such officers hold their respective positions
at the date of issue or not. Any signature or countersignature on certificates
of Stock may be an actual signature or a printed or engraved facsimile thereof.
SECTION 3. Lost or Destroyed Certificates. The Board or the Executive
Committee may designate certain persons to authorize the issuance of new
certificates of Stock or uncertificated shares to replace certificates alleged
to have been lost or destroyed, upon the filing with such designated persons of
both an affidavit or affirmation of such loss or destruction and a bond of
-4-
indemnity or indemnity agreement covering the issuance of such replacement
certificates or uncertificated shares, as may be requested by and be
satisfactory to such designated persons.
SECTION 4. Stock Transfers. Transfer of shares of Stock represented by
certificates shall be made on the books of the Corporation only upon the
surrender of a valid certificate or certificates for not less than such number
of shares, duly endorsed by the person named in the certificate or by an
attorney lawfully constituted in writing. Transfer of uncertificated shares of
Stock shall be made on the books of the Corporation upon receipt of proper
transfer instructions from the registered owner of the uncertificated shares, an
instruction from an approved source duly authorized by such owner or from an
attorney lawfully constituted in writing. The Corporation may impose such
additional conditions to the transfer of its Stock as may be necessary or
appropriate for compliance with applicable law or to protect the Corporation, a
Transfer Agent or the Registrar from liability with respect to such transfer.
SECTION 5. Stockholders of Record. The Board may fix a time as a record
date for the determination of stockholders entitled to receive any dividend or
distribution declared to be payable on any shares of the Corporation; or to vote
upon any matter to be submitted to the vote of any stockholders of the
Corporation; or to be present or to be represented by proxy at any meeting of
the stockholders of the Corporation, which record date in the case of a meeting
of the stockholders shall be not more than sixty nor less than ten days before
the date set for such meeting; and only stockholders of record as of the record
date shall be entitled to receive such dividend or distribution, or to vote on
such matter, or to be present or represented by proxy at such meeting.
ARTICLE IV
Meetings of Stockholders
SECTION 1. Meetings of Stockholders. An annual meeting of the stockholders
of the Corporation shall be held each year, at which Directors shall be elected
to serve for the ensuing year and until their successors are elected. Special
meetings of the stockholders for any purpose or purposes, unless prohibited by
law, may be called by the Board or the Chairman of the Board and shall be called
by the Chairman of the Board or the Secretary at the request in writing of at
least one third of the members of the Board. The time and place of any meeting
of stockholders shall be determined by the Board in accordance with law.
SECTION 2. Conduct of Meetings. The Chairman of the Board, or such other
officer as may preside at any meeting of the stockholders, shall have authority
to establish, from time to time, such rules for the conduct of such meeting, and
to take such action, as may in his judgment be necessary or proper for the
conduct of the meeting and in the best interests of the Corporation and the
stockholders in attendance in person or by proxy.
SECTION 3. Quorum for Action by Stockholders; Elections. At all elections
or votes had for any purpose, there must be a majority of the outstanding shares
of Common Stock represented. All elections for Directors shall be held by
written ballot and determined by a plurality of the votes cast. Except as may
otherwise be required by law or the Restated Certificate of Incorporation, all
other matters shall be decided by a majority of the votes cast affirmatively or
negatively.
SECTION 4. Proxies. To the extent permitted by law, any stockholder of
record may appoint a person or persons to act as the stockholder's proxy or
proxies at any stockholder meeting for the purpose of representing and voting
the stockholder's shares. The stockholder may make this appointment by any means
the General Corporation Law of the State of Delaware specifically authorizes,
and by any other means the Secretary of the Corporation may permit. Prior to any
vote, and subject to any contract rights of the proxy holder, the stockholder
may revoke the proxy appointment either directly or by the creation of a new
appointment, which will automatically revoke the former one. The Inspector of
Elections appointed for the meeting may establish requirements concerning such
proxy appointments or revocations that the Inspector considers necessary or
appropriate to assure the integrity of the vote and to comply with law.
-5-
SECTION 5. Adjournments. Any meeting of the stockholders (whether annual
or special and whether or not a quorum shall have been present), may be
adjourned from time to time and from place to place by vote of a majority of the
shares of Common Stock represented at such meeting, without notice other than
announcement at such meeting of the time and place at which the meeting is to be
resumed--such adjournment and the reasons therefor being recorded in the journal
of proceedings of the meeting; provided, however, that if the date of any
adjourned meeting is more than thirty days after the date for which the meeting
was originally noticed, or if a new record date is fixed for the adjourned
meeting, written notice of the place, date and time of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting. At
any meeting so resumed after such adjournment, provided a majority of the
outstanding shares of Common Stock shall then be represented, any business may
be transacted which might have been transacted at the meeting as originally
scheduled.
ARTICLE V
Corporate Seal
The seal of the Corporation shall have inscribed thereon the name of the
Corporation and the words "Incorporated Jan. 27, 1926 Delaware."
ARTICLE VI
Change in Control Benefit Protection
SECTION 1. As used in this Article VI, the following terms shall have
the meanings here indicated:
"Beneficial Ownership," when attributed to a Person with respect to a
security, means that the Person is deemed to be a beneficial owner of
such security pursuant to Rule 13d-3 promulgated under the Exchange
Act.
"Benefit Plan" means any pension, retirement, profit-sharing, employee
stock ownership, 401(k), excess benefit, supplemental retirement,
bonus, incentive, salary deferral, stock option, performance unit,
restricted stock, tax gross-up, life insurance, dependent life
insurance, accident insurance, health coverage, short-term disability,
long-term disability, severance, welfare or similar plan or program (or
any trust, insurance arrangement or any other fund forming a part or
securing the benefits thereof) maintained prior to a Change in Control
by the Corporation or a Subsidiary for the benefit of directors,
officers, employees or former employees, and shall include any
successor to any such plan or program; provided, however, that "Benefit
Plan" shall include only those plans and programs which have been
designated by the Corporation as a constituent part of the Change in
Control benefit protection program.
"Board" means the Board of Directors of the Corporation.
"Change in Control" means the occurrence of any of the following:
(A) A Person other than the Corporation, a Subsidiary, a
Benefit Plan or, pursuant to a Non-Control Merger, a
Parent Corporation, acquires Common Stock or other Voting
Securities (other than directly from the Corporation)
and, immediately after the acquisition, the Person has
Beneficial Ownership of twenty percent (20%) or more of
the Corporation's Common Stock or Voting Securities;
(B) The Incumbent Directors cease to constitute a majority of
the Board or, if there is a Parent Corporation, the board
of directors of the Ultimate Parent, unless such event
results from the death or disability of an Incumbent
Director and, within
-6-
30 days of such event, the Incumbent
Directors constitute a majority of such board; or
(C) There is consummated a Merger (other than a Non-Control
Merger), a complete liquidation or dissolution of the
Corporation, or the sale or other disposition of all or
substantially all of the assets of the Corporation (other
than to a Subsidiary or as a distribution of a Subsidiary
to the stockholders of the Corporation).
"Common Stock" means the Common Stock of the Corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Incumbent Directors" means the Directors of the Corporation as of
March 29, 2000 and any Director of the Corporation or, if there is a
Parent Corporation, any Director of the Ultimate Parent, elected after
such date, provided that (A) the election, or nomination for election
by the stockholders of the Corporation, of such new Director was
approved by a vote of at least two-thirds of the Persons then
constituting the Incumbent Directors, (B) any Director who assumes
office as a result of a Merger after March 29, 2000 shall not be deemed
an Incumbent Director until the Director has been in office for at
least three years, and (C) no Director who assumes office as a result
of a Proxy Contest shall be considered an Incumbent Director.
"Merger" means a merger, consolidation or reorganization or similar
business combination of the Corporation with or into another Person or
in which securities of the Corporation are issued.
"Non-Control Merger" means a Merger if immediately following the Merger
(A) the stockholders of the Corporation immediately before the Merger
own directly or indirectly at least fifty-five percent (55%) of the
outstanding common stock and the combined voting power of the
outstanding voting securities of the Surviving Corporation (if there is
no Parent Corporation) or of the Ultimate Parent, if there is a Parent
Corporation, and (B) no Person other than a Benefit Plan owns twenty
percent (20%) or more of the combined voting power of the outstanding
voting securities of the Ultimate Parent, if there is a Parent
Corporation, or of the Surviving Corporation, if there is no Parent
Corporation.
"Parent Corporation" means a corporation with Beneficial Ownership of
more than fifty percent (50%) of the combined voting power of the
Surviving Corporation's outstanding voting securities immediately
following a Merger.
"Person" means a person as such term is used for purposes of Section
13(d) or Section 14(d) of the Exchange Act.
"Proxy Contest" means any actual or threatened solicitation of proxies
or consents by or on behalf of any Person other than the Board,
including, without limitation, any solicitation with respect to the
election or removal of Directors of the Corporation, and any agreement
intended to avoid or settle the results of any such actual or
threatened solicitation.
"Subsidiary" means any corporation or other Person (other than a human
being) of which a majority of its voting power or its voting equity
securities or equity interest is owned, directly or indirectly, by the
Corporation.
"Surviving Corporation" means the corporation resulting from a Merger.
"Ultimate Parent" means, if there is a Parent Corporation, the Person
with Beneficial Ownership of more than fifty percent (50%) of the
Surviving Corporation and of any other Parent Corporation.
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"Voting Securities" means the outstanding Common Stock and other voting
securities, if any, of the Corporation entitled to vote for the
election of Directors of the Corporation.
SECTION 2. The Corporation and one or more of its Subsidiaries may,
from time to time, maintain Benefit Plans providing for payments or other
benefits or protections conditioned partly or solely on the occurrence of a
Change in Control. The Corporation shall cause any Surviving Corporation (or any
other successor to the business and assets of the Corporation) to assume any
such obligations of such Benefit Plans and make effective provision therefor,
and such Benefit Plans shall not be amended except in accordance with their
terms.
SECTION 3. No amendment or repeal of this Article VI shall be effective
if adopted within six months before or at any time after the public announcement
of an event or proposed transaction which would constitute a Change in Control
(as such term is defined prior to such amendment); provided, however, that an
amendment or repeal of this Article VI may be effected, even if adopted after
such a public announcement, if (a) the amendment or repeal has been adopted
after any plans have been abandoned to cause the event or effect the transaction
which, if effected, would have constituted the Change in Control, and the event
which would have constituted the Change in Control has not occurred, and (b)
within a period of six months after such adoption, no other event constituting a
Change in Control shall have occurred, and no public announcement of a proposed
transaction which would constitute a Change in Control shall have been made,
unless thereafter any plans to effect the Change in Control have been abandoned
and the event which would have constituted the Change in Control has not
occurred. In serving and continuing to serve the Corporation, an employee is
entitled to rely and shall be presumed to have relied on the provisions of this
Article VI, which shall be enforceable as contract rights and inure to the
benefit of the heirs, executors and administrators of the employee, and no
repeal or modification of this Article VI shall adversely affect any right
existing at the time of such repeal or modification.
ARTICLE VII
Amendments
Any of these By-Laws may be altered, amended or repealed by the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock at any annual or special meeting of the stockholders, if notice of
the proposed alteration, amendment or repeal be contained in the notice of the
meeting; or any of these By-Laws may be altered, amended or repealed by
resolution of the Board approved by at least a majority of the Directors then in
office. Notwithstanding the preceding sentence, any amendment or repeal of
Article VI of the By-Laws shall be made only in accordance with the terms of
said Article VI, and the authority of the Directors to amend the By-Laws is
accordingly hereby limited.
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