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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1994 Commission file number 1-27
Texaco Inc.
(Exact name of the registrant as specified in its charter)
Delaware 74-1383447
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Westchester Avenue
White Plains, New York 10650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 253-4000
Texaco Inc. (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, and (2) has been subject to such filing requirements for the past
90 days.
As of July 29, 1994, there were outstanding 259,403,492 shares of Texaco
Inc. Common Stock - par value $6.25.
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PART I - FINANCIAL INFORMATION
TEXACO INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED INCOME
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1994 AND 1993
-----------------------------------------------------------
(Millions of dollars, except per share amounts)
(Unaudited)
--------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
------------------- --------------------
1994 1993(a) 1994 1993 (a)
------ ------ ------ ------
REVENUES
Sales and services $15,097 $16,652 $ 7,865 $ 8,591
Equity in income of affiliates, income from
dividends, interest, asset sales and other 337 354 135 182
------- ------- ------- -------
15,434 17,006 8,000 8,773
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DEDUCTIONS
Purchases and other costs 10,970 12,337 5,787 6,380
Operating expenses 1,521 1,462 790 754
Selling, general and administrative expenses 863 820 472 418
Maintenance and repairs 185 194 95 96
Exploratory expenses 156 115 90 60
Depreciation, depletion and amortization 839 761 431 386
Interest expense 246 225 124 115
Taxes other than income taxes 242 277 117 138
Minority interest 18 8 7 4
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15,040 16,199 7,913 8,351
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Income from continuing operations
before income taxes 394 807 87 422
Provision for (benefit from) income taxes 77 214 (28) 110
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Net income from continuing operations 317 593 115 312
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Discontinued operations
Net loss from operations - (6) - (3)
Net loss on disposal (87) - (87) -
------- ------- ------- -------
Net loss from discontinued operations (87) (6) (87) (3)
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NET INCOME $ 230 $ 587 $ 28 $ 309
======= ======= ======= =======
Preferred stock dividend requirements $ 49 $ 51 $ 25 $ 24
------- ------- ------- -------
Net income available for common stock $ 181 $ 536 $ 3 $ 285
======= ======= ======= =======
Per common share (dollars)
Net income (loss)
Continuing operations $ 1.04 $ 2.09 $ .35 $ 1.11
Discontinued operations (.34) (.02) (.34) (.01)
------- ------- ------- -------
Net income $ .70 $ 2.07 $ .01 $ 1.10
======= ======= ======= =======
Cash dividends paid $ 1.60 $ 1.60 $ .80 $ .80
Average number of common shares
outstanding (thousands) 259,230 258,824 259,275 258,848
(a) Results for 1993 have been reclassified to separately identify discontinued operations (see Note 1).
See accompanying notes to consolidated financial statements.
- 1 -
TEXACO INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1994 AND DECEMBER 31, 1993
-------------------------------------------
(Millions of dollars)
June 30, December 31,
1994 1993
-------- ------------
(Unaudited)
---------
ASSETS
Current Assets
Cash and cash equivalents $ 422 $ 488
Short-term investments - at fair value 71 48
Accounts and notes receivable, less allowance for doubtful
accounts of $28 million in 1994 and 1993 3,399 3,529
Inventories 1,489 1,298
Net assets of discontinued operations (see Note 1) 195 1,180
Deferred income taxes and other current assets 384 322
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Total current assets 5,960 6,865
Investments and Advances 5,218 4,984
Properties, Plant and Equipment - at cost 33,473 33,149
Less - Accumulated depreciation, depletion and amortization 19,409 18,978
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Net properties, plant and equipment 14,064 14,171
Deferred Charges 656 606
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Total $25,898 $26,626
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable, commercial paper and
current portion of long-term debt $ 145 $ 669
Accounts payable and accrued liabilities 3,184 3,324
Estimated income and other taxes 824 763
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Total current liabilities 4,153 4,756
Long-Term Debt and Capital Lease Obligations 6,170 6,157
Deferred Income Taxes 1,098 1,162
Employee Retirement Benefits 1,120 1,104
Deferred Credits and Other Noncurrent Liabilities 2,555 2,636
Minority Interest in Subsidiary Companies 643 532
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Total 15,739 16,347
Stockholders' Equity
Variable Rate Cumulative Preferred Stock 648 648
Market Auction Preferred Shares 300 300
ESOP Convertible Preferred Stock 524 536
Unearned employee compensation (313) (337)
Common stock - par value $6.25:
Shares authorized - 350,000,000
Shares issued - 274,293,417 in 1994 and 1993,
including treasury stock 1,714 1,714
Paid-in capital in excess of par value 652 655
Retained earnings 7,235 7,463
Currency translation adjustment 99 18
Unrealized net gain on investments 58 58
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10,917 11,055
Less - Common stock held in treasury, at cost -
14,904,453 shares in 1994 and
15,273,372 shares in 1993 758 776
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Total stockholders' equity 10,159 10,279
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Total $25,898 $26,626
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See accompanying notes to consolidated financial statements.
-2-
TEXACO INC. AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
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(Millions of dollars)
(Unaudited)
------------------
For the six months
ended June 30,
------------------
1994 1993
------ ------
OPERATING ACTIVITIES
Net income $ 230 $ 587
Reconciliation to net cash provided by (used in)
operating activities
Loss on disposal of discontinued operations 85 -
Depreciation, depletion and amortization 839 802
Deferred income taxes (60) 83
Exploratory expenses 156 115
Minority interest in net income 18 8
Dividends from affiliates, less than equity
in income (5) (121)
Changes in operating working capital (120) (252)
Other - net (42) 10
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Net cash provided by operating activities 1,101 1,232
INVESTING ACTIVITIES
Capital and exploratory expenditures (1,025) (961)
Proceeds from sale of discontinued operations, net of
cash and cash equivalents sold 645 -
Proceeds from sales of assets 82 121
Purchases of investment instruments (562) (647)
Sales of investment instruments 552 642
Other - net 2 (27)
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Net cash used in investing activities (306) (872)
FINANCING ACTIVITIES
Borrowings having original terms in excess
of three months
Proceeds 104 496
Repayments (126) (327)
Net decrease in other borrowings (470) (29)
Issuance of preferred stock by a subsidiary 112 -
Dividends paid to the company's stockholders
Common (415) (414)
Preferred (48) (51)
Dividends paid to minority shareholders (16) (1)
Other - net (3) -
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Net cash used in financing activities (862) (326)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 1 (9)
------ ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (66) 25
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 488 461
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 422 $ 486
====== ======
See accompanying notes to consolidated financial statements.
-3-
TEXACO INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Note 1. Discontinued Operations
- -------------------------------
In 1993, Texaco Inc. announced that it had entered into memorandums of under-
standing to sell Texaco Chemical Company, a wholly owned subsidiary, and
substantially all of its worldwide chemical operations to Huntsman Corporation,
an affiliate of the Jon M. Huntsman Group of Companies.
On April 21, 1994, Texaco Inc. received $850 million as part of the sale of
Texaco Chemical Company, consisting of $650 million in cash and an 11-year
subordinated note with a face value of $200 million. Not included as part of
this transaction is Texaco's worldwide lubricant additives business, which
Texaco is working in cooperation with Huntsman Financial Corporation to sell
to a third party. In the absence of such a third party sale, Huntsman Financial
Corporation has contracted to acquire Texaco's lubricant additives business by
September 30, 1994.
The results for chemical operations have been classified as discontinued
operations for all periods presented in the Statement of Consolidated Income.
Results for the second quarter and first half of 1994 reflect a charge of $87
million principally relating to the completion of the first phase of the
transaction to sell substantially all of Texaco's worldwide chemical business.
The assets and liabilities of discontinued operations have been classified in
the Consolidated Balance Sheet as "net assets of discontinued operations" and
as of June 30, 1994 the balance reflects the assets and liabilities of the
remaining worldwide lubricant additives business. Discontinued operations have
not been segregated in the Condensed Statement of Consolidated Cash Flows for
the prior period; therefore, amounts for certain captions will not agree with
the Statement of Consolidated Income. Additional selected financial data are
summarized as follows:
(Unaudited)
-----------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
---------------------- ----------------------
1994 1993 1994 1993
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(Millions of dollars, except per share amounts)
Discontinued Chemical Operations
- --------------------------------
Revenues $ 311 $ 578 $ 43 $ 292
======= ======= ======= =======
Loss from operations before income taxes $ - $ (11) $ - $ (5)
Benefit from income taxes - 5 - 2
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Net loss from operations - (6) - (3)
------- ------- ------- -------
Loss on disposal before income taxes (85) - (85) -
Provision for income taxes (2) - (2) -
------- ------- ------- -------
Net loss on disposal (87) - (87) -
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Total net loss $ (87) $ (6) $ (87) $ (3)
======= ======= ======= =======
Per common share (dollars)
Net loss from operations $ - $ (.02) $ - $ (.01)
Net loss on disposal (.34) - (.34) -
------- ------- ------- -------
Total net loss $ (.34) $ (.02) $ (.34) $ (.01)
======= ======= ======= =======
- 4 -
Note 2. Inventories
- -------------------
The inventories of Texaco Inc. and consolidated subsidiary companies were
as follows:
As of
--------------------------
June 30, December 31,
1994 1993
----------- ------------
(Unaudited)
(Millions of dollars)
Crude oil $ 427 $ 304
Petroleum products 799 726
Other merchandise 55 52
Materials and supplies 208 216
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Total $1,489 $1,298
====== ======
Inventories of discontinued operations at June 30, 1994 and December 31, 1993
have been included as part of net assets of discontinued operations.
Note 3. Contingent Liabilities
- ------------------------------
Information relative to commitments and contingent liabilities of Texaco Inc.
and subsidiary companies is presented in Notes 17 and 18, beginning on page
52, of Texaco Inc.'s 1993 Annual Report to Stockholders. In addition, with
regard to the Louisiana royalties suit, information relative to the settlement
of these royalties issues is presented in Note 19 on page 53 of Texaco Inc.'s
1993 Annual Report to Stockholders and in Item 3, beginning on page 38, of
Texaco Inc.'s 1993 Annual Report on Form 10-K.
___________________
In the company's opinion, while it is impossible to ascertain the ultimate
legal and financial liability with respect to the above-mentioned and other
contingent liabilities and commitments, including lawsuits, claims, guarantees,
taxes and regulations, the aggregate amount of such liability in excess of
financial reserves, together with deposits and prepayments made against
disputed tax claims, is not anticipated to be materially important in relation
to the consolidated financial position or results of operations of Texaco Inc.
and its subsidiaries.
- 5 -
Note 4. Caltex Group of Companies
- ---------------------------------
Summarized unaudited financial information for the Caltex group of companies,
owned 50% by Texaco and 50% by Chevron Corporation, is presented below:
For the six months For the three months
ended June 30, ended June 30,
------------------ --------------------
1994 1993 1994 1993
------ ------ ------ ------
(Millions of dollars)
Gross revenues $6,938 $8,107 $3,570 $4,134
Income before income taxes $ 506 $ 642 $ 211 $ 320
Net income $ 297 $ 383 $ 119 $ 195
Effective January 1, 1994, the Caltex group of companies adopted Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires that certain
investments be classified into three categories based on management's intent
and be reported at fair value unless being held to maturity. Adoption of SFAS
No. 115 had no effect on reported net income. The cumulative effect of adopting
SFAS No. 115 at January 1, 1994 resulted in an increase in Caltex's total
stockholders' equity of $60 million, after related income taxes, and an
additional net increase of $26 million at June 30, 1994. These increases are
primarily unrealized holding gains on investments classified as available-for-
sale by certain affiliates.
Note 5. Subsequent Events
- -------------------------
On July 15, 1994 Texaco Inc. announced that it has elected to redeem on
September 30, 1994, its Series C Variable Rate Cumulative Preferred Stock,
issued as a special dividend in 1989, for $50 per share. The aggregate
liquidation preference of all the outstanding shares of Series C is $267
million.
Texaco Inc. also announced on July 27, 1994, that it will commence a stock
repurchase program to buy up to six million shares of its common stock through
open market transactions. The share repurchase is intended to be used for the
anticipated conversion of Texaco's Series E Variable Rate Cumulative Preferred
Stock, having a stated value of $381 million, to common stock. Subject to
market conditions and applicable regulatory requirements, the program is
expected to be completed not later than the second quarter of 1995.
* * * * * * * * * * *
In the determination of preliminary and unaudited financial statements for the
six-month and three-month periods ended June 30, 1994 and 1993, Texaco's
accounting policies have been applied on a basis consistent with the
application of such policies in Texaco's financial statements issued in its
1993 Annual Report to Stockholders, except for the adoption of SFAS No. 115 by
the Caltex group of companies effective January 1, 1994 (see Note 4). In the
opinion of Texaco, all adjustments and disclosures necessary to present fairly
the results of operations for such periods have been made. These adjustments
include normal recurring adjustments. The information is subject to year-end
audit by independent public accountants. Texaco makes no forecasts or
representations with respect to the level of net income for the year 1994.
- 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Consolidated worldwide net income for Texaco Inc. and subsidiary companies
for the second quarter of 1994 was $28 million, or $.01 per share, compared
with net income of $309 million, or $1.10 per share, for the second quarter
of 1993. Net income for the first six months of 1994 was $230 million, or
$.70 per share, as compared with $587 million, or $2.07 per share, for the
first six months of 1993.
Consolidated worldwide net income from continuing operations (including
special gains and charges) for the second quarter of 1994 was $115 million,
or $.35 per share, as compared with $312 million, or $1.11 per share, for
the second quarter of 1993. Net income from continuing operations (including
special gains and charges) for the first half of 1994 was $317 million, or
$1.04 per share, as compared with $593 million, or $2.09 per share, for the
first half of 1993.
These results, which are summarized in the following table, include special
gains and charges, as well as discontinued chemical operations.
(Unaudited)
----------------------------------------
For the six months For the three months
ended June 30, ended June 30,
------------------ -------------------
1994 1993* 1994 1993*
---- ---- ---- ----
(Millions of dollars)
Net income from continuing operations
before special items $ 357 $ 593 $ 155 $ 312
Special charges (119) - (119) -
Tax benefit on asset sale 79 - 79 -
----- ----- ----- -----
Net income from continuing operations 317 593 115 312
Discontinued chemical operations:
Net loss from operations - (6) - (3)
Net loss on disposal (87) - (87) -
----- ----- ----- -----
Net income $ 230 $ 587 $ 28 $ 309
===== ===== ===== =====
* Results have been reclassified to separately identify discontinued chemical
operations (see Note 1).
Net income from continuing operations for the second quarter and first half
of 1994 included special charges of $119 million related to the company's
program to consolidate some operations and sell marginal activities. The
charges included $88 million for anticipated costs associated with the
expected reduction of approximately 2,500 employees over the next 12 months,
as well as charges to adjust to fair market value certain properties which
are being offered for sale.
Net income from continuing operations for the second quarter and first half
of 1994 included $79 million of tax benefits realizable through the sale of
an interest in a subsidiary. Of these benefits, $38 million was realizable
due to the taxable gain on the sale of discontinued chemical operations.
Net income for the second quarter and first half of 1994 included a charge
of $87 million for discontinued operations principally relating to the
completion of the first phase of a transaction to sell substantially all of
Texaco's worldwide chemical business. The previously mentioned $38 million
tax benefit, coupled with the $87 million charge for discontinued operations,
impacted 1994 earnings by a net charge of $49 million. At the sale closing,
the company received $650 million in cash and an 11-year subordinated note
with a face value of $200 million.
- 7 -
Benefits from operating efficiencies achieved through continuous improvement
processes, overhead reductions and the recent recovery in crude oil prices
were insufficient to offset depressed downstream margins in the marketplace
for the second quarter and first half of 1994. Crude oil prices realized
during both the second quarter and the first half of 1994 were much lower
than the prices experienced in the first half of 1993. The weakened U.S.
dollar adversely affected comparative 1994 results by some $31 million
resulting from non-cash charges for currency exchange losses due to the
effect of the weakening of the U.S. dollar against the Pound Sterling on U.K.
deferred income taxes.
OPERATING EARNINGS FROM CONTINUING OPERATIONS
PETROLEUM AND NATURAL GAS
UNITED STATES
Exploration and Production
Exploration and production earnings in the U.S. (including special charges)
were $97 million for the second quarter of 1994 as compared with $163 million
for the second quarter of 1993. For the first half of 1994 and 1993, earnings
were $172 million and $296 million, respectively. Lower overall crude oil
prices of more than $2.00 per barrel and lower natural gas prices of $.24 per
MCF for the comparative second quarters more than offset the benefits from
continuing reductions in operating expenses.
For the first half of 1994, earnings were negatively impacted by more than
$3.00 per barrel lower average crude oil prices than the first half of 1993.
Partially offsetting the lower crude prices were continued reductions in
operating expenses and slightly higher natural gas prices. Results in 1994
also benefitted from the company's exploration and development program that
has successfully added production.
The second quarter and first half of 1994 included special charges of $24
million for the estimated cost of employee separations.
Manufacturing and Marketing
Manufacturing and marketing earnings in the U.S. (including special charges)
were $15 million for the second quarter of 1994 as compared with $60 million
for the second quarter of 1993. For the first half of 1994 and 1993, earnings
were $93 million and $109 million, respectively. Second quarter 1994 results
were adversely affected by lower downstream margins as a result of rising
refinery feedstock prices that could not be recovered in the marketplace.
These lower margins in the second quarter of 1994 more than offset the
benefits of higher gasoline sales following the March 1994 successful
introduction of Texaco's CleanSystem3 gasolines, as well as the benefits
from improved performance at refineries.
Earnings before special items for the first half of 1994 totalling $117
million were somewhat improved due to higher first quarter 1994 margins,
mainly on the East and Gulf Coasts, combined with increased sales of branded
gasolines. Comparable first half results for 1993 were $109 million.
The second quarter and first half of 1994 included special charges of $24
million related to the adjustment to fair market value of certain office
facilities being offered for sale and the estimated cost of employee
separations.
INTERNATIONAL
Exploration and Production
Exploration and production earnings outside the U.S. (including special
charges) were $18 million for the second quarter of 1994, as compared with
$82 million for the second quarter of 1993. For the first half of 1994 and
1993, earnings were $63 million and $161 million, respectively. The decline
in comparative second quarter and first half results were due to substantially
lower crude oil prices as well as higher exploratory expenses. Partly
offsetting these factors were increases in crude oil and natural gas liquids
production, mainly in the U. K. sector of the North Sea, in Indonesia, and in
the Partitioned Neutral Zone between Kuwait and Saudi Arabia. Natural gas
production also increased as compared to the prior year, due to new North Sea
U.K. production.
- 8 -
Results for the second quarter and first half of 1994 included a charge of
$11 million compared with benefits of $6 million for the second quarter and
first half of 1993 relating to currency exchange impacts of the Pound Sterling
on deferred income taxes.
The second quarter and first half of 1994 also included special charges of
$16 million related to the adjustment to fair market value of certain
properties being offered for sale and the estimated cost of employee
separations.
Manufacturing and Marketing
Manufacturing and marketing earnings outside the U.S. (including special
charges) were $29 million for the second quarter of 1994 as compared with
$119 million for the second quarter of 1993. For the first half of 1994 and
1993, earnings were $154 million and $241 million, respectively.
Lower comparative second quarter and first half results for 1994 reflected
the decline in marketing margins in the Eastern Hemisphere that occurred
during the second quarter, mainly in Europe. Second quarter results for 1994
in the Caltex operating areas were adversely impacted by currency exchange
effects and lower refining margins. Partly offsetting these decreases were
higher marketing margins in Latin America, mainly in Brazil, and increased
sales volumes in Latin America, for the second quarter and first half of
1994. Earnings for the first half of 1994 benefitted from the higher
refining margins in Europe, which occurred in the first quarter of the year.
Results for the second quarter and first half of 1994 included a charge of
$12 million compared with benefits of $2 million for the second quarter and
first half of 1993 relating to the currency exchange impacts of the Pound
Sterling on deferred income taxes.
The second quarter and first half of 1994 also included special charges of
$38 million related to the estimated cost of employee separations and the
adjustment to fair market value of certain properties being offered for sale.
On July 24, 1994, an explosion at Pembroke Cracking Company's (PCC) refining
units located within Texaco Limited's (a wholly owned subsidiary of Texaco)
refinery near Pembroke, Wales caused fire and blast damage to both the refinery
and PCC units. There were no serious injuries. PCC is owned 50 percent each
by a subsidiary of Texaco and a subsidiary of Chevron Corporation. The Texaco
Limited refinery complex has a capacity of 185,000 barrels a day, and is fully
integrated with the throughput of PCC, which operates the largest fluid
catalytic cracking and alkylation units in Europe. The refinery's integrated
yield of gasoline is about 50 percent of total product output.
Assessment of the financial impact of the damage and repairs to the refinery
and to PCC's units, including the extent of insurance coverage, is still
being evaluated and therefore, no loss estimates are available at this time.
Repair work to various affected units and the flare systems is currently in
process. Initial start-up of the refinery is anticipated for early September,
1994, and initial start-up of the PCC units is expected by October, 1994.
CORPORATE/NONOPERATING
Corporate/nonoperating expenses (including tax benefits on an asset sale and
special charges) were $38 million for the second quarter of 1994, as compared
with expenses of $110 million for the second quarter of 1993. For the first
half of 1994 and 1993, expenses were $158 million and $209 million,
respectively.
Corporate/nonoperating expenses for both the second quarter and first half
reflected the impact of lower corporate overhead offset by higher after tax
interest expense. The second quarter and first half of 1994 results included
a $7 million gain from the receipt of a cash option payment relative to the
sale of a manufacturing facility currently under construction in Texas.
The second quarter and first half of 1994 included $17 million of special
charges related to the estimated cost of employee separations. The 1994
results also included $79 million of tax benefits realizable through the
sale of an interest in a subsidiary. Of these benefits, $38 million was
realizable due to the taxable gain on the sale of discontinued chemical
operations.
- 9 -
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1994, Texaco's cash, cash equivalents and short-term
investments totaled $493 million as compared to the 1993 year-end level of
$536 million. Texaco's total cash from operating activities for the first
half of 1994 (as presented on the Condensed Statement of Consolidated Cash
Flows) included several significant cash outflows that were not directly
related to current period operations, and which in the aggregate, amounted
to some $200 million. Among these outflows were payments related to the State
of Louisiana royalties settlement which is discussed below and certain
environmental expenditures.
During the first half of 1994, cash generated from normal operating
activities and normal asset sales were used in support of Texaco's capital
and exploratory expenditures program of $1,025 million and for the payment
of dividends to common, preferred and minority shareholders of $479 million.
During the second quarter of 1994, Texaco closed the first part of a
transaction to sell substantially all of its worldwide chemical operations,
which had been classified as discontinued operations. The company received
$650 million in cash and an 11-year subordinated note with a face value of
$200 million. Additional information regarding discontinued operations is
contained in Note 1. Also during the second quarter of 1994, Texaco Capital
LLC, a wholly owned subsidiary of Texaco Inc., issued $112.5 million of
Cumulative Adjustable Rate Monthly Income Preferred Shares (MIPS), Series B,
in a public offering. The shares were sold at $25 per share, callable at par
after five years, with a variable interest rate which is reset quarterly. As
of June 30, 1994, much of the cash proceeds from these sales had been used to
reduce the company's debt and for other general corporate purposes.
Total debt at June 30, 1994 declined to $6.3 billion from the year-end 1993
level of $6.8 billion although it is anticipated to rise during the second
half of 1994 to support the company's redemption of certain preferred stock
issues, for a common stock repurchase program which was announced subsequent
to June 30, 1994, as discusssed below, and for other general corporate
purposes. At June 30, 1994, Texaco's long-term debt included $1.3 billion of
debt scheduled to mature within one year, which the company has both the
intent and the ability to refinance on a long-term basis. Texaco's ratio of
total debt to total borrowed and invested capital at June 30, 1994 was 37%
and is expected to approximate 39% by year-end 1994.
Texaco terminated a revolving credit facility with commitments of $350 million
during the second quarter of 1994, but continues to maintain a $2 billion
facility as of June 30, 1994. Texaco also maintains an accounts receivable
sales facility of approximately $400 million. These facilities were unused
at June 30, 1994 and year-end 1993.
During the first quarter of 1994, Texaco reached an out-of-court global
settlement with the State of Louisiana in which Texaco agreed to pay the
State $250 million to end a long-standing royalties dispute. This amount, which
has been fully reserved for in previous years, did not result in a 1994
charge to income. Texaco paid the first installment of $150 million in
February 1994 and will pay $50 million in 1995 and $50 million in 1996.
Texaco also agreed to and has initiated an economic expansion program in
Louisiana which will cause $152 million to be spent over the next five years
on expanded activity and investments affecting state-owned oil and gas
properties in which Texaco has interests.
Subsequent to June 30, 1994, Texaco announced that it has elected to redeem
in cash on September 30, 1994, all outstanding shares of its Series C Variable
Rate Cumulative Preferred Stock having an aggregate liquidation preference of
$267 million. Additionally, Texaco announced that it will commence a stock
repurchase program to buy up to six million shares of its common stock through
open market transactions. The program is expected to be completed not later
than the second quarter of 1995. The share repurchase is intended to be used
for the anticipated conversion of Texaco's Series E Variable Rate Cumulative
Preferred Stock, having a stated value of $381 million, to common stock which
may initially require the use of treasury stock until the repurchase program
is completed.
The company considers its financial position sufficient to meet its
anticipated future financial requirements.
- 10 -
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Capital and exploratory expenditures for continuing operations, including
equity in such expenditures of affiliates, were $1,231 million for the first
half of 1994, as compared to $1,155 million for the same period in 1993.
Expenditures for the second quarter of 1994 amounted to $607 million versus
$621 million for the same quarter in 1993.
Upstream expenditures in the United States reflected higher drilling
activities in 1994 with particular emphasis on developmental gas projects
mainly during the first quarter of this year. Internationally, higher
exploration and development activities in Australia, China and Indonesia
were more than offset by lower expenditures in the U.K. North Sea, where
successful project completions have increased production of liquids and
natural gas as compared to 1993.
Downstream expenditures in 1994 increased as compared to 1993 mainly due to
investments in refinery construction and upgrade projects by Texaco's
affiliate, Caltex, in Thailand and Singapore and higher retail marketing
expenditures in Australia and Singapore. Additionally, Texaco is continuing
its refinery upgrade project in Panama which is scheduled for completion in
1995, and has increased marketing expenditures in the United Kingdom and
selected Latin American countries. In the United States, expenditures
declined due to the completion of refinery upgrade projects underway in 1993
by both Texaco and Texaco's affiliate, Star Enterprise.
INITIATIVES FOR GROWTH
- ----------------------
On July 5, 1994, Texaco announced that it will undertake a series of action
steps to increase growth, competitiveness and profitability, focusing on
asset redeployment, the reduction of overheads and operating efficiencies
through elimination of layers of supervision, cost control and strengthened
core businesses.
As part of the overall program, the company expects to sell or trade
approximately 50 percent of the more than 600 producing fields in the U.S.
Future activities will be focused on the remaining core U.S. oil and gas
assets, which account for more than 90 percent of the profits, cash flow,
production and reserve base in the U.S. The company also announced plans to
sell its heavy oil producing properties in Colombia and is accepting bids for
the sale of its equity interest in downstream activities in Nigeria and other
West African countries.
Additionally, Texaco plans on consolidating operations in both the U.S. and
international upstream and downstream segments, as well as support staffs,
which will result in fewer offices with reduced layers of supervision and
broadened field level responsibilities. Implementation of Texaco's program
is expected to result in the reduction of approximately 2,500 employees
worldwide over the next 12 months. These reductions will be accomplished
through normal attrition, retirements and separations.
- 11 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Reference is made to the discussion of Contingent Liabilities in Note 3 to
the Consolidated Financial Statements of this Form 10-Q, to Item 1 on page 9
of Texaco Inc.'s Form 10-Q for the quarterly period ended March 31, 1994 and
to Item 3 beginning on page 38 of Texaco Inc.'s 1993 Annual Report on Form
10-K, which are incorporated herein by reference.
Environmental Matters
As of June 30, 1994, Texaco Inc. and its subsidiaries were parties to various
proceedings, instituted by governmental authorities, arising under the
provisions of applicable laws or regulations relating to the discharge of
materials into the environment or otherwise relating to the protection of the
environment, none of which is material to the business or financial condition
of the company. The following is a brief description of a proceeding which,
because of the amount involved, requires disclosure under applicable
Securities and Exchange Commission regulations:
In June 1994, Texaco Refining and Marketing Inc. ("TRMI") settled an
administrative proceeding in which the South Coast Air Quality
Management District alleged environmental nuisance and permit violations
in connection with the explosion and fire that occurred at TRMI's Los
Angeles Plant on October 8, 1992.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The Annual Meeting of the Stockholders of Texaco Inc. was held on May 10,
1994, for the purpose of (1) electing five directors, (2) approving the
appointment of auditors for the year 1994, and (3) acting on three
stockholder proposals concerning classification of the Board of Directors,
employment opportunity and executive compensation.
Each of the five directors elected at the Annual Meeting were elected by a
vote of at least 98.5%, or 219.5 million shares. Dr. Franklyn G. Jenifer and
Messrs. Robert A. Beck, Willard C. Butcher, Edmund M. Carpenter and Thomas A.
Vanderslice received votes in favor of 219.5, 219.7, 219.7, 220.0 and 220.0
million shares, respectively, and votes withheld were 3.3, 3.0, 3.1, 2.8 and
2.8 million shares, respectively. Directors continuing in office are Dr. John
Brademas, Ms. Robin B. Smith, and Messrs. Alfred C. DeCrane, Jr., Allen J.
Krowe, Thomas S. Murphy, Charles H. Price, II, William C. Steere, Jr. and
William Wrigley. Admiral William J. Crowe, Jr., who had also continued in
office at the time of the Annual Meeting, resigned from Texaco's Board of
Directors effective May 15, 1994, in anticipation of his appointment as
United States Ambassador to the United Kingdom.
The appointment of Arthur Andersen & Co. to audit the accounts of the company
and its subsidiaries for the fiscal year 1994 was approved by a vote of 220.1
million shares, or 99.3% of those shares voted, voting against were 1.6
million shares and 1.1 million shares abstained.
Three stockholder proposals relating to classification of the Board of
Directors, employment opportunity and a review of executive compensation
programs, as set forth in Items 3, 4 and 5, respectively, of the 1994 Proxy
Statement, were defeated by votes in opposition of 120.4 million shares, or
63.5%, 170.0 million shares, or 92.2% and 173.2 million shares, or 92.2%,
respectively. The votes in favor were 69.3 million shares, or 36.5%, 14.4
million shares, or 7.8% and 14.6 million shares, or 7.8%, respectively. In
addition, 4.9 million shares, 10.2 million shares and 6.8 million shares,
respectively, abstained.
- 12 -
Item 5. Other Information
- -------------------------
(Unaudited)
----------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
1994 1993 (a) 1994 1993 (a)
------ ------ ------ ------
(Millions of dollars)
FUNCTIONAL NET INCOME
- ---------------------
Operating earnings (losses) from continuing operations
Petroleum and natural gas
Exploration and production
United States $ 172 $ 296 $ 97 $ 163
International 63 161 18 82
------ ------ ------ ------
Total 235 457 115 245
------ ------ ------ ------
Manufacturing, marketing and distribution
United States 93 109 15 60
International 154 241 29 119
------ ------ ------ ------
Total 247 350 44 179
------ ------ ------ ------
Total petroleum and natural gas 482 807 159 424
Nonpetroleum (7) (5) (6) (2)
------ ------ ------ ------
Total operating earnings 475 802 153 422
Corporate/Nonoperating (158) (209) (38) (110)
------ ------ ------ ------
Net income from continuing operations 317 593 115 312
------ ------ ------ ------
Discontinued chemical operations
Net loss from operations - (6) - (3)
Net loss on disposal (87) - (87) -
------ ------ ------ ------
Net loss from discontinued chemical operations (87) (6) (87) (3)
------ ------ ------ ------
Net income $ 230 $ 587 $ 28 $ 309
====== ====== ====== ======
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Texaco Inc. and subsidiary companies
Exploration and production
United States $ 450 $ 300 $ 180 $ 160
International 265 378 142 202
------ ------ ------ ------
Total 715 678 322 362
------ ------ ------ ------
Manufacturing, marketing and distribution
United States 102 130 52 77
International 121 72 68 46
------ ------ ------ ------
Total 223 202 120 123
------ ------ ------ ------
Other 14 16 8 9
------ ------ ------ ------
Total 952 896 450 494
------ ------ ------ ------
Equity in affiliates
United States 51 77 26 40
International 228 182 131 87
------ ------ ------ ------
Total 279 259 157 127
------ ------ ------ ------
Total continuing operations 1,231 1,155 607 621
Discontinued chemical operations 20 48 1 25
------ ------ ------ ------
Total, including equity in affiliates $1,251 $1,203 $ 608 $ 646
====== ====== ====== ======
(a) Results for 1993 have been reclassified to separately identify discontinued chemical
operations (see Note 1).
- 13 -
(Unaudited)
-------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
------------------ --------------------
1994 1993 1994 1993
---- ---- ---- ----
OPERATING DATA - INCLUDING INTERESTS
- ------------------------------------
IN AFFILIATES
-------------
Net production of crude oil and natural gas liquids
(thousands of barrels per day)
United States 408 426 408 423
Other Western Hemisphere 20 21 20 20
Europe 110 74 104 71
Other Eastern Hemisphere 235 199 231 201
----- ----- ----- -----
Total 773 720 763 715
Net production of natural gas available for sale
(millions of cubic feet per day)
United States 1,719 1,738 1,764 1,713
International 306 223 281 205
----- ----- ----- -----
Total 2,025 1,961 2,045 1,918
Natural gas sales (millions of cubic feet per day)
United States 3,045 2,762 3,175 2,745
International 322 240 295 219
----- ----- ----- -----
Total 3,367 3,002 3,470 2,964
Natural gas liquids sales, including purchased LPG's
(thousands of barrels per day)
United States 196 188 196 166
International 58 45 56 52
----- ----- ----- -----
Total 254 233 252 218
Refinery input (thousands of barrels per day)
United States 640 675 665 681
Other Western Hemisphere 44 55 37 57
Europe 325 322 322 314
Other Eastern Hemisphere 460 429 443 409
----- ----- ----- -----
Total 1,469 1,481 1,467 1,461
Refined product sales (thousands of barrels per day)
United States 843 817 872 821
Other Western Hemisphere 304 286 297 281
Europe 462 472 461 465
Other Eastern Hemisphere 700 731 676 704
----- ----- ----- -----
Total 2,309 2,306 2,306 2,271
- 14 -
Impact of Special Items On Functional Net Income
- ------------------------------------------------
(Unaudited)
----------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
1994 1993 (a) 1994 1993 (a)
------ ------ ------ ------
(Millions of dollars)
Operating earnings (losses) from continuing operations
Exploration and production
United States
Operating earnings before special items $ 196 $ 296 $ 121 $ 163
Special charges (24) - (24) -
----- ----- ----- -----
Total operating earnings 172 296 97 163
----- ----- ----- -----
International
Operating earnings before special items 79 161 34 82
Special charges (16) - (16) -
----- ----- ----- -----
Total operating earnings 63 161 18 82
----- ----- ----- -----
Manufacturing, marketing and distribution
United States
Operating earnings before special items 117 109 39 60
Special charges (24) - (24) -
----- ----- ----- -----
Total operating earnings 93 109 15 60
----- ----- ----- -----
International
Operating earnings before special items 192 241 67 119
Special charges (38) - (38) -
----- ----- ----- -----
Total operating earnings 154 241 29 119
----- ----- ----- -----
Nonpetroleum
Operating earnings before special items (7) (5) (6) (2)
Special charges - - - -
----- ----- ----- -----
Total operating earnings (7) (5) (6) (2)
----- ----- ----- -----
Corporate/Nonoperating
Total before special items (220) (209) (100) (110)
Tax benefits and special charges 62 - 62 -
----- ----- ----- -----
Total Corporate/Nonoperating (158) (209) (38) (110)
----- ----- ----- -----
Net income from continuing operations 317 593 115 312
----- ----- ----- -----
Discontinued chemical operations
Net loss from operations - (6) - (3)
Net loss on disposal (87) - (87) -
----- ----- ----- -----
Net loss from discontinued chemical operations (87) (6) (87) (3)
----- ----- ----- -----
Net income $ 230 $ 587 $ 28 $ 309
===== ===== ===== =====
(a) Results for 1993 have been reclassified to separately identify discontinued chemical
operations (see Note 1).
- 15 -
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
_ (11) Computation of Earnings Per Share of Common Stock of
Texaco Inc. and Subsidiary Companies.
_ (12) Computation of Ratio of Earnings to Fixed Charges of
Texaco on a Total Enterprise Basis.
_ (20) Copy of Texaco Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 (including
portions of Texaco Inc.'s Annual Report to
Stockholders for the year 1993), and a copy of Texaco
Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1994, as previously filed by
the Registrant with the Securities and Exchange
Commission, File No. 1-27.
_ (22) Information relative to the various matters submitted
to a vote of security holders are described in the
1994 Proxy Statement of Texaco Inc., relating to the
Annual Meeting of Stockholders held on May 10, 1994,
pages 5 through 16, as previously filed by the
Registrant with the Securities and Exchange Commission.
(b) Reports on Form 8-K:
During the second quarter of 1994, the Registrant filed Current Reports
on Form 8-K for the following events:
1. April 25, 1994 (date of earliest event reported: April 21, 1994)
Item 5. Other Events - announced that Texaco completed the
previously announced sale of substantially all of its worldwide
chemical operations, other than its lubricant additives business,
to Huntsman Corporation. Texaco appended as an exhibit thereto a
copy of the Press Release entitled "Texaco Inc. Closes Sale of
Texaco Chemical Company to Huntsman Corporation", dated April 21,
1994. In addition, the Form 8-K reported that Texaco issued an
Earnings Press Release for the first quarter 1994. Texaco appended
as an exhibit thereto a copy of the Press Release entitled "Texaco
Reports Results for the First Quarter 1994," dated April 25, 1994.
2. June 10, 1993 (date of earliest event reported: June 8, 1994)
Item 5. Other Events - reported that Texaco Capital LLC, a wholly
owned finance subsidiary of Texaco Inc., issued $112.5 million of
Cumulative Adjustable Rate Monthly Income Preferred Shares, Series B
("Series B MIPS") in a public offering. The Series B MIPS were
offered at $25 per share with a variable dividend rate which will be
reset quarterly and are callable at par after five years. Texaco
appended as exhibits thereto copies of the Certification of
Designation of Rights and Preferences of Texaco Capital LLC's
Cumulative Adjustable Rate Monthly Income Preferred Shares, Series B,
and the Press Release entitled "Texaco Announces Public Issuance of
$112.5 Million in Preferred Shares," dated June 8, 1994.
- 16-
SIGNATURES
----------
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.
Texaco Inc.
---------------
(Registrant)
By: R.C. Oelkers
-----------------
(Comptroller)
By: R.E. Koch
-----------------
(Assistant Secretary)
Date: August 11, 1994
---------------
- 17 -
EXHIBIT 11
TEXACO INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1994 AND 1993
----------------------------------------------------------
(Millions of dollars, except per share amounts)
(Unaudited)
---------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
---------------------------------------------
1994 1993 (a) 1994 1993 (a)
Primary Net Income Per Common Share ------- ------- ------- -------
- -----------------------------------
Net income from continuing operations $ 317 $ 593 $ 115 $ 312
Net loss from discontinued operations (87) (6) (87) (3)
------- ------- ------- -------
Net income 230 587 28 309
Preferred stock dividend requirements (49) (51) (25) (24)
------- ------- ------- -------
Primary net income available for common stock $ 181 $ 536 $ 3 $ 285
======= ======= ======= =======
Average number of primary common shares
outstanding (thousands) 259,230 258,824 259,275 258,848
======= ======= ======= =======
Primary net income per common share $ .70 $ 2.07 $ .01 $ 1.10
======= ======= ======= =======
Fully Diluted Net Income Per Common Share
- -----------------------------------------
Net income $ 230 $ 587 $ 28 $ 309
Preferred stock dividend requirements of non-dilutive
issues and adjustments to net income associated
with dilutive securities (49) (9) (25) (4)
------- ------- ------- -------
Fully diluted net income $ 181 $ 57 $ 3 $ 305
======= ======= ======= =======
Average number of primary common shares
outstanding (thousands) 259,230 258,824 259,275 258,848
Additional shares outstanding assuming full
conversion of dilutive convertible securities
into common stock (thousands):
Convertible debentures - 148 - 148
Series B ESOP Convertible
Preferred Stock - 10,526 - 10,506
Series C Variable Rate Cumulative
Preferred Stock - 4,454 - 4,454
Series E Variable Rate Cumulative
Preferred Stock - 6,370 - 6,370
Series F ESOP Convertible
Preferred Stock - 698 - 697
Other - 81 - 77
------- ------- ------- -------
Average number of fully diluted common
shares outstanding (thousands) 259,230 281,101 259,275 281,100
======= ======= ======= =======
Fully diluted net income per common share $ .70 $ 2.06 $ .01 $ 1.08
======= ======= ======= =======
(a) Results for 1993 have been reclassified to separately identify
discontinued chemical operations (see Note 1).
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
OF TEXACO ON A TOTAL ENTERPRISE BASIS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND
FOR EACH OF THE FIVE YEARS ENDED DECEMBER 31, 1993 (a)
------------------------------------------------------
(Millions of dollars)
For the Six Years Ended December 31,
Months Ended ---------------------------------------------------
June 30, 1994 1993 1992 1991 1990 1989(b)
------------- ---- ---- ---- ---- ----
Income from continuing operations, before provision or
benefit for income taxes and cumulative effect of
accounting changes effective 1-1-92 $ 540 $1,392 $1,707 $1,744 $2,448 $2,888
Dividends from less than 50% owned companies
more or (less) than equity in net income (6) (8) (9) 5 (7) (12)
Minority interest in net income 18 17 18 16 12 2
Previously capitalized interest charged to
income during the period 15 33 30 23 16 14
------ ------ ------ ------ ------ ------
Total earnings 567 1,434 1,746 1,788 2,469 2,892
------ ------ ------ ------ ------ ------
Fixed charges:
Items charged to income:
Interest charges 291 546 551 644 676 798
Interest factor attributable to operating
lease rentals 42 91 94 76 58 40
Preferred stock dividends of subsidiaries
guaranteed by Texaco Inc. 14 4 - - - -
------ ------ ------ ------ ------ ------
Total items charged to income 347 641 645 720 734 838
Interest capitalized 9 57 109 80 50 54
Interest on ESOP debt guaranteed by Texaco Inc. 6 14 18 26 38 42
------ ------ ------ ------ ------ ------
Total fixed charges 362 712 772 826 822 934
------ ------ ------ ------ ------ ------
Earnings available for payment of fixed charges $ 914 $2,075 $2,391 $2,508 $3,203 $3,730
(Total earnings + Total items charged to income) ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges of Texaco
on a total enterprise basis 2.52 2.91 3.10 3.04 3.90 3.99
====== ====== ====== ====== ====== ======
(a) Excludes discontinued chemical operations.
(b) Excluding the gains from the sale of Texaco Canada Inc. and the sale of a 20% stock interest in a
subsidiary, as well as the 1989 restructuring charges, the ratio of earnings to fixed charges on
a total enterprise basis approximated 2.14.
