==============================================================================
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 SEPTEMBER 30, 1995
------------------
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)
225 Bush Street, San Francisco, California 94104
- ------------------------------------------ -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 894-7700
---------------
NONE
--------------------------------------------------------------
(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 September 30, 1995
----------------------------- --------------------------------------
Common stock, $1.50 par value 652,234,000
==============================================================================
Index
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income for the three months
and nine months ended September 30, 1995 and 1994 2
Consolidated Balance Sheet at September 30, 1995 and
December 31, 1994 3
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1995 and 1994 4
Notes to Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
Millions of Dollars,
Except Per Share Amounts 1995 1994 1995 1994
- ----------------------------------------------------------------------------
REVENUES
Sales and other
operating revenues* $ 9,171 $ 9,396 $27,388 $26,203
Equity in net income of
affiliated companies 70 102 415 286
Other income 73 11 122 108
----------------------------------------
TOTAL REVENUES 9,314 9,509 27,925 26,597
----------------------------------------
COSTS AND OTHER DEDUCTIONS
Purchased crude oil and products 4,436 4,676 13,570 12,560
Operating expenses 1,655 1,937 4,366 5,037
Exploration expenses 92 91 234 269
Selling, general and
administrative expenses 344 (9) 987 624
Depreciation, depletion
and amortization 560 626 1,702 1,833
Taxes other than on income* 1,475 1,405 4,265 4,153
Interest and debt expense 93 93 307 249
----------------------------------------
TOTAL COSTS AND OTHER DEDUCTIONS 8,655 8,819 25,431 24,725
----------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 659 690 2,494 1,872
INCOME TAX EXPENSE 377 265 1,146 802
----------------------------------------
NET INCOME $ 282 $ 425 $ 1,348 $ 1,070
----------------------------------------
PER SHARE OF COMMON STOCK:
NET INCOME $ .44 $ .65 $ 2.07 $ 1.64
DIVIDENDS $ .50 $ .4625 $ 1.425 $ 1.3875
Weighted Average Number of
Shares Outstanding (000s) 652,156 651,667 652,023 651,656
* Includes consumer excise taxes. $ 1,290 $ 1,220 $3,702 $ 3,578
See accompanying notes to consolidated financial statements.
- 2 -
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31,
Millions of Dollars 1995 1994
- -----------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 783 $ 413
Marketable securities 534 893
Accounts and notes receivable 3,790 3,923
Inventories:
Crude oil and petroleum products 797 1,036
Chemicals 482 391
Materials and supplies 254 263
Other merchandise 18 20
------------------------
1,551 1,710
Prepaid expenses and other current assets 929 652
------------------------
TOTAL CURRENT ASSETS 7,587 7,591
Long-term receivables 145 138
Investments and advances 4,138 3,991
Properties, plant and equipment, at cost 48,088 46,810
Less: accumulated depreciation, depletion
and amortization 25,629 24,637
------------------------
22,459 22,173
Deferred charges and other assets 519 514
------------------------
TOTAL ASSETS $34,848 $34,407
------------------------
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $ 3,758 $ 4,014
Accounts payable 2,695 2,990
Accrued liabilities 1,133 1,274
Federal and other taxes on income 634 624
Other taxes payable 578 490
------------------------
TOTAL CURRENT LIABILITIES 8,798 9,392
Long-term debt and capital lease obligations 4,472 4,128
Deferred credits and other non-current obligations 1,993 2,043
Non-current deferred income taxes 2,878 2,674
Reserves for employee benefit plans 1,576 1,574
------------------------
TOTAL LIABILITIES 19,717 19,811
------------------------
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 1,862 1,858
Deferred compensation - Employee Stock
Ownership Plan (ESOP) (850) (900)
Currency translation adjustment and other 209 175
Retained earnings 14,891 14,457
Treasury stock, at cost (shares 60,253,068
and 60,736,435 at September 30, 1995 and
December 31, 1994, respectively) (2,050) (2,063)
------------------------
TOTAL STOCKHOLDERS' EQUITY 15,131 14,596
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $34,848 $34,407
------------------------
See accompanying notes to consolidated financial statements.
- 3 -
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
September 30,
-----------------------
Millions of Dollars 1995 1994
- -----------------------------------------------------------------------------
Operating Activities
Net income $1,348 $1,070
Adjustments
Depreciation, depletion and amortization 1,702 1,833
Dry hole expense related to prior years'
expenditures 10 43
Distributions less than equity in affiliates'
income (121) (26)
Net before-tax losses (gains) on asset
retirements and sales 146 (3)
Net currency translation losses 53 38
Deferred income tax provision 197 148
Net increase in operating working capital (404) (1,820)
Other (200) 317
-----------------------
Net Cash Provided by Operating Activities 2,731 1,600
-----------------------
Investing Activities
Capital expenditures (2,428) (2,109)
Proceeds from asset sales 515 324
Net sales (purchases) of marketable securities 388 (13)
-----------------------
Net Cash Used for Investing Activities (1,525) (1,798)
-----------------------
Financing Activities
Net (payments) borrowings of short-term obligations (277) 932
Proceeds from issuance of long-term debt 470 352
Repayments of long-term debt and other
financing obligations (88) (542)
Cash dividends paid (929) (904)
Purchases of treasury shares (4) (5)
-----------------------
Net Cash Used for Financing Activities (828) (167)
-----------------------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents (8) (4)
-----------------------
Net Change in Cash and Cash Equivalents 370 (369)
Cash and Cash Equivalents at January 1 413 1,644
-----------------------
Cash and Cash Equivalents at September 30 $ 783 $1,275
-----------------------
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, 1994. 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 1994 Annual Report on Form 10-K.
The results for the three-month and nine-month periods ended September 30,
1995 are not necessarily indicative of future financial results.
NOTE 2. NET INCOME
Third quarter 1995 net income included $222 million in net special charges,
largely comprised of a $168 million provision for the write-down of the
company's real estate development properties, which the company is exiting.
Other charges included $39 million for environmental remediation provisions
for certain U.S. facilities, $22 million for prior year tax adjustments
resulting primarily from a statutory tax rate increase in Australia, and
$20 million for restructuring provisions for various operations, including
those of the company's Caltex affiliate. Partially offsetting these charges
was a $27 million benefit from a refund of federal offshore lease costs.
Special items decreased net income by $163 million for the nine-month period
ended September 30, 1995. In addition to the $222 million recorded in the
1995 third quarter, the company recorded charges of $10 million for
environmental remediation provisions associated with U.S. marketing properties
formerly held by the company, $11 million for restructuring provisions and a
net gain of $80 million, primarily related to the sale of land by a Caltex
affiliate.
Net income in third quarter 1994 benefited from $18 million in special items.
Included in these special items was a benefit of $301 million from the
reversal of tax and related interest reserves resulting from the company's
global settlement with the Internal Revenue Service (IRS) for various issues
relating to the years 1979 through 1987. Partially offsetting this benefit was
a special charge of $267 million for environmental remediation provisions and
expenses, primarily related to the estimated future clean-up requirements at
the company's service stations and product terminals, and a $16 million
litigation provision.
Special items reduced net income by $23 million for the nine-month period
ended September 30, 1994. Offsetting the aforementioned $18 million benefit
recorded in third quarter 1994 were additional charges of $26 million for
environmental assessment and cleanup liabilities and a $15 million charge for
a reserve adjustment related to the resolution of certain regulatory issues
with the Minerals Management Service.
Foreign exchange losses included in third quarter 1995 net income were $26
million, compared with losses of $30 million in third quarter 1994. For the
first nine months of 1995, net income included foreign exchange losses of $20
million, compared with losses of $51 million in the same period of 1994.
- 5 -
NOTE 3. INFORMATION RELATING TO THE STATEMENT OF CASH FLOWS
The "Net increase in operating working capital" is composed of the following:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
Millions of Dollars 1995 1994
- ----------------------------------------------------------------------------
Decrease (increase) in accounts and notes receivable $ 137 $ (245)
(Increase) decrease in inventories (115) 54
Increase in prepaid expenses and other current assets (242) (221)
Decrease in accounts payable and accrued liabilities (302) (1,187)
Increase (decrease) in income and other taxes payable 118 (221)
- ----------------------------------------------------------------------------
Net increase in operating working capital $ (404) $(1,820)
============================================================================
"Net Cash Provided by Operating Activities" includes the following cash
payments for interest on debt and for income taxes:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
Millions of Dollars 1995 1994
- ----------------------------------------------------------------------------
Interest paid on debt (net of capitalized interest) $ 273 $ 242
Income taxes paid $ 918 $ 926
============================================================================
The "Net sales (purchases) of marketable securities" consists of the following
gross amounts:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
Millions of Dollars 1995 1994
- ----------------------------------------------------------------------------
Marketable securities purchased $(1,680) $(1,021)
Marketable securities sold 2,068 1,008
- ----------------------------------------------------------------------------
Net sales (purchases) of marketable securities $ 388 $ (13)
============================================================================
The Consolidated Statement of Cash Flows excludes the following non-cash
transactions:
The company's Employee Stock Ownership Plan (ESOP) repaid $50 million and $40
million of matured debt guaranteed by Chevron Corporation in January of 1995
and 1994, respectively. These payments were recorded by the company as a
reduction in its debt outstanding and in Deferred Compensation - ESOP.
In February 1994, the company took delivery of a new tanker under a capital
lease arrangement. This asset was recorded as a $65 million addition to
properties, plant and equipment and to capital lease obligations.
NOTE 4. 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 on the next page.
- 6 -
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
Millions of Dollars 1995 1994 1995 1994
- -----------------------------------------------------------------------------
Sales and other operating revenues $6,141 $6,908 $18,384 $19,366
Costs and other deductions 5,994 6,866 18,099 19,069
Net income 134 123 292 359
=============================================================================
SEPTEMBER 30, December 31,
Millions of Dollars 1995 1994
- -----------------------------------------------------------------------------
Current assets $ 3,256 $ 3,341
Other assets 14,313 14,136
Current liabilities 5,585 6,347
Other liabilities 5,519 5,599
Net worth 6,465 5,531
=============================================================================
NOTE 5. SUMMARIZED FINANCIAL DATA - CHEVRON TRANSPORT CORPORATION
Chevron Transport Corporation (CTC), a Liberian corporation, is an indirect,
wholly-owned subsidiary of Chevron Corporation. CTC is the principal operator
of Chevron's international tanker fleet and is engaged in the marine
transportation of 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 generally accepted accounting principles.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
Millions of Dollars 1995 1994 1995 1994
- -----------------------------------------------------------------------------
Sales and other operating revenues $121 $116 $344 $340
Costs and other deductions 120 136 361 394
Net income (loss) - (19) (25) (41)
=============================================================================
September 30, December 31,
Millions of Dollars 1995 1994
- -----------------------------------------------------------------------------
Current assets $ 93 $ 75
Other assets 1,091 851
Current liabilities 458 404
Other liabilities 436 208
Net worth 290 314
=============================================================================
Separate financial statements and other disclosures with respect to CTC are
omitted as such separate financial statements and other disclosures 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
September 30, 1995.
- 7 -
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
Millions of Dollars 1995 1994 1995 1994
- -----------------------------------------------------------------------------
Sales and other operating revenues $3,280 $3,822 $11,153 $10,638
Operating income 212 215 707 642
Net income 87 151 667 448
=============================================================================
In the first quarter of 1995, Caltex recorded a net gain for U.S. financial
reporting of $171 million relating to the sale of a portion of land and air
utility rights by a Caltex affiliate in Japan required for a public project.
The proceeds included compensation that will be used to remove and relocate
or replace existing assets affected by the sale.
NOTE 7. INCOME TAXES
The effective income tax rate for third quarter 1995 increased to 57.2% from
38.4% for the comparable period in 1994. The low effective tax rate for
third quarter 1994 was caused by a favorable prior year tax adjustment that
resulted from a settlement of certain open tax years with the IRS. Absent
the effect of this prior year tax adjustment, earnings in both quarters were
generated primarily from the company's higher taxed foreign operations. This
was largely the result of special items that reduced earnings from U.S.
operations in both periods. These special items reduced before-tax earnings
in the U.S. by $285 million and $435 million in the third quarter of 1995
and 1994, respectively. The effective income tax rate for the first nine
months of 1995 increased to 46.0% from 42.8% for the comparable 1994 period
for these same reasons
NOTE 8. CONTINGENT LIABILITIES
LITIGATION -
The company is a defendant in numerous lawsuits, including an action brought
against the company by OXY U.S.A. in an Oklahoma state court. Plaintiffs may
seek to recover large and sometimes unspecified amounts, and some matters may
remain unresolved for several years. It is not practical to estimate a range
of possible loss for the company's litigation matters, and losses could be
material with respect to earnings in any given period. However, 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.
OXY U.S.A. has brought a lawsuit in its capacity as successor in interest to
Cities Services Company, which involves claims for damages resulting from the
allegedly improper termination of a tender offer to purchase Cities' stock in
1982 made by Gulf Oil Corporation (which was acquired by Chevron in 1984).
OXY also asserts that the company improperly interfered with a proposed
settlement of claims brought against OXY by the Department of Energy. A trial
with respect to the first set of claims is expected to occur next year.
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. A Tax Court decision earlier this year
confirmed the validity of tax regulations for allocating state income taxes.
The company is currently working with the Internal Revenue Service to agree
on a methodology that could apply to all years.
- 8 -
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 long-term unconditional purchase obligations and
commitments, throughput agreements and take-or-pay agreements, some of which
relate to suppliers' financing arrangements.
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 claimed the company
overrecouped under the regulations by $125 million during the period in
question but is currently requesting that the DOE's Office of Hearings and
Appeals (OHA) amend the amount to $167 million. If the amendment is granted,
the total claim, including interest through September 1995, amounts to $432
million. The company asserts that in fact it incurred a loss through
participation in the DOE program. Evidentiary hearings on the no benefit
argument began in mid-December 1994 and were concluded in March 1995. Oral
arguments were held in August 1995 and the company is awaiting a decision by
the OHA.
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 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 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 has 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'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, Congo, 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
Kazakstan.
- 9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER 1995 COMPARED WITH THIRD QUARTER 1994
AND FIRST NINE MONTHS 1995 COMPARED WITH FIRST NINE MONTHS 1994
OVERVIEW AND OUTLOOK
- --------------------
Net income for the third quarter of 1995 was $282 million ($.44 per share),
down 34 percent from the $425 million ($.65 per share) reported for the third
quarter of 1994. Excluding special items in both periods, 1995 third quarter
results were $504 million, a 24 percent increase from adjusted earnings of
$407 million in the prior year quarter.
Special charges in the 1995 third quarter totaled $222 million and included a
$168 million provision related to the company's decision to dispose of its
real estate development properties, environmental remediation provisions of
$39 million, prior year tax adjustments of $22 million and restructuring
provisions totaling $20 million. These charges were partially offset by a
gain of $27 million resulting from a refund of federal offshore lease costs.
Third quarter 1994 earnings included a $301 million benefit from a settlement
with the Internal Revenue Service for open tax years 1979 through 1987;
however, substantially offsetting this favorable adjustment were environmental
remediation provisions, principally in U.S. downstream operations, and other
charges totaling $283 million.
Net income for the 1995 first nine months was $1.348 billion, or $2.07 per
share, including special charges totaling $163 million; net income for the
comparable prior year period was $1.070 billion, or $1.64 per share, and
included $23 million of special charges. Adjusted for special items, earnings
for the first nine months of 1995 were $1.511 billion, up 38 percent from
$1.093 billion for the 1994 nine months.
The company's operating earnings increased nearly $100 million in the 1995
third quarter, despite flat crude oil and lower natural gas prices, compared
with the third quarter of last year. The increase reflected ongoing strength
in the chemicals and international upstream businesses and the company's
continued emphasis on reducing costs.
Chevron's average crude oil realizations were about $1.50 per barrel lower in
the 1995 third quarter than in the preceding second quarter, and prices have
drifted further downward into the fourth quarter. The company's average price
for West Texas Intermediate, a benchmark crude, was $17.19 per barrel in
September and $16.37 in October. Natural gas prices have been increasing since
their low in July, albeit slowly, and still are well below year ago levels.
U.S. natural gas inventory levels are lower than normal, and with winter
approaching, natural gas prices may continue to strengthen.
Chemicals product prices peaked in the second quarter. Average prices for the
company's major petrochemical products were somewhat lower in the third
quarter than in the second quarter, but continue to be strong.
The company's Richmond, California, refinery will be shut down for about six
weeks during the fourth quarter for modifications necessary to produce
California-mandated reformulated gasolines required by early next year as well
as for major maintenance. The shutdown will entail significant direct costs
as well as require the purchase of refined products from third-party sources
to supply the company's marketing system. As a result, fourth quarter
operating results for U.S. downstream are expected to be significantly lower
than what otherwise may have been expected.
Total revenues in the third quarter were $9.3 billion, down 2 percent from
$9.5 billion in the year earlier quarter, due to lower refined product sales
volumes and lower natural gas prices. Total revenues for the first nine
months of 1995 were $27.9 billion, a 5 percent increase from $26.6 billion
reported for the 1994 nine month period. The year to date increase was due to
higher average prices for refined products and crude oil and higher chemical
prices and volumes, partially offset by lower refined product sales volumes
and lower natural gas prices.
- 10 -
The company continued to benefit from cost reduction programs as total ongoing
operating and administrative expenses were down nearly $500 million for the
first nine months. About half of the decrease was due to the absence of
expenses associated with two refineries sold by the company. The Philadelphia
refinery was sold in August 1994 and the Port Arthur, Texas, refinery was sold
in February 1995. The refinery sales also account for the lower refined
products sales volumes.
Taxes on income for the third quarter and first nine months of 1995 were $377
million and $1.146 billion, respectively, compared with $265 million and $802
million for the comparable 1994 periods. The effective income tax rate for
the third quarter of 1995 increased to 57.2 percent from 38.4 percent in the
1994 third quarter, and was 46.0 percent for the 1995 year to date period
compared with 42.8 in the first nine months of 1994. In both quarters, most
of the company's earnings were generated in higher taxed jurisdictions, but in
the 1994 quarter, this was more than offset by the effect of a favorable IRS
settlement. The third quarter settlement also accounts for the lower 1994
nine month effective rate.
Included in third quarter net income were foreign exchange losses of $26
million in 1995 and $30 million in 1994. For the first nine months, foreign
exchange losses were $20 million in 1995 and $51 million in 1994.
CURRENT DEVELOPMENTS
- --------------------
In March 1995 the Financial Accounting Standards Board issued a new accounting
standard, FAS 121 - "Accounting For Impairment Of Long-Lived Assets And For
Long-Lived Assets To Be Disposed Of." The standard must be adopted by the
first quarter of 1996. Chevron is currently gathering and evaluating data in
preparation for implementing the new standard, but has made no decision
whether the standard will be adopted in the fourth quarter of 1995 or the
first quarter of 1996. The adoption of the standard is expected to result in
a significant charge to income.
In March Chevron announced the possible sale of its real estate development
properties, located in California, assuming satisfactory prices and terms could
be obtained. Bids for a significant portion of the real estate properties
were received and evaluated in the third quarter and, as a result, Chevron
entered into exclusive negotiations with one of the bidding groups for the
sale of these real estate properties. As a result of the company's decision
to exit this business, a provision for estimated losses of $168 million was
recorded in the third quarter. The withdrawal is consistent with Chevron's
strategy to focus more on its core oil, gas and chemicals businesses.
The lack of adequate export capabilities continues to constrain production
levels at Tengizchevroil (TCO), the company's joint venture with Kazakstan
to develop the Tengiz oil field. Third quarter 1995 joint venture
production averaged 50,000 barrels per day, significantly below its
production capacity. For the fourth quarter, the company expects TCO will
continue to produce and sell into world markets at this level or higher.
Chevron's cash investment in the Tengiz project at September 30, 1995 was
$715 million. Chevron remains committed to realizing the full potential of
the project and the partners continue to explore political and commercial
solutions to the export situation.
Chevron owns approximately 25 percent of the Point Arguello project, offshore
California, and operates two offshore platforms (Hermosa and Hidalgo), the
onshore Gaviota oil and gas plant and the interconnecting pipelines.
Chevron's net working interest production of crude oil and natural gas
liquids from the project averaged about 11,000 barrels per day for the first
nine months of 1995, down from 15,000 barrels per day for the same period in
1994. Additionally, the percentage of water produced approximately doubled
between periods. Chevron and its partners are reviewing options to address
these issues.
In early October, Hurricane Opal forced the precautionary shut-in of a
significant amount of the company's oil and gas production in the Gulf of
Mexico as well as the temporary shutdown of the company's Pascagoula,
Mississippi refinery. None of the company's facilities suffered serious damage
and most were brought back on line within a few days. However, flooding and
minor repairs delayed the resumption of production from some wells for two to
three weeks. Also, the company performed routine maintenance at the refinery
while it was down.
- 11 -
The company continues significant exploration and development activities in
the Gulf of Mexico. These include development of the Green Canyon 205 deep
water project where preliminary engineering has begun, and continued drilling
of prospects in the company's leaseholdings in the Norphlet gas trend.
The company announced plans for engineering and other preliminary work that
could lead to an expansion and modernization of its ethylene production
facilities at Port Arthur, Texas. The $300 million project would increase
annual ethylene production capacity at the plant from 1.0 billion pounds to
1.7 billion pounds by 1998. The company has also begun engineering work for a
lubricating oil and fuel additives plant in Singapore. If the company decides
to proceed with the $100 million project, start-up of the new facility would
be targeted for 1998 and would improve the company's competitive position in
the fast growing Asia-Pacific region.
The company also announced it will curtail production at its Richmond,
California agricultural chemicals plant at the end of 1996. Also, the company
is negotiating the sale of its fertilizer production facilities in St. Helens,
Oregon. The curtailment and sale are part of the company's withdrawal from the
agricultural chemicals and fertilizer operations begun several years ago.
Neither of the events will have a material financial effect.
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
Millions of Dollars 1995 1994 1995 1994
- -----------------------------------------------------------------------------
Exploration and Production
United States $ 131 $ 63 $ 431 $ 339
International 140 131 506 376
- -----------------------------------------------------------------------------
Total Exploration and Production 271 194 937 715
- -----------------------------------------------------------------------------
Refining, Marketing and Transportation
United States 98 (110) 104 (54)
International 53 55 245 145
- -----------------------------------------------------------------------------
Total Refining, Marketing
and Transportation 151 (55) 349 91
- -----------------------------------------------------------------------------
Total Petroleum Operations 422 139 1,286 806
Chemicals 127 68 465 143
Coal and Other Minerals 10 6 24 33
Corporate and Other* (277) 212 (427) 88
- -----------------------------------------------------------------------------
NET INCOME $ 282 $ 425 $1,348 $1,070
=============================================================================
*"Corporate and Other" includes interest expense, interest income on cash and
marketable securities, corporate center costs, and real estate and insurance
activities.
- 12 -
SELECTED OPERATING DATA
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1995 1994 1995 1994
- -----------------------------------------------------------------------------
U.S. EXPLORATION AND PRODUCTION
Net Crude Oil and Natural
Gas Liquids Production (MBPD) 346 371 351 372
Net Natural Gas Production (MMCFPD) 1,816 2,038 1,893 2,124
Sales of Natural Gas Liquids (MBPD) 202 217 214 204
Revenue from Net Production
Crude Oil ($/Bbl.) $14.91 $15.03 $15.48 $13.64
Natural Gas ($/MCF) $ 1.40 $ 1.62 $ 1.46 $ 1.85
INTERNATIONAL EXPLORATION AND PRODUCTION(1)
Net Crude Oil and Natural
Gas Liquids Production (MBPD) 644 640 646 619
Net Natural Gas Production (MMCFPD) 539 573 562 541
Revenue from Liftings
Liquids ($/Bbl.) $15.37 $15.89 $16.16 $14.66
Natural Gas ($/MCF) $ 1.73 $ 1.78 $ 1.73 $ 1.89
U.S. REFINING AND MARKETING
Sales of Gasoline (MBPD) 576 611 560 627
Sales of Other
Refined Products (MBPD) 599 738 567 707
Refinery Input (MBPD) 968 1,265 958 1,219
Average Refined Product
Sales Price ($/Bbl.) $26.09 $25.44 $26.21 $24.05
INTERNATIONAL REFINING AND MARKETING(1)
Sales of Refined Products (MBPD) 894 930 940 922
Refinery Input (MBPD) 595 603 587 622
CHEMICAL SALES AND OTHER OPERATING REVENUES(2)
United States $ 821 $ 763 $2,633 $2,026
International 155 150 473 413
-----------------------------------------
WORLDWIDE $ 976 $ 913 $3,106 $2,439
=============================================================================
(1) Includes equity in affiliates.
(2) Millions of dollars. Includes Sales to Other Chevron Companies. 1994
amounts restated to conform with 1995 presentation.
- --------------
MBPD=thousand barrels per day; MMCFPD=million cubic feet per day;
Bbl.=barrel; MCF=thousand cubic feet
WORLDWIDE EXPLORATION AND PRODUCTION earned $271 million in the third quarter
of 1995 compared with $194 million in the corresponding 1994 period. Earnings
of $937 million in the first nine months of 1995 were 31 percent higher than
the $715 million earned in the 1994 nine months.
U.S. EXPLORATION AND PRODUCTION third quarter earnings were $131 million
compared with $63 million in the 1994 third quarter. However, current quarter
earnings included a net benefit of $19 million from special items, whereas
1994 earnings were reduced $61 million for environmental remediation and
litigation provisions. In the 1995 quarter, a $27 million gain resulting from
a refund of federal offshore lease costs was partially offset by environmental
remediation provisions. Excluding special items in both quarters, 1995 third
quarter earnings of $112 million declined from year-ago earnings of $124
million, primarily because of lower production volumes and lower natural gas
prices.
- 13 -
The company's average U.S. liquids realization of $14.91 per barrel was little
changed from the $15.03 realized in last year's third quarter; however,
average natural gas prices of $1.40 per thousand cubic feet in the 1995 third
quarter were down 14 percent from $1.62 last year. Net liquids production
declined to 346,000 barrels per day from 371,000 and net natural gas
production volumes of 1.8 billion cubic feet per day were down 10 percent from
2.0 billion in last year's third quarter. The lower production levels were
due to normal field declines and a natural gas field unitization adjustment.
Depreciation expense declined in line with lower production; exploration
expense also declined due to lower well write-offs.
Earnings for the first nine months of 1995 were $431 million compared with
$339 million last year. Special items benefited 1995 earnings $19 million
whereas special charges reduced 1994 earnings $76 million. Excluding special
items in both periods, 1995 year to date earnings of $412 million were about
flat with year-ago adjusted earnings of $415 million. Higher average crude
oil prices offset lower natural gas prices and lower production volumes.
Crude oil prices improved 14 percent to $15.48 per barrel, but natural gas
prices fell 21 percent to $1.46 per thousand cubic feet. Also, depreciation,
operating and exploration expenses were all lower in 1995.
INTERNATIONAL EXPLORATION AND PRODUCTION earnings for the third quarter were
$140 million, compared with $131 million earned in last year's third quarter.
Reported earnings for the first nine months of 1995 and 1994 were $506 million
and $376 million, respectively. The 1995 third quarter included special
charges of $22 million for prior year tax adjustments, mostly due to a
statutory tax rate increase in Australia. The 1995 nine months included $10
million in restructuring charges in addition to the third quarter tax
adjustments. There were no special items in the 1994 periods.
Third quarter 1995 earnings benefited from higher crude oil sales volumes, due
to the timing of vessel loadings, and a lower effective income tax rate due to
the earnings mix among countries. Crude oil and natural gas realizations were
down slightly from the prior year quarter. Exploration expenses increased due
to higher well write-offs. International net liquids production volumes
increased slightly to 644,000 barrels per day from 640,000 in the 1994 third
quarter. Net natural gas production volumes declined about 6 percent in the
quarter, primarily in Canada, to 539 million cubic feet per day.
Nine months earnings benefited from a 4 percent increase in crude oil and
natural gas production and a 10 percent increase in crude oil prices to $16.16
per barrel. Offsetting a portion of these gains was an 8 percent drop in
natural gas prices to $1.73 per thousand cubic feet from $1.89. The increase
in production was primarily due to new fields coming on stream in Angola.
The 1995 quarter and nine months included foreign exchange losses of $19
million, compared with losses of $14 million and $15 million in last year's
third quarter and nine months, respectively.
WORLDWIDE REFINING AND MARKETING operations reported earnings of $151 million
in the 1995 third quarter compared with a loss of $55 million for the 1994
third quarter. The 1995 nine months earnings were $349 million, nearly four
times the $91 million earned in the corresponding 1994 period.
U.S. REFINING AND MARKETING net earnings were $98 million compared with a loss
of $110 million in the year-ago quarter. Earnings for the first nine months
of 1995 were $104 million compared with a loss of $54 million in the 1994 nine
months. However, when special charges for environmental remediation in all
periods are excluded, 1995 and 1994 third quarter adjusted earnings were
basically flat at $109 million and $108 million, respectively, and for the
first nine months of 1995 were down 34 percent to $125 million from $190
million in 1994.
Refined product sales margins improved in the 1995 third quarter on slightly
higher prices. Sales volumes were down 13 percent to 1.2 million barrels per
day, as a result of the sales of the company's Philadelphia refinery in August
1994 and Port Arthur, Texas refinery in February 1995, and were down 16
percent for the 1995 nine months. The volume decline occurred in lower margin
unbranded bulk sales; branded gasoline sales through the company's marketing
system increased 2 percent for the 1995 third quarter and 1 percent year to
date. Poor
- 14 -
industry refining conditions coupled with refinery downtime for maintenance at
the company's refineries resulted in a first quarter loss in 1995 and was the
principal factor in the nine month earnings decline.
INTERNATIONAL REFINING AND MARKETING net earnings declined slightly to $53
million from $55 million because of special charges of $15 million in the 1995
third quarter related to restructurings in certain Caltex areas and in the
company's United Kingdom operations. Excluding the special charges, earnings
increased $13 million as improved third quarter operations in Canada and the
United Kingdom more than offset a decline in Caltex earnings, where sales
margins continue to be depressed in some of that affiliate's operating areas.
Nine month 1995 earnings increased 69 percent from 1994 levels - $245 million
compared with $145 million. Excluding net special gains related to a Caltex
property sale earlier in the year and the third quarter restructuring charges,
1995 operating earnings increased 24 percent to $180 million from $145 million
in 1994, primarily due to foreign currency fluctuations. A decrease in U.K.
earnings, due to an extended refinery turnaround in the second quarter, was
offset by improved shipping operations.
Sales volumes decreased about 4 percent to 894,000 barrels per day in the 1995
third quarter but increased 2 percent to 940,000 barrels per day for the first
nine months of 1995 compared with 1994 despite the extended refinery
maintenance in the U.K. Caltex sales volumes were up 5 percent over the prior
year nine months.
Foreign exchange losses were $6 million and $1 million in the 1995 and 1994
third quarters, respectively. For the nine months, foreign exchange gains
were $20 million in 1995 compared with a loss of $9 million last year.
CHEMICALS third quarter net earnings increased to $127 million in 1995 from
$68 million in the comparable 1994 quarter. Adjusting for special charges in
both periods, mostly environmentally related, earnings of $148 million in the
1995 third quarter were more than double the $72 million earned in the third
quarter of 1994. Nine month earnings were $465 million compared with $143
million in the comparable 1994 period. Excluding special items, 1995 earnings
of $486 million were more than triple the $147 million earned in the 1994 nine
months.
The higher 1995 earnings reflect higher product prices and sales volumes
compared with the prior year periods, consistent with the improved state of
the petrochemicals industry. However, prices for the company's major products
began to soften in the third quarter of 1995, and third quarter results
declined from the record $175 million earned in the second quarter. Although
still much stronger than a year ago, prices have weakened for major products
such as styrene and polyethylene.
Foreign exchange gains were $3 million in the third quarter of 1995 compared
with a loss of $8 million in the 1994 quarter. For the 1995 and 1994 nine
months, foreign exchange losses were $4 million and $13 million, respectively.
COAL AND OTHER MINERALS net earnings were $10 million in the third quarter, up
from $6 million in the 1994 quarter and were $24 million in the 1995 nine
months, down from $33 million in the prior year period. Year to date earnings
declined on lower average sales prices and volumes due to mild weather and
increased competition from lower priced natural gas, coupled with higher
maintenance costs. Conditions improved somewhat in the 1995 third quarter.
Also, the 1994 third quarter included charges related to the company's sale of
its interest in the Stillwater platinum and palladium mine. A special charge
of $1 million for employee severance costs was recorded in the 1995 nine
months. There were no special charges in the 1995 third quarter or 1994
periods.
CORPORATE AND OTHER includes interest expense, interest income on cash and
marketable securities, corporate cost centers and real estate and insurance
operations. These activities incurred net charges of $277 million in the 1995
third quarter compared with earnings of $212 million in the 1994 quarter.
Year to date charges were $427 million in 1995 compared with income of $88
million in the 1994 nine months. Results for all periods were significantly
affected by special items. The 1995 quarter and nine months included special
charges totaling $172 million, almost all related to the write-down of the
company's investment in its real estate development properties. Results
- 15 -
in the 1994 periods included the reversal of $301 million of previously
established tax and related interest reserves resulting from a global
settlement with the Internal Revenue Service covering several open tax years.
Excluding the special items, corporate and other charges were $105 million in
the 1995 third quarter and $89 million in the year-ago quarter. Nine months
charges were $255 million and $213 million, respectively. The 1995 third
quarter increase was due to consolidating income tax adjustments and for the
1995 year to date, the increase was due to higher average interest rates and
debt levels with consequently higher interest expense.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents totaled $783 million at September 30, 1995, a $370
million increase from year-end 1994. Cash from operations and proceeds from
asset sales were used to fund the company's capital expenditures and dividend
payments to stockholders.
In July, the company increased its quarterly dividend of 46.25 cents a share
on its common stock by 3.75 cents a share, or 8 percent, to 50 cents a share.
This was the company's seventh dividend increase in the past eight years and
brings Chevron's annualized dividend rate to $2.00 a share.
The company's debt and capital lease obligations totaled $8.230 billion at
September 30, 1995, compared with $8.142 billion at year-end 1994.
Significant debt transactions included the $282 million sale and capital
leaseback of four of the company's ocean-going vessels and new bank loans of
$150 million to fund certain projects in certain West African countries,
partially offset by the retirement of $50 million of 6.51 percent debt
related to the Employee Stock Ownership Plan and a $266 million
reduction in commercial paper outstanding.
Although the company benefits from lower interest rates on short-term debt,
the large amount of short-term debt has kept Chevron's ratio of current assets
to current liabilities at relatively low levels. The current ratio was .86 at
September 30, 1995. The company's short-term debt, consisting of commercial
paper and current portion of long-term debt, totaled $5.558 billion at
September 30, 1995. This amount includes $1.8 billion that was reclassified
as long-term debt on Chevron's balance sheet since the company has both the
intent and ability, as evidenced by revolving credit agreements, to refinance
it 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 35.2
percent at September 30, 1995, down slightly from 35.8 percent at year-end
1994. The company continually monitors its spending levels, market conditions
and related interest rates to maintain what it perceives to be a reasonable
level and composition of debt.
In order to help 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 September 30, the notional principal amount of these
financial instruments totaled approximately $1.225 billion. Under the terms
of the agreements, Chevron has agreed to swap $1.05 billion of floating rate
debt for fixed rates and approximately $175 million of fixed rate debt for a
floating rate.
Worldwide capital and exploratory expenditures for the first nine months of
1995, including the company's share of affiliates' expenditures, totaled
$3.292 billion, up slightly from $3.174 billion spent in the 1994 nine months.
About 60 percent of the company's total expenditures were for exploration and
production activities, and about 60 percent of total outlays were spent
outside the United States in both 1995 and 1994.
- 16 -
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 1995, a consent decree was lodged with the U.S. District Court
for the District of New Jersey under which Chevron would pay $125,000 as its
share of a $155,000 civil penalty assessed for alleged violation of NESHAP
asbestos regulations at Chevron's Perth Amboy facility.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(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
(27) Financial Data Schedule
(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 November 10, 1995 /s/ DONALD G. HENDERSON
------------------------ -------------------------------------
Donald G. Henderson,
Vice-President & Comptroller
(Principal Accounting Office and
Duly Authorized Officer)
- 17 -