================================================================================
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
----------
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001 Commission file number 1-27
Texaco Inc.
(Exact name of the registrant as specified in its charter)
Delaware 74-1383447
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Westchester Avenue
White Plains, New York 10650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 253-4000
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Texaco Inc. (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
As of April 30, 2001, there were 550,943,922 shares outstanding of Texaco
Inc. Common Stock - par value $3.125.
================================================================================
TEXACO INC.
FORM 10-Q
For the Quarterly Period
Ended March 31, 2001
Table of Contents
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the
three months ended March 31, 2001 and 2000 1
Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000 2
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 2001 and 2000 3
Condensed Consolidated Statements of Comprehensive
Income for the three months ended March 31, 2001 and 2000 4
Notes to Condensed Consolidated Financial Statements 4-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
Part II. Other Information
Item 1. Legal Proceedings 18
Item 5. Other Information 18-20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibits
Exhibit 10(iii)(k). Separation Agreement and General Release dated May 2, 2001,
between Texaco Inc. and Mr. Peter I. Bijur
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges
- i -
PART I - FINANCIAL INFORMATION
TEXACO INC.
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------
(Millions of dollars, except per share data)
(Unaudited)
--------------------------
For the three months
ended March 31,
--------------------------
2001 2000
---- ----
REVENUES
Sales and services $13,872 $11,086
Equity in income of affiliates,
interest, asset sales and other 262 185
------- -------
14,134 11,271
------- -------
DEDUCTIONS
Purchases and other costs 11,093 8,630
Operating expenses 656 590
Selling, general and administrative expenses 344 325
Exploratory expenses 49 53
Depreciation, depletion and amortization 319 484
Interest expense 115 122
Taxes other than income taxes 116 103
Minority interest 41 27
------- -------
12,733 10,334
------- -------
Income before income taxes 1,401 937
Provision for income taxes 568 363
------- -------
NET INCOME $ 833 $ 574
======= =======
Per common share
Basic net income $ 1.53 $ 1.05
Diluted net income $ 1.53 $ 1.05
Cash dividends paid $ .45 $ .45
<FN>
See accompanying notes to consolidated financial statements.
</FN>
- 1 -
TEXACO INC.
CONSOLIDATED BALANCE SHEETS
(Millions of dollars)
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
-----------
ASSETS
Current Assets
Cash and cash equivalents $ 333 $ 207
Short-term investments - at fair value 60 46
Accounts and notes receivable, less allowance for doubtful
accounts of $26 million in 2001 and $27 million in 2000 5,885 5,583
Inventories 1,466 1,023
Deferred income taxes and other current assets 474 194
------- -------
Total current assets 8,218 7,053
Investments and Advances 6,899 6,889
Properties, Plant and Equipment - at cost 33,300 32,821
Less - Accumulated Depreciation, Depletion and Amortization 17,407 17,140
Net properties, plant and equipment 15,893 15,681
Deferred Charges 1,341 1,244
------- -------
Total $32,351 $30,867
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 354 $ 376
Accounts payable and accrued liabilities
Trade liabilities 4,274 3,314
Accrued liabilities 1,165 1,347
Income and other taxes 1,140 947
------- -------
Total current liabilities 6,933 5,984
Long-Term Debt and Capital Lease Obligations 6,544 6,815
Deferred Income Taxes 1,625 1,547
Employee Retirement Benefits 1,098 1,118
Deferred Credits and Other Non-current Liabilities 1,370 1,246
Minority Interest in Subsidiary Companies 702 713
------- -------
Total 18,272 17,423
Stockholders' Equity
Market auction preferred shares 300 300
Common stock (authorized: 850,000,000 shares, $3.125 par value;
567,576,504 shares issued) 1,774 1,774
Paid-in capital in excess of par value 1,309 1,301
Retained earnings 11,883 11,297
Unearned employee compensation and benefit plan trust (300) (310)
Accumulated other comprehensive income (loss)
Currency translation adjustment (104) (106)
Minimum pension liability adjustment (18) (27)
Unrealized net gain on investments 4 3
Deferred hedging loss (13) --
------- -------
Total (131) (130)
------- -------
14,835 14,232
Less - Common stock held in treasury, at cost 756 788
------- -------
Total stockholders' equity 14,079 13,444
------- -------
Total $32,351 $30,867
======= =======
<FN>
See accompanying notes to consolidated financial statements.
</FN>
-2-
TEXACO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Millions of dollars)
(Unaudited)
------------------------
For the three months
ended March 31,
------------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 833 $ 574
Reconciliation to net cash provided by (used in)
operating activities
Depreciation, depletion and amortization 319 484
Deferred income taxes 72 (103)
Minority interest in net income 41 27
Dividends from affiliates, less than equity
in income (49) (21)
Gains on asset sales (9) (22)
Changes in operating working capital 52 (35)
Other - net 77 96
----- -----
Net cash provided by operating activities 1,336 1,000
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (636) (577)
Proceeds from asset sales 30 271
Purchases of investment instruments (100) (112)
Sales/maturities of investment instruments 88 95
----- -----
Net cash used in investing activities (618) (323)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings having original terms in excess
of three months
Proceeds 54 555
Repayments (732) (731)
Net increase (decrease) in other borrowings 392 (42)
Purchases of common stock -- (1)
Dividends paid to the company's stockholders
Common (243) (245)
Preferred (2) (5)
Dividends paid to minority stockholders (51) (28)
----- -----
Net cash used in financing activities (582) (497)
CASH AND CASH EQUIVALENTS
Effect of exchange rate changes on cash and cash equivalents (10) (5)
----- -----
Increase during period 126 175
Beginning of year 207 419
----- -----
End of period $ 333 $ 594
===== ======
<FN>
See accompanying notes to consolidated financial statements.
</FN>
-3-
TEXACO INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
---------------------------------------------------------
(Millions of dollars)
(Unaudited)
------------------------
For the three months
ended March 31,
------------------------
2001 2000
---- ----
NET INCOME $833 $574
Other comprehensive income (loss), net of tax
Currency translation adjustment 2 --
Minimum pension liability adjustment 9 (4)
Unrealized net gain on investments 1 6
Deferred hedging loss (13) --
---- ----
(1) 2
---- ----
COMPREHENSIVE INCOME $832 $576
==== ====
TEXACO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Note 1. Basis of Preparing Interim Financial Statements
- -------------------------------------------------------
The accompanying unaudited consolidated interim financial statements of Texaco
Inc. have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission. We have condensed or omitted from these
financial statements certain footnotes and other information included in our
2000 Annual Report on Form 10-K. You should read these unaudited condensed
financial statements in conjunction with our 2000 Annual Report. All dollar
amounts are in millions, unless otherwise noted.
We have consistently applied the accounting policies described in our 2000
Annual Report on Form 10-K in preparing the unaudited financial statements for
the three-month periods ended March 31, 2001 and 2000, except for the adoption
of SFAS No. 133, as discussed in Note 2. We have made all adjustments and
disclosures necessary, in our opinion, to present fairly our results of
operations, financial position and cash flows for such periods. These
adjustments were of a normal recurring nature. The information is subject to
year-end audit by independent public accountants.
The results for the interim periods are not necessarily indicative of trends or
future financial results.
- 4 -
Note 2. Adoption of SFAS No. 133 and SFAS No. 138
- -------------------------------------------------
On January 1, 2001 Texaco adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." These standards
establish new accounting and disclosure requirements for most derivative
instruments and hedge transactions involving derivatives. The standards also
require formal documentation procedures for hedging relationships and
effectiveness testing when hedge accounting is to be applied. The cumulative
effects of adoption of these standards on net income and other comprehensive
income were not material to net income for the three months ended March 31, 2001
and stockholders' equity at January 1, 2001.
Our derivative usage is principally commodity futures, forwards and swaps;
foreign currency forwards; and interest rate swaps.
For economic hedges of commodities, we purchase and sell commodity derivatives
covering percentages of our total estimated exposures. The percentages vary by
type of exposure and are adjusted from time to time based on forecasted trends
and overall business objectives. We may or may not apply hedge accounting as
fair value hedges or cash flow hedges. For our limited trading for profit
activity not accounted for as hedges, we purchase or sell commodity derivatives
based upon management's assessment of forecasted trends and other factors
affecting the prices of crude oil, natural gas and petroleum products.
We use foreign currency forwards to create an economic hedge of our balance
sheet exposure in certain currencies for monetary assets and liabilities (cash,
cash equivalents, receivables, payables and debt). Gains and losses on forward
contracts used for this purpose are marked to market through earnings in
accordance with SFAS No. 52, "Foreign Currency Translation." We also use
short-term foreign currency forwards under a rollover strategy as cash flow
hedges for percentages of forecasted foreign currency capital expenditures
scheduled to occur within specified future time periods. After project start-up,
the deferred hedge gains and losses are amortized to depreciation expense under
the depreciation basis and life applied to the hedged asset's capitalized cost.
We utilize receive fixed-rate, pay floating-rate interest rate swaps as fair
value hedges of a portion of our fixed-rate debt. The percentage of our debt
hedged in this manner changes from time to time based upon the amount of swaps
required to achieve the desired ratio of floating rate to fixed rate exposure in
our total debt portfolio.
We record hedge ineffectiveness on fair value hedges and cash flow hedges to
revenues. There were no material ineffectiveness amounts reflected in earnings
for the three months ended March 31, 2001.
Amounts recorded in comprehensive income from cash flow hedges of forecasted
commodities transactions and foreign currency capital expenditures will reverse
to earnings at the time the associated hedged transactions affect earnings. The
amounts in the current balance sheet expected to reverse from this account
within the next 12 months are not material.
The maximum length of time over which we hedge future cash flows for forecasted
transactions normally does not exceed two years.
- 5 -
Note 3. Net Income Per Common Share
- -----------------------------------
For the three months
ended March 31,
---------------------
2001 2000
---- ----
(Unaudited)
Basic Net Income Per Common Share:
Net income $ 833 $ 574
Less: Preferred stock dividends 3 3
------- -------
Net income available for common stock $ 830 $ 571
======= =======
Weighted average shares outstanding (thousands) 541,052 543,899
======= =======
Basic net income per common share (dollars) $ 1.53 $ 1.05
======= =======
Diluted Net Income Per Common Share:
Net income available for common stock $ 830 $ 571
Adjustment for the dilutive effect of
stock-based compensation -- 1
------- -------
Income for diluted earnings per share $ 830 $ 572
======= =======
Weighted average shares outstanding (thousands) 541,052 543,899
Dilutive effect of stock-based compensation (thousands) 1,907 1,579
------- -------
Weighted average shares outstanding for diluted
computation (thousands) 542,959 545,478
======= =======
Diluted net income per common share (dollars) $ 1.53 $ 1.05
======= =======
- 6 -
Note 4. Segment Information
- ---------------------------
Sales and Services
------------------------------ After Assets
Inter- Tax at
Quarter Ended March 31, 2001 Outside Segment Total Profit (Loss) Quarter-End
- ---------------------------- ------- ------- ----- ------------- -----------
(Unaudited)
Exploration and production
United States $ 940 $ 895 $ 1,835 $ 589 $ 8,426
International 1,005 109 1,114 243 6,429
Refining, marketing and distribution
United States 1,502 9 1,511 38 3,698
International 6,851 91 6,942 88 9,070
Global gas, power and energy technology 3,568 43 3,611 5 3,072
------- -------- ------- ------- -------
Segment totals $13,866 $ 1,147 15,013 963 30,695
======= ========
Other business units 9 (3) 474
Corporate/Non-operating 2 (127) 1,543
Intersegment eliminations (1,152) -- (361)
------- ------- -------
Consolidated $13,872 $ 833 $32,351
======= ======= =======
Sales and Services
------------------------------ After Assets
Inter- Tax at
Quarter Ended March 31, 2000 Outside Segment Total Profit (Loss) December 31, 2000
- ---------------------------- ------- ------- ----- ------------- -----------------
(Unaudited)
Exploration and production
United States $ 823 $430 $ 1,253 $ 294 $ 8,442
International 873 411 1,284 293 6,343
Refining, marketing and distribution
United States 1,380 24 1,404 18 3,495
International 6,721 95 6,816 51 8,865
Global gas, power and energy technology 1,285 35 1,320 20 2,580
------- ---- ------- ----- -------
Segment totals $11,082 $995 12,077 676 29,725
======= ====
Other business units 10 -- 341
Corporate/Non-operating 1 (102) 1,185
Intersegment eliminations (1,002) -- (384)
------- ----- -------
Consolidated $11,086 $ 574 $30,867
======= ===== =======
- 7 -
Note 5. Inventories
- -------------------
The inventory accounts of Texaco are presented below:
As of
--------------------------------------
March 31, December 31,
2001 2000
----------- ------------
(Unaudited)
Crude oil $ 178 $ 127
Petroleum products and other 1,116 732
Materials and supplies 172 164
------ ------
Total $1,466 $1,023
====== ======
Note 6. Investments in Significant Equity Affiliates
- ----------------------------------------------------
U.S. Downstream Alliances
Summarized unaudited financial information for Equilon, owned 44% by Texaco and
56% by Shell Oil Company, is presented below on a 100% Equilon basis:
For the three months
ended March 31,
-----------------------
2001 2000
---- ----
Gross revenues $11,151 $9,957
Income (loss) before income taxes $ 39 $ (31)
Summarized unaudited financial information for Motiva is presented below on a
100% Motiva basis. Motiva is owned by Texaco, Saudi Refining, Inc. (a corporate
affiliate of Saudi Aramco) and Shell Oil Company. Under the terms of the Limited
Liability Agreement for Motiva, the interests in Motiva are subject to annual
adjustment through year-end 2005, based on the performance of the assets
contributed to Motiva. Accordingly, the interests in Motiva will be adjusted
effective as of January 1, 2001. We expect that when the calculations are
finalized, Texaco and Saudi Refining, Inc. will each have 35% and Shell will
have 30% of Motiva. These percentages will be effective through year-end 2001.
The Agreement provides that a final ownership percentage will be calculated
following the end of 2005.
For the three months
ended March 31,
---------------------
2001 2000
---- ----
Gross revenues $4,730 $4,391
Income before income taxes $ 130 $ 63
We record income tax effects applicable to our share of Equilon's and Motiva's
pre-tax results in our consolidated financial statements, since Equilon and
Motiva are limited liability companies.
- 8 -
Caltex Group of Companies
Summarized unaudited financial information for the Caltex Group of Companies,
owned 50% by Texaco and 50% by Chevron Corporation, is presented below on a 100%
Caltex Group basis:
For the three months
ended March 31,
-----------------------
2001 2000
---- ----
Gross revenues $3,977 $4,253
Income before income taxes $ 345 $ 219
Net income $ 206 $ 102
Note 7. Commitments and Contingencies
- -------------------------------------
Information relative to commitments and contingent liabilities of Texaco is
presented in Note 15, Other Financial Information, Commitments and
Contingencies, pages 68-69, of our 2000 Annual Report.
It is impossible for us to determine the ultimate legal and financial liability
with respect to contingencies and commitments. However, we do not anticipate
that the aggregate amount of such liability in excess of accrued liabilities
will be materially important in relation to our consolidated financial position
or results of operations.
-9 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
The following table provides a summary of Texaco's income before special items
and net income for the first quarter of 2001 and 2000. All dollar amounts are in
millions, unless otherwise noted.
For the three months
ended March 31,
----------------------
2001 2000
---- ----
(Unaudited)
Income before special items $ 836 $ 602
Per share (dollars) $1.54 $1.10
Net income $ 833 $ 574
Per share (dollars) $1.53 $1.05
Our first quarter results follow our record fourth quarter and mark the third
consecutive quarter that earnings surpassed $800 million. Propelled by strong
worldwide crude oil and U.S. natural gas prices, our upstream results were their
highest ever. Operationally, we exceeded our production target for the quarter
and made excellent progress on our major development projects. In the
Philippines, the topsides of the Malampaya project platform were set and we
remain on target for first production in the fourth quarter with first delivery
of gas in January 2002. In the U.K. North Sea, we are drilling new producing
wells at the Captain B expansion project which will ramp up field production
this year by 25,000 barrels per day by the third quarter.
We also continue to progress our high-impact international deepwater exploration
program. In Nigeria, the Agbami 3 well successfully appraised the west end of
the field extending its areal limits. In Brazil, our drilling program began with
the drilling of two of five planned exploration wells.
Downstream earnings were mixed. While refining margins improved in some areas,
including the U.S.
East and Gulf Coasts where Motiva operates, high utility costs and tight margins
burdened refining results elsewhere. Competitive pressures in all regions,
especially the U.S. West Coast, caused lower retail marketing results as these
operations were unable to fully recover product supply costs.
Results for the first quarter of 2001 and 2000 are summarized in the following
table. Details on special items are included in the segment analysis which
follows this table. The following discussion of operating earnings is presented
on an after-tax basis.
- 10 -
For the three months
ended March 31,
-----------------------
2001 2000
---- ----
Income before special items $836 $602
Net losses on major asset sales -- (67)
Tax issue -- 46
Litigation issue -- (13)
Employee related costs -- 6
Merger costs (3) --
---- ----
Special items (3) (28)
---- ----
Net income $833 $574
==== ====
OPERATING RESULTS
EXPLORATION AND PRODUCTION
For the three months
United States ended March 31,
----------------------
2001 2000
---- ----
Operating income before special items $589 $361
Special items -- (67)
---- ----
Operating income $589 $294
==== ====
U.S. exploration and production earnings for the first quarter of 2001 were
significantly higher than last year due to higher natural gas prices. U.S.
natural gas prices reached historic levels during the first quarter, reflecting
low inventories and strong demand. Our average realized natural gas price was
$7.14 per thousand cubic feet (MCF) during the first quarter, 191 percent higher
than last year.
Our average realized crude oil price was $24.31 per barrel for the first
quarter, down slightly from last year. Crude oil prices continue to react to
changes in global demand, production levels and petroleum inventories, which
remain lean.
Daily production for the first quarter of 2001 was 534,000 barrels of oil
equivalent (BOE) per day, 12 percent lower than last year. More than half of
this expected reduction was due to last year's sales of non-core producing
properties. The balance of the decrease was due to natural field declines and
lower production in our California fields as we economically reduced steam
production due to high natural gas prices.
Operating expenses were 13 percent higher in the first quarter as natural gas
prices led to significantly higher utilities expenses and production taxes.
Exploratory expenses for the quarter were $33 million before tax, $14 million
higher than last year.
Results for the first quarter of 2000 included a special charge of $67 million
for net losses on the sales of non-core producing properties and related
disposal costs.
-11 -
For the three months
International ended March 31,
----------------------
2001 2000
---- ----
Operating income $243 $293
==== ====
International exploration and production operating results for the first quarter
of 2001 were lower than last year due to decreased production volumes and lower
crude oil sales volumes. Daily production was 564,000 BOE per day in the first
quarter of 2001, down three percent, or 17,000 barrels per day from last year.
Last year's sales of non-core producing properties caused a decrease of 40,000
barrels per day, or seven percent. Partly offsetting this decrease were higher
lifting entitlements in Indonesia as a result of lower crude oil prices and
increased production in the Karachaganak field in the Republic of Kazakhstan and
in the Partitioned Neutral Zone. However, crude oil sales volumes were lower
than last year due to the timing of liftings in the North Sea.
Market conditions kept natural gas prices strong throughout the first quarter,
while crude oil prices receded slightly. Our average realized crude oil price
for the first quarter was $21.61 per barrel, down seven percent from last year.
Our average realized natural gas price was $2.00 per MCF in the first quarter,
up 35 percent from last year.
Operating expenses decreased 12 percent in the first quarter due to the sales of
non-core producing properties. Exploratory expenses for the first quarter were
$16 million before tax, $18 million lower than last year.
REFINING, MARKETING AND DISTRIBUTION
For the three months
United States ended March 31,
----------------------
2001 2000
---- ----
Operating income before special items $38 $13
Special items -- 5
--- ---
Operating income $38 $18
=== ===
U.S. refining, marketing and distribution earnings improved as compared with the
extremely low results in 2000.
Motiva's earnings for the first quarter benefited from significantly higher
refining margins in an environment of tight supplies and industry refinery
maintenance, although higher utilities expense and scheduled maintenance at the
Port Arthur refinery reduced those earnings. While refining results improved,
marketing margins were negatively impacted by higher supply costs, which were
not fully recovered in the market.
First quarter earnings for Equilon improved due to substantially higher refining
margins and improved refinery operations. Earnings also benefited from higher
utilization of proprietary pipelines, higher lubricant margins and improved
trading results. These improvements were negatively impacted by extremely high
West Coast utilities expense. Also, marketing earnings for Equilon declined from
last year due to depressed fuel marketing margins as pump prices lagged
increases in supply costs in a very competitive market. This was especially true
in the Los Angeles area where retail fuel margins were under intense pressure.
Results for the first quarter of 2000 included net special benefits of $5
million comprised of a benefit of $18 million for an employee benefits revision
and a charge of $13 million for a patent litigation issue.
- 12 -
For the three months
International ended March 31,
-----------------------
2001 2000
---- ----
Operating income before special items $88 $63
Special items -- (12)
--- ---
Operating income $88 $51
=== ===
International refining and marketing earnings for the first quarter of 2001
increased from last year. Earnings improved in the Asia Pacific area due to
higher marketing margins from lower product acquisition costs and higher trading
results.
Operating results for the first quarter of 2001 decreased in Europe from last
year due to weak markets, particularly in the U.K. Decreased margins in both
refining and marketing operations resulted from our inability to recover higher
supply costs in the marketplace. Results in Latin America were in line with last
year with improved refining earnings but lower marketing results.
Results for the first quarter of 2000 included a special charge of $12 million
for employee separation costs. See the section entitled Reorganizations,
Restructurings and Employee Separation Programs on page 15 of this Form 10-Q for
additional information.
GLOBAL GAS, POWER AND ENERGY TECHNOLOGY
For the three months
ended March 31,
-----------------------
2001 2000
---- ----
Operating income $ 5 $ 20
====== =====
Results for the first quarter of 2001 were lower than last year. This year's
results include higher costs and expenses for a new gasification project in
Singapore. Results were also negatively impacted by higher fuel expense for the
cogeneration facilities. In our U.S. natural gas trading operations,
significantly improved natural gas margins and trading results were reduced by
lower NGL margins.
OTHER BUSINESS UNITS
For the three months
ended March 31,
----------------------
2001 2000
---- ----
Operating loss $ (3) $ --
==== ==
Our other business units mainly include our insurance operations. There were no
significant items in either quarter's results.
- 13 -
CORPORATE/NON-OPERATING
For the three months
ended March 31,
----------------------
2001 2000
---- ----
Results before special items $(124) $(148)
Special items (3) 46
----- -----
Total Corporate/non-operating $(127) $(102)
===== =====
Corporate and non-operating results for the first quarter of 2001 benefited from
lower interest expense and lower advertising and sales promotion expenses.
Results for the first quarter of 2001 included a special charge of $3 million
for costs associated with the proposed merger with Chevron. Results for the
first quarter of 2000 included special benefits of $46 million for favorable
income tax settlements in the quarter.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Our cash, cash equivalents and short-term investments were $393 million at March
31, 2001, compared with $253 million at year-end 2000.
During the first three months of 2001, strong earnings from our operations
provided cash of $1.3 billion. We spent $636 million on our capital investment
program, paid $296 million in common, preferred and minority interest dividends
and used $286 million to reduce debt. Our overall debt level decreased as we
repaid $732 million of long-term debt and borrowed $446 million of new,
principally commercial paper, debt.
As of March 31, 2001, our ratio of total debt to total borrowed and invested
capital was 31.8%, compared with 33.7% at year-end 2000. At March 31, 2001, our
long-term debt included $2.2 billion of debt scheduled to mature within one
year, which we have both the intent and ability to refinance on a long-term
basis. As of March 31, 2001, we maintained, but did not use, $2,575 million in
revolving credit facilities that provide liquidity and support our commercial
paper program.
We consider our financial position to be sufficiently strong to meet our
anticipated future financial requirements.
- 14 -
REORGANIZATIONS, RESTRUCTURINGS AND EMPLOYEE SEPARATION PROGRAMS
- ----------------------------------------------------------------
During the first quarter of 2000, we announced an employee separation program
for our international downstream, primarily our marketing operations in Brazil
and Ireland. We accrued $17 million ($12 million, net of tax) for employee
separations, curtailment costs and special termination benefits for about 200
employees. These separation accruals are shown as selling, general and
administrative expenses in the Consolidated Statements of Income. By the end of
the first quarter of 2001, the estimated employee reductions were met, and we
had satisfied all remaining obligations in accordance with the plan provisions.
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Capital and exploratory expenditures were $761 million for the first quarter of
2001, compared with $724 million for 2000.
Total upstream expenditures increased more than 19 percent over 2000 levels as
we continued to focus resources on high-impact projects. Internationally,
development work continued in the Malampaya natural gas project in the
Philippines, the Agbami field offshore Nigeria and the Hamaca heavy oil project
in Venezuela. In Kazakhstan, development work also continued in the Karachaganak
and North Buzachi fields. In the U.S., spending focused on drilling and workover
activity in the Gulf and Permian regions.
Downstream expenditures in the U.S. were in line with the prior year, while
international activity reflected a slowing in marketing spending. Global gas,
power and energy technology spending is lower than last year due to project
completions in Thailand, Korea and Singapore.
CALIFORNIA POWER SITUATION
- --------------------------
The electric utility deregulation plan adopted by the state of California in
1996 required utilities to dispose of a portion of their power generation
assets. That plan further provided that utilities that serve California purchase
power on the open market, and, in turn, sell power to the retail customers at
capped rates. During the fourth quarter of 2000, and continuing in the first
quarter of 2001, California's power and gas markets experienced significant
price volatility. This commodity volatility exposed the California utilities to
significantly higher prices for power purchases, which could not be fully
recovered through rates charged to their customers. As a result, the utilities
have failed to pay some of their suppliers for certain power deliveries in the
last quarter of 2000 and the first quarter of 2001, and one of the utilities,
Pacific Gas & Electric Company (PG&E), has filed for protection under Chapter 11
of the bankruptcy laws. As both supplier to and purchaser from the utility
companies, Texaco has financial and operational exposure in California. While
the possible outcomes for the California utility situation remain uncertain, we
believe that they will not have a material adverse impact on our financial
condition or results of operations. Our principal exposure is the risk of
non-recovery of outstanding receivables held by our 50%-owned affiliates for
power sales to PG&E and Southern California Edison Company (SCE) under long-term
Qualifying Facility (QF) contracts. As of March 31, 2001, these receivables in
the aggregate approximated $58 million from PG&E and $254 million from SCE
(Texaco share: $29 million and $127 million, respectively). The affiliates are
receiving payment in full on current sales to both utilities, and they expect to
ultimately recover substantially all QF receivables.
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CHEVRON-TEXACO MERGER
- ---------------------
We continue to make good progress toward the completion of our proposed merger
with Chevron. In February, our companies announced the leadership team and
high-level organization structure for the post-merger company. The European
Commission has given its approval of the merger without conditions. The U.S.
Federal Trade Commission and the U.S. Securities and Exchange Commission
continue their reviews of the merger proposal.
FORWARD-LOOKING STATEMENTS
- --------------------------
Portions of the foregoing discussion contain a number of "forward-looking
statements" within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. In particular, statements made
concerning our expected performance and financial results in future periods, in
addition to statements concerning our proposed merger with Chevron, such as
statements as to the consummation and expected benefits of the merger, are based
on our current expectations and beliefs and are subject to a number of known and
unknown risks and uncertainties. This could cause actual results to differ
materially from those described in the "forward-looking statements." The
following factors known to us, among other factors, could cause our actual
results to differ materially from those described in the "forward-looking
statements": incorrect estimation of reserves; inaccurate seismic data;
mechanical failures; decreased demand for crude oil, natural gas, motor fuels
and other products; worldwide and industry economic and political conditions;
inaccurate forecasts of crude oil, natural gas and petroleum product prices;
increasing price and product competition; price fluctuations; higher costs,
expenses and interest rates; the possibility that the merger will not be
consummated or that the anticipated benefits from the proposed merger with
Chevron cannot be fully realized; the possibility that costs or difficulties
related to the integration of our businesses with Chevron will be greater than
we expected; and fluctuations and/or increases in financial and operational
exposure arising from the California power situation. In addition, you are
encouraged to review our latest reports filed with the Securities and Exchange
Commission, including our 2000 Annual Report on Form 10-K filed with the SEC on
March 26, 2001, which describes a number of additional risks and uncertainties
that could cause actual results to vary materially from those listed in the
"forward-looking statements" made in this Quarterly Report on Form 10-Q.
- 16 -
SUPPLEMENTAL MARKET RISK DISCLOSURES
We are exposed to the following types of market risks:
o The price of crude oil, natural gas and petroleum products
o The value of foreign currencies in relation to the U.S. dollar
o Interest rates
We use derivative financial instruments, such as futures, forwards, options and
swaps, in managing these risks. There were no material changes during the first
three months of 2001 in our exposures to loss from possible future changes in
the price of crude oil, natural gas and petroleum products, the value of foreign
currencies in relation to the U. S. dollar or interest rates.
During the first three months of 2001, the notional amount of interest rate
swaps having variable rate exposure decreased by $700 million. This was
partially offset by an increase in variable rate debt of approximately $400
million.
- 17 -
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
We have provided information about legal proceedings pending against Texaco in
Note 7 to the Consolidated Financial Statements of this Form 10-Q and in Item 3
of our 2000 Annual Report on Form 10-K. Note 7 of this Form 10-Q and Item 3 of
our 2000 Form 10-K are incorporated here by reference.
The Securities and Exchange Commission ("SEC") requires us to report proceedings
that were instituted or contemplated by governmental authorities against us
under laws or regulations relating to the protection of the environment. None of
these proceedings is material to our business or financial condition. Following
is a brief description of a plea agreement that we entered into during the first
quarter of 2001.
o On March 12, 2001, Texaco Refining and Marketing Inc. (TRMI), a wholly-owned
subsidiary of Texaco Inc., pleaded guilty to an Information charging it with
two violations of the Clean Water Act: knowingly discharging pollutants into
waters of the United States in violation of a permit and discharging without
a permit. A fine of $4 million was imposed, of which TRMI paid $3 million for
community service to specified environmental organizations. Additionally,
TRMI is subject to a probation period of one year.
Item 5. Other Information
-------------------------
For the three months
ended March 31,
-----------------------
2001 2000
---- ----
(Millions of dollars)
(Unaudited)
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Exploration and production
United States $ 214 $ 175
International 417 353
------ ------
Total 631 528
------ ------
Refining, marketing and distribution
United States 63 65
International 52 100
------ ------
Total 115 165
------ ------
Global gas, power and energy technology 12 28
------ ------
Total operating segments 758 721
Other business units 3 3
------ ------
Total $ 761 $ 724
====== ======
Exploratory expenses included above
United States $ 33 $ 19
International 16 34
------ ------
Total $ 49 $ 53
====== ======
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For the three months
ended March 31,
--------------------
2001 2000
---- ----
(Unaudited)
OPERATING DATA
- --------------
Exploration and Production
- --------------------------
United States
- -------------
Net production of crude oil and natural
gas liquids (MBPD) 325 377
Net production of natural gas - available
for sale (MMCFPD) 1,255 1,361
------ ------
Total net production (MBOEPD) 534 604
Natural gas sales (MMCFPD) 4,627 3,394
Average U.S. crude (per bbl) $24.31 $24.46
Average U.S. natural gas (per mcf) $ 7.14 $ 2.45
Average WTI (Spot) (per bbl) $28.72 $28.91
Average Kern (Spot) (per bbl) $19.89 $22.84
International
- -------------
Net production of crude oil and natural
gas liquids (MBPD)
Europe 119 144
Indonesia 133 124
Partitioned Neutral Zone 147 135
Other 55 70
------ ------
Total 454 473
Net production of natural gas - available
for sale (MMCFPD)
Europe 267 289
Colombia 202 208
Other 188 152
------ ------
Total 657 649
------ ------
Total net production (MBOEPD) 564 581
Natural gas sales (MMCFPD) 673 685
Average International crude (per bbl) $21.61 $23.32
Average International natural gas (per mcf) $ 2.00 $ 1.48
Average U.K. natural gas (per mcf) $ 3.63 $ 2.63
Average Colombia natural gas (per mcf) $ 1.40 $ .94
Worldwide
- ---------
Total worldwide net production (MBOEPD) 1,098 1,185
- 19 -
For the three months
ended March 31,
---------------------
2001 2000
---- ----
(Unaudited)
OPERATING DATA
- --------------
Refining, Marketing and Distribution
- ------------------------------------
United States
- -------------
Refinery input (MBPD)
Equilon area 198 277
Motiva area 309 265
----- -----
Total 507 542
Refined product sales (MBPD)
Equilon area 651 690
Motiva area 416 341
Other 375 292
----- -----
Total 1,442 1,323
International
- -------------
Refinery input (MBPD)
Europe 365 364
Caltex area 365 346
Latin America/West Africa 66 52
----- -----
Total 796 762
Refined product sales (MBPD)
Europe 584 635
Caltex area 523 580
Latin America/West Africa 519 448
Other 163 95
----- -----
Total 1,789 1,758
SEPARATION AGREEMENT AND GENERAL RELEASE BETWEEN TEXACO INC. AND
- ----------------------------------------------------------------
MR. PETER I. BIJUR
- ------------------
As previously announced, on February 4, 2001, Texaco's Board of Directors
accepted Mr. Peter I. Bijur's resignation as Texaco's Chairman of the Board and
Chief Executive Officer. On May 2, 2001, Texaco and Mr. Bijur entered into a
Separation Agreement and General Release, a copy of which is attached hereto as
Exhibit 10(iii)(k).
- 20 -
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
-- (10(iii)(k)) Separation Agreement and General Release dated May 2, 2001,
between Texaco Inc. and Mr. Peter I. Bijur.
-- (12) Computation of Ratio of Earnings to Fixed Charges of Texaco
on a Total Enterprise Basis.
-- (20) Copy of Texaco Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 2000 (including portions
of Texaco Inc.'s Annual Report to Stockholders for the
year 2000), dated March 26, 2001, incorporated herein by
reference, SEC File No. 1-27.
(b) Reports on Form 8-K:
During the first quarter of 2001, we filed Current Reports on Form 8-K
relating to the following events:
1. January 24, 2001
Item 5. Other Events -- reported that Texaco issued an Earnings Press
Release for the fourth quarter and year 2000.
2. February 7, 2001
Item 5. Other Events-- reported that Texaco issued a Press Release
announcing that, on February 4, 2001, Mr. Tilton became Chairman of
the Board and Chief Executive Officer of Texaco Inc., following the
retirement of Mr. Bijur.
- 21 -
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Texaco Inc.
------------------------
(Registrant)
By: George J. Batavick
------------------------
(Comptroller)
By: Michael H. Rudy
------------------------
(Secretary)
Date: May 14, 2001
------------
-22 -