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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 September 30, 1997
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
575 Market Street, San Francisco, California 94105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 894-7700
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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
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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, 1997
----------------------------- --------------------------------------
Common stock, $1.50 par value 656,752,639
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INDEX
Page No.
Cautionary Statements Relevant to Forward-Looking
Information for the Purpose of "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995 1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income for the three months
and nine months ended September 30, 1997 and 1996 2
Consolidated Balance Sheet at September 30, 1997 and
December 31, 1996 3
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Listing of Exhibits and Reports on Form 8-K 19
Signature 19
Exhibit: Computation of Ratio of Earnings to Fixed Charges 20
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR
THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This quarterly report on Form 10-Q contains forward-looking statements relating
to Chevron's operations that are based on management's current expectations,
estimates and projections about the petroleum and chemicals industries. Words
such as "expects," "intends," "plans," "projects," "believes," "estimates" and
similar expressions are used to identify such forward-looking statements.
These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions that are difficult to predict. Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in such forward-looking statements.
Among the factors that could cause actual results to differ materially from
the company's expectations are crude oil and natural gas prices; refining
margins and marketing margins; chemicals prices and competitive conditions
affecting supply and demand for the company's aromatics, olefins and additives
products; potential failure to achieve expected production from existing and
future oil and gas development projects; potential disruption or interruption
of the company's production, manufacturing or transportation facilities due to
accidents or political events; potential liability for remedial actions under
existing or future environmental regulations; and potential liability resulting
from pending or future litigation. In addition, such statements could be
affected by general domestic and international economic and political
conditions.
-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 1997 1996 1997 1996
- -------------------------------------------------------------------------------
Revenues
Sales and other operating revenues* $10,130 $10,846 $30,871 $31,517
Income from equity affiliates 164 104 535 686
Other income 34 99 289 179
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Total Revenues 10,328 11,049 31,695 32,382
-------------------------------------
Costs and Other Deductions
Purchased crude oil and products 5,027 5,771 15,624 16,717
Operating expenses 1,355 1,461 3,977 4,288
Selling, general and administrative
expenses 301 303 1,037 1,043
Exploration expenses 109 119 288 329
Depreciation, depletion and amortization 548 558 1,643 1,613
Taxes other than on income* 1,670 1,493 4,795 4,358
Interest and debt expense 69 93 227 274
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Total Costs and Other Deductions 9,079 9,798 27,591 28,622
--------------------------------------
Income Before Income Tax Expense 1,249 1,251 4,104 3,760
Income Tax Expense 522 596 1,723 1,617
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Net Income $ 727 $ 655 $ 2,381 $ 2,143
--------------------------------------
Per Share of Common Stock:
Net Income $ 1.11 $ 1.00 $ 3.64 $ 3.28
Dividends $ .58 $ .54 $ 1.70 $ 1.54
Weighted Average Number of
Shares Outstanding (000s) 655,987 652,671 654,330 652,649
* Includes consumer excise taxes. $ 1,487 $ 1,324 $ 4,248 $ 3,845
See accompanying notes to consolidated financial statements.
-2-
CHEVRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, December 31,
Millions of Dollars 1997 1996
- ------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 991 $ 892
Marketable securities 573 745
Accounts and notes receivable 3,464 4,035
Inventories:
Crude oil and petroleum products 605 669
Chemicals 533 507
Materials, supplies and other 271 255
----------------------
1,409 1,431
Prepaid expenses and other current assets 804 839
----------------------
Total Current Assets 7,241 7,942
Long-term receivables 420 261
Investments and advances 4,552 4,463
Properties, plant and equipment, at cost 48,941 46,936
Less: accumulated depreciation,
depletion and amortization 26,564 25,440
----------------------
22,377 21,496
Deferred charges and other assets 881 692
----------------------
Total Assets $35,471 $34,854
----------------------
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $ 1,753 $ 2,706
Accounts payable 2,795 3,502
Accrued liabilities 1,339 1,420
Federal and other taxes on income 873 745
Other taxes payable 565 534
----------------------
Total Current Liabilities 7,325 8,907
Long-term debt 4,150 3,650
Capital lease obligations 314 338
Deferred credits and other non-current obligations 1,899 1,858
Non-current deferred income taxes 3,090 2,851
Reserves for employee benefit plans 1,640 1,627
----------------------
Total Liabilities 18,418 19,231
----------------------
Preferred stock (authorized 100,000,000
shares, $1.00 par value, none issued) - -
Common stock (authorized 1,000,000,000 shares,
$1.50 par value, 712,487,068 shares issued) 1,069 1,069
Capital in excess of par value 2,008 1,874
Deferred compensation (750) (800)
Currency translation adjustment and other (68) 96
Retained earnings 16,692 15,408
Treasury stock, at cost (55,734,429 and 59,401,015
shares at September 30, 1997 and December 31, 1996,
respectively) (1,898) (2,024)
----------------------
Total Stockholders' Equity 17,053 15,623
----------------------
Total Liabilities and Stockholders' Equity $35,471 $34,854
----------------------
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 1997 1996
- ------------------------------------------------------------------------------
Operating Activities
Net income $ 2,381 $ 2,143
Adjustments
Depreciation, depletion and amortization 1,643 1,613
Dry hole expense related to prior years'
expenditures 25 39
Distributions (less than) greater than income
from equity affiliates (296) 66
Net before-tax (gains) losses on asset
retirements and sales (178) 25
Net currency translation gains (23) (10)
Deferred income tax provision 300 243
Net increase in operating working capital (20) (166)
Other (283) (166)
------------------------
Net Cash Provided by Operating Activities 3,549 3,787
------------------------
Investing Activities
Capital expenditures (2,669) (2,364)
Proceeds from asset sales 379 514
Net sales of marketable securities 181 335
------------------------
Net Cash Used for Investing Activities (2,109) (1,515)
------------------------
Financing Activities
Net repayments of short-term obligations (54) (415)
Proceeds from issuance of long-term debt 11 77
Repayments of long-term debt and other
financing obligations (377) (419)
Cash dividends paid (1,111) (1,005)
Net sale (purchase) of treasury shares 218 (34)
------------------------
Net Cash Used for Financing Activities (1,313) (1,796)
------------------------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (28) (6)
------------------------
Net Change in Cash and Cash Equivalents 99 470
Cash and Cash Equivalents at January 1 892 621
------------------------
Cash and Cash Equivalents at September 30 $ 991 $ 1,091
------------------------
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, 1996. 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 1996 Annual Report on Form 10-K.
The results for the three-month and nine-month periods ended September 30, 1997
are not necessarily indicative of future financial results.
Note 2. Net Income
Net income for the third quarter 1997 included net charges of $5 million for
special items. The company recorded a $72 million additional charge associated
with the expected fourth quarter 1997 sale of certain United Kingdom refining
and marketing assets and the subsequent closure of the company's refinery in
Milford Haven, Wales, a $9 million provision for environmental remediation of
certain U.S. chemical sites, and $8 million for the write-off of certain
telecommunications equipment. These charges were nearly offset by a benefit of
$84 million from favorable prior-year income tax adjustments.
For the first nine months of 1997, net income included net benefits of $8
million from special items. Special gains of $99 million resulted from the
sale of 10 percent of the company's ownership interest in the Tengizchevroil
joint venture and from sales of producing properties in the U.S. and in the
North Perth Basin area of Australia. Also included in net income for the nine-
month period were benefits of $98 million from favorable prior-year tax
adjustments. Partially offsetting these favorable items were charges of $72
million related to the disposition of the company's United Kingdom refining and
marketing assets, $66 million for the remaining unaccrued cost of the company's
broad-based employee performance stock option program, $43 million for
provisions for environmental remediation and other items, and $8 million for
the write-off of certain telecommunications equipment.
Net income for the third quarter 1996 benefited a net $5 million from special
items. The company recognized a $32 million gain from the merger of Chevron's
natural gas marketing and natural gas liquids businesses with NGC Corporation.
The company also recorded $52 million in favorable prior-year income tax
adjustments. These benefits were nearly offset by special charges totaling $79
million, composed of an $11 million loss from the sale of a producing property,
a $29 million provision for environmental remediation of certain U.S.
downstream facilities, provisions of $27 million for employee severance
programs and a litigation matter, and $12 million for the write-off of certain
chemical assets.
In the nine-month period ended September 30, 1996, net special gains of $177
million were included in net income. A net benefit of $275 million resulted
from the company's Caltex affiliate's sale of refinery interests in Japan,
after including the effect of the company's taxes on the related cash
distribution. Also included in net income for the nine-month period were the
$73 million net gains from third quarter 1996 asset dispositions and favorable
prior-year income tax adjustments. Partially offsetting these favorable items
were charges of $48 million from an additional loss provision for the company's
withdrawal from its real estate development business and from the write-off of
certain chemical and other assets, $53 million of environmental remediation
provisions for the company's U.S. upstream and U. S. and Canadian downstream
properties, $53 million of provisions for litigation matters and other claims,
and $17 million for employee severance programs.
- 5 -
Foreign exchange gains included in third quarter 1997 net income were $36
million, compared with gains of $6 million in third quarter 1996. For the
first nine months of 1997, net income included foreign exchange gains of $41
million, compared with losses of $14 million in the same period of 1996.
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 1997 1996
-------------------------------------------------------------------------
Decrease (increase) in accounts and notes receivable $ 570 $ (332)
Decrease in inventories 27 51
Decrease (increase) in prepaid expenses
and other current assets 24 (43)
Decrease in accounts payable and accrued liabilities (773) (218)
Increase in income and other taxes payable 132 376
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Net increase in operating working capital $ (20) $ (166)
"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 1997 1996
-------------------------------------------------------------------------
Interest paid on debt (net of capitalized interest) $ 247 $ 288
Income taxes paid $ 1,342 $ 1,042
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The "Net sales of marketable securities" consists of the following gross
amounts:
Nine Months Ended
September 30,
-------------------------
Millions of Dollars 1997 1996
-------------------------------------------------------------------------
Marketable securities purchased $(2,040) $(2,418)
Marketable securities sold 2,221 2,753
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Net sales of marketable securities $ 181 $ 335
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The company's Employee Stock Ownership Plan (ESOP) repaid $50 million of
matured debt in both January 1997 and 1996, that had been guaranteed by Chevron
Corporation. These payments were recorded by the company as a reduction in its
debt outstanding and in Stockholders' Equity (Deferred compensation) and were
non-cash transactions.
In the nine months 1997, "Net Cash Used for Financing Activities" includes
approximately $220 million generated from the sale of treasury shares to
satisfy obligations under the company's broad-based performance stock option
program. The options became exercisable in June 1997 for each eligible employee
after Chevron's stock price closed over $75 per share for three consecutive
days. Of the $220 million, approximately $70 million was used to satisfy
obligations to employees who exercised options, with net proceeds of about $150
million being retained by the company.
- 6 -
Note 4. Summarized Financial Data - Chevron U.S.A. Inc.
At September 30, 1997, Chevron U.S.A. Inc. was Chevron Corporation's principal
operating company, consisting primarily of the company's U.S. integrated
petroleum operations (excluding most of the domestic pipeline operations).
These operations were conducted by Chevron U.S.A. Production Company, Chevron
Products Company and, through August 31, 1996, Warren Petroleum Company
divisions. On September 1, 1996, substantially all of Chevron U.S.A. Inc.'s
natural gas liquids operations previously conducted by Warren Petroleum Company
and its natural gas marketing operations previously conducted by Chevron U.S.A.
Production Company were contributed to NGC Corporation in exchange for cash,
notes and a 28 percent equity ownership in NGC. Summarized financial
information for Chevron U.S.A. Inc. and its consolidated subsidiaries is
presented in the following table:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
Millions of Dollars 1997 1996 1997 1996
---------------------------------------------------------------------------
Sales and other operating revenues $7,021 $7,601 $21,413 $22,045
Costs and other deductions 6,485 7,225 20,045 20,941
Net income 421 252 1,055 805
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September 30, December 31,
Millions of Dollars 1997 1996
---------------------------------------------------------------------------
Current assets $ 2,787 $ 3,126
Other assets 13,638 13,209
Current liabilities 3,413 4,035
Other liabilities 4,966 5,300
Net worth 8,046 7,000
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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 crude oil and refined petroleum products. Most of CTC's
shipping revenue is derived by providing transportation services to other
Chevron companies. Chevron Corporation has guaranteed this subsidiary's
obligations in connection with certain debt securities where CTC is deemed to
be an issuer. In accordance with the Securities and Exchange Commission's
disclosure requirements, summarized financial information for CTC and its
consolidated subsidiaries is presented below. This summarized financial data
was derived from the financial statements prepared on a stand alone basis in
conformity with generally accepted accounting principles.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
Millions of Dollars 1997 1996 1997 1996
---------------------------------------------------------------------------
Sales and other operating revenues $140 $122 $396 $388
Costs and other deductions 139 141 414 431
Net income 5 (1) 21 8
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- 7 -
September 30, December 31,
Millions of Dollars 1997 1996
---------------------------------------------------------------------------
Current assets $144 $ 99
Other assets 928 1,622
Current liabilities 556 617
Other liabilities 361 385
Net worth 155 719
The nine month 1997 decrease in Other assets and Net worth was primarily due to
the third quarter assignment of an interest bearing loan agreement to CTC's
parent and an associated return of paid-in capital.
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, 1997.
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 1997 1996 1997 1996
---------------------------------------------------------------------------
Sales and other operating revenues $4,066 $4,221 $13,019 $12,141
Operating income 220 247 758 796
Net income 170 93 556 1,082
Included in nine month 1996 results is a net gain of about $630 million for the
second quarter 1996 sale of certain refinery interests in Japan. A dividend of
part of the proceeds from the sale was distributed to the shareholders.
Note 7. Income Taxes
Taxes on income for the third quarter and first nine months of 1997 were $522
million and $1.723 billion, respectively, compared with $596 million and $1.617
billion for the comparable 1996 periods. The effective income tax rate for
both the third quarter and the first nine months of 1997 declined to 42 percent
from 47.6 percent in the 1996 third quarter and 43 percent in the 1996 first
nine months. The primary reasons for the more than 5 percent decrease in the
effective tax rate for the 1997 third quarter were a 2 percent decrease in the
United Kingdom statutory corporate tax rate and its effect on current and
deferred tax liabilities, an increase in third quarter 1997 earnings from
equity affiliates recorded on an after-tax basis, higher U.S. income tax
credits for enhanced production and other credits, and a shift in earnings from
countries with high effective tax rates to countries with lower effective tax
rates.
The effective tax rates for the 1996 and 1997 nine months were impacted by a
number of non-recurring items including prior-year tax adjustments, asset
dispositions, and statutory tax rate changes. These factors were largely
offsetting between the periods and the one percent decrease in the effective
tax rate for the first nine months of 1997 is primarily attributable to a shift
in international earnings from countries with high effective tax rates to
countries with lower effective tax rates.
- 8 -
Note 8. Contingent Liabilities
Litigation -
The company is a defendant in numerous lawsuits, including, along with other
oil companies, actions challenging oil royalty and severance tax payments based
on posted prices. Plaintiffs may seek to recover large and sometimes
unspecified amounts, and some matters may remain unresolved for several years.
While it is not practical to estimate a range of possible loss for the
company's litigation matters, 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. brought a lawsuit in its capacity as successor in interest to Cities
Service Company, which involved claims for damages resulting from the allegedly
improper termination of a tender offer to purchase Cities' stock in 1982 made
by Gulf Oil Corporation, acquired by Chevron in 1984. A trial with respect to
the claims ended in July 1996 with a judgment against the company of $742
million, including interest, which continues to accrue at a rate of 9.55
percent per year. The company has filed an appeal. While the ultimate outcome
of this matter cannot be determined presently with certainty, the company
believes that errors were committed by the trial court that should result in
the judgment being reversed upon appeal.
In a lawsuit in Los Angeles, California, brought in 1995, the company and five
other oil companies are contesting the validity of a patent granted to Unocal
Corporation (Unocal) for reformulated gasoline, which the company sells in
California in certain months of the year. The first two phases of the trial
were concluded in October and November 1997 with the jury upholding the
validity of the patent and assessing damages at the rate of 5.75 cents per
gallon of gasoline sold in infringement of the patent between March 1, 1996 and
July 31, 1996. In the third phase of the trial, to begin in December 1997, the
trial court judge will decide whether the company and the five other oil
companies have equitable defenses to the enforcement of the patent by Unocal.
While the ultimate outcome of this matter cannot be determined presently with
certainty, the company believes Unocal's patent is invalid and that any
unfavorable rulings should be reversed upon appeal.
Other Contingencies -
The U.S. federal income tax and California franchise tax liabilities of Chevron
have been settled through 1982 and 1991, respectively. For federal income tax
purposes, all issues other than the creditability of taxes paid to the
Government of Indonesia have been resolved through 1987. Caltex also is
involved in Internal Revenue Service (IRS) tax audits in which claims have been
made for substantial amounts, and which may require cash deposits until such
claims are resolved. While the amounts under dispute with the IRS are
significant, 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.
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
- 9 -
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 obligation 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 can be affected by changing economic, regulatory and
political environments in the various countries, including the United States,
in which it operates. In certain locations, host governments have imposed
restrictions, controls and taxes, and, in others, political conditions have
existed that may threaten the safety of employees and the company's continued
presence in those countries. Internal unrest or strained relations between a
host government and the company or other governments may affect the company's
operations. Those developments have, at times, significantly affected the
company's related operations and results, and are carefully considered by
management when evaluating the level of current and future activity in such
countries.
Areas in which the company has significant operations include the United
States, Canada, Australia, United Kingdom, Republic of Congo, Angola, Nigeria,
Democratic Republic of Congo, Papua New Guinea, China and Indonesia. The
Caltex Group has significant operations in Indonesia, Korea, Japan, Australia,
Thailand, the Philippines, Singapore, and South Africa. The company's
Tengizchevroil affiliate operates in Kazakhstan.
Note 9. Issuance of new Statements of Financial Accounting Standards
In February 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which is effective for interim period and annual financial statements
ending after December 15, 1997 and requires restatement of all prior period
earnings per share data presented. Early adoption of the statement is not
permitted. The company believes that adoption of the statement at year-end
1997 will not have a material effect on its previous and future earnings per
share disclosures.
In June 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". Both Statements become effective for fiscal periods beginning
after December 15, 1997 with early adoption permitted. The company is
evaluating the effects these Statements will have on its financial reporting
and disclosures. The Statements require additional reporting and expanded
disclosures but will have no effect on the company's results of operations,
financial position, capital resources or liquidity.
- 10 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Third Quarter 1997 Compared With Third Quarter 1996
And First Nine Months 1997 Compared With First Nine Months 1996
Overview and Outlook
- --------------------
Net income for the third quarter of 1997 was $727 million ($1.11 per share), an
increase of 11 percent from the $655 million ($1.00 per share) reported for the
third quarter of 1996. Net income in the 1997 third quarter was reduced by $5
million of net special items, including an additional charge of $72 million for
the disposition of the company's refining and marketing assets in the United
Kingdom, charges of $9 million for environmental remediation provisions and a
write-off of $8 million of certain telecommunications equipment. These charges
were nearly offset by $84 million of favorable prior-year income tax
adjustments. For the third quarter 1996, net income included a net benefit of
$5 million from special items. Excluding special items, earnings in the third
quarter were $732 million, an increase of 13 percent from the $650 million
earned in the 1996 third quarter.
Net income for the first nine months of 1997 was $2.381 billion ($3.64 per
share), up 11 percent from $2.143 billion ($3.28 per share) reported for the
first nine months of 1996. The 1997 results included net gains of $8 million
from special items while 1996 results benefited $177 million from special
items. Special items in the 1997 nine months included gains from asset sales
and prior-year income tax adjustments amounting to $125 million, mostly offset
by charges for environmental remediation provisions, asset write-offs,
litigation provisions and employee performance stock option costs. The 1996
benefit from special gains was mostly related to the company's share of its
Caltex affiliate's gain from the sale of refinery interests in Japan.
Excluding special items, earnings for the 1997 nine months were $2.373 billion,
21 percent higher than the $1.966 billion earned in the corresponding 1996
period.
The company's improvement from last year's third quarter was led by worldwide
refining, marketing and transportation operations. Although down from this
year's second quarter, third quarter 1997 worldwide downstream operating
results were more than double those of last year's comparable period as the
refining and marketing business continues to benefit from favorable market
conditions, lower operating expenses and higher sales volumes. Year to date
1997 operating results were 58 percent ahead of the prior year period.
Worldwide exploration and production operating earnings, although strong,
declined from the 1996 third quarter as higher natural gas realizations could
not fully offset the more than $2.00 per barrel decline in crude oil
realizations. On a year-to-date basis, however, exploration and production
operating earnings increased 9 percent from the prior-year results with higher
production volumes and higher natural gas prices more than offsetting
marginally lower average crude oil prices.
Chemicals operating earnings declined in the third quarter 1997 as a result of
higher expenses and downtime associated with maintenance and expansion
activities at certain manufacturing plants. For nine months 1997, operating
earnings were slightly lower than the comparable 1996 period. The results for
1997 have benefited from stronger prices and higher volumes for some of the
company's products, particularly ethylene and polyethylene; however, this has
been more than offset by the absence of a $17 million after-tax insurance
recovery included in the 1996 results.
For the 12 months ended September 30, 1997, Chevron's return on capital
employed, excluding special items, was 14.1 percent, compared with 12.5 percent
for the year 1996.
Total revenues for the third quarter were $10.3 billion, down 6 percent from
$11.0 billion in the 1996 third quarter, as realizations for refined products
and crude oil declined from last year. For the nine months, total revenues
were $31.7 billion, compared with $32.4 billion for the first nine months of
1996.
Operating, general and administrative expenses, adjusted for special items,
declined $161 million in the 1997 third quarter and $402 million in the first
nine months to $1.579 billion and $4.781 billion, respectively, compared with
$1.740 billion and $5.183 billion in the comparable periods of 1996. The
- 11 -
decline primarily reflects lower transportation costs in 1997 and the absence
of expenses from operations that were disposed of in 1996.
Taxes on income for the third quarter and first nine months of 1997 were $522
million and $1.723 billion, respectively, compared with $596 million and $1.617
billion for the comparable 1996 periods. The effective income tax rate for
both the third quarter and first nine months of 1997 declined to 42 percent
from 47.6 percent in the 1996 third quarter and 43 percent in the 1996 nine
months.
During the third quarter of 1997, the effective tax rate fell more than 5
percentage points from the 1996 third quarter. The primary reasons for the
decline were a 2 percent decrease in the United Kingdom statutory corporate tax
rate and its effect on current and deferred tax liabilities, an increase in
third quarter 1997 earnings from equity affiliates that are recorded on an
after-tax basis, higher U.S. income tax credits for enhanced production and
other credits and a shift in international earnings from countries with high
effective tax rates to countries with lower effective tax rates.
The effective tax rates for the 1996 and 1997 nine months were impacted by a
number of non-recurring items including prior-year tax adjustments, asset
dispositions, and statutory tax rate changes. These factors were largely
offsetting between the periods and the one percent decrease in the effective
tax rate for the first nine months of 1997 is primarily attributable to a shift
in international earnings from countries with high effective tax rates to
countries with lower effective tax rates.
Foreign exchange gains of $36 million were included in third quarter 1997 net
income, compared with gains of $6 million in the prior year third quarter. For
the first nine months of 1997, foreign exchange gains were $41 million, while
in 1996 foreign exchange losses totaled $14 million. Year to date, the 1997
gains primarily reflect the U.S. dollar's fluctuation against the Australian
dollar and the currencies of Thailand, Malaysia and the Philippines. The 1996
losses reflect primarily the U.S. dollar's fluctuation against the Australian
dollar.
Current Developments
- --------------------
In early October, Chevron agreed to sell its marketing interests in the United
Kingdom, including its retail network of 450 stations, and its lubricants and
commercial fuels businesses, to Shell UK Ltd. In September, the company signed
an agreement to sell to Texaco Ltd. its 50 percent equity interest in the
Pembroke Cracking Co., which operates a 90,000 barrel-per-day catalytic
cracking facility at Texaco's refinery in Pembroke, Wales. The company expects
to complete these transactions during the 1997 fourth quarter, subject to
regulatory approvals. The company will also close its 115,000 barrel-per-day
refinery located near Milford Haven, Wales and will close and sell its
headquarters building in Cheltenham. Chevron also plans to sell the Gulf
trademark in the United Kingdom and Ireland to Gulf Canada Resources Limited.
The company has recorded a provision of $272 million for estimated losses and
future costs associated with this transaction; $200 million was recorded in the
fourth quarter 1996 and an additional $72 million in the third quarter 1997.
These transactions will substantially complete the company's withdrawal from
the refining and marketing business in the United Kingdom.
In September, Chevron agreed to sell its interest in two offshore Louisiana
properties, West Cameron 180 and 198. The sale closed in early October and is
expected to result in a gain.
The company was the successful bidder for 64 deep-water blocks offshore Texas
in the Gulf of Mexico. Chevron now has more than 360 leases in the Gulf's deep
water, making it one of the largest leaseholders in that promising area.
The company continues to review and analyze its operations and may sell,
restructure or purchase assets to achieve operational or strategic benefits.
These activities may result in gains or losses to income in future periods.
Tengizchevroil (TCO), in which Chevron has a 45 percent interest, has awarded a
$250 million contract to increase production capacity at the Tengiz field in
Kazakhstan by about 30 percent to 240,000 barrels per day by year-end 1999.
The project represents the third major expansion of the field since TCO was
formed in 1993. The second-phase expansion, which is nearing completion, is
expected to lift production from its current capacity of 160,000 barrels per
- 12 -
day to about 174,000 barrels per day by year-end 1997 and 187,000 barrels per
day upon completion in mid-1998. Separately, TCO has signed an agreement with
Sinochem, a Chinese state oil trader, to make a test shipment of crude oil from
the Tengiz field to China by rail later this year. This test shipment will help
evaluate the feasibility of transporting crude oil via rail while awaiting the
development of alternate means of transportation to China. TCO continues to
move oil by pipeline, barge and rail car to destinations in the former Soviet
Union and Europe and looks forward to the completion of a direct pipeline to
the Black Sea by the Caspian Pipeline Consortium.
An agreement was signed with the Republic of Azerbaijan to explore the
deep-water Absheron Offshore Block in the southern Caspian Sea. Chevron will
have a 30 percent interest and will be the operator of the exploration phase,
which is expected to begin drilling in late 1999, following 3-D seismic
surveying in 1998.
The first liquefied petroleum gas (LPG) exports from the company's Escravos,
Nigeria, joint venture gas project occurred in September. This project
provides a commercial outlet for LPG and natural gas produced in conjunction
with the company's crude oil operations.
The CACT Operators Group, in which Chevron has a 16 percent interest,
discovered crude oil in the Pearl River Mouth Basin of the South China Sea.
CACT, one of China's largest offshore producers, currently produces 100,000
barrels per day. The new discovery is expected to be produced using the
existing infrastructure.
The Hibernia Development project, 200 miles offshore Newfoundland, Canada, in
which Chevron has a 26.9 percent interest, recently drilled its first
production well into the oil reservoir. Hibernia is expected to begin
production before the end of 1997. Chevron discovered the Hibernia oil field
in 1979.
Recent Far Eastern currency devaluations, notably in Thailand, Malaysia and the
Philippines, have caused erosion in marketing margins for Chevron's Caltex
affiliate. Crude oil and refined products purchased for refining or sale in
these areas are typically purchased in U.S. dollars; however, when products are
sold in the local markets, they are denominated in local currency. Because of
the devaluations, prices have to rise in local currency terms to maintain
product sales margins. The imposition of temporary price controls in several
markets and the lag in the timing of local price increases has resulted in
deteriorating sales margins. Offsetting the lower margins in the third quarter
were favorable balance sheet currency translation effects caused by the
devaluations.
In a lawsuit in Los Angeles, California, brought in 1995, the company and five
other oil companies are contesting the validity of a patent granted to Unocal
Corporation (Unocal) for reformulated gasoline, which the company sells in
California in certain months of the year. The first two phases of the trial
were concluded in October and November 1997 with the jury upholding the
validity of the patent and assessing damages at the rate of 5.75 cents per
gallon of gasoline sold in infringement of the patent between March 1, 1996 and
July 31, 1996. In the third phase of the trial, to begin in December 1997, the
trial court judge will decide whether the company and the five other oil
companies have equitable defenses to the enforcement of the patent by Unocal.
While the ultimate outcome of this matter cannot be determined presently with
certainty, the company believes Unocal's patent is invalid and that any
unfavorable rulings should be reversed upon appeal. Should the jury's findings
and Unocal's position ultimately be upheld, the company's exposure with respect
to future reformulated gasoline sales would depend on the availability of
alternate formulations and the industry's ability to recover additional costs
of production through the prices charged to their customers.
Chevron's partner in Nigeria, the government-owned Nigerian National Petroleum
Corporation (NNPC) funded only 60 percent of its share of the previously
approved 1997 work programs for Chevron and the other oil companies operating
in Nigeria. Consequently, Chevron reduced its 1997 joint venture expenditures
to accommodate the budget shortfall and prioritized expenditures to minimize
the impact on overall production. Despite this year's shortfall, Chevron has
increased its proposed 1998 budget to $1.3 billion, up from $1.2 billion
originally budgeted for 1997, and is awaiting Nigerian government approval.
Chevron has significant production and development projects underway in Africa.
Its share of combined production from Nigeria, Angola, Republic of Congo and
Democratic Republic of Congo is about 300,000 barrels per day. While the
company's producing operations in Nigeria and other African countries have been
- 13 -
generally unaffected by the civil unrest, political uncertainty and economic
conditions in this area, the company continues to closely monitor developments.
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 1997 1996 1997 1996
---------------------------------------------------------------------------
Exploration and Production
United States $193 $237 $ 736 $ 699
International 287 291 991 802
- ------------------------------------------------------------------------------
Total Exploration and Production 480 528 1,727 1,501
- ------------------------------------------------------------------------------
Refining, Marketing and Transportation
United States 193 80 445 281
International 11 21 159 398
- ------------------------------------------------------------------------------
Total Refining, Marketing
and Transportation 204 101 604 679
- ------------------------------------------------------------------------------
Total Petroleum Operations 684 629 2,331 2,180
Chemicals 25 49 165 164
Coal and Other Minerals 16 12 37 35
Corporate and Other * 2 (35) (152) (236)
- ------------------------------------------------------------------------------
Net Income $727 $655 $2,381 $2,143
- ------------------------------------------------------------------------------
* "Corporate and Other" includes interest expense, interest income on cash
and marketable securities, corporate center costs, and real estate and
insurance activities.
SELECTED OPERATING DATA (1)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
---------------------------------------------------------------------------
U.S. Exploration and Production
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 343 340 343 341
Net Natural Gas Production (MMCFPD) 1,796 1,857 1,872 1,853
Sales of Natural Gas Liquids (MBPD) 121 194 126 208
Revenue from Net Production
Crude Oil ($/Bbl.) $16.74 $18.88 $ 17.82 $17.95
Natural Gas ($/MCF) $ 2.20 $ 2.06 $ 2.31 $ 2.13
International Exploration and Production
Net Crude Oil and Natural Gas
Liquids Production (MBPD) 719 712 727 691
Net Natural Gas Production (MMCFPD) 580 587 580 571
Revenue from Liftings
Liquids ($/Bbl.) $17.43 $19.44 $ 18.09 $18.62
Natural Gas ($/MCF) $ 1.88 $ 1.78 $ 2.08 $ 1.80
- 14 -
U.S. Refining and Marketing
Sales of Gasoline (MBPD) 628 572 596 560
Sales of Other Refined
Products (MBPD) 616 586 606 561
Refinery Input (MBPD) 972 971 933 954
Average Refined Product
Sales Price ($/Bbl.) $28.50 $30.34 $29.09 $29.69
International Refining and Marketing
Sales of Refined Products (MBPD) 863 901 886 950
Refinery Input (MBPD) 544 506 568 542
Chemical Sales and Other Operating Revenues(2)
United States $753 $647 $2,303 $2,218
International 148 130 433 458
-----------------------------------------
Worldwide $901 $777 $2,736 $2,676
- ------------------------------------------------------------------------------
(1) Includes equity in affiliates.
(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 $480 million in the third quarter
of 1997 compared with $528 million in the corresponding 1996 period. Earnings
of $1.727 billion in the first nine months of 1997 were 15 percent higher than
the $1.501 billion earned in the 1996 nine months. U.S. exploration and
production net earnings of $193 million declined 19 percent from $237 million
earned in last year's third quarter. There were no special items in the 1997
quarter; however, the 1996 quarter included a net gain of $17 million from the
merger of Chevron's natural gas marketing and natural gas liquids businesses
with NGC Corporation and the unrelated sale of a producing property. Excluding
these special items, earnings of $193 million for the third quarter 1997
declined 12 percent compared with $220 million in last year's third quarter,
reflecting a decline in crude oil realizations. Partially offsetting the lower
crude oil realizations were higher average natural gas realizations and lower
operating expenses.
Crude oil realizations averaged $16.74 per barrel for the third quarter of
1997, 11 percent lower than the $18.88 per barrel averaged in last year's third
quarter. Average natural gas prices increased 14 cents to $2.20 per thousand
cubic feet.
U.S. net liquids production increased in the third quarter to 343,000 barrels
per day compared with the prior year quarter's 340,000 barrels per day; net
natural gas production decreased to 1.80 billion cubic feet per day from 1.86
billion in the 1996 quarter.
Earnings for the first nine months of 1997 were $736 million compared with $699
million last year. Special items benefited earnings $32 million and $8 million
in the 1997 and 1996 nine months, respectively. Excluding special items in
both periods, 1997 year-to-date earnings of $704 million were up from year-ago
earnings of $691 million. Year to date, average crude oil prices were down 13
cents per barrel at $17.82 and natural gas prices rose 18 cents to $2.31 per
thousand cubic feet. Crude oil production volumes in the 1997 nine months were
343,000 barrels per day and natural gas production was 1.87 billion cubic feet
per day compared with 341,000 barrels and 1.85 billion cubic feet in 1996.
International exploration and production net earnings for the third quarter
were $287 million, down slightly from $291 million earned in the third quarter
of 1996. Despite lower crude oil prices, earnings were comparable to the
prior-year quarter due to lower operating and exploration expenses and a lower
effective income tax rate. Net liquids production increased to 719,000 barrels
per day in the third quarter of 1997 from 712,000 barrels per day in last
year's quarter, but was down from the 1997 second quarter, in part reflecting
- 15 -
lower production from Kazakhstan due to scheduled third quarter maintenance at
the Tengiz facilities. In the third quarter of 1997, net natural gas
production declined to 580 million from 587 million cubic feet per day in the
comparable quarter last year.
Nine months net earnings were $991 million compared with $802 million in the
1996 nine months. Year-to-date earnings in 1997 benefited $50 million from
asset sale gains and $14 million from prior-year tax adjustments, which were
partially offset by a charge of $5 million for employee performance stock
option costs. Earnings in the 1996 period were reduced $7 million by asset
write-offs. Excluding special charges in both periods, earnings increased 15
percent to $932 million. Crude oil production increased 5 percent to 727,000
barrels per day and natural gas production was up slightly to 580 million cubic
feet per day. Higher prices for natural gas also contributed to the earnings
increase; natural gas prices were up 16 percent to $2.08 per thousand cubic
feet while crude oil prices were down 53 cents per barrel to $18.09.
Foreign currency effects increased earnings $17 million in the 1997 quarter,
compared with an increase of $5 million in the 1996 third quarter. Foreign
exchange gains were $34 million for the 1997 nine months compared with a loss
of $5 million in the 1996 period.
Worldwide refining and marketing operations reported net earnings of $204
million in the 1997 third quarter, more than double the $101 million earned in
the 1996 third quarter. The 1997 nine-month net income was $604 million, down
11 percent from the $679 million earned in the corresponding 1996 period. U.S.
refining and marketing net earnings were $193 million compared with $80 million
reported in the third quarter of last year. Earnings for the 1997 third
quarter included no special items, while the 1996 quarter included net charges
of $26 million, mainly for environmental remediation provisions. Excluding
special items, earnings for the 1997 quarter increased 82 percent from $106
million in the third quarter 1996.
Earnings for the 1997 nine months were $445 million, an increase of 58 percent
from $281 million for the same period last year. Included in the 1997 earnings
were special charges of $43 million for environmental remediation, litigation
and employee performance stock option costs. Special charges of $37 million in
the 1996 first nine months were for environmental remediation, litigation and
employee severance programs. Despite a decline in sales realizations,
operating earnings of $488 million increased 53 percent on higher refined
product sales volumes and lower crude oil feedstock costs and operating
expenses.
Average refined product prices for nine months 1997 were down 2 percent from
the 1996 nine months, at $29.09 per barrel. 1997 third quarter prices averaged
$28.50, down from $30.34 in the 1996 third quarter. Total refined product
sales volumes increased steadily in 1997; 1.170 million barrels per day in the
first quarter, 1.192 million barrels per day in the second quarter, and 1.244
million barrels per day in the third quarter. Year-to-date volumes averaged
1.202 million barrels per day in 1997 compared with 1.121 million barrels
per day in 1996.
International refining and marketing net earnings were $11 million compared
with $21 million reported in last year's third quarter. The 1997 third quarter
results were reduced $72 million by an additional charge associated with the
expected fourth quarter 1997 disposition of certain U.K. marketing and
refining assets and the subsequent planned closure of the company's refinery in
Milford Haven, Wales. Excluding special items, 1997 operating earnings of $83
million were nearly four times the 1996 third quarter earnings of $21 million.
Nine month 1997 earnings declined $239 million to $159 million because of
special items in both periods. The 1997 third quarter charges for the U.K.
asset sales and refinery closure and an additional $3 million for employee
performance stock option costs reduced 1997 nine months earnings $75 million.
The 1996 period included a $275 million gain for the company's share of its
Caltex affiliate's sale of refinery interests in Japan and a special charge of
$15 million for environmental remediation. Excluding net special items in both
nine-month periods, operating earnings rose 70 percent to $234 million due to
favorable foreign currency swings, lower operating costs and improved marine
transportation operations.
Caltex third quarter operations benefited from improved market conditions,
particularly in Korea. Currency devaluations in Thailand, Malaysia and the
Philippines eroded sales margins in those countries. However, favorable
balance sheet currency translation effects caused by the devaluations
- 16 -
offset the related product margin declines. While Caltex refined product sales
volumes were flat in the 1997 third quarter compared to last year, total sales
volumes for international refining and marketing operations declined by 4
percent to 863,000 barrels per day, primarily due to lower sales volumes from
the company's trading activities. Refined product sales volumes for nine
months of 886,000 barrels per day were 7 percent lower than in 1996 because of
the sale of the Japanese refinery interests and lower trading volumes.
Foreign currency gains totaled $19 million in the 1997 third quarter and $3
million year to date compared with losses of $1 million in the 1996 quarter and
$22 million for the nine months.
Chemicals third quarter net earnings of $25 million declined from $49 million
in the prior-year third quarter and were about flat at $165 million in the
current-year nine months compared with $164 million in 1996. The 1997 third
quarter results were reduced $9 million by a special charge for environmental
remediation provisions; 1996 results were reduced by $12 million for asset
write-offs. In addition to the quarter charges, year-to-date results were
reduced $9 million for employee performance stock option costs in 1997 and $16
million for litigation provisions in 1996. Excluding the special charges, 1997
third quarter earnings of $34 million decreased 44 percent from $61 million in
1996. Nine month 1997 results, excluding special items, were $183 million
compared with $192 million. The decline in operating earnings resulted from
higher expenses and downtime associated with maintenance and expansion
activities at certain manufacturing facilities in the third quarter. The 1997
results have benefited from stronger prices and higher volumes for some of the
company's products, particularly ethylene and polyethylene together with
reduced depreciation expense as a result of a reassessment of the useful lives
of certain assets. The 1996 periods benefited from the non-recurring receipt
of $17 million of after-tax insurance proceeds.
Coal and other minerals net earnings increased to $16 million in the 1997 third
quarter and to $37 million year to date from $12 million and $35 million for
the corresponding periods last year. A special charge for employee performance
stock option costs reduced year to date 1997 earnings by $2 million, while a
third quarter 1996 special charge of $3 million for an employee severance
program affected both 1996 period comparisons.
Corporate and other includes interest expense, interest income on cash and
marketable securities, corporate center costs, and real estate and insurance
operations. These activities earned a net $2 million in the third quarter 1997
compared with a net charge of $35 million in the 1996 third quarter.
Year-to-date charges were $152 million in 1997 and $236 million in 1996. The
1997 third quarter results included a special net gain of $76 million for
prior-year income tax adjustments offset partially by a charge for the
write-off of certain telecommunications equipment. The 1996 quarter included a
net gain of $29 million from a favorable prior-year income tax adjustment,
partially offset by special charges for employee severance and a litigation
matter. In addition to the third quarter special items, the 1997 nine months
included charges of $13 million for employee performance stock option costs and
$8 million for environmental remediation provisions. Nine month 1996 net
special charges of $16 million included losses of $29 million on disposal of
the company's real estate development portfolio and provisions of $16 million
for litigation, partially offset by the third quarter $29 million net benefit.
Excluding special items, net charges from corporate activities increased by $10
million to $74 million in the third quarter 1997, primarily due to lower
pension settlement gains than in last year's quarter. On a year-to-date basis,
net charges decreased by $13 million to $207 million due to a number of
factors, including lower interest expense, higher interest income and lower
insurance expense.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents totaled $991 million at September 30, 1997, a $99
million increase from year-end 1996. Cash flows from operations and asset
sales were adequate to fund the company's capital expenditures and dividend
payments to stockholders, and to reduce debt by a net $420 million.
In April 1997, the company increased the quarterly dividend on its common stock
by 4 cents a share, or 7 percent, to 58 cents a share. This was the company's
tenth consecutive annual dividend increase and brings Chevron's annualized
dividend rate to $2.32 a share.
- 17 -
Year to date 1997, the company generated approximately $150 million in net cash
proceeds from the sale of treasury stock associated with employees exercising
options under the company's broad-based performance stock option program.
The company's debt and capital lease obligations totaled $6.217 billion at
September 30, 1997, down $477 million from $6.694 billion at year-end 1996.
Strong cash flows have enabled the company to reduce the amount of its
outstanding debt. Long-term debt was reduced by the scheduled first quarter
1997 retirement of $138 million of Swiss Franc denominated 4.625 percent debt
and the third quarter 1997 early redemption of $142 million of 9.75 percent
debentures originally due in 2017. The company also retired via a non-cash
transaction, in January 1997, as scheduled, $50 million of 7.28 percent debt
related to the Employee Stock Ownership Plan.
Although the company benefits from lower interest rates on its short-term debt,
the proportionately large amount relative to long-term debt has kept Chevron's
ratio of current assets to current liabilities at relatively low levels. The
company's current ratio was .99 at September 30, 1997 compared with .89 at year
end 1996. The company's short-term debt, consisting primarily of commercial
paper and the current portion of long-term debt, totaled $4.478 billion at
September 30, 1997. This amount includes $2.725 billion of commercial paper
that was reclassified as long-term debt on Chevron's balance sheet since the
company has both the intent and ability, as evidenced by committed credit
agreements, to refinance it on a long-term basis. In the third quarter of
1997, the company decreased the amount of committed credit facilities from
$4.425 billion to $4.05 billion, but increased the portion with termination
dates beyond one year from $1.8 billion to $2.725 billion. The improvement in
the company's current ratio is primarily the result of the additional $925
million of short-term debt reclassified as long-term. 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 26.7
percent at September 30, 1997, down from 30.0 percent at year-end 1996. 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.
Worldwide capital and exploratory expenditures for the first nine months of
1997, including the company's share of affiliates' expenditures, totaled $3.801
billion, an increase of 17 percent from $3.249 billion spent in the 1996 nine
months. The increased spending was primarily for U.S. exploration and
production projects and U.S. and international chemicals facilities. About 67
percent of the company's capital and exploratory expenditures were for total
exploration and production activities in 1997, about the same as in 1996. Of
these amounts, about half of the expenditures for exploration and production
were for projects in the United States, compared with 39 percent in 1996,
reflecting the company's spending on development projects to stabilize U.S. oil
and gas production.
- 18 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
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 12, 1997 /s/S. J. CROWE
-------------------------- ---------------------------------
S. J. Crowe, Comptroller
(Principal Accounting Officer and
Duly Authorized Officer)
- 19 -