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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
January 15, 1998
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TEXACO INC.
(Exact name of registrant as specified in its charter)
Delaware 1-27 74-1383447
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation) Number) Identification Number)
2000 Westchester Avenue, 10650
White Plains, New York (Zip Code)
(Address of principal executive offices)
(914) 253-4000
(Registrant's telephone number, including area code)
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Item 2. Acquisition or Disposition of Assets
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On January 15, 1998, subsidiaries of Texaco Inc. and Shell Oil Company
reached agreement on the formation and operational start up of Equilon
Enterprises LLC (Equilon), a newly formed Delaware limited liability
company. Equilon is a joint venture which combines major elements of
the companies' western and midwestern U.S. refining and marketing
businesses and their nationwide trading, transportation and lubricants
businesses. Shell owns 56 percent and Texaco owns 44 percent of
Equilon.
Equilon will continue to use these assets in the refining, marketing,
trading, transportation and lubricants businesses and will market
petroleum and other products directly and through independent
wholesalers and retailers. Equilon will have exclusive rights to use
both the Shell and Texaco brands on refined oil product sales in those
areas of the United States where Equilon is authorized to conduct its
respective businesses.
Under the terms of a consent agreement accepted by the Federal Trade
Commission (FTC) and similar agreements with the attorneys general of
California, Hawaii, Oregon and Washington, certain assets will be
divested, including Shell's Anacortes, Washington refinery, certain
Texaco and Shell marketing assets in southern California and Hawaii,
and certain pipeline interests.
Texaco, Shell and Saudi Refining, Inc. (a corporate affiliate of Saudi
Aramco) are finalizing agreements for a separate joint venture
involving their eastern and Gulf Coast refining and marketing
businesses in the United States. The parties are optimistic that this
second transaction will be concluded early in 1998. This joint venture
will be initially owned 35 percent by Shell, 32.5 percent by Texaco and
32.5 percent by Saudi Refining, Inc.
Texaco's and Shell's exploration, production and chemical businesses
are not included in the joint ventures.
A copy of the Asset Transfer and Liability Assumption Agreement dated
as of January 15, 1998, among the companies is attached as Exhibit 2.1.
- 1 -
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(b) Pro Forma Financial Information
Basis of Presentation
The following unaudited pro forma statements of consolidated income for
the nine months ended September 30, 1997 and the year ended December
31, 1996 and the unaudited pro forma condensed consolidated balance
sheet as of September 30, 1997 (collectively the "Pro Forma Financial
Statements") have been prepared from the historical financial
statements of Texaco Inc. and subsidiary companies, as adjusted to
reflect the January 15, 1998 formation of Equilon. For presentation
purposes, the transaction has been reflected as an acquisition by
Texaco of a 44% equity interest in Equilon, and the simultaneous
disposition of substantially all the businesses of Texaco Refining and
Marketing Inc. and Texaco Trading and Transportation Inc., and their
subsidiaries.
The unaudited pro forma statements of consolidated income have been
prepared as if the foregoing transactions had occurred on January 1,
1996. The unaudited pro forma condensed consolidated balance sheet has
been prepared as if the transactions had occurred as of September 30,
1997.
The Pro Forma Financial Statements are shown for illustrative purposes
only and are not necessarily indicative of the current or future
financial position or results of operations of Texaco. These statements
should be read in conjunction with the historical financial statements
included in Texaco's Form 10-K for the year ended December 31, 1996 and
Form 10-Q for the quarterly period ended September 30, 1997. The pro
forma adjustments, by necessity, use estimates and assumptions based on
currently available information. Management believes that the estimates
and assumptions are reasonable and that the significant effects of the
transactions are properly reflected in the Pro Forma Financial
Statements.
These Pro Forma Financial Statements do not include anticipated
benefits from operating efficiencies which may result from the
formation of Equilon. These statements do not include estimated losses
or gains that might result from selling assets to comply with the terms
of the FTC consent agreement and other agreements. Under the FTC
consent agreement, results from Shell's Anacortes refinery must be kept
separate from the results of operations of Equilon, and therefore are
excluded from Texaco's equity in the pre-tax income of Equilon in the
following Unaudited Pro Forma Statements of Consolidated Income. The
parties to the joint venture have agreed that Equilon is entitled to
the net proceeds and any gain or loss that may result from the
disposition of the Anacortes refinery. The Unaudited Pro Forma
Condensed Consolidated Balance Sheet includes Texaco's share of the net
book value of the Anacortes refining assets.
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TEXACO INC. AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
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(Millions of dollars, except per share amounts)
Unaudited
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Pro Forma Adjustments
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Historical Pro Forma
Texaco Disposition(1) Acquisition Texaco
------ -------------- ----------- ------
REVENUES
Sales and services $33,630 $ 8,314 $ -- $25,316
Equity in income of affiliates, interest,
asset sales and other 988 40 212(2) 1,160
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34,618 8,354 212 26,476
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DEDUCTIONS
Purchases and other costs 26,324 6,820 -- 19,504
Operating expenses 2,184 451 -- 1,733
Selling, general and administrative expenses 1,219 495 -- 724
Maintenance and repairs 260 131 -- 129
Exploratory expenses 306 -- -- 306
Depreciation, depletion and amortization 1,145 137 -- 1,008
Interest expense 309 11 (22)(3) 276
Taxes other than income taxes 365 64 -- 301
Minority interest 54 2 -- 52
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32,166 8,111 (22) 24,033
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Income before income taxes 2,452 243 234 2,443
Provision for income taxes 411 85 82(4) 408
------- ------- ------- -------
NET INCOME $ 2,041 $ 158 $ 152 $ 2,035
======= ======= ======= =======
Net income per common share (dollars)(a)
Basic $ 3.85 $ 3.84
Diluted $ 3.75 $ 3.74
Average number of common shares outstanding
for computation of earnings per share
(thousands)(a)
Basic 519,553 519,553
Diluted 540,040 540,040
<FN>
(a) Reflects two-for-one stock split, effective September 29, 1997, and the adoption of Statement of Financial Accounting
Standards No. 128, Earnings Per Share.
</FN>
The accompanying notes to the Unaudited Pro Forma Statement of Consolidated
Income are an integral part of this statement.
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TEXACO INC. AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA STATEMENT OF CONSOLIDATED INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
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(Millions of dollars, except per share amounts)
Unaudited
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Pro Forma Adjustments
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Historical Pro Forma
Texaco Disposition(1) Acquisition Texaco
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REVENUES
Sales and services $44,561 $11,381 $ -- $33,180
Equity in income of affiliates, interest,
asset sales and other 939 59 245(2) 1,125
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45,500 11,440 245 34,305
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DEDUCTIONS
Purchases and other costs 34,643 9,378 -- 25,265
Operating expenses 2,978 571 -- 2,407
Selling, general and administrative expenses 1,693 659 -- 1,034
Maintenance and repairs 367 177 -- 190
Exploratory expenses 379 -- -- 379
Depreciation, depletion and amortization 1,455 177 -- 1,278
Interest expense 434 14 (30)(3) 390
Taxes other than income taxes 496 79 -- 417
Minority interest 72 2 -- 70
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42,517 11,057 (30) 31,430
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Income before income taxes 2,983 383 275 2,875
Provision for income taxes 965 134 97(4) 928
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NET INCOME $ 2,018 $ 249 $ 178 $ 1,947
======= ======= ======= =======
Net income per common share (dollars)(a)
Basic $ 3.77 $ 3.63
Diluted $ 3.68 $ 3.55
Average number of common shares outstanding
for computation of earnings per share
(thousands)(a)
Basic 520,392 520,392
Diluted 541,824 541,824
<FN>
(a) Reflects two-for-one stock split, effective September 29, 1997, and the adoption of Statement of Financial Accounting
Standards No. 128, Earnings Per Share.
</FN>
The accompanying notes to the Unaudited Pro Forma Statement of Consolidated
Income are an integral part of this statement.
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TEXACO INC. AND SUBSIDIARY COMPANIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
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(Millions of dollars)
Unaudited
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Pro Forma Adjustments
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Historical Pro Forma
Texaco Disposition(1) Acquisition Texaco
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ASSETS
Current Assets
Cash and cash equivalents $ 451 $ -- $ -- $ 451
Short-term investments - at fair value 48 -- -- 48
Accounts and notes receivable 3,999 649 -- 3,350
Inventories 1,537 429 -- 1,108
Deferred income taxes and other current assets 283 4 -- 279
------- ------- ------- -------
Total current assets 6,318 1,082 -- 5,236
Investments and Advances 5,439 43 2,379(2) 7,775
Net Properties, Plant and Equipment 14,093 2,730 -- 11,363
Deferred Charges 965 109 -- 856
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Total $26,815 $ 3,964 $ 2,379 $25,230
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 521 $ 15 $ -- $ 506
Accounts payable and accrued liabilities 3,818 733 -- 3,085
Estimated income and other taxes 1,205 87 -- 1,118
------- ------- ------- -------
Total current liabilities 5,544 835 -- 4,709
Long-Term Debt and Capital Lease Obligations 5,116 122 (474)(3) 4,520
Deferred Income Taxes 808 3 -- 805
Employee Retirement Benefits 1,208 -- -- 1,208
Deferred Credits and Other Noncurrent Liabilities 1,873 144 -- 1,729
Minority Interest in Subsidiary Companies 649 7 -- 642
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Total 15,198 1,111 (474) 13,613
Stockholders' Equity 11,617 2,853 2,853 11,617
------- ------- ------- -------
Total $26,815 $ 3,964 $ 2,379 $25,230
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The accompanying notes to the Unaudited Pro Forma Condensed Consolidated Balance
Sheet are an integral part of this statement.
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Notes to Unaudited Pro Forma Financial Statements
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Unaudited Pro Forma Statement of Consolidated Income for the Nine Months Ended
September 30, 1997 and Year Ended December 31, 1996
(1) The impact on revenues, costs and expenses of the pro forma
disposition.
(2) Texaco's equity in the pre-tax income of Equilon.
(3) Assumed reduction in interest expense to reflect paydown of debt
with proceeds of distribution from Equilon. (See Note 3 below.)
(4) To reflect income taxes on Texaco's equity in Equilon's pre-tax
income and additional taxes due to assumed reduction in interest
expense.
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30,
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1997
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(1) The impact on assets and liabilities of the pro forma disposition.
(2) Texaco's investment in Equilon, reduced by assumed distribution by
Equilon of debt proceeds.
(3) Upon formation of Equilon, Texaco received a promissory note from
Equilon. It is anticipated that this note will be paid within the
first half of 1998 upon the issuance of debt by Equilon. Such
proceeds have been reflected as a reduction of Texaco debt.
(c) Exhibits
2.1 Copy of the Asset Transfer and Liability Assumption Agreement
dated as of January 15, 1998, among the parties, is attached
hereto and made a part hereof.
99.1 Copy of the Press Release issued by Texaco Inc. dated January
16, 1998, entitled "Texaco, Shell Announce Completion of
Western U.S. Downstream Alliance: Equilon Enterprises."
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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 hereunto duly authorized.
TEXACO INC.
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(Registrant)
By: R. E. Koch
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(Assistant Secretary)
Date: January 30, 1998
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