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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9019
UNION TEXAS PETROLEUM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0040040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1330 POST OAK BLVD.
HOUSTON, TEXAS 77056
(Address of principal
executive offices
and zip code)
(713) 623-6544
(Registrant's telephone number, including area code)
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
--- ---
As of April 19, 1996, there were 87,641,896 shares of Union Texas Petroleum
Holdings, Inc. $.05 par value Common Stock issued and outstanding.
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FORM 10-Q
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1996 1995
---------- ------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents................................................. $ 11,860 $ 11,069
Accounts and notes receivable, less allowance for doubtful accounts....... 72,967 77,517
Inventories............................................................... 42,382 42,764
Prepaid expenses and other current assets................................. 24,945 27,924
---------- ----------
Total current assets.................................................. 152,154 159,274
Equity investment............................................................... 105,639 108,476
Property, plant and equipment, at cost, less accumulated
depreciation, depletion and amortization*................................. 1,521,206 1,551,198
Other assets ................................................................. 17,384 17,870
----------- ----------
Total assets.......................................................... $1,796,383 $1,836,818
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ........................................ $ 2,292 $ 2,292
Accounts payable.......................................................... 88,494 95,768
Taxes payable............................................................. 66,630 55,779
Other current liabilities................................................. 46,768 41,704
----------- ----------
Total current liabilities............................................. 204,184 195,543
Long-term debt ................................................................. 640,796 712,132
Deferred income taxes........................................................... 383,934 395,289
Other liabilities............................................................... 107,923 110,064
---------- ----------
Total liabilities..................................................... 1,336,837 1,413,028
---------- ----------
Stockholders' equity:
Common stock.............................................................. 4,391 4,391
Paid in capital........................................................... 19,234 19,405
Cumulative foreign exchange translation adjustment and other.............. (83,102) (75,077)
Retained earnings......................................................... 522,800 479,620
Common stock held in treasury, at cost:
205,167 shares at March 31, 1996 and 247,145 shares at
December 31, 1995..................................................... (3,777) (4,549)
---------- -----------
Total stockholders' equity............................................ 459,546 423,790
---------- ----------
Total liabilities and stockholders' equity............................ $1,796,383 $1,836,818
========== ==========
* The Company follows the successful efforts method of accounting for oil and
gas activities.
The accompanying notes are an integral part of this financial statement.
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FORM 10-Q
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
---- ----
Revenues:
Sales and operating revenues.................................................... $258,178 $239,558
Interest income and other revenues.............................................. 165 707
Net earnings of equity investee................................................. 9,213 5,408
-------- --------
267,556 245,673
Costs and other deductions:
Product costs and operating expenses............................................ 80,064 79,177
Exploration expenses............................................................ 14,207 15,550
Depreciation, depletion and amortization........................................ 54,855 46,544
Selling, general and administrative expenses.................................... 5,751 6,170
Interest expense................................................................ 7,848 5,269
-------- --------
Income before income taxes........................................................... 104,831 92,963
Income taxes......................................................................... 57,270 46,286
-------- --------
Net income .......................................................................... $ 47,561 $ 46,677
======== ========
Earnings per share of common stock................................................... $ .54 $ .53
======== ========
Dividends per share of common stock.................................................. $ .05 $ .05
======== ========
Weighted average number of shares outstanding (000's) 87,598 87,637
======== ========
The accompanying notes are an integral part of this financial statement.
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FORM 10-Q
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
---------------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ $ 47,561 $46,677
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization....................................... 54,855 46,544
Deferred income taxes.......................................................... (7,700) (1,982)
Net income of equity investee.................................................. (9,213) (5,408)
Other.......................................................................... 2 (590)
-------- ---------
Net cash provided by operating activities before changes in other
assets and liabilities.................................................... 85,505 85,241
Decrease (increase) in accounts and notes receivable........................... 4,350 (10,861)
Decrease in inventories....................................................... 518 1,679
Decrease in prepaid expenses and other assets.................................. 3,144 2,729
Decrease in accounts payable and other liabilities............................. (9,047) (19,727)
Increase in income taxes payable............................................... 10,930 1,809
-------- ---------
Net cash provided by operating activities................................... 95,400 60,870
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment........................................ (32,044) (27,102)
Cash provided by equity investee................................................. 12,050 8,200
Other ............................................................................ (612)
-------- ---------
Net cash required by investing activities...................................... (19,994) (19,514)
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt...................................... 12,869 123,476
Net payments under the credit facilities.......................................... ( 7,000) (118,819)
Net payments on money market lines of credit...................................... (75,942) (36,755)
Dividends......................................................................... (4,380) (4,381)
Proceeds from issuance of treasury stock.......................................... 911 364
Purchase of treasury stock........................................................ (1,073)
-------- ---------
Net cash required by financing activities...................................... (74,615) (36,115)
-------- ---------
Net increase in cash and cash equivalents......................................... 791 5,241
Cash and cash equivalents at beginning of period.................................. 11,069 8,389
-------- ---------
Cash and cash equivalents at end of period........................................ $ 11,860 $ 13,630
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)........................................... $ 4,679 $ 4,703
Income taxes................................................................... 56,909 46,014
The accompanying notes are an integral part of this financial statement.
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FORM 10-Q
UNION TEXAS PETROLEUM HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE 1 - BASIS OF PRESENTATION - These consolidated financial statements should
be read in the context of the consolidated financial statements and notes
thereto filed with the Commission in the Company's 1995 annual report on Form
10-K. In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments, consisting only of normal
adjustments, necessary to present fairly the financial position of Union Texas
Petroleum Holdings, Inc. and its consolidated subsidiaries at March 31, 1996,
and the results of operations and cash flows for the three months ended March
31, 1996 and 1995. The results of operations for the three months ended March
31, 1996, should not necessarily be taken as indicative of the results of
operations that may be expected for the entire year 1996.
NOTE 2 - INVENTORY ACCOUNTING CHANGE - Effective January 1, 1996, the Company
changed the method of accounting for valuing its petrochemical product inventory
from the last-in, first out ("LIFO") method to the first-in, first out ("FIFO")
method. The change did not have a material effect on the results of operations
for prior periods, nor is it anticipated that it will have a material impact on
future periods. The Company believes that use of the FIFO method will result in
a better measurement of operating results and better reflects the current value
of inventory on the balance sheet.
NOTE 3 - CREDIT FACILITIES - The Company had two unsecured bank credit
facilities (the "Credit Facilities") at March 31, 1996. One of the Credit
Facilities is a $100 million revolver that provides for conversion of amounts
outstanding on March 15, 1997 to a one-year term loan maturing March 15, 1998.
Another Credit Facility is a $450 million revolver that reduces quarterly by
$35 million beginning June 30, 2000, with a final maturity of March 31, 2001.
In addition to such Credit Facilities, the Company has the ability to obtain
short-term borrowings on uncommitted and unsecured lines of credit with several
banks.
NOTE 4 - ACCOUNTING PRONOUNCEMENTS RECENTLY ISSUED - In October 1995, the
Financial Accounting Standards Board released Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," which establishes
financial and reporting standards for stock based employee compensation plans
that will be effective for the Company's 1996 financial statements. The
statement encourages, but does not require, companies to adopt a fair value
based method of accounting for such plans in place of current accounting
standards. Companies electing to continue to use their existing accounting
methods will be required to make pro forma disclosures of net income assuming a
fair value based method of accounting has been applied. The Company will
continue to use its current accounting methods with additional disclosures.
NOTE 5 - HEDGING ACTIVITIES - The Company may enter into hedging contracts from
time to time in order to minimize the impact of adverse price fluctuation. In
the first quarter of 1996, the Company entered into financial hedging futures
contracts to offset a portion of its North Sea crude. The Company will continue
to consider other opportunities in its risk management activities, such as swaps
or fixed price contracts to mitigate the adverse movement in oil and gas prices.
Gains or losses on these hedging activities are recognized in sales revenues
when the underlying exposed hedged production is sold. As of March 31, 1996, the
Company had open contracts for 474,000 barrels of oil at an average Brent price
of $16.51 per barrel which will be settled by August 1996.
NOTE 6 - CONTINGENCIES - The Company and its subsidiaries and related companies
are named defendants in a number of lawsuits and named parties in numerous
government proceedings arising in the ordinary course of business. While the
outcome of contingencies, lawsuits or other proceedings against the Company
cannot be predicted with certainty, management expects that any liability, to
the extent not provided for through insurance or otherwise, will not have a
material adverse effect on the financial statements of the Company.
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UNION TEXAS PETROLEUM HOLDINGS, INC.
With respect to the unaudited consolidated financial information of Union Texas
Petroleum Holdings, Inc. for the three-month periods ended March 31, 1996 and
1995, Price Waterhouse LLP reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report dated April 23, 1996 appearing below, states that
they did not audit and they do not express an opinion on that unaudited
consolidated financial information. Price Waterhouse LLP has not carried out any
significant or additional audit tests beyond those which would have been
necessary if their report had not been included. Accordingly, the degree of
reliance on their report on such information should be restricted in light of
the limited nature of the review procedures applied. Price Waterhouse LLP is not
subject to the liability provisions of section 11 of the Securities Act of 1933
for their report on the unaudited consolidated financial information because
that report is not a "report" prepared or certified by Price Waterhouse LLP
within the meaning of sections 7 and 11 of the Act.
REPORT ON REVIEW BY INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Union Texas Petroleum Holdings, Inc.
We have reviewed the accompanying consolidated balance sheet of Union Texas
Petroleum Holdings, Inc. and consolidated subsidiaries as of March 31, 1996 and
the related consolidated statements of operations and of cash flows for the
three month periods ended March 31, 1996 and 1995. This financial information is
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information for it to be in conformity
with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1995, and the related
consolidated statements of operations, of cash flows, and of stockholders'
equity for the year then ended (not presented herein), and in our report dated
February 14, 1996 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet information as of December 31, 1995, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
PRICE WATERHOUSE LLP
Houston, Texas
April 23, 1996
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements, notes, and management's discussion contained in the registrant's
1995 annual report on Form 10-K, and condensed financial statements and notes
contained in this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995
Net income for the three months ended March 31, 1996, was $48 million, or $.54
per share as compared to net income of $47 million, or $.53 per share reported
for the same period in 1995. The current quarter was favorably impacted by
higher crude oil sales volumes and higher oil and LNG prices, partially offset
by lower ethylene margins.
Sales and operating revenues for the three months ended March 31, 1996, were
$258 million, as compared to $240 million for the first quarter of 1995.
International revenues totaled $217 million as compared to $184 million for the
first quarter of 1995. In the U.K., sales and operating revenues increased by
$19 million due to increased sales volumes, primarily as a result of the July
1995 acquisition of the Alba field, and due to higher crude oil prices. In
Indonesia, sales increased $11 million from the same period in 1995 due to
higher prices and higher oil volumes. In Pakistan, sales were $3 million above
1995 primarily due to higher crude oil volumes and prices.
Petrochemical revenues totaled $41 million as compared to $55 million in the
first quarter of 1995, while operating profit was $4 million as compared to $19
million in the prior period. The decrease was primarily due to lower ethylene
sales prices and increased feedstock costs which resulted in a decrease in
ethylene margins to 3 cents per pound in 1996 vs. 16 cents per pound in 1995 and
due to lower sales volumes.
Average prices received and volumes sold by the Company's major operations
during the first quarter of 1996 and 1995, respectively, were as follows:
PRICES VOLUMES
(000S PER DAY)
1996 1995 1996 1995
---- ---- ---- ----
Crude oil (barrels):
U.K. $18.09 $16.34 46 37
Pakistan 16.17 14.62 6 5
Indonesia 18.34 17.28 8 6
Indonesian LNG (Mcf) 3.30 3.07 241 242
Pakistan natural gas (Mcf) 1.29 1.30 43 43
U.K. natural gas (Mcf) 2.50 3.01 59 44
U.S. ethylene (pounds) .18 .28 1,180 1,338
Depreciation, depletion and amortization increased by $8 million due to higher
volumes. Interest expense increased by $3 million during the period due to
higher levels of debt, primarily due to the funding of the Alba acquisition
during the third quarter of 1995 and higher interest rates. The effective tax
rate increased from the prior year due primarily to the decrease in U.S.
petrochemical income, which is taxed at lower rates.
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FINANCIAL CONDITION
Cash flow from operations: Net cash provided by operating activities was $95
million in the first quarter of 1996, an increase of $35 million from the same
period in the prior year. The improvement was primarily the result of higher
international oil volumes and prices and increased LNG prices, partially offset
by lower ethylene margins.
Capital resources: Capital expenditures for the first quarter of 1996 were $45
million including capitalized interest of $6 million. Capital expenditures for
the first quarter of 1995 were $39 million including capitalized interest of $5
million. The current quarter increase was principally due to development costs
for the Britannia field in the U.K. North Sea.
Financing activities: During the first quarter of 1996, the Company terminated
an undrawn $100 million unsecured credit facility, amended its $450 million
unsecured credit facility and replaced a $100 million unsecured credit facility.
At March 31, 1996, the Company had two unsecured credit facilities (the "Credit
Facilities"). One of the Credit Facilities is a $100 million unsecured credit
agreement with a syndicate of banks that provides for conversion of amounts
outstanding on March 15, 1997 to a one-year term loan maturing March 15, 1998.
This facility replaced a $100 million unsecured credit agreement that matured on
April 15, 1997. Another Credit Facility is a $450 million unsecured credit
agreement with a syndicate of banks that provides for a quarterly reduction of
$35 million beginning June 30, 2000, with a final maturity of March 31, 2001.
This facility is an amendment and restatement of the $450 million unsecured
credit agreement that initially matured on April 30, 1999. The $450 million
facility allows the Company to borrow up to $300 million in U.S. dollar loans at
interest rates determined in a competitive bid process. Loans under the $450
million facility may be made in both pounds sterling and U.S. dollars at the
option of the Company. Loans under the Credit Facilities bear interest at
floating market rates based on, at the Company's option, the agent bank's base
rate or LIBOR, plus applicable margins subject to increase or decrease in
certain events. The Credit Facilities contain restrictive covenants, including
maintenance of certain coverage ratios related to the incurrence of additional
indebtedness and limitations on asset sales and mergers or consolidations. The
covenants also require maintenance of stockholders' equity, as adjusted, at $350
million. Under the terms of the Credit Facilities, the Company may pay dividends
and make stock repurchases provided that such level of minimum stockholders'
equity is maintained and the Company complies with certain other covenants in
the Credit Facilities. At March 31, 1996, the Company's adjusted stockholders'
equity was approximately $543 million. At March 31, 1996, $125 million was
outstanding under the $450 million facility bearing interest at a weighted
average rate of 5.7% per annum.
The Company has established short-term, uncommitted and unsecured lines of
credit with several banks in both U.S. dollars and pounds sterling. These money
market borrowings, which have a short-term maturity, have been classified as
long-term debt based on the Company's intent to refinance these borrowings for a
period exceeding one year and the ability to refinance them on a long-term basis
through its Credit Facilities. At March 31, 1996, $70 million was outstanding
under these money market lines which bore interest at weighted average rates of
6.4% per annum. As of March 31, 1996, the Company had approximately $353 million
of available financing under such lines of credit and the Credit Facilities.
The Company's indirect subsidiary, Union Texas Britannia Limited ("UTBL"), has a
150 million pounds sterling secured financing from a syndicate of banks. The
financing is used to fund the Company's share of the cost of developing the
Britannia field to production. At March 31, 1996, 27 million pounds sterling
($41 million) was outstanding under UTBL's financing which bore interest at a
weighted average rate of 7% per annum.
At March 31, 1996, the Company's long-term debt balance was $641 million, down
approximately $130 million from the balance at July 31, 1995 after the $270
million Alba acquisition.
On April 27, 1994, the Company's Board of Directors authorized the repurchase of
up to 2,000,000 shares of the Company's common stock and pursuant thereto, the
Company had repurchased 612,836 shares as of March 31, 1996. The repurchased
stock will be used for general corporate purposes, including fulfilling employee
benefit program obligations. As of March 31, 1996, 205,167 shares of common
stock were held, at cost, as treasury shares.
Financial condition: In the first quarter of 1996, the Company declared and paid
a dividend of approximately $4.4 million on its common stock. On April 18, 1996,
the Company announced a dividend on its common stock of $.05 per share to
stockholders of record as of April 30, 1996, payable on May 15, 1996.
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In October 1995, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which establishes financial and reporting standards for stock
based employee compensation plans that will be effective for the Company's 1996
financial statements. The statement encourages, but does not require, companies
to adopt a fair value based method of accounting for such plans in place of
current accounting standards. Companies electing to continue to use their
existing accounting methods will be required to make pro forma disclosures of
net income assuming a fair value based method of accounting has been applied.
The Company will continue to use its current accounting methods with additional
disclosures.
The Company may enter into hedging contracts from time to time in order to
minimize the impact of adverse price fluctuations. In the first quarter of 1996,
the Company entered into financial hedging futures contracts to offset a portion
of its North Sea crude. The Company will continue to consider other
opportunities in its risk management activities, such as swaps or fixed price
contracts to mitigate the adverse movement in oil and gas prices. Gains or
losses on these hedging activities are recognized in sales revenues when the
underlying exposed hedged production is sold. As of March 31, 1996, the Company
had open contracts for 474,000 barrels of oil at an average Brent price of
$16.51 per barrel which will be settled by August 1996. During the first quarter
of 1996, the Company settled crude oil hedging contracts of 186,000 barrels at
an average Brent price of $16.95. Additionally, in April 1996, the Company
entered into crude oil swap contracts for 600,000 barrels of oil at an average
Brent price of $17.16 per barrel which will be settled from August through
December 1996.
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FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company and its subsidiaries and related companies are named defendants in
numerous lawsuits and named parties in numerous governmental proceedings arising
in the ordinary course of business. While the outcome of lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
does not expect these matters to have a material adverse effect on the financial
statements of the Company. (See Item 3 in the Company's 1995 annual report on
Form 10-K.)
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
10.1 Second Amended and Restated Credit
Agreement dated as of March 29, 1996
among Union Texas Petroleum Holdings,
Inc., the Banks and Co-Agents listed
therein and NationsBank of Texas, N.A.,
as Agent.
10.2 Credit Agreement dated as of March 29,
1996 among Union Texas Petroleum
Holdings, Inc., the Banks and Co-Agents
listed therein and NationsBank of
Texas, N.A., as Agent.
15 Independent Accountants' Awareness Letter.
27.1 Financial Data Schedule for the
three-month period ended March 31, 1996.
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K since the
quarterly period ended December 31, 1995:
The Company filed a Form 8-K dated January 30, 1996 to attach press
releases announcing the 1995 year-end and fourth quarter results,
the 1996 capital spending budget and to report an agreement to
acquire an interest in an Australian exploration permit.
The Company filed a Form 8-K dated February 21, 1996 to attach a
press release reporting discoveries in Pakistan.
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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.
UNION TEXAS PETROLEUM HOLDINGS, INC.
Date: April 25, 1996 By: /s/ DONALD M. MCMULLAN
------------------------------------
Donald M. McMullan
Vice President and Controller
(Chief Accounting Officer
and officer duly authorized to
sign on behalf of the registrant)
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.1 Second Amended and Restated Credit Agreemeent dated as
of March 29, 1996 among Union Texas Petroleum Holding, Inc.,
the Banks and Co-Agents listed therein and NationsBank of
Texas, N.A., as Agent
10.2 Credit Agreement dated as of March 29, 1996 among Union
Texas Petroleum Holdings, Inc., the Banks and Co-Agents
listed therein and NationsBank of Texas, N.A., as Agent
15 Independent Accountants' Awareness Letter
27.1 Financial Data Schedule for the three-month period ended
March 31, 1996