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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, 1996 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
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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 31, 1996, there were outstanding 264,272,118 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, 1996 AND 1995
---------------------------------------------------------
(Millions of dollars, except per share amounts)
(Unaudited)
-------------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
-------------- --------------
1996 1995(a) 1996 1995(a)
---- ------- ---- -------
REVENUES
Sales and services $20,876 $17,616 $10,817 $ 9,031
Equity in income of affiliates, and income from
interest, asset sales and other 656 710 444 228
------- ------- ------- -------
21,532 18,326 11,261 9,259
------- ------- ------- -------
DEDUCTIONS
Purchases and other costs 16,127 13,506 8,345 6,980
Operating expenses 1,384 1,427 700 696
Selling, general and administrative expenses 799 748 399 377
Maintenance and repairs 178 184 90 96
Exploratory expenses 159 114 90 59
Depreciation, depletion and amortization 704 745 354 348
Interest expense 221 245 108 121
Taxes other than income taxes 232 246 127 122
Minority interest 33 30 17 13
------- ------- ------- -------
19,837 17,245 10,230 8,812
------- ------- ------- -------
Income from continuing operations before income
taxes and cumulative effect of accounting change 1,695 1,081 1,031 447
Provision for income taxes 620 392 342 176
------- ------- ------- -------
Net income from continuing operations before
cumulative effect of accounting change 1,075 689 689 271
Cumulative effect of accounting change - (121) - -
------- ------- ------- -------
NET INCOME $ 1,075 $ 568 $ 689 $ 271
======= ======= ======= =======
Preferred stock dividend requirements $ 29 $ 31 $ 14 $ 15
------- ------- ------- -------
Net income available for common stock $ 1,046 $ 537 $ 675 $ 256
======= ======= ======= =======
Per common share (dollars)
Net income from continuing operations before
cumulative effect of accounting change $ 4.01 $ 2.54 $ 2.59 $ .99
Cumulative effect of accounting change - (.47) - -
------- ------- ------- -------
Net income $ 4.01 $ 2.07 $ 2.59 $ .99
======= ======= ======= =======
Cash dividends paid $ 1.60 $ 1.60 $ .80 $ .80
Average number of common shares outstanding
for computation of earnings per share
(thousands) 260,709 259,749 260,764 259,876
(a) Previously reported results for 1995 have been reclassified and restated for the adoption of SFAS 121.
See accompanying notes to consolidated financial statements.
- 1 -
TEXACO INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
-----------------------------------------
(Millions of dollars)
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
-----------
ASSETS
Current Assets
Cash and cash equivalents $ 724 $ 501
Short-term investments - at fair value 98 35
Accounts and notes receivable, less allowance for doubtful
accounts of $28 million in 1996 and 1995 4,033 4,177
Inventories 1,478 1,357
Net assets of discontinued operations - 164
Deferred income taxes and other current assets 188 224
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Total current assets 6,521 6,458
Investments and Advances 5,053 5,278
Properties, Plant and Equipment - at cost 31,666 31,492
Less - accumulated depreciation, depletion and amortization 18,805 18,912
------- -------
Net properties, plant and equipment 12,861 12,580
Deferred Charges 806 621
------- -------
Total $25,241 $24,937
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 366 $ 737
Accounts payable and accrued liabilities 3,945 3,777
Estimated income and other taxes 895 692
------- -------
Total current liabilities 5,206 5,206
Long-Term Debt and Capital Lease Obligations 5,159 5,503
Deferred Income Taxes 644 634
Employee Retirement Benefits 1,129 1,138
Deferred Credits and Other Noncurrent Liabilities 2,412 2,270
Minority Interest in Subsidiary Companies 665 667
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Total 15,215 15,418
Stockholders' Equity
Market Auction Preferred Shares 300 300
ESOP Convertible Preferred Stock 483 495
Unearned employee compensation and benefit plan trust (402) (437)
Common stock (authorized: 350,000,000 shares, $6.25 par
value; 274,293,417 shares issued) 1,714 1,714
Paid-in capital in excess of par value 650 655
Retained earnings 7,819 7,186
Currency translation adjustment (46) 61
Unrealized net gain on investments 45 62
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10,563 10,036
Less - Treasury stock, at cost 537 517
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Total stockholders' equity 10,026 9,519
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Total $25,241 $24,937
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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, 1996 AND 1995
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(Millions of dollars)
(Unaudited)
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For the six months
ended June 30,
------------------
1996 1995(a)
---- -------
OPERATING ACTIVITIES
Net income $1,075 $ 568
Reconciliation to net cash provided by (used in)
operating activities
Cumulative effect of accounting change - 121
Depreciation, depletion and amortization 704 745
Deferred income taxes 55 107
Exploratory expenses 159 114
Minority interest in net income 33 30
Dividends from affiliates, greater than (less than)
equity in income 162 (112)
Gains on asset sales (37) (245)
Changes in operating working capital 53 (373)
Other - net (103) 26
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Net cash provided by operating activities 2,101 981
INVESTING ACTIVITIES
Capital and exploratory expenditures (1,231) (1,020)
Proceeds from sale of discontinued operations, net of
cash and cash equivalents sold 344 -
Proceeds from sales of assets 87 737
Sale of leasehold interests 147 -
Purchases of investment instruments (970) (535)
Sales/maturities of investment instruments 963 553
Other - net 5 16
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Net cash used in investing activities (655) (249)
FINANCING ACTIVITIES
Borrowings having original terms in excess
of three months
Proceeds 113 57
Repayments (222) (240)
Net decrease in other borrowings (576) (76)
Purchases of common stock (55) -
Dividends paid to the company's stockholders
Common (416) (416)
Preferred (29) (31)
Dividends paid to minority shareholders (35) (35)
------ -------
Net cash used in financing activities (1,220) (741)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (3) (12)
------ -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 223 (21)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 501 404
------ -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 724 $ 383
====== =======
(a) Previously reported results for 1995 have been reclassified and restated for the adoption of SFAS 121.
See accompanying notes to consolidated financial statements.
-3-
TEXACO INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Change in Accounting Principle
- --------------------------------------
During 1995, Texaco adopted Statement of Financial Accounting Standards (SFAS
121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". Under SFAS 121, assets whose carrying amounts are not
expected to be fully recovered by future use or disposition must be written down
to their fair values.
Adoption of SFAS 121 resulted in a non-cash after-tax charge of $639 million
against fourth quarter 1995 earnings. Additionally, in accordance with SFAS 121,
a $121 million after-tax write-down of non-core domestic producing properties
held for sale at January 1, 1995, previously recorded in the first quarter of
1995 in income from continuing operations, was reclassified as a cumulative
effect of an accounting change.
Adoption of SFAS 121 by Star Enterprise and the Caltex Group of Companies, each
owned 50% by Texaco, had no effect on 1995 net income.
Note 2. Discontinued Operations
- -------------------------------
On February 29, 1996, Texaco completed the disposition of its operations
classified as discontinued operations by completing the sale of its worldwide
lubricant additives business, which included manufacturing facilities, as well
as sales and marketing offices in various locations in the U.S. and abroad, to
Ethyl Corporation, a fuel and lubricant additives manufacturer. Ethyl purchased
this business for $196 million, comprised of $136 million in cash and a
three-year note of $60 million.
The results for Texaco's worldwide lubricant additives business had been
accounted for as discontinued operations and the assets and liabilities had been
classified in the Consolidated Balance Sheet as "Net assets of discontinued
operations."
Revenues for the discontinued operations totaled $33 million for the first two
months of 1996, representing activities through the sale date, and $59 million
and $113 million for the second quarter and first six months of 1995,
respectively.
Discontinued operations had no significant impact on the 1996 and 1995 results.
- 4 -
Note 3. Inventories
- -------------------
The inventories of Texaco Inc. and consolidated subsidiary companies were as
follows:
As of
--------------------------------------
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
(Millions of dollars)
Crude oil $ 324 $ 294
Petroleum products and other 960 866
Materials and supplies 194 197
------ ------
Total $1,478 $1,357
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Note 4. Contingent Liabilities
- ------------------------------
Information relative to commitments and contingent liabilities of Texaco Inc.
and subsidiary companies is presented in Notes 15 and 17, pages 57-58 and 60,
respectively, of Texaco Inc.'s 1995 Annual Report to Stockholders.
In the company's opinion, while it is impossible to ascertain the ultimate legal
and financial liability with respect to the above-referenced 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 5. 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 and is
reflected on a 100% Caltex Group basis:
For the six months For the three months
ended June 30, ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
(Millions of dollars)
Gross revenues $8,457 $8,299 $4,300 $3,928
Income before income taxes $1,724 $ 832 $1,411 $ 290
Net income $ 989 $ 580 $ 795 $ 164
On April 2, 1996, Caltex Petroleum Corporation ("Caltex") completed the sale of
its 50% interest in Nippon Petroleum Refining Company, Limited to its partner
Nippon Oil Company for approximately $2 billion. Earnings relating to this sale
of some $630 million was recorded by Caltex in the second quarter of 1996.
Net income for the first six months of 1995 included a first quarter net gain
for U.S. financial reporting of $171 million relating to the sale of a portion
of land and air utility rights by a Caltex affiliate in Japan required for a
public project.
* * * * * * * * * * *
In the preparation of preliminary and unaudited financial statements for the
six-month and three-month periods ended June 30, 1996 and 1995, 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 1995 Annual
Report to Stockholders. 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 are of a normal recurring nature. 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 1996.
- 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Total worldwide net income for Texaco Inc. and subsidiary companies for the
second quarter of 1996 was $689 million, or $2.59 per share, as compared with
$271 million, or $.99 per share, for the second quarter of 1995. Total net
income for the first six months of 1996 was $1,075 million, or $4.01 per share,
as compared with $568 million, or $2.07 per share, for the first six months of
1995. Both years included special items.
Net income before special items for the second quarter and first six months of
1996 totaled $465 million, or $1.73 per share, and $851 million, or $3.15 per
share, respectively. Net income before special items and the cumulative effect
of an accounting change for the first six months of 1995 totaled $497 million,
or $1.80 per share. There were no special items in the second quarter of 1995.
Net income for the first six months of 1996 included a second quarter net
special gain of $224 million relating to the sale by Texaco's affiliate Caltex
Petroleum Corporation ("Caltex") of its interest in the Nippon Petroleum
Refining Company, Limited (NPRC) to its partner Nippon Oil Company, less taxes
applicable to the portion of the sale proceeds distributed to Caltex
shareholders. Net income for the first six months of 1995 included first quarter
net special gains of $192 million resulting from the sales of non-core U.S.
producing properties and from the sale of land by a Caltex affiliate in Japan.
Also included in 1995 was a $121 million non-cash charge from the write-down of
non-core U.S. producing properties held for sale at January 1, 1995, classified
as a cumulative effect of an accounting change in accordance with the 1995
adoption of Statement of Financial Accounting Standards (SFAS) 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of."
On February 29, 1996, Texaco completed the sale of its worldwide lubricant
additives business for $196 million, comprised of $136 million in cash and a
three-year note of $60 million. This sale completed the disposition of the
operations classified as discontinued operations. Discontinued operations had no
significant impact on 1996 and 1995 results.
Results for 1996 and 1995 are summarized in the following table:
(Unaudited)
-------------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
------------------ --------------------
1996 1995 1996 1995
---- ---- ---- ----
(Millions of Dollars)
Net income before special items and the cumulative
effect of accounting change $ 851 $ 497 $ 465 $ 271
Gain on sale of an interest in an affiliate 224 - 224 -
Gains on major asset sales and other - 192 - -
------ ----- ----- -----
Net income before cumulative effect of
accounting change 1,075 689 689 271
Cumulative effect of accounting change - (121) - -
------ ----- ----- -----
Total net income $1,075 $ 568 $ 689 $ 271
====== ===== ===== =====
The results for the second quarter of 1996 represent the eighth consecutive
quarter that earnings exceeded previous years' levels. Improvements in nearly
all sectors of the company's business were enhanced by strong crude and natural
gas prices during the first half of 1996. Crude oil production increased both
internationally and domestically as a result of new producing fields, continued
field developments and enhanced recovery from existing fields. The company was
also able to take greater advantage of higher natural gas prices in the U.S.
because a significant portion of its U.S. gas production moved throughout the
company's strategically positioned Henry Hub in Louisiana to major North
American markets, where demand was strong.
- 7 -
In the downstream sector, overall profitability improved due to higher margins,
solid operating performance at the company's refineries and increased branded
sales volumes. However, while refining margins rebounded from last year's
historically low levels, marketing product margins eroded in Europe and in the
U.S. due to competitiveness in the marketplace. As a result, downstream earnings
continued to be below the levels required to provide a reasonable return on
invested capital.
Results for all of Texaco's worldwide businesses have benefited from the
company's unrelenting drive to improve productivity and reduce overhead
expenses, as cash operating expenses per barrel were significantly below the
1993 level, when Texaco's program for growth was launched. Also, the company has
increased its capital expenditures this year, focusing on key upstream
opportunities, especially in the deepwater Gulf of Mexico, where Texaco has been
very successful.
OPERATING EARNINGS
PETROLEUM AND NATURAL GAS
EXPLORATION AND PRODUCTION
United States
Exploration and production earnings in the U.S. for the second quarter of 1996
were $243 million, as compared with $177 million for the second quarter of 1995.
For the first six months of 1996 and 1995, earnings were $510 million and $433
million, respectively. Results for 1995 included a first quarter net special
gain of $112 million principally resulting from the sale of non-core producing
properties. Excluding the net special gain, first six months of 1995 results
totaled $321 million.
The strong earnings growth for both the second quarter and first half of 1996
resulted from higher production and prices for both crude oil and natural gas.
Natural gas prices averaged 24% and 29% higher than the second quarter and first
six months of 1995, respectively. Higher natural gas prices reflected the impact
of prolonged cold weather and increased industry demand to replenish natural gas
storage.
U.S. crude oil prices for 1996 averaged nine percent and 10% higher than the
second quarter and first half of 1995, respectively. Similar to natural gas
prices, increased worldwide crude oil prices reflected the prolonged cold
weather in the U.S. and Western Europe. During this period, the imbalance in
petroleum product supply and demand was exacerbated by production disruptions in
Mexico and the North Sea at a time when crude inventory levels were low.
Production of crude oil and natural gas from new fields in 1996, as well as
continued development and enhanced recovery from existing fields, more than
offset declines from the normal maturation of fields and 1995 asset sales.
Exploratory expenses were higher in 1996 due to increased seismic and other
drilling activity, particularly offshore in the Gulf of Mexico, including
deepwater properties, which reflects the company's aggressive program to expand
production.
International
Exploration and production earnings outside the U.S. for the second quarter of
1996 were $103 million, as compared with $83 million for the second quarter of
1995. For the first six months of 1996 and 1995, earnings were $233 million and
$166 million, respectively.
Both the second quarter and first six months of 1996 results reflected higher
crude oil production and prices. Production from new fields in China and
continuing development programs in the Partitioned Neutral Zone, between Saudi
Arabia and Kuwait, more than offset lower production in the United Kingdom
(U.K.), resulting mainly from maturing fields, and certain maintenance and
repair activities. Exploratory expenses were higher in 1996, principally from
expanded activity.
- 8 -
MANUFACTURING, MARKETING AND DISTRIBUTION
United States
Manufacturing, marketing and distribution earnings in the U.S. for the second
quarter of 1996 were $144 million, as compared with $30 million for the second
quarter of 1995. For the first six months of 1996 and 1995, earnings were $148
million and $11 million, respectively.
Significant improvement in West Coast refining margins in the second quarter of
1996 was the principal reason for improved results for both the second quarter
and the first half of 1996 as compared to the same periods of 1995. First
quarter refining margins were depressed and only slightly better than the
historic low levels experienced early in 1995. These margins improved in the
second quarter as product prices rose, partly recovering the rapidly increasing
first quarter crude oil prices. Also, product prices rose due to shortages
resulting from regional refining problems and new California gasoline
formulation requirements at the time when the seasonal increase in market demand
occurred. Improved refinery operations and continued focus on cost containment
also contributed to the improved 1996 results.
Throughout the first half of 1996, marketing margins for most refined products
were lower than the comparable period of 1995. This has been offset partially by
the continued strength in gasoline and diesel sales volumes, with Texaco branded
gasoline sales up four percent. Additionally, downstream earnings benefited from
improved profits in the distribution and transportation businesses, particularly
in the second quarter of 1996.
International
Manufacturing, marketing and distribution earnings outside the U.S. for the
second quarter of 1996 were $304 million, as compared with $79 million for the
second quarter of 1995. For the first six months of 1996 and 1995, earnings were
$396 million and $263 million, respectively. Results for the second quarter and
first six months of 1996 included a net special gain of $224 million relating to
the sale by Caltex of its interest in NPRC, less taxes applicable to the portion
of the sale proceeds distributed to Caltex' shareholders. Results for 1995
included first quarter net special gains of $80 million, principally relating to
the sale of land by a Caltex affiliate in Japan. Excluding net special gains,
second quarter and first six months of 1996 earnings totaled $80 million and
$172 million, respectively. For the first six months of 1995, results excluding
net special gains totaled $183 million.
Earnings, before special items, for the second quarter of 1996 benefited from
higher marketing margins in Brazil, as well as higher margins in the Caltex
operating markets, primarily Singapore and Australia. These benefits were offset
partially by lower operating margins in Japan resulting from competitive
pressures and by the April 1996 sale by Caltex of its interest in NPRC. In
Europe, higher refining margins were offset partially by lower marketing
margins, particularly in the U.K., reflecting excess supply and a highly
competitive market.
The decline in comparative earnings, before special items, for the first six
months of 1996 reflected lower Caltex earnings in Japan and Korea, offset
partially by higher refining margins in Bahrain and Singapore. The benefits of
higher refining margins in Europe were somewhat offset by lower marketing
margins.
NONPETROLEUM
Nonpetroleum results for the second quarter and first six months of 1996 were $3
million and $5 million, respectively, as compared with $7 million and $11
million for the respective 1995 periods.
- 9 -
CORPORATE/NONOPERATING RESULTS
Corporate and nonoperating charges for the second quarter and first six months
of 1996 were $108 million and $217 million, respectively, as compared with
charges of $105 million and $195 million for the respective periods of 1995.
Results for 1995 included first quarter gains of $25 million, principally from
sales of equity securities held for investment by the insurance operations.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1996, Texaco's cash, cash equivalents and short-term investments
totaled $822 million, as compared with the 1995 year-end level of $536 million.
Texaco's total cash provided by operating activities for the first six months of
1996 totaled $2.1 billion, primarily reflecting strong operational earnings. In
addition, cash from operations for 1996 included a net inflow of some $470
million of items that were not directly related to current period operations.
This net inflow was primarily comprised of the receipt of a cash dividend from
Caltex, related to the sale of Caltex' interest in NPRC. Other items included
the collection of receivables, primarily insurance recoveries relating to
environmental matters, and payments related to litigation matters, mainly the
final payment for the state of Louisiana royalty dispute settlement.
During the first six months of 1996, cash generated from operating activities,
proceeds from the sale of discontinued operations (discussed below) and proceeds
from normal asset sales were used to support Texaco's capital and exploratory
expenditures of $1,231 million, for payment of dividends to common, preferred
and minority shareholders of $480 million, and for the reduction of debt.
Total debt at June 30, 1996 amounted to $5.5 billion as compared with $6.2
billion at year-end 1995. Texaco's ratio of total debt to total borrowed and
invested capital was 34.1% at June 30, 1996, as compared with 38.0% at year-end
1995. At June 30, 1996, Texaco's long-term debt included $779 million 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 maintains a revolving
credit facility with commitments of $2.0 billion, which remained unused at both
June 30, 1996 and at year-end 1995. Additionally, a subsidiary maintains a
long-term revolving credit facility for $330 million, which was fully utilized
at June 30, 1996 and year-end 1995 and is reflected in long-term debt.
During the first six months of 1996, Texaco received $147 million from the sale
of certain equipment leasehold interests in conjunction with a sale/leaseback
arrangement. In the aggregate, through June 30, 1996, Texaco has received $395
million for these interests. Additional payments are expected to be received
over the remainder of 1996. Texaco will repurchase the total interests when the
related equipment is placed in service, which is currently expected by the end
of 1996.
During the first quarter of 1996, Texaco sold its worldwide lubricant additive
business for $196 million, comprised of $136 million in cash and a three-year
note of $60 million. Also during the first quarter of 1996, Texaco received $208
million from the prepayment of the note received as part of the consideration
for the 1994 sale of Texaco Chemical Company and related international chemical
operations to Huntsman Corporation.
During 1995, Texaco announced a stock repurchase program to buy up to $500
million of its common stock through open market or privately negotiated
transactions. Subject to market conditions and applicable regulatory
requirements, the stock repurchase program is expected to be completed around
the second quarter of 1997.
- 10 -
Texaco also announced that it has signed an agreement in principle with the
Korea Petroleum Development Corporation for the sale of a 15% interest in
Texaco's Captain Field in the U.K. North Sea for approximately $210 million.
This sale is expected to be completed in late 1996.
Subsequent to June 30, 1996, Texaco announced that it will increase its
quarterly dividend on its common stock to 85 cents per share from 80 cents per
share, an increase of 6.25 percent, effective with the third quarter 1996
dividend.
The company considers its financial position sufficient to meet its anticipated
future financial requirements.
EMPLOYEE SEVERANCE PROGRAM
- --------------------------
On July 5, 1994, Texaco announced its plan for growth which included a series of
action steps to increase competitiveness and profitability. This program also
called for reductions in overhead, including reduced layers of supervision, and
improvements in operating efficiencies. Implementation of Texaco's program was
expected to result in the reduction of approximately 2,500 employees worldwide
by June 30, 1995, involving U.S. and international upstream and downstream
segments, as well as various support staff functions. During the second quarter
of 1994, Texaco recorded an after-tax charge of $88 million for the anticipated
severance costs associated with the employee reductions. As a result of the
continued successful application of its overhead reduction initiative, Texaco
announced on October 2, 1995 that it had expanded this program to include
approximately 1,500 additional employee separations worldwide by year-end 1996.
In this regard, in the third quarter of 1995, Texaco recorded an after-tax
charge of $56 million for the cost of these additional employee separations.
As of June 30, 1996, implementation of Texaco's program has included reductions
of approximately 4,300 employees worldwide with a related commitment to
severance payments of $203 million, or an after-tax cost of $140 million. Of
this pre-tax commitment, payments of $179 million have been made as of June 30,
1996.
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Capital and exploratory expenditures for continuing operations, including equity
in such expenditures of affiliates, were $1,437 million for the first half of
1996, as compared to $1,272 million for the same period of 1995. Expenditures
for the second quarter of 1996 amounted to $796 million versus $759 million for
the second quarter of 1995.
Increased U.S. exploration and production expenditures in the first half of 1996
reflected the continued focus on key upstream opportunities especially in the
Gulf of Mexico, in both the immediate offshore and deepwater areas. The
investment increase resulted from higher levels of rank wildcat drilling,
continued revitalization of existing fields and an aggressive lease acquisition
program. Texaco's first subsea development, the Shasta Prospect, began producing
natural gas in the first quarter of 1996. In the deepwater areas, recent
appraisal wells have confirmed the commerciality of the 1995 Petronius discovery
and production testing at the Gemini Prospect confirmed that the reservoirs are
capable of producing at commercial rates. Significant deepwater acreage acquired
at the recent federal lease sale provides Texaco with the third-largest
inventory of deepwater Gulf of Mexico acreage holdings in the industry. Also,
planning has begun to construct a major natural gas gathering and transmission
pipeline and processing complex to be located onshore and offshore South
Louisiana.
Internationally, upstream investment for the first half of 1996 exceeded the
aggressive activity level of 1995. Increased expenditures focused on Latin
America, West Africa, the Partitioned Neutral Zone and Denmark while development
work continued on the Captain Field in the U.K. North Sea and in Indonesia.
Expenditures in downstream operations decreased due to the completion of
refinery upgrades in the U.S. and Panama, and the completion of refining
construction projects in Thailand and Singapore by Caltex, which were offset
partially by selected marketing investments, particularly in Latin American
growth markets.
- 11 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Reference is made to the discussion of Contingent Liabilities in Note 4 to the
Consolidated Financial Statements of this Form 10-Q, Item 1 of Texaco Inc.'s
Form 10-Q for the quarterly period ended March 31, 1996 and to Item 3 of Texaco
Inc.'s 1995 Annual Report on Form 10-K, which are incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The Annual Meeting of the Stockholders of Texaco Inc. was held on May 14, 1996,
for the purpose of (1) electing six directors, (2) approving the appointment of
auditors for the year 1996, and (3) acting on three stockholder proposals
concerning corporate conduct guidelines, termination of operations in Burma, and
the establishment of a shareholders' advisory committee. The following
summarizes the shareholder voting results:
Shareholders elected Ms. Robin B. Smith and Messrs. Michael C. Hawley, Allen J.
Krowe, William C. Steere, Jr., and William Wrigley, each for a three-year term
expiring at the 1999 Annual Meeting and Mr. Peter I. Bijur for a two-year term
expiring at the 1998 Annual Meeting. The vote tabulation for each individual
director was as follows:
Director Shares Voted for % of Vote Shares Withheld
-------------------------------------------------------------------------------------------
Peter I. Bijur 233,956,771 98.3 4,083,993
Michael C. Hawley 234,154,948 98.4 3,885,816
Allen J. Krowe 233,139,642 97.9 4,901,122
Robin B. Smith 234,030,264 98.3 4,010,500
William C. Steere, Jr. 234,222,383 98.4 3,818,381
William Wrigley 234,312,963 98.4 3,727,801
Directors continuing in office are Drs. John Brademas and Franklyn G. Jenifer,
and Messrs. Robert A. Beck, Willard C. Butcher, Edmund M. Carpenter, Thomas S.
Murphy, Charles H. Price II and Thomas A. Vanderslice.
The appointment of Arthur Andersen LLP to audit the accounts of the company and
its subsidiaries for the fiscal year 1996 was approved. Of those shares voted,
235,637,768 shares, or 99.3% voted in favor, 1,629,362 shares, or 0.7% voted
against, and 773,634 shares abstained.
Stockholders rejected the three stockholder proposals. The proposal relating to
corporate conduct guidelines, as set forth in Item 3 of the 1996 Proxy
Statement, was rejected by a vote of 185,911,904 shares, or 95.0%, against.
Shares voting for the proposal totaled 9,755,792 shares, or 5.0%, and 15,311,414
shares abstained. The proposal relating to the termination of operations in
Burma, as set forth in Item 4 of the 1996 Proxy Statement, was rejected by a
vote of 189,396,048 shares, or 97.0%, against. Shares voting for the proposal
totaled 5,823,231 shares, or 3.0%, and 15,760,033 shares abstained. The proposal
relating to the establishment of a shareholders' advisory committee, as set
forth in Item 5 of the 1996 Proxy Statement, was rejected by a vote of
199,031,205 shares, or 96.3%, against. Shares voting for the proposal totaled
7,566,738 shares, or 3.7%, and 4,381,168 shares abstained.
- 12 -
Item 5. Other Information
- -------------------------
(Unaudited)
-------------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
------------------ --------------------
1996 1995(a) 1996 1995(a)
---- ------- ---- -------
(Millions of dollars)
FUNCTIONAL NET INCOME
- ---------------------
Operating earnings from continuing operations before
cumulative effect of accounting change
Petroleum and natural gas
Exploration and production
United States $ 510 $ 433 $ 243 $ 177
International 233 166 103 83
------ ----- ----- ------
Total 743 599 346 260
------ ----- ----- ------
Manufacturing, marketing and distribution
United States 148 11 144 30
International 396 263 304 79
------ ----- ----- ------
Total 544 274 448 109
------ ----- ----- ------
Total petroleum and natural gas 1,287 873 794 369
Nonpetroleum 5 11 3 7
------ ----- ----- ------
Total operating earnings 1,292 884 797 376
Corporate/Nonoperating (217) (195) (108) (105)
------ ----- ----- ------
Net income from continuing operations before
cumulative effect of accounting change 1,075 689 689 271
Cumulative effect of accounting change - (121) - -
------ ----- ----- ------
Net income $1,075 $ 568 $ 689 $ 271
====== ===== ===== ======
CAPITAL AND EXPLORATORY EXPENDITURES -
- --------------------------------------
INCLUDING EQUITY IN AFFILIATES
------------------------------
Exploration and production
United States $ 621 $ 387 $ 355 $ 215
International 450 438 243 295
------ ----- ----- ------
Total 1,071 825 598 510
------ ----- ----- ------
Manufacturing, marketing and distribution
United States 156 167 79 93
International 201 268 114 149
------ ----- ----- ------
Total 357 435 193 242
------ ----- ----- ------
Other 9 12 5 7
------ ----- ----- ------
Total 1,437 1,272 796 759
Discontinued operations - 1 - -
------ ----- ----- ------
Total, including equity in affiliates $1,437 $1,273 $ 796 $ 759
====== ====== ======= ======
(a) Previously reported results for 1995 have been reclassified and restated for the adoption of SFAS 121.
- 13 -
(Unaudited)
-------------------------------------------------
For the six months For the three months
ended June 30, ended June 30,
------------------ --------------------
1996 1995 1996 1995
---- ---- ---- ----
OPERATING DATA - INCLUDING INTERESTS
- ------------------------------------
IN AFFILIATES
-------------
Net production of crude oil and natural gas liquids
(thousands of barrels per day)
United States 387 385 391 382
Other Western Hemisphere 11 17 11 17
Europe 115 116 110 98
Other Eastern Hemisphere 263 237 268 236
----- ----- ----- -----
Total 776 755 780 733
Net production of natural gas available for sale
(millions of cubic feet per day)
United States 1,666 1,632 1,685 1,604
Europe 192 229 180 200
Other International 173 174 177 174
----- ----- ----- -----
Total 2,031 2,035 2,042 1,978
Natural gas sales (millions of cubic feet per day)
United States 3,120 3,221 3,007 3,166
Europe 276 267 255 240
Other International 183 184 187 183
----- ----- ----- -----
Total 3,579 3,672 3,449 3,589
Natural gas liquids sales, including purchased LPG's
(thousands of barrels per day)
United States 216 218 188 199
International 106 75 95 61
----- ----- ----- -----
Total 322 293 283 260
Refinery input (thousands of barrels per day)
United States 716 685 721 686
Other Western Hemisphere 60 32 64 41
Europe 337 270 340 226
Other Eastern Hemisphere 385 437 268 409
----- ----- ----- -----
Total 1,498 1,424 1,393 1,362
Refined product sales (thousands of barrels per day)
United States 1,027 896 1,034 904
Other Western Hemisphere 379 345 381 342
Europe 464 436 453 424
Other Eastern Hemisphere 712 756 627 731
----- ----- ----- -----
Total 2,582 2,433 2,495 2,401
- 14 -
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, 1995 (including portions of Texaco
Inc.'s Annual Report to Stockholders for the year 1995) and a
copy of Texaco Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1996, 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 on pages 8 through 18 of
the 1996 Proxy Statement of Texaco Inc., relating to the Annual
Meeting of Stockholders held on May 14, 1996, 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 second quarter of 1996, the Registrant filed a Current Report on
Form 8-K for the following event:
1. April 23, 1996 (date of earliest event reported: April 22, 1996)
Item 5. Other Events -- reported that Texaco issued an Earnings Press
Release for the first quarter 1996. Texaco appended as an exhibit
thereto a copy of the Press Release entitled "Texaco Reports Results
for the First Quarter 1996," dated April 22, 1996.
- 15 -
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 12, 1996
---------------
- 16-
EXHIBIT 11
TEXACO INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1996 AND 1995
---------------------------------------------------------
(Millions of dollars, except per share amounts)
(Unaudited)
-------------------------------------------------
For the six months For the three months
Primary Net Income Per Common Share ended June 30, ended June 30,
- ----------------------------------- ------------------ --------------------
1996 1995 1996 1995
---- ---- ---- ----
Net income from continuing operations before
cumulative effect of accounting change $ 1,075 $ 689 $ 689 $ 271
Cumulative effect of accounting change - (121) - -
------- ------- ------- -------
Net income 1,075 568 689 271
Less: Preferred stock dividend requirements (29) (31) (14) (15)
------- ------- ------- -------
Primary net income available for common stock $ 1,046 $ 537 $ 675 $ 256
======= ======= ======= =======
Average number of primary common shares
outstanding for computation of earnings
per share (thousands) 260,709 259,749 260,764 259,876
======= ======= ======= =======
Primary net income per common share $ 4.01 $ 2.07 $ 2.59 $ .99
======= ======= ======= =======
Fully Diluted Net Income Per Common Share
- -----------------------------------------
Net income $ 1,075 $ 568 $ 689 $ 271
Less: Preferred stock dividend requirements of
non-dilutive and anti-dilutive issues and
adjustments to net income associated with
dilutive securities (12) (13) (6) (6)
------- ------- ------- -------
Fully diluted net income $ 1,063 $ 555 $ 683 $ 265
======= ======= ======= =======
Average number of primary common shares
outstanding for computation of earnings
per share (thousands) 260,709 259,749 260,764 259,876
Additional shares outstanding assuming full conversion of dilutive
convertible securities into common stock (thousands):
Convertible debentures 146 148 146 148
Convertible Preferred Stock
Series B ESOP 9,475 9,930 9,423 9,872
Series F ESOP 607 664 599 655
Other 26 78 22 50
------- ------- ------- -------
Average number of fully diluted common
shares outstanding for computation of earnings
per share (thousands) 270,963 270,569 270,954 270,601
======= ======= ======= =======
Fully diluted net income per common share $ 3.92 $ 2.05 $ 2.52 $ .98
======= ======= ======= =======
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, 1996 AND
FOR EACH OF THE FIVE YEARS ENDED DECEMBER 31, 1995 (a)
------------------------------------------------------
(Millions of dollars)
For the Six Years Ended December 31,
Months Ended -----------------------------------------
June 30, 1996 1995 1994 1993 1992 1991
------------- ---- ---- ---- ---- ----
Income from continuing operations, before provision or
benefit for income taxes and cumulative effect of
accounting changes effective 1-1-92 and 1-1-95.......... $2,046 $1,201 $1,409 $1,392 $1,707 $1,744
Dividends from less than 50% owned companies
more or (less) than equity in net income................ (3) 1 (1) (8) (9) 5
Minority interest in net income............................ 33 54 44 17 18 16
Previously capitalized interest charged to
income during the period................................ 14 33 29 33 30 23
------ ------ ------ ------ ------ ------
Total earnings..................................... 2,090 1,289 1,481 1,434 1,746 1,788
------ ------ ------ ------ ------ ------
Fixed charges:
Items charged to income:
Interest charges...................................... 280 614 594 546 551 644
Interest factor attributable to operating
lease rentals.................................... 55 110 118 91 94 76
Preferred stock dividends of subsidiaries
guaranteed by Texaco Inc......................... 17 36 31 4 -- --
------ ------ ------ ------ ------ ------
Total items charged to income...................... 352 760 743 641 645 720
Interest capitalized.................................... 7 28 21 57 109 80
Interest on ESOP debt guaranteed by Texaco Inc.......... 5 14 14 14 18 26
------ ------ ------ ------ ------ ------
Total fixed charges................................ 364 802 778 712 772 826
------ ------ ------ ------ ------ ------
Earnings available for payment of fixed charges............ $2,442 $2,049 $2,224 $2,075 $2,391 $2,508
(Total earnings + Total items charged to income) ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges of Texaco
on a total enterprise basis............................. 6.70 2.55 2.86 2.91 3.10 3.04
====== ====== ====== ====== ====== ======
(a) Excludes discontinued operations.
5
0000097349
TEXACO INC.
1,000,000
6-MOS
DEC-31-1996
JAN-1-1996
JUN-30-1996
724
98
4,061
28
1,478
6,561
31,666
18,805
25,241
5,206
5,159
0
613
1,595
7,818
25,241
20,876
21,532
16,127
17,511
2,105
0
221
1,695
620
1,075
0
0
0
1,075
4.01
3.92
