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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 JUNE 30, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-368-2
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CHEVRON CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-0890210
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
225 Bush Street, San Francisco, California 94104
- ------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 894-7700
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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 June 30, 1994
----------------------------- -----------------------------------
Common stock, $1.50 par value 651,683,110
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INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income for the three months
and six months ended June 30, 1994 and 1993 2
Consolidated Balance Sheet at June 30, 1994 and
December 31, 1993 3
Consolidated Statement of Cash Flows for the six months
ended June 30, 1994 and 1993 4
Notes to Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16-17
Item 6. Listing of Exhibits and Reports on Form 8-K 17
Signature 17
- 1 -
PART I. FINANCIAL INFORMATION
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
Millions of Dollars,
Except Per Share Amounts 1994 1993 1994 1993
- -----------------------------------------------------------------------------
REVENUES
Sales and other
operating revenues(1) $ 8,702 $ 9,413 $16,807 $18,316
Equity in net income of
affiliated companies 77 115 184 232
Other income 45 326 97 388
-----------------------------------------
TOTAL REVENUES 8,824 9,854 17,088 18,936
-----------------------------------------
COSTS AND OTHER DEDUCTIONS
Purchased crude oil and products 4,200 4,883 7,884 9,488
Operating expenses 1,603 2,401 3,100 3,741
Exploration expenses 73 69 178 143
Selling, general and
administrative expenses 325 395 633 761
Depreciation, depletion
and amortization 615 596 1,207 1,185
Taxes other than on income(1) 1,403 1,227 2,748 2,364
Interest and debt expense 83 81 156 168
-----------------------------------------
TOTAL COSTS AND OTHER DEDUCTIONS 8,302 9,652 15,906 17,850
-----------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 522 202 1,182 1,086
INCOME TAX EXPENSE 265 152 537 535
-----------------------------------------
NET INCOME $ 257 $ 50 $ 645 $ 551
-----------------------------------------
PER SHARE OF COMMON STOCK:(2)
NET INCOME $ .39 $ .08 $ .99 $ .85
DIVIDENDS $ .4625 $ .4375 $ .925 $ .875
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000S)(2) 651,675 650,810 651,650 650,640
(1) Includes consumer excise taxes. $ 1,206 $ 1,013 $2,358 $ 1,940
(2) All share and per share amounts for 1993 have been restated to reflect a
two-for-one stock split in May 1994.
See accompanying notes to consolidated financial statements.
- 2 -
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, DECEMBER 31,
Millions of Dollars 1994 1993
- ------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 1,203 $ 1,644
Marketable securities 373 372
Accounts and notes receivable 4,222 3,808
Inventories:
Crude oil and petroleum products 1,225 1,108
Chemicals 424 423
Materials and supplies 255 252
Other merchandise 18 18
------------------------
1,922 1,801
Prepaid expenses and other current assets 1,277 1,057
------------------------
TOTAL CURRENT ASSETS 8,997 8,682
Long-term receivables 104 94
Investments and advances 3,942 3,623
Properties, plant and equipment, at cost 45,649 44,807
Less: accumulated depreciation, depletion
and amortization 23,818 22,942
------------------------
21,831 21,865
Deferred charges and other assets 502 472
------------------------
TOTAL ASSETS $35,376 $34,736
------------------------
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 3,274 $ 3,325
Accrued liabilities 2,313 2,538
Short-term debt 4,296 3,456
Federal and other taxes on income 838 782
Other taxes payable 593 505
------------------------
TOTAL CURRENT LIABILITIES 11,314 10,606
Long-term debt and capital lease obligations 3,877 4,082
Non-current deferred income taxes 2,985 2,916
Reserves for employee benefit plans 1,548 1,458
Deferred credits and other non-current obligations 1,464 1,677
------------------------
TOTAL LIABILITIES 21,188 20,739
------------------------
Preferred stock (authorized 100,000,000
shares, $1.00 par value, none issued) - -
Common stock (authorized 1,000,000,000 shares,
$1.50 par value, 712,487,068 shares issued) 1,069 1,069
Capital in excess of par value 1,856 1,855
Deferred compensation - Employee Stock
Ownership Plan (ESOP) (889) (920)
Currency translation adjustment and other 212 108
Retained earnings 14,005 13,955
Treasury stock, at cost (shares 60,803,958
and 61,008,858 at June 30, 1994 and
December 31, 1993, respectively)* (2,065) (2,070)
------------------------
TOTAL STOCKHOLDERS' EQUITY 14,188 13,997
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $35,376 $34,736
------------------------
* Share amounts for 1993 have been restated to reflect a two-for-one stock
split in May 1994.
See accompanying notes to consolidated financial statements.
- 3 -
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
-----------------------
Millions of Dollars 1994 1993
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 645 $ 551
Adjustments
Depreciation, depletion and amortization 1,207 1,185
Dry hole expense related to prior years'
expenditures 26 10
Distributions less than equity in affiliates'
income (22) (114)
Net before-tax (gains) losses on asset
retirements and sales (26) 267
Net currency translation losses (gains) 9 (19)
Deferred income tax provision 76 (237)
Net increase in operating working capital (829) (255)
Other (73) 3
-----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,013 1,391
-----------------------
INVESTING ACTIVITIES
Capital expenditures (1,407) (1,410)
Proceeds from asset sales 140 642
Net (purchases) sales of marketable securities (2) 3
-----------------------
NET CASH USED FOR INVESTING ACTIVITIES (1,269) (765)
-----------------------
FINANCING ACTIVITIES
Net borrowings of short-term obligations 880 422
Proceeds from issuance of long-term debt 4 201
Repayments of long-term debt and other
financing obligations (462) (663)
Cash dividends paid (602) (569)
Purchases of treasury shares (3) (2)
-----------------------
NET CASH USED FOR FINANCING ACTIVITIES (183) (611)
-----------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (2) 10
-----------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (441) 25
CASH AND CASH EQUIVALENTS AT JANUARY 1 1,644 1,292
-----------------------
CASH AND CASH EQUIVALENTS AT JUNE 30 $1,203 $1,317
-----------------------
See accompanying notes to consolidated financial statements.
- 4 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Chevron Corporation and
its subsidiaries (the company) have not been audited by independent
accountants, except for the balance sheet at December 31, 1993. In the
opinion of the company's management, the interim data include all adjustments
necessary for a fair statement of the results for the interim periods. These
adjustments were of a normal recurring nature, except for the special items
described in Note 3.
The consolidated financial statements for the first six months of 1994 include
the effects of the company's adoption of Statements of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits," and
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
The company's prior accounting practices were substantially in compliance with
the new standards and adoption of the new standards did not have a material
effect on the company's consolidated financial statements or its liquidity.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
company's 1993 Annual Report on Form 10-K.
The results for the three-month and six month periods ended June 30, 1994 are
not necessarily indicative of future financial results.
NOTE 2. STOCK SPLIT
At the company's annual meeting on May 3, 1994, stockholders approved an
increase in the authorized shares of common stock from 500 million to 1
billion and approved a two-for-one split of the company's issued common stock.
The split was effective on May 11, 1994 for stockholders of record on that
date. All share and per share value amounts reflect the stock split for all
periods presented.
NOTE 3. NET INCOME
Net income for the second quarter of 1994 included special charges of $5
million for estimated environmental remediation expenses at certain U.S.
marketing facilities.
Special items reduced net income by $41 million for the six-month period ended
June 30, 1994. These charges included provisions of $26 million for estimated
environmental assessment and cleanup liabilities at certain U.S. refining and
marketing facilities and $15 million for a reserve adjustment related to the
resolution of certain regulatory issues with the Minerals Management Service.
Second quarter 1993 earnings included net special charges of $515 million.
These were comprised of a $552 million provision for the restructuring of the
company's U.S. refining and marketing operations and $111 million of other
unrelated provisions and charges for environmental programs, litigation, prior
year tax adjustments and asset writeoffs. Partially offsetting these special
charges were net gains of $148 million from the sales of the Ortho lawn and
garden products business and the company's Central American retail marketing
operations.
Net charges of $517 million for special items reduced net income for the
six-month period ended June 30, 1993. These special items included the
unfavorable effects of the $552 million restructuring provision and other
provisions and charges totaling $118 million for environmental programs,
litigation, asset writeoffs and prior year tax adjustments. These charges were
partially offset by gains from asset sales of $153 million.
Foreign exchange losses included in second quarter 1994 net income were $21
million, compared with gains of $37 million in the 1993 second quarter. For
the six-month period ending June 30, 1994, net income included foreign
exchange losses of $21 million, compared with gains of $33 million in the same
period of 1993.
- 5 -
NOTE 4. INFORMATION RELATING TO THE STATEMENT OF CASH FLOWS
The "Net increase in operating working capital" is composed of the following:
SIX MONTHS ENDED
JUNE 30,
----------------------
Millions of Dollars 1994 1993
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(Increase) decrease in accounts
and notes receivable $ (404) $ 37
Increase in inventories (121) (61)
(Increase) decrease in prepaid expenses
and other current assets (221) 4
Decrease in accounts payable and
accrued liabilities (218) (127)
Increase (decrease)in income and other
taxes payable 135 (108)
------------------------------------------------------------------------
Net increase in operating working capital $ (829) $ (255)
------------------------------------------------------------------------
"Net Cash Provided by Operating Activities" includes the following cash
payments for interest on debt and for income taxes:
SIX MONTHS ENDED
JUNE 30,
----------------------
Millions of Dollars 1994 1993
------------------------------------------------------------------------
Interest paid on debt (net of
capitalized interest) $ 185 $ 180
Income taxes paid $ 512 $ 869
------------------------------------------------------------------------
The "Net (purchases) sales of marketable securities" consists of the following
gross amounts:
Six Months Ended
June 30,
----------------------
Millions of Dollars 1994 1993
------------------------------------------------------------------------
Marketable securities purchased $ (697) $(1,089)
Marketable securities sold 695 1,092
------------------------------------------------------------------------
Net (purchases) sales of marketable securities $ (2) $ 3
------------------------------------------------------------------------
The Consolidated Statement of Cash Flows excludes the following non-cash
transactions:
In February 1994, the company took delivery of a new tanker, the Chevron
Employee Pride, under a capital lease arrangement. This asset was recorded as
a $65 million addition to properties, plant and equipment and to capital lease
obligations.
The company's Employee Stock Ownership Plan (ESOP) repaid $40 million and $30
million of matured debt guaranteed by Chevron Corporation in January of 1994
and 1993, respectively. These payments were recorded by the company as a
reduction in its debt outstanding and in Deferred Compensation - ESOP.
During the first six months of 1993, the company refinanced in excess of $200
million in tax exempt capital lease obligations.
In April 1993, the company acquired a 50 percent interest in the
Tengizchevroil joint venture (TCO) in the Republic of Kazakhstan through a
series of cash and non-cash transactions. The company's interest in TCO is
accounted for using the equity method of accounting and is recorded in
"Investments and advances" in the consolidated balance sheet. The cash
expended in connection with the formation of TCO and subsequent advances to
TCO are included in the consolidated statement of cash flows in "Capital
expenditures." The deferred payment portion of the TCO investment totaled $537
million at June 30, 1994 and is recorded in "Accrued liabilities" and
"Deferred credits and other non-current obligations" in the consolidated
balance sheet. Payments related to the deferred portion of the TCO investment
are classified as "Repayments of long-term debt and other financing
obligations" in the consolidated statement of cash flows.
- 6 -
NOTE 5. SUMMARIZED FINANCIAL DATA - CHEVRON U.S.A. INC.
Chevron U.S.A. Inc. is Chevron Corporation's principal operating company,
consisting primarily of the company's United States integrated petroleum
operations (excluding most of the domestic pipeline operations). These
operations are conducted by three divisions: Chevron U.S.A. Production
Company, Chevron U.S.A. Products Company and Warren Petroleum Company.
Summarized financial information for Chevron U.S.A. Inc. and its consolidated
subsidiaries is presented below:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
Millions of Dollars 1994 1993 1994 1993
- -----------------------------------------------------------------------------
Sales and other operating revenues 6,376 $6,492 $12,458 $14,255
Costs and other deductions 6,342 6,998 12,203 14,416
Net income 63 (310) 236 (53)
- -----------------------------------------------------------------------------
JUNE 30, December 31,
Millions of Dollars 1994 1993
- ----------------------------------------------------------------------------
Current assets $ 4,009 $ 3,661
Other assets 14,082 14,099
Current liabilities 7,002 5,936
Other liabilities 4,811 5,738
Net worth 6,278 6,086
- ----------------------------------------------------------------------------
NOTE 6. 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
Millions of Dollars 1994 1993 1994 1993
- -----------------------------------------------------------------------------
Sales and other operating revenues $3,518 $4,055 $6,816 $7,956
Operating income 182 265 427 544
Net income 119 195 297 383
- -----------------------------------------------------------------------------
Effective January 1, 1994, the Caltex group adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Adoption of SFAS 115 had no effect on Caltex's
reported earnings. However, at June 30, 1994, Caltex's stockholders' equity
included $86 million to reflect the write-up to fair market value of
investments held by certain affiliates.
NOTE 7. INCOME TAXES
The effective income tax rate for the first half of 1994 decreased to 45.4
percent from 49.3 percent in the 1993 first half. The primary reason for the
decrease was a proportionate shift to lower taxed income areas. Also
contributing to the decrease was the absence of the effects of unfavorable
prior-year tax adjustments recorded in the 1993 first half. Partially
offsetting these effects was a proportionate decrease in equity income
recorded on an after-tax basis.
- 7 -
NOTE 8. CONTINGENT LIABILITIES
LITIGATION -
The company is a defendant in numerous lawsuits, in addition to those
mentioned in this note. Plaintiffs may seek to recover large and sometimes
unspecified amounts, and some matters may remain unresolved for several
years.
A lawsuit brought against the company by Oxy U.S.A., the successor in interest
to Cities Services Company, remains pending in an Oklahoma state court. The
suit involves claims for breach of contract and misrepresentation related to
the termination of Gulf Oil Corporation's offer to purchase Cities' stock in
1982 (Gulf was acquired by Chevron in 1984). In 1994, plaintiff amended and
supplemented its petition to add claims for willful and malicious breach of
contract, negligent misrepresentation, and interference with prospective
economic advantage in connection with the 1989 proposed Oxy-Cities DOE
settlement, and includes the claimed DOE liability as additional contract
damages and as additional fraud damages. The amended and supplemented
petition also adds a claim for punitive damages based upon the alleged fraud,
negligent misrepresentation, willful breach and interference claims.
Defendants have moved to dismiss several of these claims and have filed a
counterclaim and defense based upon the Federal Entitlements Program.
In April 1991, a United States District Court in Texas ruled favorably on
claims brought by former employees of Gulf and participants in the Gulf
Pension Plan that a partial termination of the plan had occurred. However,
the court denied plaintiffs' claims to a share of any surplus plan assets.
In October 1991, parties agreed not to appeal the partial termination claims
except as relevant to plaintiffs' claims for a share of surplus plan assets.
These claims are now before the Fifth Circuit Court of Appeals.
Management is of the opinion that resolution of the lawsuits will not result
in any significant liability to the company in relation to its consolidated
financial position or liquidity.
OTHER CONTINGENCIES -
The U.S. federal income tax and California franchise tax liabilities of the
company have been settled through 1976 and 1987, respectively. For federal
income tax purposes, all issues other than the allocation of state income
taxes and the creditability of taxes paid to the Government of Indonesia have
been resolved through 1987. The Indonesia issue applies only to years after
1982. Settlement of open tax matters is not expected to have a material
effect on the consolidated net assets or liquidity of the company and, in the
opinion of management, adequate provision has been made for income and
franchise taxes for all years either under examination or subject to future
examination.
The company and its subsidiaries have certain other contingent liabilities
with respect to guarantees, direct or indirect, of debt of affiliated
companies or others and guarantees, claims and long-term commitments under
various agreements, the payments and future commitments for which are not
material in the aggregate.
- 8 -
In March 1992, an agency within the Department of Energy (DOE) issued a
Proposed Remedial Order (PRO) claiming Chevron failed to comply with DOE
regulations in the course of its participation in the Tertiary Incentive
Program. Although the DOE regulations involved were rescinded in March 1981,
following decontrol of crude oil prices in January 1981, and the statute
authorizing the regulations expired in September 1981, the PRO purports to be
for the period April 1980 through April 1990. The DOE claims the company
overrecouped under the regulations by $125 million during the period in
question. Including interest through June 1994, the total claim amounts to
$285 million. The company asserts that in fact it incurred a loss through
participation in the DOE program. The case is being heard by the DOE's Office
of Hearings and Appeals and is currently in the discovery phase. A hearing on
Chevron's no benefit argument will be held following discovery.
The company is subject to loss contingencies pursuant to environmental laws
and regulations that in the future may require the company to take action to
correct or ameliorate the effects on the environment of prior disposal or
release of chemical or petroleum substances by the company or other parties.
Such contingencies may exist for various sites including, but not limited to:
Superfund sites, operating refineries, oil fields, service stations, terminals
and land development areas. In addition, the company may have obligations
relating to prior asset sales or closed facilities, or for future costs to be
incurred upon the sale or disposition of existing operating facilities. The
amount of such future cost is indeterminable due to such factors as the
unknown magnitude of possible contamination, the unknown timing and extent of
the corrective actions that may be required, the determination of the
company's liability in proportion to other responsible parties and the extent
to which such costs are recoverable from insurance. While the amounts of
future costs may be material to the company's results of operations in the
period in which they are recognized, the company does not expect these costs
to have a material effect on Chevron's consolidated financial position or
liquidity.
The company's operations, particularly oil and gas exploration and production,
can be affected by changing economic, regulatory and political environments in
the various countries, including the United States, in which it operates. In
certain locations, host governments have imposed restrictions, controls and
taxes, and, in others, political conditions have existed that may threaten the
safety of employees and the company's continued presence in those countries.
Internal unrest or strained relations between a host government and the
company or other governments may affect the company's operations. Those
developments have, at times, significantly affected the company's related
operations and results, and are carefully considered by management when
evaluating the level of current and future activity in such countries.
Areas in which the company has significant operations include the United
States, Australia, United Kingdom, Canada, Nigeria, Angola, Papua New Guinea,
China, Indonesia and Zaire. The company's Caltex affiliates have significant
operations in Indonesia, Japan, Korea, Australia, the Philippines, Thailand
and South Africa. The company's Tengizchevroil affiliate operates in the
Republic of Kazakhstan.
- 9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 1994 COMPARED WITH SECOND QUARTER 1993
AND FIRST HALF 1994 COMPARED WITH FIRST HALF 1993
OVERVIEW AND OUTLOOK (1)
- --------------------
Net income for the second quarter of 1994 was $257 million ($.39 per share),
an increase of $207 million from the $50 million ($.08 per share), earned in
last year's second quarter. However, excluding the effects of special items
in both periods, the company's results were down 54 percent from the same
period a year earlier. Second quarter 1993 reported earnings included net
special charges of $515 million, of which $552 million pertained to a
provision for restructuring Chevron's U.S. refining and marketing business.
The remaining special items were comprised of gains on property sales of $148
million, charges of $39 million for environmental programs and charges of $72
million for prior-year taxes, litigation and other items. Special items
reduced earnings $5 million in the 1994 second quarter.
Reported earnings for the first six months of 1994 were $645 million, or $.99
per share, compared with $551 million or $.85 per share, reported for the
first half of 1993. Excluding special items in both periods, earnings
decreased 36 percent to $686 million in the 1994 period from $1.068 billion in
the 1993 six months.
Major factors in the company's earnings decline were very low crude oil prices
early in the year, about $4.00 per barrel below 1993's first quarter levels,
followed by deterioration in refined product sales margins in the second
quarter when crude oil prices, although still lower than in 1993, rose
rapidly.
In the U.S., the company's second quarter average crude oil prices rose about
$3.00 per barrel from the first quarter, yet average refined product prices
increased only slightly more than $1.00 per barrel because of market lags in
recovering the higher raw material costs.
Additionally, operational problems occurred during the quarter at each of the
company's three core U.S. refineries. The Pascagoula refinery was impacted
by a fire which put its FCC unit out of operation for nearly two months and the
two key West Coast refineries also experienced problems. Finally, results were
adversely affected by charges for the estimated uninsured costs of the
inadvertent contamination, by small quantities of jet fuel, of aviation
gasoline distributed in Northern California in May, and by trading losses
incurred as a part of the company's commodity price risk management activities.
Signs of improvement began in June; product prices have strengthened and now
appear to be better reflecting their raw material costs. If this trend
continues, the improvement in the company's downstream operations, coupled
with a continuation of higher crude prices in the upstream operations,
should result in improved earnings during the second half of 1994.
Total revenues were $8.8 billion for the 1994 second quarter, down 11 percent
from $9.9 billion in last year's second quarter. Revenues for the first six
months of 1994 were $17.1 billion, down from $18.9 billion in last year's
first half. In both 1994 periods, sales revenues declined on lower prices for
crude oil and refined products.
Operating, general and administrative expenses, adjusted for special items,
were $1.920 billion in the second quarter and $3.668 billion for the first
half of 1994, compared with $1.798 billion and $3.480 billion in the
comparable periods of 1993. The increases of 7 and 5 percent for the quarter
and first half, respectively, are primarily the result of operational problems
in the second quarter at the company's core refineries.
Taxes on income for the second quarter and first half of 1994 were $265
million and $537 million, respectively, compared with $152 million and
$535 million for the comparable 1993 periods. The effective income tax
rate for the first half of 1994 decreased to 45.4 percent from 49.3
percent in the 1993 first half. The primary reason for the
- ----------------
(1) Per share amounts reflect a two-for one split of the company's common
stock, effective May 11, 1994.
- 10 -
decrease was a proportionate income shift to lower taxed areas. Also
contributing to the decrease was the absence of the effects of unfavorable
prior-year adjustments recorded in the 1993 first half. Partially offsetting
these effects was a proportionate decrease in equity income recorded on an
after-tax basis.
Foreign exchange losses amounted to $21 million in both the 1994 second
quarter and six months, compared with gains of $37 million and $33 million in
last year's quarter and first half, respectively.
CURRENT DEVELOPMENTS
- --------------------
Transportation constraints continue to limit production from the Tengiz oil
field, owned and operated by Tengizchevroil (TCO), a company owned jointly by
Chevron and the Republic of Kazakhstan. The oil is being exported into world
markets under a transportation/exchange agreement with Russia, whereby TCO
receives and exports crude oil from Russia in exchange for providing Russia
with comparable amounts of Tengiz crude. Because of the oil's foul smell,
caused by sulphur compounds (mercaptans), Russia has restricted the amount of
oil allowed into its pipelines. TCO has recently reduced mercaptan levels by
successfully injecting chemicals that neutralize them. Effective August 1994,
the export quota to Russia was increased from 30,000 to approximately 50,000
barrels per day. Although export quotas are set monthly, TCO is cautiously
optimistic the higher quota will be maintained for the remainder of the year.
Current production capacity from the field is 65,000 barrels per day.
Construction is proceeding on demercaptanization plants that will remove the
mercaptans more economically and on additional production capacity.
In response to the lower than expected oil exports and the slump in oil
prices, TCO announced in late April that it was deferring some of its capital
spending, primarily in infrastructure development. Chevron's capitalized cash
investment in the project at June 30, 1994 was $567 million.
Increased export capability remains critical to realizing the joint venture's
full potential, and negotiations continue for terms of an export pipeline to
enable the project to market its output directly to world markets.
Participants in current pipeline negotiations include the company and the
Caspian Pipeline Consortium, composed of the Republics of Kazakhstan and
Russia and the Sultanate of Oman. The pipeline negotiations are continuing to
be very difficult, and it is currently impossible to predict the eventual
outcome or its impact on the joint venture.
In July, Nigerian oil workers' unions went on strike demanding political and
economic changes by the Nigerian government. The strike has made operating
conditions very difficult in Nigeria, but has thus far not materially affected
crude oil production levels. The company is unable to predict the length or
outcome of the strike or whether production will be maintained. The company's
share of production from its fields in Nigeria currently averages about
130,000 barrels per day.
The company's producing operations in Angola continue to be generally
unaffected by the civil unrest in that country. Significant development
projects are underway, with new production expected by the end of the year.
Chevron's share of current production is nearly 100,000 barrels per day.
The government of Congo granted Chevron and its partners a permit to develop
the Kitina oil discovery offshore West Africa. The Kitina field, discovered
in 1991, has estimated recoverable reserves exceeding 100 million barrels of
high-quality, light crude oil. Chevron has a 29.25 percent interest in the
Kitina field.
On August 8, 1994, the company announced that it had signed a three-and-a-half
year agreement to provide Kuwait Oil Company with technology and technical
support to enhance production and delivery of crude oil from the Burgan field,
the world's second largest oil field, in southeast Kuwait.
In May, crude oil production started from the Roller/Skate project offshore
Western Australia. Combined production from the two fields is expected to
reach 35,000 barrels of oil per day. Chevron holds a 25.71 percent interest
in the project.
- 11 -
The Hibernia project partners announced in April 1994 that the pre-production
costs for the project would be 15 to 20 percent more than the previous $5.2
billion (Canadian) forecast. Engineering costs and construction delays caused
by the complexity of the gravity base structure were cited as the reasons for
the over-run. Chevron, with an approximate 27 percent interest, remains
committed to the project. The company's capitalized investment in the
project, including capitalized interest, was $516 million at June 30, 1994.
In July 1994, Chevron and LUKoil Petroleum Company, the largest oil company in
Russia, signed an eight-year agreement allowing Chevron to purchase about
70,000 barrels a day of crude oil from LUKoil. Chevron expects to sell the
oil into world oil markets.
On August 4, 1994, Chevron completed the previously announced sale of its
Philadelphia refinery to Sun Company, Inc. Exclusive negotiations are
continuing with Clark Refining and Marketing, Inc. for the sale of the Port
Arthur, Texas, refinery; the company hopes to have that sale completed this
year. Both sales are a part of the major downstream restructuring announced
in May 1993. Although work continues to assess the extent of future
environmental remediation, at this time, the reserve established in the second
quarter of 1993 is believed to be sufficient to complete the restructuring.
In August 1994, the company announced a settlement agreement with the Internal
Revenue Service, substantially resolving all open tax issues for the nine
years 1979 through 1987. Chevron's net expenditure for the settlement is
approximately $550 million, after taking into account the tax deductibility
of the interest portion of the payment. Reserves, primarily accrued interest,
established in prior years for the contested issues significantly exceed the
amount of the total payment. The effect of the settlement will be recorded in
the third quarter.
REVIEW OF OPERATIONS
- --------------------
The following tables detail the company's after-tax earnings by major
operating area and selected operating data.
EARNINGS BY MAJOR OPERATING AREA
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
(Millions of Dollars) 1994 1993 1994 1993
- ------------------------------------------------------------------------------
Exploration and Production
United States $152 $207 $276 $402
International 134 142 245 307
- ------------------------------------------------------------------------------
Total Exploration and Production 286 349 521 709
- ------------------------------------------------------------------------------
Refining, Marketing and Transportation
United States (42) (507) 56 (407)
International 27 107 90 129
- ------------------------------------------------------------------------------
Total Refining, Marketing
and Transportation (15) (400) 146 (278)
- ------------------------------------------------------------------------------
Total Petroleum Operations 271 (51) 667 431
Chemicals 49 141 75 159
Coal and Other Minerals 12 8 27 28
Corporate and Other (75) (48) (124) (67)
- ------------------------------------------------------------------------------
NET INCOME $257 $50 $645 $551
==============================================================================
- 12 -
SELECTED OPERATING DATA
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1994 1993 1994 1993
- ------------------------------------------------------------------------------
U.S. EXPLORATION AND PRODUCTION
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 371 398 372 398
Net Natural Gas Production (MMCFPD) 2,146 2,027 2,168 2,060
Sales of Natural Gas Liquids (MBPD) 185 201 198 205
Revenue from Net Production
Crude Oil ($/Bbl.) $14.34 $15.97 $12.95 $15.80
Natural Gas ($/MCF) $ 1.79 $ 2.06 $ 1.96 $ 1.95
INTERNATIONAL EXPLORATION
AND PRODUCTION (1)
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 613 546 608 540
Net Natural Gas Production (MMCFPD) 519 492 525 485
Revenue from Liftings
Liquids ($/Bbl.) $14.84 $17.37 $14.01 $17.24
Natural Gas ($/MCF) $ 1.86 $ 2.13 $ 1.95 $ 2.13
U.S. REFINING AND MARKETING
Sales of Gasoline (MBPD) 625 660 633 650
Sales of Other Refined Products (MBD) 719 716 693 744
Refinery Input (MBPD) 1,237 1,285 1,195 1,269
Average Refined Product Sales
Price ($/Bbl.) $23.94 $26.85 $23.34 $26.34
INTERNATIONAL REFINING AND MARKETING (1)
Sales of Refined Products (MBPD) 891 931 918 900
Refinery Input (MBPD) 625 540 632 559
CHEMICAL SALES AND OTHER
OPERATING REVENUES (2)
United States $742 $706 $1,395 $1,433
International 156 147 304 282
-----------------------------------
Worldwide $898 $853 $1,699 $1,715
==============================================================================
(1) Includes equity in affiliates. Per unit revenue from net liftings for
1993 has been restated to include equity affiliates. Refinery input in
1994 includes South Africa, where local government restrictions
prohibited this disclosure prior to the fourth quarter of 1993.
(2) Millions of dollars. Includes sales to other Chevron companies.
----------------
MBPD=thousand barrels per day; MMCFPD=million cubic feet per day;
Bbl.=barrel; MCF=thousand cubic feet
WORLDWIDE EXPLORATION AND PRODUCTION earned $286 million in the second quarter
of 1994 compared with $349 million in the corresponding 1993 period. Earnings
of $521 million in the first six months of 1994 were 27 percent lower than the
$709 million earned in the 1993 first half.
U.S. EXPLORATION AND PRODUCTION net earnings declined to $152 million in the
second quarter from the $207 million earned in the 1993 second quarter. Six-
month 1994 earnings were $276 million compared with $402 million earned in the
1993 six months. Special charges reduced 1994 and 1993 six-months results by
$15 million and $12 million, respectively. There were no special items
recorded in either the 1994 or 1993 second quarters.
Although average crude oil realizations increased sharply from the first
quarter of 1994, they were still below last year's second quarter. Average
crude oil realizations were $14.34 per barrel, compared with $15.97 per barrel
in the 1993 second quarter. Year-to-date, crude oil realizations were $12.95
per barrel, compared with $15.80 in 1993. Lower natural gas prices also
contributed to the lower second quarter earnings. The company's average
natural gas sales price declined to $1.79 per thousand cubic feet from $2.06
in last year's second quarter, when prices were unseasonably strong. Natural
gas prices averaged $1.96 per thousand cubic feet during the 1994 six months,
about flat with the year-ago period.
- 13 -
Net liquids production for the quarter declined 7 percent to 371,000 barrels
per day, largely due to normal field declines. However, net natural gas
production volumes were up 6 percent to 2.1 billion cubic feet per day, as new
production in the Gulf of Mexico more than offset normal field declines.
INTERNATIONAL EXPLORATION AND PRODUCTION earnings were $134 million in the
quarter, compared with $142 million earned in the prior year second quarter.
This year's six months earnings were down 20 percent to $245 million from $307
million earned in the 1993 period. Earnings in the 1993 second quarter and
six months were reduced by special charges amounting to $26 million and $7
million, respectively, related to unfavorable tax adjustments and asset write-
offs. There were no special items recorded in the 1994 periods.
The benefit of 1994's higher production volumes did not fully offset lower
crude oil prices. Net liquids production increased 12 percent to 613,000
barrels per day in the 1994 second quarter and 13 percent in the first half.
New field production in the North Sea and Nigeria and increased production in
Indonesia and Kazakhstan contributed to the higher 1994 volumes. Also,
natural gas production was up 5 and 8 percent in the second quarter and six
months, respectively, primarily in Australia, Canada and the North Sea.
The 1994 quarter and six months included foreign exchange losses of $5 million
and $1 million, respectively, compared with gains of $21 million and $25
million in last year's second quarter and six months.
WORLDWIDE REFINING AND MARKETING operations reported a loss of $15 million in
the 1994 second quarter compared with a loss of $400 million for the 1993
second quarter. The 1994 first half earnings were $146 million compared with
losses of $278 million in the corresponding 1993 period.
U.S. REFINING AND MARKETING operations incurred a loss of $42 million in the
second quarter, compared with a loss of $507 million in the 1993 second
quarter which included special charges of $604 million, mostly related to a
restructuring provision for the expected financial effects of the company's
decision to sell its Port Arthur and Philadelphia refineries and to
consolidate and reorganize its Southeast U.S. marketing network. Results for
the current year quarter included a special charge of $5 million for
environmental remediation programs.
Six month earnings for 1994 were $56 million compared with losses of $407
million in 1993. These amounts include special charges of $26 million in 1994
and $618 million in 1993.
Excluding special items, the 1994 results reflected poor sales margins as the
surge in crude oil costs during the quarter could not be recovered through
higher refined products prices. In addition, an unusual amount of refinery
downtime resulted in higher operating expenses and required more costly third-
party product purchases to supply the company's marketing system. Operating
expenses also included charges for estimated uninsured costs related to the
inadvertent contamination, by small amounts of jet fuel, of aviation
gasoline distributed in Northern California in May.
The company engages in various risk management activities in conducting its
refining and marketing business, including inventory hedging transactions and
efforts to minimize short-term commodity price fluctuations from ongoing
trading activities. Earnings in the second quarter were adversely affected by
the results of these activities.
Total refined product sales volumes declined 2 percent and 5 percent from last
year's second quarter and six month periods.
INTERNATIONAL REFINING AND MARKETING net earnings declined to $27 million from
$107 million earned in the 1993 second quarter and to $90 million from $129
million for the respective six month periods. Earnings in the 1993 quarter
and six months included a $13 million asset sale gain.
Similar to the U.S. industry conditions, refined products prices did not keep
pace with the increase in crude oil costs. Also, the quarter and six month
results included foreign exchange losses of $9 million and $8 million,
respectively, whereas the prior-year periods had foreign exchange gains of $14
million and $10 million. Total refined products sales volumes in the second
quarter declined 4 percent as lower export sales in the company's trading
operations more than offset an increase in marketing sales volumes, but for
the 1994 first half were up 2 percent from the year-ago period.
- 14 -
CHEMICALS earned $49 million in the 1994 second quarter compared with $141
million in the prior-year quarter which included a $135 million gain from the
sale of the Ortho lawn and garden products business. Six month 1994 earnings
were $75 million compared with $159 million last year. Excluding the prior-
year asset sale gain, earnings improved significantly in the 1994 second
quarter and six months, particularly in the company's olefins business. As
the U.S. economy improves, increased demand has resulted in stronger prices
and higher sales volumes for the company's major commodity chemicals.
COAL AND OTHER MINERALS reported net earnings of $12 million in the second
quarter and $27 million for the 1994 six months. In the comparable periods of
1993, coal and other minerals reported net earnings of $8 million and $28
million, respectively. The 1993 six month period benefited from a $5 million
asset sale gain.
CORPORATE AND OTHER CHARGES were $75 million in the 1994 quarter compared with
charges of $48 million in the comparable period last year. Year-to-date
charges were $124 million in 1994 compared with $67 million in 1993. Both
1993 periods included special charges of $33 million for litigation
settlements.
In 1994, the company changed its method of distributing certain corporate
expenses to its business segments. As a result, corporate and other charges
in the 1994 second quarter and six months include approximately $58 million
and $78 million, respectively, that, under the previous method, would have
been allocated to the various business segments. This change had no net
income effect nor did it affect any segment's operational trends.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents totaled $1.2 billion at June 30, 1994, a $441
million decrease from year-end 1993. The draw-down of cash, cash from
operations and net increases in debt outstanding were used to fund the
company's capital expenditures and dividend payments to stockholders.
The company's debt and capital lease obligations totaled $8.173 billion at
June 30, 1994, up $635 million from $7.538 billion at year-end 1993. The
increase is primarily from $880 million of net short-term borrowings, largely
the issuance of commercial paper and $65 million in capital lease obligations
associated with the delivery of a new vessel. This was partially offset by
the repayment of approximately $290 million of long-term debt, including $200
million of 7 7/8 percent public debt originally due March 1, 1997. The
company also retired $40 million of debt related to the Employee Stock
Ownership Plan in January 1994.
Although the company benefits from low interest rates on short-term debt, the
large amount of short-term debt has reduced Chevron's ratio of current assets
to current liabilities, which was .82 at year-end 1993 and .80 at June 30,
1994. The company's short-term debt, consisting primarily of commercial paper
and current portion of long-term debt, totaled $6.176 billion at June 30,
1994. This amount includes $1.880 billion of short-term obligations that have
been classified as long-term since the company has both the intent and
ability, as evidenced by revolving credit arrangements, to refinance it on a
long-term basis. The company also intends to continually refinance its
remaining short-term debt. In order to manage Chevron's exposure to interest
rate fluctuations, the company has entered into various interest rate swaps on
both its long- and short-term debt. At August 8, the notional principal amount
of these financial instruments totaled approximately $850 million, including
$350 million entered into in August 1994.
In connection with the August 1994 settlement agreement with the Internal
Revenue Service (IRS), the company issued commercial paper to partially
fund the amount paid to the IRS. This increase in commercial paper was
partially offset by the receipt of proceeds from the sale of the company's
Philadelphia refinery, also in early August. Outstanding commercial paper
on August 8, 1994 was approximately $265 million higher than at June 30, 1994.
The company's debt ratio (total debt to total debt plus equity) was 36.6
percent at June 30, 1994, up from 35.0 percent at year-end 1993. The company
will continue to monitor its spending levels, market conditions and related
interest rates to maintain what it perceives to be reasonable debt levels.
The company believes it has the flexibility, financial resources and borrowing
capacity to fund its capital programs, pay dividends and meet unanticipated
cash requirements.
Worldwide capital and exploratory expenditures for the first half of 1994,
including the company's share of affiliates' expenditures, totaled $2.132
billion, a 19 percent increase from the $1.792 billion spent in the 1993 first
half. The increase was largely due to expenditures for the development of the
Tengiz oil field in Kazakhstan and for refinery construction and expansion
projects. Total expenditures for exploration and production activities
represented 58 percent of total outlays in both 1994 and 1993. Expenditures
outside the United States were 61 percent of the total outlays for the 1994
period, compared with 58 percent in 1993.
- 15 -
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CITIES SERVICE TENDER OFFER CASES -
The description contained in Part I, Item 3, Paragraph A of the company's
Annual Report on Form 10-K for the year ended December 31, 1993, as amended in
Part II, Item 1 of the company's Quarterly Report on Form 10-Q for the period
ended March 30, 1994, is hereby further amended as follows:
Defendants have answered, in part, the plaintiff's Second Amended Petition
and moved to dismiss the claims for negligent misrepresentation, malicious
breach of contract and interference with prospective economic advantage.
In addition, defendant Chevron Corporation has moved to dismiss the petition
for lack of subject matter jurisdiction.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of stockholders at the Annual
Meeting on May 3, 1994 and by proxy. The vote tabulations listed below reflect
pre-split shares.
Voters elected 12 incumbent directors for one year terms, including William E.
Crain, Corporate Vice President of Exploration and Production, who has elected
to retire on August 31, 1994. Mr. Crain's retirement will reduce the number of
Board members to eleven. The vote tabulation for individual directors was:
SHARES SHARES
DIRECTORS FOR WITHHELD
--------------------------------------------------
S.H. Armacost 264,468,722 2,850,233
J.D. Bonney 265,155,398 2,163,556
W.E. Crain 265,058,323 2,260,631
K.T. Derr 264,965,351 2,353,604
S. Ginn 265,169,520 2,149,434
C.A. Hills 264,770,569 2,548,385
C.M. Pigott 265,268,304 2,050,651
C. Rice 264,649,563 2,669,391
S.B. Smart Jr. 264,969,839 2,349,116
J.N. Sullivan 265,059,738 2,259,316
G.H. Weyerhaeuser 265,172,434 2,146,521
J.A. Young 265,157,965 2,160,990
Voters also approved the appointment of Price Waterhouse as the company's
independent accountants. The vote was 262,027,729 (98.6 percent) for and
3,662,682 (1.4 percent) against. There were also 1,636,360 abstentions.
Two proposals presented by the Board of Directors were approved by voters. A
proposal to increase the number of authorized shares of common stock from five
hundred million to one billion received 259,799,155 (98.1 percent) votes for
and 5,100,753 (1.9 percent) votes against. There were also 2,427,908
abstentions. The second proposal to split each issued share of common stock of
$3.00 par value into two new shares of $1.50 par value received 262,219,067
(98.8 percent) votes for and 3,238,025 (1.2 percent) votes against. There
were also 1,870,726 abstentions.
Voters rejected three stockholder proposals. One proposal to compensate
directors solely in the form of common stock was rejected with a vote of
212,631,861 (93.3 percent) against and 15,256,181 (6.7 percent) for. There
were also 5,944,154 abstentions and 33,494,575 broker non-votes.
A second proposal asking Chevron to prepare a report on the impact of NAFTA on
the company was defeated with a vote of 211,626,980 (94.8 percent) against and
11,680,279 (5.2 percent) for. There were also 10,526,614 abstentions and
33,492,898 broker non-votes.
- 16 -
A third proposal asking Chevron to prepare a report on environmental and
safety hazards was defeated with a vote of 208,774,792 (93.4 percent) against
and 14,659,731 (6.6 percent) for. There were also 10,398,958 abstentions and
33,493,290 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(3.1) Restated Certificate of Incorporation of Chevron Corporation, dated
August 2, 1994.
(3.2) By-laws of Chevron Corporation, as amended July 27, 1994.
(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.
(12) Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K
The company filed a Current Report on Form 8-K, dated August 4, 1994,
announcing unaudited earnings for the quarter and the six months ended
June 30, 1994.
The company filed a Current Report on Form 8-K, dated August 4, 1994,
which presented under "Item 5. Other Events," a Press Release announcing
a settlement agreement with the Internal Revenue Service that
substantially resolves all open tax issues for the nine years 1979 through
1987.
The company filed a Current Report on Form 8-K, dated August 11, 1994,
which contained the August 1, 1994 First Supplemental Indenture to the
May 15, 1987 original Indenture between Chevron Capital U.S.A. Inc.,
Chevron Corporation and The Chase Manhattan Bank (National Association).
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 August 12, 1994 /s/ DONALD G. HENDERSON
---------------------- ----------------------------
Donald G. Henderson,
Vice-President & Comptroller
(Principal Accounting Office
and Duly Authorized Officer)
- 17 -