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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
________
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended September 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 November 8, 1994, there were outstanding 259,483,249 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 NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
---------------------------------------------------------------
(Millions of dollars, except per share amounts)
(Unaudited)
----------------------------------------------
For the nine months For the three months
ended September 30, ended September 30,
-------------------- ---------------------
1994 1993 1994 1993
------- ------- ------- -------
REVENUES
Sales and services $23,822 $24,928 $ 8,725 $ 8,276
Equity in income of affiliates, income from
dividends, interest, asset sales and other 572 568 235 214
------- ------- ------- -------
24,394 25,496 8,960 8,490
------- ------- ------- -------
DEDUCTIONS
Purchases and other costs 17,431 18,504 6,461 6,167
Operating expenses 2,339 2,297 818 835
Selling, general and administrative expenses 1,229 1,344 366 524
Maintenance and repairs 282 296 97 102
Exploratory expenses 208 276 52 161
Depreciation, depletion and amortization 1,284 1,162 445 401
Interest expense 368 344 122 119
Taxes other than income taxes 373 426 131 149
Minority interest 30 10 12 2
------- ------- ------- -------
23,544 24,659 8,504 8,460
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Income from continuing operations
before income taxes 850 837 456 30
Provision for (benefit from) income taxes 252 (73) 175 (287)
------- ------- ------- -------
Net income from continuing operations 598 910 281 317
------- ------- ------- -------
Discontinued operations
Net loss from operations - (17) - (11)
Net loss on disposal (87) (164) - (164)
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Net loss from discontinued operations (87) (181) - (175)
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NET INCOME $ 511 $ 729 $ 281 $ 142
======= ======= ======= =======
Preferred stock dividend requirements $ 76 $ 77 $ 27 $ 26
------- ------- ------- -------
Net income available for common stock $ 435 $ 652 $ 254 $ 116
======= ======= ======= =======
Per common share (dollars)
Net income (loss)
Continuing operations $ 2.02 $ 3.22 $ .98 $ 1.13
Discontinued operations (.34) (.70) - (.68)
------- ------- ------- -------
Net income $ 1.68 $ 2.52 $ .98 $ .45
======= ======= ======= =======
Cash dividends paid $ 2.40 $ 2.40 $ .80 $ .80
Average number of common shares
outstanding (thousands) 259,192 258,878 259,117 258,988
See accompanying notes to consolidated financial statements.
- 1 -
TEXACO INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
----------------------------------------------
(Millions of dollars)
September 30, December 31,
1994 1993
------------ ------------
(Unaudited)
------------
ASSETS
Current Assets
Cash and cash equivalents $ 393 $ 488
Short-term investments - at fair value 53 48
Accounts and notes receivable, less allowance for doubtful
accounts of $28 million in 1994 and 1993 3,361 3,529
Inventories 1,380 1,298
Net assets of discontinued operations (see Note 1) 195 1,180
Deferred income taxes and other current assets 268 322
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Total current assets 5,650 6,865
Investments and Advances 5,255 4,984
Properties, Plant and Equipment - at cost 33,342 33,149
Less - Accumulated depreciation, depletion and amortization 19,435 18,978
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Net properties, plant and equipment 13,907 14,171
Deferred Charges 661 606
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Total $25,473 $26,626
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable, commercial paper and
current portion of long-term debt $ 467 $ 669
Accounts payable and accrued liabilities 3,033 3,324
Estimated income and other taxes 876 763
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Total current liabilities 4,376 4,756
Long-Term Debt and Capital Lease Obligations 6,026 6,157
Deferred Income Taxes 1,024 1,162
Employee Retirement Benefits 1,067 1,104
Deferred Credits and Other Noncurrent Liabilities 2,535 2,636
Minority Interest in Subsidiary Companies 606 532
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Total 15,634 16,347
Stockholders' Equity
Variable Rate Cumulative Preferred Stock 381 648
Market Auction Preferred Shares 300 300
ESOP Convertible Preferred Stock 519 536
Unearned employee compensation (309) (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 653 655
Retained earnings 7,294 7,463
Currency translation adjustment 104 18
Unrealized net gain on investments 43 58
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10,699 11,055
Less - Common stock held in treasury, at cost -
16,552,643 shares in 1994 and
15,273,372 shares in 1993 860 776
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Total stockholders' equity 9,839 10,279
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Total $25,473 $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 NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
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(Millions of dollars)
(Unaudited)
-------------------
For the nine months
ended September 30,
--------------------
1994 1993
---- ----
OPERATING ACTIVITIES
Net income $ 511 $ 729
Reconciliation to net cash provided by (used in)
operating activities
Loss on disposal of discontinued operations 92 220
Depreciation, depletion and amortization 1,284 1,226
Deferred income taxes (43) (293)
Exploratory expenses 208 276
Minority interest in net income 30 10
Dividends from affiliates, less than equity
in income (52) (200)
Changes in operating working capital (230) (144)
Other - net (22) 84
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Net cash provided by operating activities 1,778 1,908
INVESTING ACTIVITIES
Capital and exploratory expenditures (1,443) (1,567)
Proceeds from sale of discontinued operations, net of
cash and cash equivalents sold 645 -
Proceeds from sales of assets 222 307
Purchases of investment instruments (589) (956)
Sales of investment instruments 594 980
Other - net 2 (7)
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Net cash used in investing activities (569) (1,243)
FINANCING ACTIVITIES
Borrowings having original terms in excess
of three months
Proceeds 641 823
Repayments (358) (703)
Net increase (decrease) in other borrowings (595) 24
Issuance of preferred stock by a subsidiary 112 -
Redemption of redeemable Series C preferred stock (267) -
Purchases of common stock for treasury (77) -
Dividends paid to the company's stockholders
Common (622) (621)
Preferred (65) (67)
Dividends paid to minority shareholders (77) (9)
Other - net (3) -
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Net cash used in financing activities (1,311) (553)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 7 (9)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (95) 103
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 488 461
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 393 $ 564
======= =======
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. entered into memorandums of understanding 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 was Texaco's worldwide lubricant additives business, which
Texaco is working in cooperation with Huntsman Financial Corporation to sell
to a third party. In this regard, Texaco has announced that it is negotiating
with Shell Chemical Company and Shell International Chemical Company Limited
for the sale of this business. In the absence of such a sale, Huntsman
Financial Corporation has contracted to acquire Texaco's lubricant additives
business.
The results for chemical operations have been classified as discontinued
operations for all periods presented in the Statement of Consolidated Income.
The assets and liabilities of discontinued operations have been classified in
the Consolidated Balance Sheet as "net assets of discontinued operations" and
as of September 30, 1994 the balance in this caption 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 nine months For the three months
ended September 30, ended September 30,
------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
Discontinued Chemical Operations (Millions of dollars, except per share amounts)
- --------------------------------
Revenues $ 364 $ 863 $ 53 $ 285
===== ===== ===== =====
Loss from operations before income taxes $ - $ (19) $ - $ (8)
Provision for (benefit from) income taxes - (2) - 3
----- ----- ----- -----
Net loss from operations - (17) - (11)
----- ----- ----- -----
Loss on disposal before income taxes (92) (220) (7) (220)
Benefit from income taxes (5) (56) (7) (56)
----- ----- ----- -----
Net loss on disposal (87) (164) - (164)
----- ----- ----- -----
Total net loss $ (87) $(181) $ - $(175)
===== ===== ===== =====
Per common share (dollars)
Net loss from operations $ - $(.07) $ - $(.05)
Net loss on disposal (.34) (.63) - (.63)
----- ----- ----- -----
Total net loss $(.34) $(.70) $ - $(.68)
===== ===== ===== =====
- 4 -
Note 2. Inventories
- -------------------
The inventories of Texaco Inc. and consolidated subsidiary companies were as
follows:
As of
-----------------------------
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
(Millions of dollars)
Crude oil $ 330 $ 304
Petroleum products 802 726
Other merchandise 44 52
Materials and supplies 204 216
------ ------
Total $1,380 $1,298
====== ======
Inventories of discontinued operations at September 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 nine months For the three months
ended September 30, ended September 30,
------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
(Millions of dollars)
Gross revenues $10,844 $11,783 $ 3,906 $ 3,676
Income before income taxes $ 774 $ 927 $ 268 $ 285
Net income $ 448 $ 548 $ 151 $ 165
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 has 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 $20 million during the first nine
months of 1994. These increases are primarily unrealized holding gains on
investments classified as available-for-sale by certain affiliates.
Note 5. Subsequent Events
- -------------------------
On November 1, 1994 Texaco completed the previously announced stock repurchase
program to purchase shares of Texaco Inc. common stock through open market
transactions. Of the total 6.1 million shares repurchased, approximately 1.8
million shares were repurchased as of September 30, 1994 and are reflected in
"Common stock held in treasury, at cost" on the Consolidated Balance Sheet. On
November 8, 1994, Texaco exchanged the 6.1 million repurchased shares of
common stock for all of the issued and outstanding shares of Texaco Inc.'s
Series E Variable Rate Cumulative Preferred Stock ("Series E"), with a stated
value of $381 million, which were then retired.
* * * * * * * * * * *
In the determination of preliminary and unaudited financial statements for
the nine-month and three-month periods ended September 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 third quarter of 1994 was $281 million, or $.98 per share, compared
with net income of $142 million, or $.45 per share, for the third quarter of
1993. Net income for the first nine months of 1994 was $511 million, or
$1.68 per share, compared with $729 million, or $2.52 per share, for the
first nine months of 1993.
Consolidated worldwide net income from continuing operations (including
special items) for the third quarter of 1994 was $281 million, or $.98 per
share, compared with $317 million, or $1.13 per share, for the third quarter
of 1993. Net income from continuing operations (including special items)
for the first nine months of 1994 was $598 million, or $2.02 per share, as
compared with $910 million, or $3.22 per share, for the first nine months
of 1993.
The results, which are summarized in the following table, include special
items, as well as discontinued chemical operations.
(Unaudited)
------------------------------------------
For the nine months For the three months
ended September 30, ended September 30,
------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
(Millions of dollars)
Net income from continuing operations
before special items $ 627 $ 848 $ 270 $ 255
Special charges and credits (116) (83) 3 (83)
Tax benefits on asset sale 87 145 8 145
----- ----- ----- -----
Net income from continuing operations 598 910 281 317
Discontinued chemical operations:
Net loss from operations - (17) - (11)
Net loss on disposal (87) (164) - (164)
----- ----- ----- -----
Net income $ 511 $ 729 $ 281 $ 142
===== ===== ===== =====
The third quarter 1994 results, excluding special items, reflect solid
benefits over last year from improved operating performance and expense
containment efforts. Higher international crude oil production, higher
natural gas production in the U.S. and the North Sea, coupled with higher
worldwide crude prices were sufficient to offset the decline in natural gas
prices, depressed downstream margins in the eastern half of the U.S. and in
Europe, and refinery downtime in Pembroke, Wales due to a July 1994 fire.
- 7 -
Net income from continuing operations for the third quarter of 1994 included
a special charge of $20 million by an insurance subsidiary related to
property damage from the fire at the Pembroke refinery, as well as a special
gain of $23 million from the sale of an interest in a downstream joint
venture in Sweden. Results for the nine months 1994 also included net
special charges of $119 million recorded in the second quarter relating to
staff reductions and write-down of certain assets being offered for sale in
the company's program to consolidate activities and sell non-core assets.
Results for nine months and third quarter of 1993 included special charges of
$235 million related to staff reductions, write-down of assets and provisions
for financial reserves, partly offset by $152 million of net deferred tax
benefits principally arising from reduced tax rates in the United Kingdom.
Net income from continuing operations for the third quarter and nine months
of 1994 included $8 million and $87 million, respectively, of net tax
benefits realizable through the sale of an interest in a subsidiary. Similar
benefits of $145 million were recognized in the third quarter of 1993.
Net income for the nine months of 1994 included a second quarter charge of
$87 million for discontinued operations related to the completion of the
first phase of a transaction to sell substantially all of Texaco's worldwide
chemical business. A charge of $164 million was recorded in the third
quarter of 1993, that reflected the initial projected effects of these sales.
Of the previously mentioned tax benefits on the sale of an interest in a
subsidiary, $29 million and $145 million for the first nine months of 1994
and 1993, respectively, were realizable due to the taxable gain on the sale
of the chemical operations. Negotiations for the second phase of this sale,
consisting of the lubricant additives business, are continuing. (See Note 1
for additional information.)
On or about October 20, 1994, a 20-inch crude oil pipeline owned and operated
by Texaco Pipeline Inc., a wholly owned subsidiary of the company, and two
product pipelines owned and operated by Colonial Pipeline Co., owned 14.27%
by Texaco's wholly owned subsidiary, Texaco Trading and Transportation Inc.,
ruptured in the wake of flooding of the San Jacinto River near Houston, Texas,
spilling crude oil and product into the river. The cause of the breaks, the
quantity of crude oil and product spilled and the extent of any damage and
insurance coverage has not been determined and are under investigation by
Texaco, Colonial and government agencies and therefore, no loss estimates are
available at this time. However, it is not anticipated that the impact of
these incidents will be materially important to the company's consolidated
financial position or results of operations.
OPERATING EARNINGS FROM CONTINUING OPERATIONS
PETROLEUM AND NATURAL GAS
UNITED STATES
Exploration and Production
Exploration and production earnings in the U.S. were $127 million for the
third quarter of 1994 as compared with $100 million (including special
charges) for the third quarter of 1993. Earnings for the first nine months
of 1994 and 1993, including special charges, were $299 million and $396
million, respectively.
Comparative third quarter results before special charges reflect lower natural
gas prices of $.33 per MCF. These lower natural gas prices more than offset
the benefits from higher average crude oil prices of $1.27 per barrel for the
quarter. In spite of the gradually improving crude oil prices during 1994,
nine months earnings were adversely impacted by the depressed prices early in
this year which resulted in lower average crude oil prices of $1.80 per barrel
for the comparative nine month periods.
The company's results in 1994 benefitted from further reductions in operating
expenses and added production from successful exploration and development
programs which is largely offsetting the normal decline in production from
maturing fields.
The nine months 1994 results included special charges of $24 million,
recorded in the second quarter, to provide for the estimated cost of
announced employee separations. The third quarter and nine months 1993
results included special charges of $38 million that was comprised of net
deferred tax charges of $32 million due to the U.S. tax rate increase to 35
percent effective January 1, 1993, coupled with charges relating to staff
reductions.
- 8 -
Manufacturing and Marketing
Manufacturing and marketing earnings in the U.S. were $92 million for the
third quarter of 1994 as compared with $6 million (including special charges)
for the third quarter of 1993. Earnings for the first nine months of 1994
and 1993, including special charges, were $185 million and $115 million,
respectively.
Results before special charges for the comparative third quarter and nine
month periods were essentially unchanged. Both periods benefitted from higher
gasoline sales following the March 1994 successful introduction of Texaco's
CleanSystem3 gasolines. In the western half of the U.S., third quarter 1994
earnings reflect improved performance at refineries partly offset by higher
refinery feedstock costs. For the nine months 1994, earnings in the western
U.S. benefitted from both improved refinery performance and lower average
feedstock costs occurring in the first half of the year. These improvements
were generally offset by decreased refinery margins in the East and Gulf
coasts, particularly in the third quarter, reflecting feedstock costs that
could not be fully recovered in the marketplace.
The nine months 1994 results included special charges of $24 million recorded
in the second quarter related to the adjustment to fair market value of
certain facilities to be offered for sale and the estimated cost of employee
separations. The third quarter and nine months 1993 results included special
charges of $91 million for staff reductions, environmental reserves and the
U.S. tax rate increase.
INTERNATIONAL
Exploration and Production
Exploration and production earnings outside the U.S. were $83 million for the
third quarter of 1994 as compared with $125 million (including special items)
for the third quarter of 1993. For the nine months of 1994 and 1993, earnings
including special items, were $146 million and $286 million, respectively.
Results before special items for the third quarter 1994 improved
substantially over 1993 reflecting a combination of increased international
production of both crude oil and natural gas mainly in the U.K. sector of the
North Sea, lower exploratory expenses, and somewhat higher crude prices.
Earnings for the comparative first nine months, before special items,
benefitted also from higher production, mainly in the North Sea and in
Indonesia. However, generally lower crude oil prices prevailing in the
first half of 1994 more than offset the benefit of increased production.
The 1994 third quarter and nine months results included non-cash charges of
$7 million and $18 million, respectively, relating to the currency exchange
impacts of the Pound Sterling on deferred income taxes. For 1993, such
currency exchange impacts resulted in a charge of $2 million for the third
quarter and a $4 million benefit for the nine months.
The nine months 1994 results included special charges of $16 million,
recorded in the second quarter, related to the adjustment to fair market
value of certain facilities being offered for sale and the estimated cost
of employee separations. The third quarter and nine months of 1993 included
a benefit of $169 million relating to changes in the U.K. Petroleum Revenue
Tax associated with the taxability of certain items, as well as a tax rate
reduction from 75 percent to 50 percent. The third quarter and nine months of
1993 also included $59 million of special charges related to the write-down
of the carrying value of certain assets, principally in the North Sea,
brought about by changes in the Petroleum Revenue Tax laws, as well as staff
reductions.
Manufacturing and Marketing
Manufacturing and marketing earnings outside the U.S. (including special items)
were $98 million for the third quarter of 1994 as compared with $73 million
for the third quarter of 1993. Earnings for the first nine months of 1994
and 1993, including special items, were $252 million and $314 million,
respectively.
- 9 -
Results before special items for both the third quarter and nine months of
1994 versus 1993 reflect the decline in marketing margins in Europe, as well
as lower refining margins and unfavorable currency exchange effects in the
Caltex operating areas. Also, earnings were comparatively lower due to
downtime resulting from the fire at the Pembroke refinery. Partly offsetting
these decreases were higher marketing margins and sales volumes in Latin
America, mainly Brazil.
The Pembroke refinery resumed operations near its maximum feed rate in
late September, 1994. The fluid catalytic cracking unit is scheduled to be on
stream by mid-November, 1994.
The 1994 third quarter and nine months included non-cash charges of $8
million and $20 million, respectively, relating to the currency exchange
impacts of the Pound Sterling on deferred income taxes.
The third quarter of 1994 included a special gain of $23 million related
to the sale of the company's interest in a downstream joint venture in
Sweden. In addition to this gain, the nine months of 1994 included special
charges of $38 million recorded in the second quarter related to the
estimated cost of employee separations, and the adjustment to fair market
value of certain properties being offered for sale. The third quarter and
nine months of 1993 included special charges of $30 million related to staff
reductions and the write-down in the carrying values of certain assets.
NONPETROLEUM
Nonpetroleum results (including special charges) were losses of $26 million for
the third quarter of 1994 as compared with losses of $7 million for the third
quarter of 1993. For the first nine months of 1994 and 1993 results, including
special charges, were losses of $33 million and $12 million, respectively.
Net income for the third quarter of 1994 included a special charge of $20
million by an insurance subsidiary related to property damage from the fire
at the Pembroke refinery. Third quarter 1993 results included a special charge
of $4 million relating to the U.S. tax rate increase.
CORPORATE/NONOPERATING
Corporate/nonoperating results (including tax benefits on asset sale, and
special items) were net charges of $93 million for the third quarter of 1994
as compared with benefits of $20 million for the third quarter of 1993.
Results for the first nine months of 1994 and 1993 (including tax benefits
on asset sale, and special items) were net charges of $251 million and $189
million, respectively.
Results before special items for the third quarter and nine months of 1994
were principally impacted by reduced capitalization of interest expense due
to project completions, which was partially offset by lower corporate
overhead due to the company's ongoing expense reduction efforts.
The 1994 results included $87 million of tax benefits realizable through the
sale of an interest in a subsidiary, of which $8 million was realized in the
third quarter. In addition, $17 million of charges related to the estimated
cost of employee separations, recorded in the second quarter, were included
in the nine month results. The third quarter and nine months, 1993 results
included net tax benefits realizable through the sale of an interest in a
subsidiary of $145 million. Net special charges of $30 million for the third
quarter and nine months of 1993 related mainly to staff reductions.
- 10 -
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 1994, Texaco's cash, cash equivalents and short-term
investments totaled $446 million as compared to the 1993 year-end level of
$536 million. Texaco's total cash from operating activities for the first
nine months of 1994 (as presented on the Condensed Statement of Consolidated
Cash Flows) included certain net cash outflows that were not directly related
to current period operations, and which in the aggregate, amounted to some
$250 million. Among these outflows were payments related to the State of
Louisiana royalties settlement which is discussed below and certain
environmental, severance and legal expenditures.
During the first nine months 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 $1,443 million and for the payment of
dividends to common, preferred and minority shareholders of $764 million.
In April 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 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.
At September 30, 1994, Texaco redeemed in cash and retired all outstanding
shares of its Series C Variable Rate Cumulative Preferred Stock having an
aggregate liquidation preference of $267 million. Additionally, during the
third quarter, 1994, Texaco commenced a stock repurchase program to purchase
shares of its common stock through open market transactions. As of September
30, 1994, Texaco expended $77 million in cash and contracted to purchase an
additional $29 million of shares under this program. The repurchase program,
which was completed on November 1, 1994, resulted in the company purchasing an
aggregate of 6.1 million shares, for some $380 million. On November 8, 1994
the company exchanged the repurchased shares of common stock for all the
Texaco Inc.'s Series E Variable Rate Cumulative Preferred Stock, which were
then retired.
Total debt at September 30, 1994 declined to $6.5 billion from the
year-end 1993 level of $6.8 billion. At September 30, 1994, Texaco's long-term
debt included $1.1 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
September 30, 1994 and year-end 1993 were 38.3% and 38.7%, respectively.
Texaco terminated a $350 million revolving credit facility during the second
quarter of 1994, but continues to maintain a $2 billion facility as of
September 30, 1994. Texaco also maintains an accounts receivable sales
facility of approximately $400 million. These facilities were unused at
September 30, 1994 and year-end 1993. Additionally, in the third quarter of
1994, a subsidiary of Texaco entered into a revolving credit facility for
$330 million, which was fully utilized as of September 30, 1994 and is
reflected in long-term debt.
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.
The company considers its financial position sufficient to meet its anticipated
future financial requirements.
- 11 -
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Capital and exploratory expenditures for continuing operations, including
equity in such expenditures of affiliates, were $1,788 million for the first
nine months of 1994, as compared to $1,887 million for the same period in 1993.
Expenditures for the third quarter of 1994 amounted to $557 million versus
$732 million for the same quarter in 1993.
International upstream expenditures declined for the comparative nine months
and third quarter periods reflecting lower expenditures in the U.K. North Sea,
where successful project completions have increased production of liquids and
natural gas. Partly offsetting this decline for the comparative nine months
were higher drilling and development activities in the United States which
began in the third quarter of 1993.
Downstream international expenditures for the first nine months of 1994
increased as compared to the same period of 1993, reflecting investments by
Texaco's affiliate, Caltex, in refinery construction and upgrade projects
in Thailand and Singapore and increased marketing expenditures as well as
continued refinery upgrades in Panama and increased marketing expenditures in
selected European and Latin American countries. These increases were partially
offset by lower expenditures in the U.S. due to the completion of refinery
upgrade projects underway in 1993 by both Texaco and Texaco's affiliate, Star
Enterprise, and lower marketing investments.
INITIATIVES FOR GROWTH
- ----------------------
On July 5, 1994, Texaco announced its June, 1994 decision to 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. Implementation of Texaco's program is expected to result in
the reduction of approximately 2,500 employees by June 30, 1995 involving both
the U.S. and international upstream and downstream segments, as well as
support staffs. During the second quarter of 1994, Texaco recorded a charge of
$88 million, net of tax, for the anticipated severance costs associated with
the reduction of the 2,500 employees.
As of September 30, 1994, implementation of Texaco's program includes
reductions of approximately 630 employees with a related commitment to
severance payments of $37 million, or an after-tax cost of $25 million.
Of this commitment, $10 million in payments had been made as of September 30,
1994. Since these liabilities were fully reserved in the second quarter of
this year, these expenditures had no impact on third quarter earnings.
Currently, there is no change in the company's projections that the total
reduction in employees under this announced program will be 2,500 with a
total severance cost of $88 million, net of tax.
- 12 -
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 and
page 12 of Texaco Inc.'s Forms 10-Q for the quarterly periods ended March 31,
1994 and June 30, 1994, respectively, 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 September 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 new or terminated
proceedings which, because of the amounts involved, require disclosure under
applicable Securities and Exchange Commission regulations:
In February 1994, the California Air Resources Board ("CARB") initiated
an investigation into compliance by Texaco Refining and Marketing Inc.
("TRMI") and major gasoline marketers with California's additive injection
requirements during 1992 and 1993. CARB has alleged that gasoline marketed
by TRMI did not meet specifications and is seeking civil penalties that
may exceed $100,000.
In May 1994, the U.S. Environmental Protection Agency ("EPA"), Region VII,
instituted an administrative proceeding alleging that on twelve occasions
pipelines owned by Texaco Trading and Transportation Inc. ("TTTI")
released oil into surface waters in violation of the Federal Clean Water
Act. The EPA seeks the maximum penalty of $10,000 for each spill, for a
total of $120,000, which TTTI is contesting.
In July 1994, TRMI settled an administrative proceeding instituted in
September 1993 by the Northwest Air Pollution Control Agency alleging that
emissions from TRMI's fluid catalytic cracking unit at the Puget Sound
Refinery exceeded particulate emissions in violation of air pollution
control laws.
In September 1994, TRMI settled an administrative proceeding instituted in
March 1994 in which the EPA alleged that TRMI's Bakersfield, California
refinery injected wastewater containing selenium at a level greater than
is permitted under the Resource Conservation and Recovery Act and the
California Health and Safety Code.
- 13 -
Item 5. Other Information
- -------------------------
(Unaudited)
--------------------------------------------
For the nine months For the three months
ended September 30, ended September 30,
------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
(Millions of dollars)
FUNCTIONAL NET INCOME
- ---------------------
Operating earnings (losses) from continuing operations
Petroleum and natural gas
Exploration and production
United States $ 299 $ 396 $ 127 $ 100
International 146 286 83 125
------ ------ ------ ------
Total 445 682 210 225
------ ------ ------ ------
Manufacturing, marketing and distribution
United States 185 115 92 6
International 252 314 98 73
------ ------ ------ ------
Total 437 429 190 79
------ ------ ------ ------
Total petroleum and natural gas 882 1,111 400 304
Nonpetroleum (33) (12) (26) (7)
------ ------ ------ ------
Total operating earnings 849 1,099 374 297
Corporate/Nonoperating (251) (189) (93) 20
------ ------ ------ ------
Net income from continuing operations 598 910 281 317
------ ------ ------ ------
Discontinued chemical operations
Net loss from operations - (17) - (11)
Net loss on disposal (87) (164) - (164)
------ ------ ------ ------
Net loss from discontinued chemical operations (87) (181) - (175)
------ ------ ------ ------
Net income $ 511 $ 729 $ 281 $ 142
====== ====== ====== ======
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Texaco Inc. and subsidiary companies
Exploration and production
United States $ 598 $ 516 $ 148 $ 216
International 376 590 111 212
------ ------ ------ ------
Total 974 1,106 259 428
------ ------ ------ ------
Manufacturing, marketing and distribution
United States 166 232 64 102
International 181 133 60 61
------ ------ ------ ------
Total 347 365 124 163
------ ------ ------ ------
Other 20 26 6 10
------ ------ ------ ------
Total 1,341 1,497 389 601
------ ------ ------ ------
Equity in affiliates
United States 96 111 45 34
International 351 279 123 97
------ ------ ------ ------
Total 447 390 168 131
------ ------ ------ ------
Total continuing operations 1,788 1,887 557 732
Discontinued chemical operations 21 54 1 6
------ ------ ------ ------
Total worldwide $1,809 $1,941 $ 558 $ 738
------ ------ ------ ------
- 14 -
(Unaudited)
--------------------------------------------
For the nine months For the three months
ended September 30, ended September 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 408 426 407 427
Other Western Hemisphere 20 21 21 21
Europe 116 76 126 82
Other Eastern Hemisphere 234 199 232 198
----- ----- ----- -----
Total 778 722 786 728
Net production of natural gas available for sale
(millions of cubic feet per day)
United States 1,728 1,730 1,720 1,716
International 301 222 294 218
----- ----- ----- -----
Total 2,029 1,952 2,014 1,934
Natural gas sales (millions of cubic feet per day)
United States 3,083 2,755 3,156 2,740
International 317 234 308 224
----- ----- ----- -----
Total 3,400 2,989 3,464 2,964
Natural gas liquids sales, including purchased LPG's
(thousands of barrels per day)
United States 211 189 240 191
International 70 51 93 63
----- ----- ----- -----
Total 281 240 333 254
Refinery input (thousands of barrels per day)
United States 661 661 704 633
Other Western Hemisphere 47 52 53 45
Europe 279 328 188 341
Other Eastern Hemisphere 456 429 447 429
----- ----- ----- -----
Total 1,443 1,470 1,392 1,448
Refined product sales (thousands of barrels per day)
United States 876 821 908 828
Other Western Hemisphere 308 285 318 282
Europe 445 482 411 502
Other Eastern Hemisphere 702 711 707 671
----- ----- ----- -----
Total 2,331 2,299 2,344 2,283
- 15 -
(Unaudited)
--------------------------------------------
For the nine months For the three months
ended September 30, ended September 30,
------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
(Millions of dollars)
Impact of Special Items On Functional Net Income
- ------------------------------------------------
Operating earnings (losses) from continuing operations
Exploration and production
United States
Operating earnings before special items $ 323 $ 434 $ 127 $ 138
Special charges (24) (38) - (38)
----- ----- ----- -----
Total operating earnings 299 396 127 100
----- ----- ----- -----
International
Operating earnings before special items 162 176 83 15
Special charges and credits (16) 110 - 110
----- ----- ----- -----
Total operating earnings 146 286 83 125
----- ----- ----- -----
Manufacturing, marketing and distribution
United States
Operating earnings before special items 209 206 92 97
Special charges (24) (91) - (91)
----- ----- ----- -----
Total operating earnings 185 115 92 6
----- ----- ----- -----
International
Operating earnings before special items 267 344 75 103
Special charges and credits (15) (30) 23 (30)
----- ----- ----- -----
Total operating earnings 252 314 98 73
----- ----- ----- -----
Nonpetroleum
Operating earnings before special items (13) (8) (6) (3)
Special charges (20) (4) (20) (4)
----- ----- ----- -----
Total operating earnings (33) (12) (26) (7)
----- ----- ----- -----
Corporate/Nonoperating
Total before special items (321) (304) (101) (95)
Tax benefits and special charges and credits 70 115 8 115
----- ----- ----- -----
Total Corporate/Nonoperating (251) (189) (93) 20
----- ----- ----- -----
Net income from continuing operations 598 910 281 317
----- ----- ----- -----
Discontinued chemical operations
Net loss from operations - (17) - (11)
Net loss on disposal (87) (164) - (164)
----- ----- ----- -----
Net loss from discontinued chemical operations (87) (181) - (175)
----- ----- ----- -----
Net income $ 511 $ 729 $ 281 $ 142
===== ===== ===== =====
- 16 -
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 Reports on Form 10-Q for the quarterly
periods ended March 31, 1994 and June 30, 1994, as previously
filed by the Registrant with the Securities and Exchange
Commission, File No. 1-27.
_ (27) Financial Data Schedule.
(b) Reports on Form 8-K:
During the third quarter of 1994, the Registrant filed Current Reports on
Form 8-K for the following events:
1. July 6, 1994 (date of earliest event reported: July 5, 1994)
Item 5. Other Events - announced that Texaco 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 business. Texaco appended as an
exhibit thereto a copy of the Press Release entitled, "Texaco
Announces Worldwide Plan For Enhanced Growth," dated July 5, 1994.
2. July 18, 1994 (date of earliest event reported: July 15, 1994)
Item 5. Other Events - announced that Texaco 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. Texaco
appended as an exhibit thereto a copy of the Press Release entitled,
"Texaco Inc. Announces Redemption of Series C Variable Rate Cumulative
Preferred Stock," dated July 15, 1994.
3. July 25, 1994 (date of earliest event reported: July 25, 1994)
Item 5. Other Events - reported that Texaco issued an Earnings Press
Release for the second quarter 1994. Texaco appended as an Exhibit
thereto a copy of the Press Release entitled, "Texaco Reports Results
for the Second Quarter and First Half 1994," dated July 25, 1994.
4. July 28, 1994 (date of earliest event reported: July 27, 1994)
Item 5. Other Events - announced that Texaco will commence a stock
repurchase program to buy up to 6 million shares of its common stock
through open market transactions. Texaco appended as an Exhibit
thereto a copy of the Press Release entitled, "Texaco Inc. Announces
Beginning of Stock Repurchase Program," dated July 27, 1994.
- 17-
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: November 10, 1994
-----------------
- 18 -
EXHIBIT 11
TEXACO INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
---------------------------------------------------------------
(Millions of dollars, except per share amounts)
(Unaudited)
--------------------------------------------
For the nine months For the three months
ended September 30, ended September 30,
------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
(Millions of dollars)
Primary Net Income Per Common Share
- -----------------------------------
Net income from continuing operations $ 598 $ 910 $ 281 $ 317
Net loss from discontinued operations (87) (181) - (175)
------- ------- ------- -------
Net income 511 729 281 142
Preferred stock dividend requirements (76) (77) (27) (26)
------- ------- ------- -------
Primary net income available for common stock $ 435 $ 652 $ 254 $ 116
======= ======= ======= =======
Average number of primary common shares
outstanding (thousands) 259,192 258,878 259,117 258,988
======= ======= ======= =======
Primary net income per common share $ 1.68 $ 2.52 $ .98 $ .45
======= ======= ======= =======
Fully Diluted Net Income Per Common Share
- -----------------------------------------
Net income $ 511 $ 729 $ 281 $ 142
Preferred stock dividend requirements of non-dilutive
issues and adjustments to net income associated
with dilutive securities (76) (77) (18) (26)
------- ------- ------- -------
Fully diluted net income $ 435 $ 652 $ 263 $ 116
======= ======= ======= =======
Average number of primary common shares
outstanding (thousands) 259,192 258,878 259,117 258,988
Additional shares outstanding assuming full
conversion of dilutive convertible securities
into common stock (thousands):
Convertible debentures - 148 148 -
Series B ESOP Convertible
Preferred Stock - - 10,183 -
Series F ESOP Convertible
Preferred Stock - - 702 -
Other 69 149 67 71
------- ------- ------- -------
Average number of fully diluted common
shares outstanding (thousands) 259,261 259,175 270,217 259,059
======= ======= ======= =======
Fully diluted net income per common share $ 1.68 $ 2.52 $ .97 $ .45
======= ======= ======= =======
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
OF TEXACO ON A TOTAL ENTERPRISE BASIS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND
FOR EACH OF THE FIVE YEARS ENDED DECEMBER 31, 1993 (a)
------------------------------------------------------
(Millions of dollars)
For the Nine
Months Ended Years Ended December 31,
September 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 $1,069 $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 (10) (8) (9) 5 (7) (12)
Minority interest in net income 30 17 18 16 12 2
Previously capitalized interest charged to
income during the period 23 33 30 23 16 14
------ ------ ------ ------ ------ ------
Total earnings 1,112 1,434 1,746 1,788 2,469 2,892
------ ------ ------ ------ ------ ------
Fixed charges:
Items charged to income:
Interest charges 438 546 551 644 676 798
Interest factor attributable to operating
lease rentals 63 91 94 76 58 40
Preferred stock dividends of subsidiaries
guaranteed by Texaco Inc. 23 4 - - - -
------ ------ ------ ------ ------ ------
Total items charged to income 524 641 645 720 734 838
Interest capitalized 15 57 109 80 50 54
Interest on ESOP debt guaranteed by Texaco Inc. 10 14 18 26 38 42
------ ------ ------ ------ ------ ------
Total fixed charges 549 712 772 826 822 934
------ ------ ------ ------ ------ ------
Earnings available for payment of fixed charges 1,636 $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 2.98 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.
5
0000097349
TEXACO INC.
1,000,000
9-MOS
DEC-31-1994
JAN-1-1994
SEP-30-1994
393
53
3,389
28
1,380
5,650
33,342
19,435
25,473
4,376
6,026
1,507
0
891
7,441
25,473
23,822
24,394
17,431
19,770
3,406
0
368
850
252
598
(87)
0
0
511
1.68
1.68
