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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-368-2
Chevron Corporation
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-0890210
------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
575 Market Street, San Francisco, California 94105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 894-7700
NONE
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(Former name or former address, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of March 31, 2000
- ---------------------------------- --------------------------------
Common stock, $1.50 par value 651,969,658
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INDEX
Page No.
Cautionary Statements Relevant to Forward-Looking Information
for the Purpose of "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995 1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income for the three months
ended March 31, 2000 and 1999 2
Consolidated Statement of Comprehensive Income for the
three months ended March 31, 2000 and 1999 2
Consolidated Balance Sheet at March 31, 2000
and December 31, 1999 3
Consolidated Statement of Cash Flows for the three months
ended March 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 5-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Listing of Exhibits and Reports on Form 8-K 23
Signature 23
Exhibit: Computation of Ratio of Earnings to Fixed Charges 24
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR
THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report on Form 10-Q contains forward-looking statements relating
to Chevron's operations that are based on management's current expectations,
estimates and projections about the petroleum and chemicals industries. Words
such as "expects," "intends," "plans," "projects," "believes," "estimates" and
similar expressions are used to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecast in
such forward-looking statements.
Among the factors that could cause actual results to differ materially are crude
oil and natural gas prices; refining and marketing margins; chemicals prices and
competitive conditions affecting supply and demand for the company's aromatics,
olefins and additives products; potential failure to achieve expected production
from existing and future oil and gas development projects; potential delays in
the development, construction or start-up of planned projects; potential
disruption or interruption of the company's production or manufacturing
facilities due to accidents or political events; potential liability for
remedial actions under existing or future environmental regulations and
litigation (including, particularly, regulations and litigation dealing with
gasoline composition and characteristics); and potential liability resulting
from pending or future litigation. In addition, such statements could be
affected by general domestic and international economic and political
conditions. Unpredictable or unknown factors not discussed herein also could
have material adverse effects on forward-looking statements. Chevron undertakes
no obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
-1-
PART I. FINANCIAL INFORMATION
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
March 31,
Millions of Dollars, Except Per-Share Amounts 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Revenues and Other Income
Sales and other operating revenues* $ 11,356 $ 6,399
Income from equity affiliates 196 144
Other income 146 146
---------------------------
Total Revenues and Other Income 11,698 6,689
---------------------------
Costs and Other Deductions
Purchased crude oil and products 6,249 2,781
Operating expenses 1,238 1,160
Selling, general and administrative expenses 377 397
Exploration expenses 96 88
Depreciation, depletion and amortization 651 566
Taxes other than on income* 1,109 1,078
Interest and debt expense 129 105
---------------------------
Total Costs and Other Deductions 9,849 6,175
---------------------------
Income Before Income Tax Expense 1,849 514
Income Tax Expense 805 185
---------------------------
Net Income $ 1,044 $ 329
===========================
Per Share of Common Stock:
Net Income - Basic $ 1.59 $ .50
- Diluted $ 1.59 $ .50
Dividends $ .65 $ .61
Weighted Average Number of
Shares Outstanding (000s) - Basic 656,132 654,677
- Diluted 658,124 654,793
<FN>
* Includes consumer excise taxes. $ 913 $ 912
</FN>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
March 31,
Millions of Dollars, 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 1,044 $ 329
--------------------------
Unrealized holding gain (loss) on securities 10 (6)
Minimum pension liability adjustment (15) (11)
--------------------------
Other Comprehensive Loss, net of tax (5) (17)
--------------------------
Comprehensive Income $ 1,039 $ 312
==========================
See accompanying notes to consolidated financial statements.
-2-
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, December 31,
2000 1999
Millions of Dollars (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 1,185 $ 1,345
Marketable securities 627 687
Accounts and notes receivable 4,013 3,688
Inventories:
Crude oil and petroleum products 659 585
Chemicals 505 526
Materials, supplies and other 284 291
-----------------------------------
1,448 1,402
Prepaid expenses and other current assets 1,244 1,175
-----------------------------------
Total Current Assets 8,517 8,297
Long-term receivables 824 815
Investments and advances 5,643 5,231
Properties, plant and equipment, at cost 54,293 54,212
Less: accumulated depreciation, depletion and amortization 29,111 28,895
-----------------------------------
25,182 25,317
Deferred charges and other assets 1,083 1,008
-----------------------------------
Total Assets $41,249 $40,668
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $ 3,512 $ 3,434
Accounts payable 3,064 3,103
Accrued liabilities 1,058 1,210
Federal and other taxes on income 1,041 718
Other taxes payable 408 424
-----------------------------------
Total Current Liabilities 9,083 8,889
Long-term debt 5,085 5,174
Capital lease obligations 315 311
Deferred credits and other noncurrent obligations 1,821 1,739
Noncurrent deferred income taxes 5,094 5,010
Reserves for employee benefit plans 1,846 1,796
-----------------------------------
Total Liabilities 23,244 22,919
-----------------------------------
Preferred stock (authorized 100,000,000
shares, $1.00 par value, none issued) - -
Common stock (authorized 1,000,000,000 shares,
$1.50 par value, 712,487,068 shares issued) 1,069 1,069
Capital in excess of par value 2,225 2,215
Deferred compensation (636) (646)
Accumulated other comprehensive income (120) (115)
Retained earnings 18,024 17,400
Treasury stock, at cost (60,664,587 and 56,140,994 shares
at March 31, 2000 and December 31, 1999, respectively) (2,557) (2,174)
-----------------------------------
Total Stockholders' Equity 18,005 17,749
-----------------------------------
Total Liabilities and Stockholders' Equity $41,249 $40,668
===================================
See accompanying notes to consolidated financial statements.
-3-
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
Millions of Dollars 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 1,044 $ 329
Adjustments
Depreciation, depletion and amortization 651 566
Dry hole expense related to prior years' expenditures 14 19
Distributions less than income from equity affiliates (129) (102)
Net before-tax gains on asset retirements and sales (56) (108)
Net foreign currency (gains) losses (27) 15
Deferred income tax provision 94 60
Net (increase) decrease in operating working capital (325) 90
Other, net 30 (78)
-------------------------
Net Cash Provided by Operating Activities 1,296 791
-------------------------
Investing Activities
Capital expenditures (881) (797)
Proceeds from asset sales 146 145
Net sales (purchases) of marketable securities 75 (102)
Other investing cash flows, net (5) (22)
-------------------------
Net Cash Used for Investing Activities (665) (776)
-------------------------
Financing Activities
Net borrowings of short-term obligations 68 484
Proceeds from issuance of long-term debt 19 12
Repayments of long-term debt and other financing obligations (80) (214)
Cash dividends (427) (399)
Net (purchases) sales of treasury shares (370) 70
-------------------------
Net Cash Used for Financing Activities (790) (47)
-------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (1) 1
-------------------------
Net Change in Cash and Cash Equivalents (160) (31)
Cash and Cash Equivalents at January 1 1,345 569
-------------------------
Cash and Cash Equivalents at March 31 $ 1,185 $ 538
=========================
See accompanying notes to consolidated financial statements.
-4-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Interim Financial Statements
The accompanying consolidated financial statements of Chevron Corporation and
its subsidiaries (the company) have not been audited by independent accountants,
except for the balance sheet at December 31, 1999. In the opinion of the
company's management, the interim data include all adjustments necessary for a
fair statement of the results for the interim periods. These adjustments were of
a normal recurring nature, except for the special items described in Note 2.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
company's 1999 Annual Report on Form 10-K.
The results for the three-month period ended March 31, 2000, are not necessarily
indicative of future financial results.
Note 2. Net Income
Net income for the first quarter of 2000 included a $62 million special charge
related to a patent litigation issue. Net special benefits in net income for the
1999 quarter included a gain of $60 million from the sale of the company's
interest in a coal mining affiliate, partially offset by net environmental
remediation provisions of $12 million for the company's U.S. exploration and
production and refining, marketing and transportation operations.
Net income included foreign currency gains of $46 million in the first quarter
2000, compared with losses of $9 million in the first quarter 1999.
Note 3. Information Relating to the Statement of Cash Flows
The "Net (increase) decrease in operating working capital" is composed of the
following:
Three Months Ended
March 31,
Millions of Dollars 2000 1999
- -------------------------------------------------------------------------------------------
(Increase) decrease in accounts and notes receivable $ (325) $ 41
(Increase) decrease in inventories (46) 34
Increase in prepaid expenses and other current assets (87) (153)
(Decrease) increase in accounts payable and accrued liabilities (186) 57
Increase in income and other taxes payable 319 111
- -------------------------------------------------------------------------------------------
Net (increase) decrease in operating working capital $ (325) $ 90
- -------------------------------------------------------------------------------------------
-5-
"Net Cash Provided by Operating Activities" includes the following cash payments
for interest on debt and for income taxes:
Three Months Ended
March 31,
Millions of Dollars 2000 1999
- -------------------------------------------------------------------------------------------
Interest paid on debt (net of capitalized interest) $ 143 $ 110
Income taxes paid $ 380 $ 9
- -------------------------------------------------------------------------------------------
The increase in "income taxes paid" between periods shown above primarily
reflects higher payments of non-US income taxes in the first quarter 2000.
The "Net sales (purchases) of marketable securities" consists of the following
gross amounts:
Three Months Ended
March 31,
Millions of Dollars 2000 1999
- -------------------------------------------------------------------------------------------
Marketable securities purchased $ (866) $ (793)
Marketable securities sold 941 691
- -------------------------------------------------------------------------------------------
Net sales (purchases) of marketable securities $ 75 $ (102)
- -------------------------------------------------------------------------------------------
The Consolidated Statement of Cash Flows excludes the following non-cash
transactions:
The company's Employee Stock Ownership Plan (ESOP) repaid $10 million and $70
million of matured debt guaranteed by Chevron Corporation in January of 2000 and
1999, respectively. These payments were recorded by the company as a reduction
in its debt outstanding and in Deferred Compensation - ESOP.
Note 4. Operating Segments and Geographic Data
Chevron manages its exploration and production; refining, marketing and
transportation; and chemicals businesses separately.
In February 2000, Chevron and Phillips Petroleum Company signed a letter of
intent and exclusivity agreement to combine most of their chemicals businesses
in a joint venture. Each company will own 50 percent of the joint venture -
Chevron Phillips Chemical Company which expects to have annual sales and total
assets of about $6 billion. In April, the plan cleared U.S. Federal Trade
Commission review. Other regulatory clearances and final approval of the
companies' boards of directors are expected to be completed by mid-2000.
"All Other" activities include the company's share of earnings from and
investment in Dynegy Inc., corporate administrative costs, worldwide cash
management and debt financing activities, coal mining operations, insurance
operations, and real estate activities. The company's primary country of
operation is the United States, its country of domicile. Activities in no other
country meet the materiality requirements for separate disclosure.
-6-
Reportable operating segment sales and other operating revenues, including
internal transfers, for the three-month periods ended March 31, 2000 and 1999,
are presented in the following table.
Three Months Ended
March 31,
----------------------
Millions of Dollars 2000 1999
- ----------------------------------------------------------------------------------------
Exploration and Production
United States $ 1,221 $ 628
International 2,360 988
----------------------
Sub-total 3,581 1,616
Intersegment Elimination - United States (756) (306)
Intersegment Elimination - International (1,019) (440)
----------------------
Total Exploration and Production 1,806 870
----------------------
Refining, Marketing and Transportation
United States 6,715 3,818
International 1,765 919
----------------------
Sub-total 8,480 4,737
Intersegment Elimination - United States (130) (63)
Intersegment Elimination - International (4) (4)
----------------------
Total Refining, Marketing and Transportation 8,346 4,670
----------------------
Chemicals
United States 917 627
International 250 176
----------------------
Sub-total 1,167 803
Intersegment Elimination - United States (53) (39)
----------------------
Total Chemicals 1,114 764
----------------------
All Other
United States 113 107
International 4 2
----------------------
Sub-total 117 109
Intersegment Elimination - United States (24) (13)
Intersegment Elimination - International (3) (1)
----------------------
Total All Other 90 95
----------------------
Sales and Other Operating Revenues
United States 8,966 5,180
International 4,379 2,085
- ----------------------------------------------------------------------------------------
Sub-total 13,345 7,265
Intersegment Elimination - United States (962) (421)
Intersegment Elimination - International (1,027) (445)
- ----------------------------------------------------------------------------------------
Total Sales and Other Operating Revenues $ 11,356 $ 6,399
========================================================================================
-7-
The company evaluates the performance of its operating segments on an after-tax
basis, excluding the effects of debt financing interest expense or investment
interest income, both of which are managed by Chevron Corporation on a worldwide
basis. Corporate administrative costs and assets are not allocated to the
operating segments; however, operating segments are billed for direct corporate
services. Nonbillable costs remain as corporate center expenses. After-tax
earnings by segment for the three-month month periods ended March 31, 2000 and
1999, are presented in the following table.
Three Months Ended
March 31,
--------------------
Millions of Dollars 2000 1999
- ----------------------------------------------------------------------------------------
Exploration and Production
United States(1) $ 365 $ 38
International 653 116
--------------------
Total Exploration and Production 1,018 154
--------------------
Refining, Marketing and Transportation
United States (7) 82
International 8 87
--------------------
Total Refining, Marketing and Transportation 1 169
--------------------
Chemicals
United States 47 38
International 21 12
--------------------
Total Chemicals 68 50
--------------------
--------------------
Total Segment Income 1,087 373
--------------------
Interest Expense (89) (74)
Interest Income 15 13
Other(1) 31 17
- ----------------------------------------------------------------------------------------
Net Income $ 1,044 $ 329
- ----------------------------------------------------------------------------------------
<FN>
(1) 1999 restated to conform to the 2000 presentation. Effective in the first
quarter 2000, the company's share of earnings from Dynegy, Inc. is reported
in Other.
</FN>
-8-
Segment assets at March 31, 2000 and year-end 1999 are presented in the
following table. Segment assets do not include intercompany investments or
intercompany receivables.
March 31, December 31,
Millions of Dollars 2000 1999
- ------------------------------------------------------------------------------------------------------------
Exploration and Production
United States(1) $ 5,226 $ 5,215
International 14,000 13,748
-----------------------------
Total Exploration and Production 19,226 18,963
-----------------------------
Refining, Marketing and Transportation
United States 8,155 8,178
International 3,853 3,609
-----------------------------
Total Refining, Marketing and Transportation 12,008 11,787
-----------------------------
Chemicals
United States 3,370 3,303
International 942 923
-----------------------------
Total Chemicals 4,312 4,226
-----------------------------
-----------------------------
Total Segment Assets 35,546 34,976
-----------------------------
All Other(1)
United States 3,720 3,825
International 1,983 1,867
-----------------------------
Total All Other 5,703 5,692
-----------------------------
Total Assets - United States 20,471 20,521
Total Assets - International 20,778 20,147
- ------------------------------------------------------------------------------------------------------------
Total Assets $41,249 $40,668
- ------------------------------------------------------------------------------------------------------------
<FN>
(1) 1999 restated to conform to the 2000 presentation. Effective in the
first quarter 2000, the company's investment in Dynegy, Inc. is
reported in All Other.
</FN>
Note 5. Summarized Financial Data - Chevron U.S.A. Inc.
At March 31, 2000, Chevron U.S.A. Inc. was Chevron Corporation's principal U.S.
operating subsidiary, consisting primarily of the company's U.S. integrated
petroleum operations (excluding most of the domestic pipeline operations) and
the majority of the company's worldwide petrochemical operations. These
operations were conducted by Chevron U.S.A. Production Company, Chevron Products
Company and Chevron Chemical Company LLC. Summarized financial information for
Chevron U.S.A. Inc. and its consolidated subsidiaries is presented in the
following table.
Three Months Ended
March 31,
-----------------------
Millions of Dollars 2000 1999
- ------------------------------------------------------------------------------------------------------
Sales and other operating revenues $9,145 $5,252
Costs and other deductions 8,739 5,231
Net income 335 78
- ------------------------------------------------------------------------------------------------------
-9-
March 31, December 31,
Millions of Dollars 2000 1999(1)
- -----------------------------------------------------------------------------------------------------
Current assets $ 4,205 $ 3,889
Other assets 20,283 20,687
Current liabilities 4,104 4,685
Other liabilities 9,876 9,730
Net worth 10,508 10,161
======================================================================================================
Memo: Total Debt $ 6,934 $ 7,462
<FN>
(1)Certain asset and liability balances have been restated. Net worth
remains unchanged.
</FN>
Note 6. Summarized Financial Data - Chevron Transport Corporation Limited
Chevron Transport Corporation Limited (CTC), a Bermuda corporation, is an
indirect, wholly owned subsidiary of Chevron Corporation. Effective July 1999,
Chevron Transport Corporation, a Liberian corporation was merged into CTC, which
assumed all of the assets and liabilities of Chevron Transport Corporation. CTC
is the principal operator of Chevron's international tanker fleet and is engaged
in the marine transportation of crude oil and refined petroleum products. Most
of CTC's shipping revenue is derived by providing transportation services to
other Chevron companies. Chevron Corporation has guaranteed this subsidiary's
obligations in connection with certain debt securities where CTC is deemed to be
an issuer. In accordance with the Securities and Exchange Commission's
disclosure requirements, summarized financial information for CTC and its
consolidated subsidiaries is presented below. This summarized financial data was
derived from the financial statements prepared on a stand-alone basis in
conformity with accounting principles generally accepted in the United States.
Three Months Ended
March 31,
-----------------------
Millions of Dollars 2000 1999
- ----------------------------------------------------------------------------
Sales and other operating revenues $122 $122
Costs and other deductions 150 136
Net loss (28) (6)
============================================================================
March 31, December 31,
Millions of Dollars 2000 1999
- ------------------------------------------------------------------------
Current assets $ 206 $ 184
Other assets 715 742
Current liabilities 606 580
Other liabilities 261 264
Net worth 54 82
- ------------------------------------------------------------------------
Separate financial statements and other disclosures with respect to CTC are
omitted because they are not material to investors in the debt securities deemed
issued by CTC. There were no restrictions on CTC's ability to pay dividends or
make loans or advances at March 31, 2000. The increase in net loss between
periods shown above is primarily due to higher vessel operating costs in 2000,
mainly fuel costs.
-10-
Note 7. Summarized Financial Data - Caltex Group of Companies
Summarized financial information for the Caltex Group of Companies, owned 50
percent by Chevron and 50 percent by Texaco Inc., is as follows (amounts
reported are on a 100 percent Caltex Group basis):
Three Months Ended
March 31,
----------------------
Millions of Dollars 2000 1999
- ---------------------------------------------------------------
Gross revenues(1) $4,110 $2,890
Income before income taxes 219 289
Net income 102 203
===============================================================
<FN>
(1)1999 restated to conform to the 2000 presentation, netting certain
offsetting trading sale and purchase contracts. The restatement has no
impact on net income.
</FN>
Note 8. Employee Termination Benefits and Other Restructuring Costs
In 1999, the company implemented a staff reduction program in all of its
operating segments across several businesses and accrued $220 million in
severance and other termination benefits for 3,472 employees. Employees affected
were primarily U.S.- based and all identified employees will be separated by
June 30, 2000. Termination benefits for 3,070 of the 3,472 employees - accrued
in accordance with SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Plans and for Termination Benefits" - are
payable from the assets of the company's U.S. and Canadian pension plans.
Accrual and payment activity for the employee termination benefits is presented
in the following table:
Restructuring
Liability Number of
(Millions of Dollars) Employees
- ------------------------------------------------------------------------------------------------------
1999 Accruals $ 220 3,472
1999 Cash Payments (135) (2,157)
- ------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 85 1,315
2000 Cash Payments (25) (427)
- ------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 $ 60 888
- ------------------------------------------------------------------------------------------------------
Note 9. Income Taxes
Taxes on income for the first quarter of 2000 were $805 million compared with
$185 million in last year's first quarter. The effective tax rate for the first
quarter of 2000 was 44 percent compared with 36 percent in last year's first
quarter. The increase in the effective tax rate was the result of lower equity
earnings recorded on an after-tax basis as a proportion of before-tax income and
a decrease in tax credits and capital loss benefits in 2000, compared with the
1999 period.
-11-
Note 10. Litigation
Chevron and five other oil companies filed suit in 1995 contesting the validity
of a patent granted to Unocal Corporation for reformulated gasoline, which
Chevron sells in California in certain months of the year. On March 29, 2000,
the U. S. Court of Appeals for the Federal Circuit upheld a trial court's
decisions that Unocal's patent is valid and enforceable and assessed damages of
5.75 cents per gallon for gasoline produced in infringement of the patent. On
April 26, 2000, Chevron and the five other defendants in this case filed a
petition for rehearing with the U.S. Court of Appeals for the Federal Circuit.
If Unocal's patent ultimately is upheld, the company's financial exposure
includes royalties, plus interest, for production of gasoline that is ruled to
have infringed the patent. As a result of the March 2000 ruling, the company
recorded in the first quarter 2000 a special after-tax charge of $62 million.
The majority of this charge pertains to gasoline production in the earlier part
of this period, before the company modified its manufacturing processes to
minimize the production of gasoline that allegedly infringes on Unocal's
patented formulations. Additional amounts were recorded as part of first quarter
2000 operational earnings, and the company will also accrue in the normal course
of business any future estimated liability for potential infringement of the
patent covered by the Court's ruling. Unocal has obtained additional patents for
alternate formulations that could affect a larger share of U.S. gasoline
production. Chevron believes these additional patents are invalid and
unenforceable. However, if such patents are ultimately upheld, the competitive
and financial effects on the company's refining and marketing operations, while
presently indeterminable, could be material.
There is an ongoing public debate concerning the petroleum industry's use of
MTBE and its potential environmental impact through seepage into drinking water
wells. Along with other oil companies, the company is a party to actions related
to the use of the chemical MTBE in certain oxygenated gasolines. These actions
may require the company to take action to correct or ameliorate the alleged
effects on the environment of prior disposal or release of MTBE by the company
or other parties. Additional lawsuits and claims related to the use of MTBE may
be filed in the future. Costs to the company related to these lawsuits and
claims is indeterminable due to such factors as the unknown magnitude of
possible contamination, the unknown timing and extent of the corrective actions
that may be required, the determination of the company's liability in proportion
to other responsible parties, and the extent to which such costs are recoverable
from third parties. Chevron has eliminated the use of MTBE in gasoline it sells
in certain areas.
Note 11. Other Contingencies and Commitments
The U.S. federal income tax and California franchise tax liabilities of the
company have been settled through 1993.
Settlement of open tax years, as well as tax issues in other countries where the
company conducts its businesses, is not expected to have a material effect on
the consolidated financial position or liquidity of the company and, in the
opinion of management, adequate provision has been made for income and franchise
taxes for all years under examination or subject to future examination.
The company and its subsidiaries have certain other contingent liabilities with
respect to guarantees, direct or indirect, of debt of affiliated companies or
others and long-term unconditional purchase obligations and commitments,
throughput agreements and take-or-pay agreements, some of which relate to
suppliers' financing arrangements.
The company is subject to loss contingencies pursuant to environmental laws and
regulations that in the future may require the company to take action to correct
or ameliorate the effects on the environment of prior disposal or release of
chemical or petroleum substances, including MTBE, by the company or other
parties. Such contingencies may exist for various sites including, but not
limited to: Superfund sites and refineries, oil fields, service stations,
terminals, and land development areas, whether operating, closed or sold. The
amount of such future cost is indeterminable due to such factors as the unknown
magnitude of possible contamination, the unknown timing and extent of the
corrective actions that may be required, the determination of the company's
liability in proportion to other responsible parties, and the extent to which
such costs are recoverable from third parties. While the company has provided
for known environmental obligations that are probable and reasonably estimable,
the amount of future
-12-
costs may be material to results of operations in the period in which they are
recognized. The company does not expect these costs to have a material effect on
its consolidated financial position or liquidity. Also, the company does not
believe its obligations to make such expenditures have had, or will have, any
significant impact on the company's competitive position relative to other
domestic or international petroleum or chemical concerns.
The company believes it has no material market or credit risk to its operations,
financial position or liquidity as a result of its commodities, and other
derivatives activities. However, the results of operations and financial
position of the company's equity affiliates Caltex and Dynegy, may be affected
by their business activities involving the use of derivative instruments.
The company's operations, particularly oil and gas exploration and production,
can be affected by changing economic, regulatory and political environments in
the various countries, including the United States, in which it operates. In
certain locations, host governments have imposed restrictions, controls and
taxes, and, in others, political conditions have existed that may threaten the
safety of employees and the company's continued presence in those countries.
Internal unrest or strained relations between a host government and the company
or other governments may affect the company's operations. Those developments
have, at times, significantly affected the company's related operations and
results, and are carefully considered by management when evaluating the level of
current and future activity in such countries. Areas in which the company has
significant operations include the United States, Canada, Australia, the United
Kingdom, Norway, Republic of Congo, Angola, Nigeria, Democratic Republic of
Congo, Papua New Guinea, China, Venezuela, Thailand and Argentina. The company's
Caltex affiliates have significant operations in Indonesia, Korea, Australia,
Thailand, the Philippines, Singapore, and South Africa. The company's
Tengizchevroil affiliate operates in Kazakhstan. The company's Dynegy affiliate
has operations in the United States, Canada, the United Kingdom and other
European countries.
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter 2000 Compared With First Quarter 1999
Financial Results
- -----------------
Net income for the first quarter of 2000 was $1.044 billion ($1.59 per
share-diluted and basic), more than three times the first quarter 1999 net
income of $329 million ($0.50 per share-diluted and basic). Net income for the
first quarter of 2000 included a special charge of $62 million for a patent
litigation matter, compared with net benefits of $48 million in last year's
first quarter. In 1999, a $60 million gain from the sale of the company's
interest in a coal mining affiliate was partially offset by $12 million of net
environmental remediation provisions for the company's U.S. operations.
Excluding the effect of the special items, the company posted record operating
earnings of $1.106 billion, nearly four times last year's first quarter
operating results.
The company's exploration and production (upstream) operations benefited from a
sharp rise in crude oil prices and earned $1.018 billion in the first quarter
2000. However, the company's refining, marketing and transportation (downstream)
businesses earned only $63 million, excluding the special item litigation
provision, in the quarter, as selling prices for refined products did not rise
as fast as the cost of refinery feedstocks, primarily crude oil, which
compressed margins.
Operating Environment and Outlook
- ---------------------------------
Chevron's earnings are affected significantly by fluctuations in the price of
crude oil and natural gas. In response to the 1999 agreement of certain OPEC and
non-OPEC oil producing countries to restrict the production of crude oil, rising
worldwide demand and low worldwide petroleum inventories, prices in the first
quarter 2000 were significantly higher than the year-ago quarter. In the first
quarter 2000, higher crude oil prices increased upstream earnings, while
squeezing margins in the downstream business. The average spot price for West
Texas Intermediate (WTI), a benchmark crude oil, was $28.91 per barrel for the
first quarter of 2000 the highest level since the pre-Gulf War buildup in late
1990. In comparison, crude oil prices in the first quarter 1999 were the lowest
in 20 years. WTI spot prices exceeded $34 per barrel in early March before
settling into a trading range of $24 to $27 per barrel later in the month, after
the oil producing countries agreed to raise production by about 2 million
barrels per day. Average U.S. natural gas prices for the first quarter of 2000
were also significantly higher than in last year's quarter. Henry Hub spot
natural gas prices increased 43 percent, compared with the first quarter 1999,
to $2.59 per thousand cubic feet. Crude oil and natural gas prices are expected
to fluctuate but they are likely to remain at levels exceeding last year's if
production curtailments continue and worldwide demand continues to strengthen.
As crude oil prices have dropped from their February-March highs above $30 per
barrel, earnings between upstream and downstream are expected to be more
balanced in the second quarter 2000 than the heavily weighted upstream earnings
recorded in the first quarter.
Chevron's production levels had not been materially affected by production
curtailments prior to the easing in March of the OPEC and non-OPEC restrictions.
Similarly, the company does not expect the easing of these restrictions to have
a material impact on its production levels from existing fields. The company
believes that in the current industry environment the net effect of any
continuing curtailments directed by host countries will not be significant to
its overall production levels. However, such curtailments or limits may have an
adverse effect on the level of new production from current and future
development projects. In addition, civil unrest, political uncertainty and
economic conditions may affect the company's producing operations. Community
protests have disrupted the company's production in the past, most recently in
Nigeria. The company continues to monitor developments closely in the countries
in which it operates.
Significant Developments Since the Beginning of 2000
- ----------------------------------------------------
Angola: Chevron had several successes in Block 14, a 1,560 square-mile
concession adjacent to Chevron-operated Block 0 that lies offshore the Cabinda
Province of Angola. Liquids production at the Chevron-operated Kuito Field,
Angola's first deepwater oil field, which came on-stream in December of last
year, reached 70,000 barrels per day in April. Commissioning work on the Kuito
producing facilities is continuing during the second quarter and the
-14-
reservoir is performing as expected. Also, two successful appraisal wells were
completed in the Benguela and Belize fields located in Block 14 near the Kuito
Field. Technical evaluation of the well results and options for the development
of the fields are under study.
Caspian Sea Region: Tengizchevroil (TCO), which is 45 percent owned by Chevron
and located in Kazakhstan, is nearing completion of a three-year plant expansion
project, Train 5. This will increase TCO's production to 260,000 barrels per day
by the fourth quarter of 2000. In addition, construction continues on the $2.5
billion pipeline by the Caspian Pipeline Consortium (CPC), in which Chevron owns
a 15 percent interest. The new and refurbished sections of the 1,500-kilometer
pipeline will deliver crude oil from the Tengiz Field to a new marine terminal
and tank farm north of the city of Novorossiysk on the Black Sea. Site
preparations for the terminal and tank farm are well under way. Overall, the CPC
project remains on schedule for delivery of first oil in mid-2001. With the
completion of this pipeline, TCO will have a lower cost export outlet for
increased crude oil production from the Tengiz Field.
Chad and Cameroon: In April, Chevron announced that it had taken a 25 percent
ownership interest in an international consortium developing the landlocked Doba
oil fields in southern Chad and in a related 650-mile export pipeline project
through Chad to the coast of Cameroon. Construction of the estimated $3.5
billion project, which is expected to produce and transport about one billion
barrels of oil over its 25- to 30-year life, is scheduled to begin later this
year. This project increases Chevron's position as one of the largest U.S.
investors in sub-Saharan Africa.
Norway: In April, Chevron was awarded three new licenses to explore for and
produce petroleum offshore Norway - including the operatorship of License PL259.
Combined with partnerships in other blocks, these new licenses provide Chevron
with an excellent portfolio of near- and longer-term oil and gas exploration and
production opportunities in Norway.
Chemicals: In February, Chevron and Phillips Petroleum Co. announced their
intent to combine most of their petrochemicals businesses into a joint venture
by mid-year. The plan cleared U.S. Federal Trade Commission review in April.
Other regulatory clearances are expected as the formation of the joint venture
proceeds. Each company will own 50 percent of the joint venture, to be named
Chevron Phillips Chemical Co., which expects to have annual sales and total
assets of about $6 billion. When finalized, the combination will provide
synergies that are expected to reduce annual costs by $150 million and improve
the effectiveness of capital spending.
Dynegy: Dynegy Inc., a 28 percent-owned affiliate, merged in February with
Illinova Corp., an energy services holding company in Illinois. The merger with
Illinova is part of Dynegy's energy convergence strategy, which includes
expanding its power and natural gas marketing and trading activities, as well as
its power generation business. Chevron invested an additional $200 million in
Dynegy at the time of the merger, and a further $69 million at the time of
Dynegy's April public offering of 4.6 million shares of common equity. These two
investments maintain Chevron's approximate 28 percent ownership interest in
Dynegy.
e-Business: The company is engaged in a number of initiatives as part of an
aggressive strategy to capture value associated with Internet technologies.
Chevron is participating in Petrocosm marketplace, a global procurement,
independent Internet business-to-business marketplace - scheduled for go-live in
June - that will be owned by buyers and suppliers across the energy industry. In
March, the company announced the formation of RetailersMarketXchange, a
business-to-business alliance that will provide services to convenience store
and small business retailers and suppliers.
Contingencies and Significant Litigation
- ----------------------------------------
Chevron and five other oil companies filed suit in 1995 contesting the validity
of a patent granted to Unocal Corporation for reformulated gasoline, which
Chevron sells in California in certain months of the year. On March 29, 2000,
the U. S. Court of Appeals for the Federal Circuit upheld a trial court's
decisions that Unocal's patent is valid and enforceable and assessed damages of
5.75 cents per gallon for gasoline produced in infringement of the patent. On
April 26, 2000, Chevron and the five other defendants in this case filed a
petition for rehearing with the U.S. Court of Appeals for the Federal Circuit.
If Unocal's patent ultimately is upheld, the company's financial
-15-
exposure includes royalties, plus interest, for production of gasoline that is
ruled to have infringed the patent. As a result of the March 2000 ruling, the
company recorded in the first quarter 2000 a special after-tax charge of
approximately $62 million for its estimated liability for the period ended
December 31, 1999. The majority of this charge pertains to gasoline production
in the earlier part of this period, before the company modified its
manufacturing processes to minimize the production of gasoline that allegedly
infringes on Unocal's patented formulations. Additional amounts were recorded as
part of first quarter 2000 operational earnings, and the company will also
accrue in the normal course of business any additional future estimated
liability for potential infringement of the patent covered by the Court's
ruling. Unocal has obtained additional patents for alternate formulations that
could affect a larger share of U.S. gasoline production. We believe these
additional patents are invalid and unenforceable. However, if such patents are
ultimately upheld, the competitive and financial effects on the company's
refining and marketing operations, while presently indeterminable, could be
material.
There is an ongoing public debate concerning the petroleum industry's use of
MTBE and its potential environmental impact through seepage into drinking water
wells. Along with other oil companies, the company is a party to actions related
to the use of the chemical MTBE in certain oxygenated gasolines. These actions
may require the company to take action to correct or ameliorate the alleged
effects on the environment of prior disposal or release of MTBE by the company
or other parties. Additional lawsuits and claims related to the use of MTBE may
be filed in the future. Costs to the company related to these lawsuits and
claims are indeterminable due to such factors as the unknown magnitude of
possible contamination, the unknown timing and extent of the corrective actions
that may be required, the determination of the company's liability in proportion
to other responsible parties, and the extent to which such costs are recoverable
from third parties. Chevron has eliminated the use of MTBE in gasoline it sells
in certain areas.
The company utilizes various derivative instruments to manage its exposure to
price risk stemming from its integrated petroleum activities. All these
instruments are commonly used in oil and gas trading activities and are
relatively straightforward, involve little complexity and are of a short-term
duration. Most of the activity in these instruments is intended to hedge a
physical transaction; hence, gains and losses arising from these instruments
offset, and are recognized concurrently with gains and losses from the
underlying transactions. The company believes it has no material market or
credit risks to its operations, financial position or liquidity as a result of
its commodities and other derivatives activities, including forward exchange
contracts and interest rate swaps. Chevron's control systems are designed to
monitor and manage its financial exposures in accordance with company policies
and procedures. The results of operations and financial position of the
company's equity affiliates Dynegy and Caltex, may be affected by their business
activities involving the use of derivative instruments.
The company's operations, particularly oil and gas exploration and production,
can be affected by changing economic, regulatory and political environments in
the various countries, including the United States, in which it operates. In
certain locations, host governments have imposed restrictions, controls and
taxes, and, in others, political conditions have existed that may threaten the
safety of employees and the company's continued presence in those countries.
Internal unrest or strained relations between a host government and the company
or other governments may affect the company's operations. Those developments
have, at times, significantly affected the company's related operations and
results, and are carefully considered by management when evaluating the level of
current and future activity in such countries. Areas in which the company has
significant operations include the United States, Canada, Australia, the United
Kingdom, Norway, Republic of Congo, Angola, Nigeria, Democratic Republic of
Congo, Papua New Guinea, China, Venezuela, Thailand and Argentina. The company's
Caltex affiliates have significant operations in Indonesia, Korea, Australia,
Thailand, the Philippines, Singapore, and South Africa. The company's
Tengizchevroil affiliate operates in Kazakhstan. The company's Dynegy affiliate
has operations in the United States, Canada, the United Kingdom and other
European countries.
The company and its affiliates continue to review and analyze their operations
and may close, abandon, sell, exchange, acquire or restructure assets to achieve
operational or strategic benefits and to improve competitiveness and
profitability. In addition, the company receives claims from, and submits claims
to, customers, trading partners, host governments, contractors, insurers and
suppliers. The amounts of these claims, individually and in the aggregate, may
be significant and take lengthy periods to resolve. The company also suspends
the costs of exploratory wells pending a final determination of the commercial
potential of the related oil and gas fields. The
-16-
ultimate disposition of these well costs is dependent on the results of future
drilling activity and/or development decisions. If the company decides not to
continue development, the costs of these wells are expensed. These activities,
individually or together, may result in gains or losses in future periods.
Employee Staff Reductions and Restructurings
- --------------------------------------------
During the second quarter of 1999, Chevron began implementing a staff reduction
program and other restructuring activities across the company. While the
programs affect the activities of all the company's business segments, most of
the net costs related to the termination and relocation of U.S.-based employees.
The staff reductions will be completed by the end of the second quarter 2000.
Review of Operations
- --------------------
Excluding special items, first quarter 2000 operating earnings were $1.106
billion, compared with $281 million in last year's first quarter. This year's
net income included a $62 million special charge for a patent litigation issue.
In 1999, a $60 million gain from the sale of the company's interest in a coal
mining affiliate was partially offset by $12 million of net environmental
remediation provisions for the company's U.S. upstream and downstream
operations. Return on capital employed, excluding special items, improved to
13.2 percent for the 12 months ended March 31, 2000, up from 8.3 percent for the
similar period last year.
Total revenues for the quarter were $11.7 billion, a 75 percent increase from
$6.7 billion in last year's first quarter. The increase was primarily
attributable to higher realizations from refined products, crude oil and natural
gas.
Although the rise in crude oil and natural gas prices has improved the company's
financial results, Chevron remains focused on reducing its cost structure for
the long-term. The company succeeded in holding overall operating expenses at
about the same level as last year's first quarter - approximately $5.40 per
barrel - despite higher fuel costs of 35 cents per barrel for refineries and
other operations.
Taxes on income for the first quarter of 2000 were $805 million compared with
$185 million in last year's first quarter. The effective tax rate for the first
quarter of 2000 was 44 percent compared with 36 percent in last year's first
quarter. The increase in the effective tax rate was the result of lower equity
earnings recorded on an after-tax basis as a proportion of before-tax income and
a decrease in tax credits and capital loss benefits in 2000, compared with the
1999 period.
Foreign currency gains increased net income by $46 million in the first quarter
of 2000, compared with losses of $9 million in the 1999 first quarter. The gains
in this year's first quarter reflected the strengthening of the U.S. dollar,
particularly against the Australian dollar.
The following tables detail Chevron's selected operating data and after-tax
earnings by major operating area.
-17-
SELECTED OPERATING DATA (1) (2)
Three Months Ended
March 31,
----------------------
2000 1999
- -----------------------------------------------------------------------------------------
U.S. Exploration and Production
Net Crude Oil and Natural Gas Liquids Production (MBPD) 307 306
Net Natural Gas Production (MMCFPD) 1,515 1,676
Sales of Natural Gas (MMCFPD) 3,331 3,359
Sales of Natural Gas Liquids (MBPD) 113 146
Revenue from Net Production
Crude Oil ($/Bbl.) $26.19 $ 9.97
Natural Gas ($/MCF) $ 2.40 $ 1.63
International Exploration and Production
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 844 809
Net Natural Gas Production (MMCFPD) 915 832
Sales of Natural Gas (MMCFPD) 2,050 1,908
Sales of Natural Gas Liquids (MBPD) 70 52
Revenue from Liftings
Liquids ($/Bbl.) $25.76 $10.71
Natural Gas ($/MCF) $ 2.22 $ 1.82
Other Produced Volumes (MBPD) (3) 112 103
U.S. Refining, Marketing and Transportation
Sales of Gasoline (MBPD) (4) 646 617
Sales of Other Refined Products (MBPD) 568 571
Refinery Input (MBPD) 816 924
Average Refined Product Sales Price ($/Bbl.) $36.47 $20.30
International Refining, Marketing and Transportation
Sales of Refined Products (MBPD) 811 898
Refinery Input (MBPD) 434 494
Chemical Sales and Other Operating Revenues (5)
United States $ 917 $ 627
International 250 177
----------------------------------------------------------------------------------------
Worldwide $1,167 $ 804
- -----------------------------------------------------------------------------------------
<FN>
(1) Includes equity in affiliates.
(2) MBPD=thousand barrels per day; MMCFPD=million cubic feet per day;
Bbl.=barrel; MCF=thousand cubic feet
(3) Total field production under the Boscan
operating service agreement in Venezuela and other operating service agreements.
(4) Includes branded and unbranded gasoline.
(5) Millions of dollars. Includes sales to other Chevron companies.
</FN>
-18-
NET INCOME BY MAJOR OPERATING AREA
Three Months Ended
March 31,
-------------------
Millions of Dollars 2000 1999
- ------------------------------------------------------------------------
Exploration and Production
United States (1) $ 365 $ 38
International 653 116
- ------------------------------------------------------------------------
Total Exploration and Production 1,018 154
- ------------------------------------------------------------------------
Refining, Marketing and Transportation
United States (7) 82
International 8 87
- ------------------------------------------------------------------------
Total Refining, Marketing and Transportation 1 169
- ------------------------------------------------------------------------
Chemicals 68 50
All Other (1)(2) (43) (44)
- ------------------------------------------------------------------------
Net Income $1,044 $ 329
- ------------------------------------------------------------------------
<FN>
(1) 1999 restated to conform to the 2000 presentation. Effective in the
first quarter 2000, the company's share of earnings for Dynegy, Inc. is
reported in All Other.
(2) Includes coal-mining operations, the company's ownership interest in Dynegy
Inc., worldwide cash management and debt financing activities, corporate
administrative costs, and marketable securities, corporate center costs,
insurance operations and real estate activities.
</FN>
Worldwide exploration and production net income was $1.018 billion in the first
quarter of 2000 compared with $154 million in the 1999 first quarter. U.S.
exploration and production net income in the first quarter of 2000 was $365
million compared with $38 million in the year-ago quarter. There were no special
items in this year's net income, whereas income benefited $3 million from the
reversal of certain environmental reserves in 1999. After adjusting for the
special item in 1999, operating earnings rose over nine-fold on sharply higher
crude oil and natural gas prices.
The company's average 2000 crude oil realization was $26.19 per barrel, more
than two and a half times the $9.97 recorded in the 1999 first quarter. Net
liquids production of 307,000 barrels per day was essentially flat between
quarters. Average natural gas realization of $2.40 per thousand cubic feet rose
47 percent in the 2000 first quarter in response to low storage volumes. The
company's net natural gas production of 1.5 billion cubic feet per day declined
about 10 percent from last year's level. The drop in natural gas production was
primarily attributable to field declines, offset partially by new production
from fields in the Gulf of Mexico, including Genesis and Gemini.
International exploration and production net income in the first quarter of 2000
was $653 million, compared with $116 million in the first quarter of 1999. The
increase in earnings reflected significantly higher crude oil prices and
increased sales volumes when compared with the year-ago quarter. Net
international liquids production increased 35,000 barrels per day to 844,000
barrels per day, primarily due to production from properties in Thailand and
Argentina acquired in March 1999 and September 1999, respectively, and higher
production in Australia and Canada. These increases were partially offset by a
decline in Chevron's share of Indonesian production - associated with the effect
of higher prices on cost-oil recovery volumes allowed under the
production-sharing agreement. Natural gas production increased 10 percent to 915
million cubic feet per day, mainly reflecting production volumes from the
acquired fields in Thailand and Argentina and from higher production in the
United Kingdom.
Earnings in the first quarter of 2000 included foreign currency gains of $28
million, compared with losses of $16 million in the 1999 quarter. Over half of
the swing in foreign currency effects occurred in the company's Australian
operations. In 1999, the foreign currency losses were mostly generated in the
Australian, Canadian and U.K. operations.
Worldwide refining, marketing and transportation net income was $1 million in
the first quarter of 2000, compared with net income of $169 million in last
year's first quarter. U.S. refining, marketing and transportation reported a net
loss of $7 million in the first quarter of 2000 compared with net income of $82
million in the year-ago quarter. Included in this year's results was a special
charge of $62 million for a patent litigation matter. Net income
-19-
for the 1999 first quarter included special charges of $15 million for
environmental remediation. Excluding the special charges in both periods, first
quarter operating earnings were $55 million compared with $97 million in the
first quarter of 1999.
The lower earnings in the 2000 first quarter primarily reflected lower margins
for the sales of gasoline and other refined products. Sales prices for refined
products did not rise fast enough to recover the large cost increases for raw
materials - mainly crude oil until late in the quarter. Chevron's average sales
realization for refined products rose 80 percent, while the price of crude oil
increased about 150 percent from the year-ago quarter. Earnings in 2000 were
further depressed by higher energy costs at the company's facilities, the
effects of a major planned shutdown at the company's Pascagoula, Mississippi,
refinery and repairs to the Richmond, California, refinery's Isomax unit, which
returned to operation late in the first quarter 2000 after being out of service
for nearly a year.
Total refined product sales volumes were 1,214,000 barrels per day in 2000, up
about 2 percent from the comparable quarter last year. Branded motor gasoline
sales of 514,000 barrels per day in 2000 declined 11,000 barrels per day. First
quarter 2000 branded motor gasoline sales were constrained by the effect of
late-1999 stockpiling in anticipation of Y2K-related supply disruptions, which
did not materialize. In early 2000, distributors deferred purchases while
working off these excess inventories.
International refining, marketing and transportation net income was $8 million
in the first quarter of 2000, down from $87 million for the first quarter of
1999. The decline was primarily attributable to lower earnings from Caltex
operations. Chevron's share of Caltex's first quarter 2000 losses was $7
million, compared with earnings of $74 million in last year's first quarter.
Caltex's decline in earnings was primarily due to lower refined products sales
margins, as competitive pricing prevented recovery of the rising raw material
costs. The Asia-Pacific market continues to suffer from surplus manufacturing
capacity for refined products.
First quarter 1999 results also benefited from a $29 million favorable inventory
adjustment.
Chevron's total international downstream sales volumes decreased in the first
quarter of 2000 to 811,000 barrels per day, compared with 898,000 barrels per
day in last year's quarter. The decline in sales volumes was mainly attributable
to the absence of Caltex's share of sales by a Japanese affiliate that was sold
in the 1999 third quarter. In addition, Caltex experienced lower sales volumes
in Korea and South Africa.
Net income included foreign currency gains of $20 million in the first quarter
2000, compared with gains of $5 million in the 1999 first quarter. Caltex's
Australian operations were responsible for most of the favorable foreign
currency swing.
Chemicals net income was $68 million in the 2000 first quarter, up 36 percent
from $50 million in last year's first quarter. Higher demand for certain
commodity chemical products in the United States and international areas
resulted in higher sales volumes and prices, contributing to improved sales
margins.
All Other activities include coal-mining operations, the company's ownership
interest in Dynegy Inc., worldwide cash management and debt financing
activities, corporate administrative costs, insurance operations and real estate
activities. In the first quarter of 2000, these activities incurred net charges
of $43 million compared with $44 million in 1999. Last year's charges included a
special gain of $60 million from the sale of the company's equity interest in a
coal mining affiliate.
Excluding special items, coal mining operations earned $3 million in the first
quarter 2000, compared with $19 million in the comparable prior-year quarter.
Lower sales volumes and prices led to a decline in earnings in 2000. Results for
1999 benefited from lower depreciation of the company's coal assets, at a time
when the assets were held for sale.
Net operating charges from other activities were $46 million in 2000, compared
with $123 million in 1999. The reduction in net charges reflected a combination
of several factors, including lower payroll costs, lower insurance expenses,
higher pension settlement gains and higher equity earnings from Dynegy, Inc.
-20-
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents totaled $1.185 billion at March 31, 2000 - a $160
million decrease from year-end 1999. Cash provided by operating activities was
$1.296 billion in the first quarter of 2000, up $505 million from the
corresponding 1999 quarter. Capital expenditures and dividend payments to
stockholders totaled $1.308 million in the first quarter of 2000. Cash provided
by operating activities in the first quarter of 2000 benefited from the higher
crude oil prices and the resulting impact on the company's earnings.
Total debt and capital lease obligations were $8.912 billion at March 31, 2000,
about the same level as at year-end 1999.
At March 31, 2000, Chevron had $4.750 billion in committed credit facilities
with various major banks, $2.725 billion of which had termination dates beyond
one year. These facilities support commercial paper borrowing and also can be
used for general requirements. No borrowings were outstanding under these
facilities at March 31, 2000.
The company benefits from lower interest rates available on short-term debt;
however, Chevron's proportionately large amount of short-term debt keeps its
ratio of current assets to current liabilities at relatively low levels. The
current ratio was 0.94 at March 31, 2000, about the same level as at December
31, 1999. The company's short-term debt, consisting primarily of commercial
paper and the current portion of long-term debt, totaled $6.237 billion at March
31, 2000. Of the total short-term debt, $2.725 billion was reclassified to
long-term debt because settlement of these obligations is not expected to
require the use of working capital during the next twelve months, as the company
has the intent and the ability, as evidenced by committed credit arrangements,
to refinance them on a long-term basis. The company's practice has been to
continually refinance its commercial paper, maintaining levels it believes to be
appropriate.
The company's debt ratio (total debt to total-debt-plus-equity) was 33.1 percent
at March 31, 2000, down slightly from 33.4% at year-end 1999. The company
continually monitors its spending levels, market conditions and related interest
rates to maintain what it perceives to be reasonable debt levels.
In December 1997, Chevron's Board of Directors approved the repurchase of up to
$2 billion of its outstanding common stock, providing shares for use in its
employee stock option programs. During the first quarter of this year, Chevron
purchased 4.8 million shares of its common stock at an average cost of $79.30
per share, for a total cost of $380 million. Since the inception of the share
repurchase program, 11.2 million shares have been bought on the open market for
$865 million, at an average cost of $77.40 per share.
In April, the company's stockholders approved an increase in the number of
authorized shares of Chevron Corporation common stock from 1 billion with a par
value of $1.50 to 2 billion with a par value of $.75. The company has no present
plan to issue any of these shares. The additional shares will be available for
the declaration of stock splits, stock dividends, acquisitions and any other
proper corporate purpose.
On April 26, 2000, Chevron declared a quarterly dividend of 65 cents per share,
unchanged from the preceding quarter.
-21-
Worldwide capital and exploratory expenditures for the first quarter 2000,
including the company's share of affiliates' expenditures, were $1.195 billion,
compared with $1.425 billion in the first quarter 1999. Expenditures for
international exploration and production projects were $456 million, or 38
percent of total expenditures, reflecting the company's continued emphasis on
increasing international oil and gas production. The first quarter 2000
expenditures included an investment of $200 million in Dynegy Inc., which
maintained Chevron's approximate 28 percent ownership interest following
Dynegy's February merger with Illinova. The first quarter 1999 expenditures
included about $500 million attributable to the acquisition of Rutherford-Moran
Oil Corporation and another interest in Block B8/32 offshore Thailand.
CAPITAL AND EXPLORATORY EXPENDITURES BY MAJOR OPERATING AREA
Three Months Ended
March 31,
--------------------
Millions of Dollars 2000 1999
- -----------------------------------------------------------------------------
United States
Exploration and Production $ 210 $ 225
Refining, Marketing and Transportation 81 113
Chemicals 23 101
All Other 301 48
- -----------------------------------------------------------------------------
Total United States 615 487
- -----------------------------------------------------------------------------
International
Exploration and Production 456 860
Refining, Marketing and Transportation 108 53
Chemicals 16 25
----------------------------------------------------------------------------
Total International 580 938
- -----------------------------------------------------------------------------
Worldwide $1,195 $1,425
=============================================================================
-22-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation, dated May 3, 2000.
3.2 By-Laws of Chevron Corporation, as amended March 29, 2000.
4 Pursuant to the Instructions to Exhibits, certain instruments
defining the rights of holders of long-term debt securities of the
company and its consolidated subsidiaries are not filed because the
total amount of securities authorized under any such instrument
does not exceed 10 percent of the total assets of the company and
its subsidiaries on a consolidated basis. A copy of any such
instrument will be furnished to the Commission upon request.
10.1 Chevron Corporation Long-Term Incentive Plan as amended effective
March 29,2000
10.2 Chevron Corporation Management Incentive Plan as amended effective
March 29,2000
10.3 Chevron Corporation Salary Deferral Plan as amended effective
March 29, 2000.
12 Computation of Ratio of Earnings to Fixed Charges
27.1 Financial Data Schedule for three months ended March 31, 2000.
Copies of above exhibits not contained herein are available, at a fee of
$2 per document, to any security holder upon written request to the
Secretary's Department, Chevron Corporation, 575 Market Street, San
Francisco, California 94105.
(b) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHEVRON CORPORATION
---------------------------------
(Registrant)
Date May 5, 2000 /s/ S.J. CROWE
------------------------------ ----------------------------------
S. J. Crowe, Comptroller
(Principal Accounting Officer and
Duly Authorized Officer)
-23-