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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, 1994
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-368-2
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CHEVRON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0890210
- - ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
225 Bush Street, San Francisco, California 94104
- - ------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 894-7700
---------------
NONE
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares of each of the issuer's classes of common
stock, as of the latest practicable date:
Class Outstanding as of March 31, 1994
----------------------------- ------------------------------------
Common stock, $1.50 par value 651,664,236
NOTE: Par value per share and shares outstanding have been adjusted to
reflect a two-for-one stock split effective May 11, 1994.
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INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income for the three months
ended March 31, 1994 and 1993 2
Consolidated Balance Sheet at March 31, 1994 and
December 31, 1993 3
Consolidated Statement of Cash Flows for the three
months ended March 31, 1994 and 1993 4
Notes to Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 6. Listing of Exhibits and Reports on Form 8-K 15
Signature 15
- 1 -
PART I. FINANCIAL INFORMATION
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED
MARCH 31,
-------------------
Millions of Dollars, Except Per Share Amounts 1994 1993
- - -----------------------------------------------------------------------------
REVENUES
Sales and other operating revenues(1) $ 8,105 $ 8,903
Equity in net income of affiliated companies 107 117
Other income 52 62
-------------------
TOTAL REVENUES 8,264 9,082
-------------------
COSTS AND OTHER DEDUCTIONS
Purchased crude oil and products 3,684 4,605
Operating expenses 1,497 1,340
Exploration expenses 105 74
Selling, general and administrative expenses 308 366
Depreciation, depletion and amortization 592 589
Taxes other than on income(1) 1,345 1,137
Interest and debt expense 73 87
-------------------
TOTAL COSTS AND OTHER DEDUCTIONS 7,604 8,198
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INCOME BEFORE INCOME TAX EXPENSE 660 884
INCOME TAX EXPENSE 272 383
-------------------
NET INCOME $ 388 $ 501
-------------------
PER SHARE OF COMMON STOCK:(2)
NET INCOME $ .60 $ .77
DIVIDENDS $ .4625 $ .4375
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (000s)(2) 651,625 650,469
(1) Includes consumer excise taxes $ 1,152 $ 927
(2) On May 11, 1994, the company effected a two-for-one stock split. All share
and per share amounts have been restated to reflect the stock split for
all periods presented.
See accompanying notes to consolidated financial statements.
- 2 -
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
Millions of Dollars 1994 1993
- - ------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 1,201 $ 1,644
Marketable securities 371 372
Accounts and notes receivable 3,828 3,808
Inventories:
Crude oil and petroleum products 1,111 1,108
Chemicals 413 423
Materials and supplies 255 252
Other merchandise 15 18
------------------------
1,794 1,801
Prepaid expenses and other current assets 1,083 1,057
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TOTAL CURRENT ASSETS 8,277 8,682
Long-term receivables 101 94
Investments and advances 3,846 3,623
Properties, plant and equipment, at cost 45,233 44,807
Less: accumulated depreciation, depletion
and amortization 23,403 22,942
------------------------
21,830 21,865
Deferred charges and other assets 464 472
------------------------
TOTAL ASSETS $34,518 $34,736
------------------------
- - ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 3,049 $ 3,325
Accrued liabilities 2,357 2,538
Short-term debt 3,744 3,456
Federal and other taxes on income 767 782
Other taxes payable 520 505
------------------------
TOTAL CURRENT LIABILITIES 10,437 10,606
Long-term debt and capital lease obligations 3,882 4,082
Non-current deferred income taxes 2,968 2,916
Reserves for employee benefit plans 1,501 1,458
Deferred credits and other non-current obligations 1,550 1,677
------------------------
TOTAL LIABILITIES 20,338 20,739
------------------------
Preferred stock (authorized 100,000,000
shares, $1.00 par value, none issued) - -
Common stock (authorized 1,000,000,000 shares,
$1.50 par value, 712,487,068 shares issued)* 1,069 1,069
Capital in excess of par value 1,856 1,855
Deferred compensation - Employee Stock
Ownership Plan (ESOP) (878) (920)
Currency translation adjustment and other 149 108
Retained earnings 14,049 13,955
Treasury stock, at cost (shares 60,822,832
and 61,008,858 at March 31, 1994 and
December 31, 1993, respectively)* (2,065) (2,070)
------------------------
TOTAL STOCKHOLDERS' EQUITY 14,180 13,997
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $34,518 $34,736
------------------------
* On May 11, 1994, the company effected a two-for-one stock split. All share
and per share amounts have been restated to reflect the stock split for all
periods presented.
See accompanying notes to consolidated financial statements.
- 3 -
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
-----------------------
Millions of Dollars 1994 1993
- - -----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 388 $ 501
Adjustments
Depreciation, depletion and amortization 592 589
Dry hole expense related to prior years'
expenditures 24 9
Distributions less than equity in affiliates'
income (59) (82)
Net before-tax gains on asset
retirements and sales (12) (21)
Net currency translation (gains) losses (2) 4
Deferred income tax provision 65 23
Net increase in operating working capital (514) (465)
Other 18 (33)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 500 525
-----------------------
INVESTING ACTIVITIES
Capital expenditures (669) (617)
Proceeds from asset sales 71 84
Net sales of marketable securities 1 -
-----------------------
NET CASH USED FOR INVESTING ACTIVITIES (597) (533)
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FINANCING ACTIVITIES
Net borrowings of short-term obligations 319 267
Proceeds from issuance of long-term debt 2 196
Repayments of long-term debt and other
financing obligations (367) (324)
Cash dividends paid (301) (284)
Purchases of treasury shares (2) (2)
-----------------------
NET CASH USED FOR FINANCING ACTIVITIES (349) (147)
-----------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 3 5
-----------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (443) (150)
CASH AND CASH EQUIVALENTS AT JANUARY 1 1,644 1,292
-----------------------
CASH AND CASH EQUIVALENTS AT MARCH 31 $1,201 $1,142
-----------------------
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, 1993. 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.
The consolidated financial statements for the first quarter of 1994 include
the effects of the company's adoption of Statements of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits," and
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
The company's prior accounting practices were substantially in compliance with
the new standards and adoption of the new standards did not have a material
effect on the company's consolidated financial statements or its liquidity.
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 1993 Annual Report on Form 10-K.
The results for the first quarter of 1994 are not necessarily indicative of
future financial results.
NOTE 2. STOCK SPLIT
At the company's annual meeting on May 3, 1994, stockholders approved an
increase in the authorized shares of common stock from 500 million to 1
billion and approved a two-for-one split of the company's issued common
stock. The split was effective on May 11, 1994 for stockholders of record
on that date. All share and per share value amounts have been restated to
reflect the stock split for all periods presented.
NOTE 3. RECLASSIFICATION OF CERTAIN REVENUES AND PURCHASES
To conform to the presentation adopted in the second quarter of 1993,
amounts presented in the consolidated income statement for the first
quarter of 1993 were reclassified to net certain offsetting forward crude
oil purchase and sales contracts. This reclassification had no effect on
net income. Sales and other operating revenues, and purchased crude oil and
products, each decreased $760 million for the first quarter of 1993 from the
amounts previously reported.
NOTE 4. NET INCOME
Net income for the first quarter of 1994 included special charges of $36
million. These charges included provisions of $21 million for estimated
environmental assessment and cleanup liabilities at certain U.S. refining and
marketing facilities and $15 million for a reserve adjustment related to the
resolution of certain regulatory issues with the Minerals Management Service.
In the first quarter of 1993, net income was reduced by $2 million for special
items. Provisions of $14 million for estimated environmental assessment and
cleanup liabilities at certain U.S. refining and marketing facilities and a
write-off of $12 million for a U.S. exploration and production asset were
partially offset by a favorable prior year tax adjustment of $19 million in
Canada and a gain of $5 million from the sale of certain undeveloped coal
properties.
Foreign exchange gains and losses netted to zero in the first quarter of
1994. Net income for the first quarter of 1993 included net foreign exchange
losses of $4 million.
- 5 -
NOTE 5. INFORMATION RELATING TO THE STATEMENT OF CASH FLOWS
The "Net increase in operating working capital" is composed of the following:
THREE MONTHS ENDED
MARCH 31,
----------------------
Millions of Dollars 1994 1993
------------------------------------------------------------------------
(Increase) decrease in accounts
and notes receivable $ (22) $ 238
Decrease in inventories 7 64
Increase in prepaid expenses
and other current assets (24) (111)
Decrease in accounts payable and
accrued liabilities (475) (599)
Decrease in income and other taxes payable - (57)
------------------------------------------------------------------------
Net increase in operating working capital $ (514) $ (465)
------------------------------------------------------------------------
"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 1994 1993
------------------------------------------------------------------------
Interest paid on debt (net of
capitalized interest) $ 70 $ 110
Income taxes paid $ 192 $ 387
------------------------------------------------------------------------
The "Net sales of marketable securities" consists of the following gross
amounts:
THREE MONTHS ENDED
MARCH 31,
----------------------
Millions of Dollars 1994 1993
------------------------------------------------------------------------
Marketable securities purchased $ (339) $ (648)
Marketable securities sold 340 648
------------------------------------------------------------------------
Net sales of marketable securities $ 1 $ -
------------------------------------------------------------------------
The Consolidated Statement of Cash Flows excludes the following non-cash
transactions:
In February 1994, the company took delivery of a new tanker, the Chevron
Employee Pride, under a capital lease arrangement. This asset was recorded
as a $65 million addition to properties, plant and equipment and to capital
lease obligations.
The company's Employee Stock Ownership Plan (ESOP) repaid $40 million and $30
million of matured debt guaranteed by Chevron Corporation in January of 1994
and 1993, respectively. These payments were recorded by the company as a
reduction in its debt outstanding and in Deferred Compensation - ESOP.
- 6 -
NOTE 6. SUMMARIZED FINANCIAL DATA - CHEVRON U.S.A. INC.
Chevron U.S.A. Inc. is Chevron Corporation's principal operating company,
consisting primarily of the company's United States integrated petroleum
operations (excluding most of the domestic pipeline operations). These
operations are conducted by three divisions: Chevron U.S.A. Production
Company, Chevron U.S.A. Products Company and Warren Petroleum Company.
Summarized financial information for Chevron U.S.A. Inc. and its consolidated
subsidiaries is presented below:
THREE MONTHS ENDED
MARCH 31,
----------------------
Millions of Dollars 1994 1993
- - ----------------------------------------------------------------------------
Sales and other operating revenues $6,082 $7,763
Costs and other deductions 5,861 7,418
Net income 173 257
- - ----------------------------------------------------------------------------
MARCH 31, December 31,
Millions of Dollars 1994 1993
- - ----------------------------------------------------------------------------
Current assets $ 3,552 $ 3,661
Other assets 13,865 14,099
Current liabilities 6,130 5,936
Other liabilities 5,028 5,738
Net worth 6,259 6,086
- - ----------------------------------------------------------------------------
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 1994 1993
- - ----------------------------------------------------------------------------
Sales and other operating revenues $3,298 $3,901
Operating income 245 279
Net income 178 185
- - ----------------------------------------------------------------------------
NOTE 8. INCOME TAXES
The effective income tax rate was 41.2 percent for this year's first quarter,
compared with 43.3 percent for the 1993 first quarter. The rate decrease
reflects proportionately greater earnings from equity affiliates recorded on
an after-tax basis and proportionately higher tax credits.
- 7 -
NOTE 9. CONTINGENT LIABILITIES
LITIGATION -
The company is a defendant in numerous lawsuits, in addition to those
mentioned in this note. Plaintiffs may seek to recover large and sometimes
unspecified amounts, and some matters may remain unresolved for several
years.
In April 1991, a United States District Court in Texas ruled favorably on
claims brought by former employees of Gulf and participants in the Gulf
Pension Plan that a partial termination of the plan had occurred. However,
the court denied plaintiffs' claims to a share of any surplus plan assets.
In October 1991, the district court approved a partial settlement in which
the parties agreed not to appeal the partial termination claims except as
relevant to plaintiffs' claims for a share of surplus plan assets. These
claims are now before the Fifth Circuit Court of Appeals.
A lawsuit brought against the company by OXY USA Inc., the successor in
interest to Cities Service Company, remains pending in an Oklahoma state
court. The suit involves claims for breach of contract and misrepresentation
related to the termination of Gulf Oil Corporation's offer to purchase
Cities' stock in 1982. (Gulf was acquired by Chevron in 1984.)
Management is of the opinion that resolution of the lawsuits will not result
in any significant liability to the company in relation to its consolidated
financial position or liquidity.
OTHER CONTINGENCIES -
The U.S. federal income tax and California franchise tax liabilities of the
company have been settled through 1976 and 1987, respectively. Settlement of
open tax matters is not expected to have a material effect on consolidated
net assets or liquidity of the company and, in the opinion of management,
adequate provision has been made for income and franchise taxes for all years
either under examination or subject to future examination. The Internal
Revenue Service (IRS) has asserted tax deficiencies against the other three
former stockholders of Arabian American Oil Co. (Aramco) regarding the pricing
of crude oil purchased from Saudi Arabia during the period 1979 through 1981.
In December 1993, the U.S. Tax Court ruled in favor of Exxon and Texaco on
this issue. It is not known if the IRS will appeal this decision. Chevron
has not received any proposed tax deficiency concerning this issue. In July
1991, the IRS issued a "Designated Summons" that requires Chevron to produce
additional documents in connection with the Saudi pricing issue. The
Designated Summons extends the statutory period for assessing additional tax.
As directed by the District Court, Chevron completed production of documents
before year-end 1993. Further motions regarding compliance with the summons
are expected in 1994. After Chevron complies with the Summons, the IRS may
propose tax deficiencies similar to those asserted against other former Aramco
stockholders. The company believes that it properly accounted for Saudi
crude in its tax return and that it owes no additional U.S. taxes.
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 guarantees, claims and long-term commitments under
various agreements, the payments and future commitments for which are not
material in the aggregate.
In September 1990, the Minerals Management Service of the U.S. Department of
the Interior (the Service) issued a preliminary determination letter to the
effect that the company owed additional royalty payments on natural gas the
company produced from federal leasehold interests and sold under a long-term
supply contract. The company made royalty payments based on the contract
price received, rather than on the basis of published weighted average gas
prices, which were higher. In March 1994, the company reached agreement
on a global settlement regarding this and certain other outstanding issues
with the Service, resulting in an after-tax charge to first quarter earnings
of $15 million to adjust the previously established reserve for these issues.
- 8 -
In March 1992, an agency within the Department of Energy (DOE) issued a
Proposed Remedial Order (PRO) claiming Chevron failed to comply with DOE
regulations in the course of its participation in the Tertiary Incentive
Program. Although the DOE regulations involved were rescinded in March 1981,
following decontrol of crude oil prices in January 1981, and the statute
authorizing the regulations expired in September 1981, the PRO purports to be
for the period April 1980 through April 1990. The DOE claims the company
overrecouped under the regulations by $125 million during the period in
question. Including interest through March 1994, the total claim amounts to
$281 million. The company asserts that in fact it incurred a loss through
participation in the DOE program. The Office of Hearings and Appeals of the
DOE has granted Chevron's motion for evidentiary hearing and discovery. No
date has yet been set for the evidentiary hearing.
The company is subject to loss contingencies pursuant to environmental laws
and regulations that in the future may require the company to take action to
correct or ameliorate the effects on the environment of prior disposal or
release of chemical or petroleum substances by the company or other parties.
Such contingencies may exist for various sites including, but not limited to:
Superfund sites, operating refineries, oil fields, service stations,
terminals and land development areas. In addition, the company may have
obligations relating to prior asset sales or closed facilities, or for future
costs to be incurred upon the sale or disposition of existing operating
facilities. 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 insurance.
While the amounts of future costs may be material to the company's results of
operations in the period in which they are recognized, the company does not
expect these costs to have a material effect on Chevron's consolidated
financial position or liquidity.
The company's operations, particularly oil and gas exploration and
production, can be affected by changing economic, regulatory and political
environments in the various countries, including the United States, in which
it operates. In certain locations, host governments have imposed
restrictions, controls and taxes, and, in others, political conditions have
existed that may threaten the safety of employees and the company's continued
presence in those countries. Internal unrest or strained relations between a
host government and the company or other governments may affect the company's
operations. Those developments have, at times, significantly affected the
company's related operations and results, and are carefully considered by
management when evaluating the level of current and future activity in such
countries.
Areas in which the company has significant operations include the United
States, Australia, United Kingdom, Canada, Nigeria, Angola, Papua New Guinea,
China, Indonesia and Zaire. The company's Caltex affiliates have
significant operations in Indonesia, Japan, Korea, Australia, the
Philippines, Thailand and South Africa. The company's Tengizchevroil
affiliate operates in the Republic of Kazakhstan.
- 9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 1994 COMPARED WITH FIRST QUARTER 1993
OVERVIEW AND OUTLOOK
- - --------------------
Net income for the 1994 first quarter was $388 million, down 23 percent from
$501 million earned in the first quarter of 1993. Earnings per share declined
to $.60 from $.77*. Special charges reduced 1994's reported earnings by $36
million, versus a net reduction of $2 million from special items in the
prior-year first quarter. Excluding the special charges, earnings of $424
million were 16 percent lower than in the 1993 first quarter.
The 1994 first quarter results were hurt by low crude oil prices; crude oil
realizations averaged about $4.00 per barrel less than in last year's first
quarter. Also, earnings in the first quarter were penalized by the effect of
scheduled and unscheduled downtime at most of the company's major U.S.
refineries, particularly in March. Additionally, exploration expenses
increased $31 million to $105 million because of higher well write-offs,
mostly in the United States.
However, on the plus side, international production volumes continued to
increase, U.S. natural gas prices were higher, international downstream
earnings improved on higher product sales margins, chemical operations improved
on increased sales volumes and higher margins and operating and administrative
costs remained under control.
Crude oil prices strengthened somewhat in April 1994 and natural gas prices
began a seasonal decline. In March, the company's average posted price for
West Texas Intermediate crude oil (WTI), a benchmark crude, was $13.68 per
barrel; in April its WTI average price was $15.18. The Henry Hub, Louisiana
spot price for natural gas, a common benchmark for natural gas prices, averaged
$2.21 per thousand cubic feet in March; in April the average fell to $2.04.
Refined product prices have held relatively constant. The company continued to
incur refinery downtime in April although not to the extent experienced in
March. It is uncertain whether the first quarter improvement in chemicals
operations will be maintained in the second quarter.
Total revenues for the quarter were $8.3 billion, down from $9.1 billion in
last year's first quarter, reflecting lower prices for refined products and
crude oil.
Ongoing operating and administrative costs (excluding special items) increased
4 percent to $1.748 billion. The increase was primarily due to refinery
maintenance. The company measures its cost performance on a per-barrel basis
and includes the "cost" of consumption of company-produced fuel (which is
eliminated in the consolidated financial statements). On this basis, costs
declined 5 cents per barrel to $6.47 from the first quarter of 1993. The
company has lowered its cost structure about $1.00 per barrel since 1991, and
the current goal in 1994 is to achieve a 25 cents per barrel reduction from
average 1993 costs.
Income tax expense totaled $272 million for this year's first quarter, down
from $383 million in the first quarter of 1993. The decrease primarily
reflected the decline in before-tax income from $884 million in the first
quarter of 1993 to $660 million in 1994. The effective tax rate was 41.2
percent for this year's quarter, compared with 43.3 percent for the 1993 first
quarter. The rate decrease reflects proportionately greater earnings from
equity affiliates recorded on an after-tax basis and proportionately higher
tax credits.
Foreign exchange effects netted to zero in the 1994 first quarter, compared
with net foreign exchange losses of $4 million in the prior-year first quarter.
- - -------------
* Per share amounts reflect a two-for-one split of the company's common stock,
effective May 11, 1994.
- 10 -
CURRENT DEVELOPMENTS
- - --------------------
The Hibernia project partners received a preliminary report in April 1994
indicating the pre-production costs for the project could be 15 to 20 percent
more than the previous $5.2 billion (Canadian) forecast. The study was
precipitated by concerns about engineering costs and construction delays caused
by the complexity of the gravity base structure. The partners are reviewing the
report in detail to arrive at a revised cost forecast. Chevron, with an
approximate 27 percent interest, remains committed to the project. The
company's capitalized investment in the project, including capitalized interest,
was $464 million at March 31, 1994.
Transportation constraints continue to limit production from the Tengiz oil
field to about 30,000 barrels per day, substantially below its current
production capacity of 65,000 barrels per day. The field is owned and operated
by Tengizchevroil (TCO), a company owned jointly by Chevron and the Republic of
Kazakhstan. In response to the lower than expected oil exports and the
protracted slump in oil prices, TCO announced in late April that it was
deferring some of its capital spending, primarily in infrastructure development.
Chevron's cash investment in TCO at March 31, 1994 was $417 million.
Increased export capability remains critical to realizing the joint venture's
full potential, and negotiations continue for terms of an export pipeline to
enable the project to market its output directly to world markets. Participants
in current pipeline negotiations include the company and the Caspian Pipeline
Consortium, composed of the Republics of Kazakhstan and Russia and the Sultanate
of Oman. The pipeline negotiations are continuing to be very difficult, and it
is currently impossible to predict the eventual outcome or its impact on the
joint venture.
In May 1993, Chevron announced a major restructuring of its U.S. downstream
business. In May 1994, an agreement was reached to sell the company's
Philadelphia, Pennsylvania, refinery to Sun Company, Inc. and exclusive
negotiations are continuing with Clark Refining and Marketing, Inc. for the sale
of the Port Arthur, Texas, refinery. The company hopes to have both sales
completed this year. At this time, the reserve established in the second
quarter of 1993 is believed to be sufficient to complete the restructuring.
At March 31, 1994, the company had $231 million of suspended exploratory wells
included in properties, plant and equipment. The wells are suspended pending
drilling of additional wells to determine if commercially producible quantities
of oil or gas reserves are present. The ultimate disposition of these well
costs is dependent on the results of this future activity.
RESULTS OF OPERATIONS
- - ---------------------
The following tables detail the company's after-tax earnings by major operating
area and selected operating data.
EARNINGS BY MAJOR OPERATING AREA
FIRST QUARTER
----------------
Millions of Dollars 1994 1993
- - -----------------------------------------------------------------------------
Exploration and Production
United States $124 $195
International 111 165
- - -----------------------------------------------------------------------------
Total Exploration and Production 235 360
- - -----------------------------------------------------------------------------
Refining, Marketing and Transportation
United States 98 100
International 63 22
- - -----------------------------------------------------------------------------
Total Refining, Marketing and Transportation 161 122
- - -----------------------------------------------------------------------------
Total Petroleum Operations 396 482
Chemicals 26 18
Coal and Other Minerals 15 20
Corporate and Other* (49) (19)
- - -----------------------------------------------------------------------------
NET INCOME $388 $501
- - -----------------------------------------------------------------------------
* In 1994, the company changed its method of distributing certain corporate
expenses to its business segments. As a result, about $20 million in the
first quarter of 1994 is classified as Corporate and Other that would
previously have been distributed to the various business segments.
- 11 -
SELECTED OPERATING DATA
FIRST QUARTER
----------------
1994 1993
- - -----------------------------------------------------------------------------
U.S. EXPLORATION AND PRODUCTION
Net Crude Oil and Natural Gas Liquids Production (MBPD) 373 398
Net Natural Gas Production (MMCFPD) 2,189 2,093
Sales of Natural Gas Liquids (MBPD) 210 208
Revenues from Net Production
Crude Oil ($/Bbl.) $11.56 $15.63
Natural Gas ($/MCF) $ 2.13 $ 1.83
INTERNATIONAL EXPLORATION AND PRODUCTION (1)
Net Crude Oil and Natural Gas Liquids Production (MBPD) 603 533
Net Natural Gas Production (MMCFPD) 531 479
Revenue from Liftings
Liquids ($/Bbl.) $13.12 $17.11
Natural Gas ($/MCF) $2.03 $2.12
U.S. REFINING AND MARKETING
Sales of Gasoline (MBPD) 644 640
Sales of Other Refined Products (MBPD) 665 772
Refinery Input (MBPD) 1,153 1,254
Average Refined Product Sales Price ($/Bbl.) $22.71 $25.83
INTERNATIONAL REFINING AND MARKETING (1)
Sales of Refined Products (MBPD) 945 867
Refinery Input (MBPD) 639 578
CHEMICAL SALES AND OTHER OPERATING REVENUES (2)
United States $654 $727
International 147 135
---- ----
Worldwide $801 $862
- - -----------------------------------------------------------------------------
(1) Includes equity in affiliates. Per unit revenue from net liftings for
1993 has been restated to include equity affiliates. Refinery input in
1994 includes South Africa, where local government restrictions prohibited
this disclosure prior to the fourth quarter of 1993.
(2) Millions of dollars. Includes sales to other Chevron companies
- - -----------
MBPD=thousand barrels per day; MMCFPD=million cubic feet per day; Bbl.=barrel;
MCF=thousand cubic feet
WORLDWIDE EXPLORATION AND PRODUCTION operations earned $235 million in the
first quarter of 1994, down from $360 million in the corresponding 1993 period.
U.S. EXPLORATION AND PRODUCTION activities earned $124 million, down from $195
million earned in the prior-year first quarter. The 1994 first quarter results
were reduced by a $15 million reserve adjustment for the resolution of certain
regulatory issues with the Minerals Management Service; the 1993 quarter
included an asset write-off of $12 million. Excluding the effects of special
items, earnings were down 33 percent to $139 million.
Average crude oil realizations of $11.56 per barrel were $4.07 lower than in
last year's first quarter. Net liquids production declined 6 percent to
373,000 barrels per day due to natural field declines, property sales and
maintenance. Also, exploration expense increased because of unsuccessful well
write-offs.
Higher natural gas prices and volumes partially mitigated the decline in crude
prices. Average natural gas prices increased $.30 per thousand cubic feet to
$2.13. Net natural gas production volumes were up 5 percent to 2.2 billion
cubic feet per day due to new production and strong demand.
INTERNATIONAL EXPLORATION AND PRODUCTION net earnings for the quarter declined
to $111 million from $165 million earned in last year's first quarter, which
included a $19 million favorable prior-year tax adjustment.
- 12 -
The earnings decline caused by lower crude oil prices in 1994 was partially
offset by a 13 percent increase in net liquids production volumes to 603,000
barrels per day. New field production in the North Sea and Nigeria, coupled
with the 1993 second quarter start-up of joint venture operations in
Kazakhstan, contributed to the increased 1994 volumes. Also, natural gas
production increased 11 percent to 531 million cubic feet per day, primarily
in Australia, Canada and Kazakhstan.
REFINING AND MARKETING earned $161 million worldwide in the first quarter of
1994 compared with $122 million in the corresponding 1993 period. U.S.
REFINING AND MARKETING earnings were $98 million compared with $100 million in
the first quarter of 1993. Both quarters included charges for environmental
remediation - $21 million in 1994 and $14 million in 1993. Excluding the
effects of special items, earnings were up 4 percent to $119 million.
Average refined product prices did not fall as much as crude oil costs. This
benefit to sales margins was mostly offset by the impact of scheduled and
unscheduled refinery downtime, which resulted in higher operating costs and
required more costly third-party product purchases to supply the company's
marketing system. Total sales volumes fell 7 percent, although sales of
gasolines rose slightly.
EARNINGS FROM INTERNATIONAL REFINING AND MARKETING, including international
marine operations and equity in the earnings of the company's Caltex Petroleum
Corporation affiliate, were up significantly at $63 million, nearly three times
the 1993 first quarter results.
Compared to the prior-year first quarter, product sales margins were higher and
the company's trading results improved. Sales volumes increased 9 percent,
reflecting higher volumes in both marketing and trading operations.
CHEMICALS first quarter 1994 earnings were $26 million, up from $18 million in
the first quarter of 1993. Although the petrochemicals industry remains
depressed, both sales volumes and margins have improved somewhat with the
strengthening of the U.S. economy. Last year's first quarter results included
earnings from the consumer products business, which was sold in the second
quarter of 1993.
COAL AND OTHER MINERALS first quarter earnings were $15 million, down from $20
million in the corresponding quarter last year, which included a $5 million
asset sale gain. Operating results were flat year-to-year.
CORPORATE AND OTHER incurred net charges of $49 million compared with charges
of $19 million in the 1993 first quarter.
In 1994, the company changed its method of distributing certain corporate
expenses to its business segments. As a result, corporate and other charges
in the 1994 quarter include approximately $20 million that, under the previous
method, would have been allocated to the various segments. This change had no
net income effect and no significant effect on any individual segment's
results, nor did it affect any segment's operational trends.
In the 1994 first quarter, the company adopted required accounting standards
for postemployment benefits and for certain investments in debt and equity
securities. The adoption of the new standards had no material effect on the
company's net income, financial position or liquidity.
CAPITAL AND LIQUIDITY
- - ---------------------
Cash and cash equivalents totaled $1.201 billion at March 31, 1994, down $443
million from year-end 1993. This cash drawdown, together with cash from
operations of $500 million and proceeds from asset sales of $71 million were
used to fund the company's capital expenditures and dividend payments to
stockholders.
- 13 -
In January, the company increased its 1994 first quarter dividend 5 cents to
92.5 cents per share (pre-split), and in April 1994, declared a 92.5 cents per
share dividend (pre-split) for the second quarter. Also in January, the Board
of Directors proposed increasing the number of authorized shares of common stock
from 500 million to one billion to accommodate a two-for-one stock split,
effective May 11, 1994. These actions were approved at the company's Annual
Meeting on May 3.
Total debt and capital lease obligations of $7.626 billion at March 31, 1994,
was up $88 million from the $7.538 billion at year-end 1993. The increase is
primarily from $319 million of net short-term borrowings, largely the issuance
of commercial paper, and $65 million in capital lease obligations associated
with the delivery of a new vessel. This was partially offset by a net
repayment of long-term obligations, including an early repayment of $200
million of 7 7/8 percent U.S. public debt originally due on March 1, 1997. The
company also retired $40 million of debt related to the Employee Stock
Ownership plan in January 1994.
Although the company benefits from lower interest rates on short-term debt,
the shift to short-term debt has reduced Chevron's ratio of current assets to
current liabilities from .82 at year-end 1993 to .79 at March 31, 1994. The
company's short-term debt, consisting of commercial paper and current portion
of long-term debt, totaled $5.624 billion at March 31, 1994. This amount
includes $1.880 billion, which was reclassified as long-term since the company
has both the intent and ability, as evidenced by revolving credit agreements,
to refinance it on a long-term basis. The company also intends to continually
refinance its remaining short-term debt.
Worldwide capital and exploratory expenditures for the first quarter of 1994,
including the company's share of affiliates' expenditures, totaled $1.059
billion, a 36 percent increase from the $778 million spent in the 1993 first
quarter. The increase was due to expenditures for the development of the
Tengiz oil field in Kazakhstan and for refinery construction and expansion
projects. Total expenditures for exploration and production activities
represented 61 percent of total outlays in the 1994 period, up from 54 percent
in the 1993 first quarter. Total expenditures outside the United States were 62
percent of the total outlays for the 1994 period, compared with 60 percent in
1993.
- 14 -
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Cities Service Tender Offer Cases -
The description contained in Part I, item 3, Paragraph A of the company's
Annual Report on Form 10-K for the year ended December 31, 1993 is hereby
amended as follows:
On April 18, 1994, the Oklahoma state court in Tulsa granted plaintiff Cities
Service's motion to amend its petition. On April 25, 1994, Cities Service
filed its Second Amended Petition.
ITEM 2. CHANGES IN SECURITIES
The company's Restated Certificate of Incorporation was amended to increase the
number of authorized shares of Common Stock and reduce the par value of the
Common Stock in order to effect the two-for-one stock split on May 11, 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) Pursuant to the Instructions to Exhibits, certain instruments
defining the rights of holders of long-term debt securities of the
corporation 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 corporation
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
(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 16, 1994 DONALD G. HENDERSON
---------------------- ----------------------------
Donald G. Henderson,
Vice-President & Comptroller
(Principal Accounting Office
and Duly Authorized Officer)
- 15 -
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, -------------------------------------------
1994 1993 1992(1) 1991 1990 1989
----------- ------- ------- ------- ------- -------
Net Income before
Cumulative Effect of
Changes in Accounting
Principles $ 388 $1,265 $2,210 $1,293 $2,157 $ 251
Income Tax Expense 329 1,389 1,508 1,302 2,387 1,322
Distributions (Less Than)
Greater Than Equity
in Earnings of Less
Than 50% Owned
Affiliates (4) 6 (9) (20) (6) (9)
Minority Interest - (2) 2 2 6 3
Previously Capitalized
Interest Charged to
Earnings During Period 7 20 18 17 15 15
Interest and Debt Expense 93 390 490 585 707 718
Interest Portion of
Rentals(2) 36 169 152 153 163 118
------- ------- ------- ------- ------- -------
EARNINGS BEFORE PROVISION
FOR TAXES AND
FIXED CHARGES $ 849 $3,237 $4,371 $3,332 $5,429 $2,418
======= ======= ======= ======= ======= =======
Interest and Debt Expense $ 93 $ 390 $ 490 $ 585 $ 707 $ 718
Interest Portion of
Rentals(2) 36 169 152 153 163 118
Capitalized Interest 17 60 46 30 24 42
------- ------- ------- ------- ------- -------
TOTAL FIXED CHARGES $ 146 $ 619 $ 688 $ 768 $ 894 $ 878
======= ======= ======= ======= ======= =======
- - -------------------------------------------------------------------------------
RATIO OF EARNINGS
TO FIXED CHARGES 5.82 5.23 6.35 4.34 6.07 2.75
- - -------------------------------------------------------------------------------
(1) The information for 1992 and subsequent periods reflects the company's
adoption of the Financial Accounting Standards Board Statements No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions"
and No. 109, "Accounting for Income Taxes," effective January 1, 1992.
(2) Calculated as one-third of rentals.