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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 SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________
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 October 17, 1997, there were 85,071,219 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)
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- -----------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents ............................................ $ 25,229 $ 43,574
Accounts and notes receivable, less allowance for doubtful accounts .. 75,691 96,687
Inventories .......................................................... 34,743 39,721
Prepaid expenses and other current assets ............................ 39,818 23,560
----------- -----------
Total current assets ............................................ 175,481 203,542
Equity investments ........................................................ 94,197 93,262
Property, plant and equipment, at cost, less accumulated
depreciation, depletion and amortization* ............................ 1,696,418 1,632,423
Other assets .............................................................. 11,623 12,777
----------- -----------
Total assets .................................................... $ 1,977,719 $ 1,942,004
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................................... $ 1,144 $ 2,290
Accounts payable ..................................................... 85,568 103,225
Taxes payable ........................................................ 110,175 126,813
Other current liabilities ............................................ 54,469 48,511
----------- -----------
Total current liabilities ....................................... 251,356 280,839
Long-term debt ............................................................ 619,345 558,463
Deferred income taxes ..................................................... 325,775 391,534
Other liabilities ......................................................... 124,488 125,146
----------- -----------
Total liabilities ............................................... 1,320,964 1,355,982
----------- -----------
Stockholders' equity:
Common stock ......................................................... 4,391 4,391
Paid in capital ...................................................... 18,477 18,863
Cumulative foreign exchange translation adjustment and other ......... (49,936) (21,955)
Retained earnings .................................................... 738,754 614,376
Common stock held in treasury, at cost:
2,844,431 shares at September 30, 1997 and 1,490,322 shares at
December 31, 1996 ............................................... (54,931) (29,653)
----------- -----------
Total stockholders' equity ...................................... 656,755 586,022
----------- -----------
Total liabilities and stockholders' equity ...................... $ 1,977,719 $ 1,942,004
=========== ===========
* 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 NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Sales and operating revenues ................... $ 182,843 $227,284 $ 676,550 $ 708,654
Interest income and other revenues ............. 239 644 3,712 1,709
Net earnings of equity investees ............... 5,206 7,645 17,240 22,516
--------- -------- --------- ---------
188,288 235,573 697,502 732,879
Costs and other deductions:
Product costs and operating expenses ........... 68,624 81,016 230,707 242,338
Exploration expenses ........................... 16,118 8,834 47,688 33,299
Depreciation, depletion and amortization ....... 47,592 48,628 153,564 152,436
Selling, general and administrative expenses ... 8,016 6,516 19,960 18,691
Interest expense ............................... 1,113 5,582 6,700 20,092
--------- -------- --------- ---------
Income before income taxes ......................... 46,825 84,997 238,883 266,023
Income taxes (benefit) ............................. (1,222) 51,476 101,717 154,104
--------- -------- --------- ---------
Net income ......................................... $ 48,047 $ 33,521 $ 137,166 $ 111,919
========= ======== ========= =========
Earnings per share of common stock ................. $ .57 $ .39 $ 1.61 $ 1.28
========= ======== ========= =========
Dividends per share of common stock ................ $ .05 $ .05 $ .15 $ .15
========= ======== ========= =========
Weighted average number of shares outstanding (000s) 84,795 86,996 85,099 87,379
========= ======== ========= =========
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)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................. $ 137,166 $ 111,919
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization ................................ 153,564 152,436
Deferred income taxes ................................................... (52,499) (23,061)
Net income of equity investees .......................................... (17,240) (22,516)
Other ................................................................... 1,149 2,449
--------- ---------
Net cash provided by operating activities before changes in other
assets and liabilities ............................................ 222,140 221,227
Decrease (Increase) in accounts and notes receivable .................... 19,720 (10,821)
Decrease in inventories ................................................. 4,427 1,641
Increase in prepaid expenses and other assets ........................... (16,202) (13,870)
(Decrease) Increase in accounts payable and other liabilities ........... (13,358) 167
(Decrease) Increase in income taxes payable ............................. (12,928) 23,077
--------- ---------
Net cash provided by operating activities ........................... 203,799 221,421
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ................................. (264,630) (127,483)
Cash provided by equity investees ......................................... 16,305 27,350
--------- ---------
Net cash required by investing activities ............................... (248,325) (100,133)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt ............................... 37,312 46,696
Payments to settle long-term debt .......................................... (1,146) (1,146)
Net proceeds (payments) under the credit facilities ........................ 75,000 (42,000)
Net payments on money market lines of credit ............................... (44,431) (89,380)
Dividends .................................................................. (12,788) (13,131)
Proceeds from issuance of treasury stock ................................... 6,539 1,577
Purchase of treasury stock ................................................. (34,305) (20,087)
--------- ---------
Net cash provided (required) by financing activities .................... 26,181 (117,471)
--------- ---------
Net (decrease) increase in cash and cash equivalents ....................... (18,345) 3,817
Cash and cash equivalents at beginning of period ........................... 43,574 11,069
--------- ---------
Cash and cash equivalents at end of period ................................. $ 25,229 $ 14,886
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) .................................... $ 1,823 $ 15,714
Income taxes ............................................................ 164,372 155,944
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 Securities and Exchange Commission ("SEC") in the
Company's 1996 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. ("UTPH") and its
consolidated subsidiaries (referred to herein individually and collectively as
the "Company") at September 30, 1997, and the results of operations and cash
flows for the three and nine months ended September 30, 1997 and 1996. The
results of operations for the nine months ended September 30, 1997, should not
necessarily be taken as indicative of the results of operations that may be
expected for the entire year 1997.
NOTE 2 - ACCOUNTING PRONOUNCEMENTS RECENTLY ISSUED - In 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share", SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information".
SFAS No. 128, effective for financial statements issued for periods ending
after December 15, 1997, replaced primary earnings per share ("EPS") with a
newly defined basic EPS and modifies the computation of diluted EPS. SFAS No.
130 requires that all items required to be recognized under accounting
standards as components of comprehensive income be reported as a part of the
basic financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and requires selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997 but the statement need
not be applied to interim financial statements in the initial year of
application. The Company does not expect adoption of these new standards to
materially affect the Company's reporting practices.
NOTE 3 - INCOME TAXES - Since the Company's U.S. corporate alternative minimum
tax ("AMT") liability has exceeded its otherwise determined regular U.S.
federal income tax liability, the Company has accumulated an AMT credit of
approximately $24 million which may be applied against future regular federal
tax liabilities. In addition, the Company has approximately $117 million
(pre-tax) of Net Operating Loss ("NOL") carryforwards from its U.S. exploration
and production operations which could be applied against future U.S. federal
taxable income. These NOLs must be utilized prior to their expiration, which is
between 2002 and 2006.
As a result of reserve engineering analysis and subsequent development plans
for the Company's reserves in the Alpine field in Alaska as well as
expectations for its U.S. petrochemical business, the Company now expects to
utilize the AMT credit and a portion of the NOL carryforwards. Consequently, in
the third quarter of 1997 the Company adjusted the valuation allowance
previously provided against these carryforwards, resulting in deferred tax
assets of approximately $43 million, representing the $24 million AMT credit
and $19 million (after-tax) of NOL carryforwards. Changes in the Company's
actual or anticipated income subject to U.S. taxes, changes in U.S. tax laws or
changes in U.S. tax rates may give rise to adjustments to the Company's
deferred tax assets or liabilities, including the valuation allowance, in the
future. The offset to the deferred tax assets was a $43 million credit to tax
expense.
NOTE 4 - U.K. TAX LAW CHANGES - In the third quarter of 1997, the British
government enacted certain changes in the U.K. corporate tax laws. The Advanced
Corporation Tax ("ACT") credit on dividends paid by U.K. companies will be
substantially reduced starting in April, 1999. Also, the U.K. corporate tax
rate was lowered from 33% to 31%, effective April 1, 1997. In accordance with
these changes, the Company recorded during the third quarter of 1997, a
one-time, non-cash charge to deferred tax expense of approximately $14 million.
NOTE 5 -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 and nine month periods ended September
30, 1997 and 1996, 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 October 21, 1997 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.
INDEPENDENT ACCOUNTANTS' REPORT
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 September 30, 1997
and the related consolidated statements of operations for the three and nine
month periods ended September 30, 1997 and 1996 and of cash flows for the nine
month periods ended September 30, 1997 and 1996. 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, 1996, 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, 1997 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, 1996, 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
October 21, 1997
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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
1996 annual report on Form 10-K, and condensed financial statements and notes
contained in this report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net income for the three months ended September 30, 1997, was $48 million, or
$.57 per share, as compared to net income of $34 million, or $.39 per share,
reported for the same period in 1996. Included in the third quarter of 1997 was
approximately $43 million of U.S. tax benefits (see Note 3) and a one-time U.K.
deferred tax charge of $14 million (see Note 4). Without these tax items, third
quarter 1997 net income was $19 million or $.23 per share. The current quarter
was unfavorably impacted by anticipated declines in Indonesian LNG volumes,
lower prices and volumes for U.K. oil, Indonesian LNG and Pakistan gas and
higher exploration expenses, partially offset by higher Petrochemical operating
profit and lower interest expense.
Sales and operating revenues for the three months ended September 30, 1997,
were $183 million, $44 million lower than the third quarter of 1996.
International revenues totaled $135 million as compared to $178 million for the
third quarter of 1996. In the U.K., sales and operating revenues decreased by
$20 million due to lower oil prices and volumes and lower gas volumes. In
Indonesia, sales decreased $19 million due to anticipated lower LNG volumes and
lower LNG prices. In Pakistan, sales were $4 million lower than 1996 due to
lower gas prices and volumes.
Average prices received and volumes sold by the Company's major operations
during the third quarter of 1997 and 1996, respectively, were as follows:
PRICES VOLUMES
(000S PER DAY)
1997 1996 1997 1996
---- ---- ---- ----
Crude oil (barrels):
U.K. $16.70 $20.11 33 37
Pakistan 15.73 17.32 6 6
Indonesia 18.30 18.63 6 6
Indonesian LNG (Mcf) 3.20 3.47 176 222
Pakistan natural gas (Mcf) 1.55 2.36 32 41
U.K. natural gas (Mcf) 2.38 2.21 4 18
U.S. ethylene (pounds) .23 .23 1,432 1,385
Petrochemical revenues totaled $48 million for the current period, essentially
level with 1996, while operating profit was $13 million as compared to $9
million in the prior period. The increased operating profit was primarily due
to lower feedstock costs and higher ethylene sales volumes.
Exploration expenses in the third quarter of 1997 were $7 million higher than
the same period of 1996 primarily due to drilling expenditures in Tunisia and
increased geological and geophysical expenses for new exploration ventures.
Interest expense decreased by $4 million during the period due to higher
capitalized interest.
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NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
Net income for the nine months ended September 30, 1997, was $137 million, or
$1.61 per share, as compared to net income of $112 million, or $1.28 per share,
reported for the same period in 1996. Included in the current period was
approximately $43 million of U.S. tax benefits (see Note 3) and a one-time U.K.
deferred tax charge of $14 million (see Note 4). Without these tax items, net
income for the first nine months of 1997 was $108 million or $1.28 per share.
The current period was unfavorably impacted by anticipated declines in
Indonesian LNG volumes, lower U.K. oil prices and higher exploration expenses,
partially offset by higher LNG sales prices, higher Petrochemical operating
profit, higher oil sales volumes in Pakistan and lower interest expense.
Sales and operating revenues for the nine months ended September 30, 1997, were
$677 million, down from $709 million in the prior year. International revenues
totaled $536 million as compared to $566 million for the first nine months of
1996. In the U.K., sales and operating revenues decreased by $5 million due to
lower crude oil prices. In Indonesia, sales decreased $29 million as compared
to 1996 due to lower LNG sales volumes partially offset by higher LNG sales
prices. In Pakistan, sales were $4 million above 1996 due to higher crude oil
sales volumes and prices.
Average prices received and volumes sold by the Company's major operations
during the first nine months of 1997 and 1996, respectively, were as follows:
PRICES VOLUMES
(000S PER DAY)
1997 1996 1997 1996
---- ---- ---- ----
Crude oil (barrels):
U.K. $17.43 $18.76 41 41
Pakistan 17.16 16.58 7 6
Indonesia 19.74 18.59 6 6
Indonesian LNG (Mcf) 3.55 3.39 183 225
Pakistan natural gas (Mcf) 1.64 1.64 36 42
U.K. natural gas (Mcf) 2.93 2.39 29 33
U.S. ethylene (pounds) .24 .21 1,264 1,381
Petrochemical revenues totaled $141 million, essentially level with 1996 while
operating profit was $26 million as compared to $20 million in the prior
period. The increased operating profit was primarily due to higher ethylene
sales prices and lower feedstock costs partially offset by lower ethylene sales
volumes.
Exploration expenses in the first nine months of 1997 were $14 million higher
than the same period of 1996 primarily due to drilling expenditures in the U.K.
and Tunisia and increased geological and geophysical expenses for new
exploration ventures. Interest expense decreased $13 million during the period
due to higher capitalized interest and a reduction in the Company's debt level.
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FINANCIAL CONDITION
Cash flow from operations: Net cash provided by operating activities was $204
million in the first nine months of 1997, a decrease of $17 million from the
same period in the prior year. Lower LNG sales volumes and lower U.K. oil
prices were partially offset by higher ethylene sales prices, higher LNG sales
prices, higher U.K. gas prices and higher Pakistan oil sales volumes.
Capital resources: Capital expenditures for the first nine months of 1997 were
$150 million excluding capitalized interest of $28 million. Capital
expenditures for the first nine months of 1996 were $125 million excluding
capitalized interest of $19 million. The increase was primarily due to higher
exploration drilling and geological and geophysical expenditures in new venture
areas.
In June 1997, the Company led a successful bid for Venezuela's Boqueron area
under Venezuela's Third Operating Agreement Round. In the third quarter of 1997
the Company paid $117 million to the Venezuelan government for its share of the
bid. This payment was funded under the credit facilities and lines of credit
described below and cash from operations. The Company was named the Operator
and will have a 66.67% working interest and will work with its partner,
Preussag Energie GmbH of Germany, who will have a 33.33% working interest, to
further develop this currently-producing field. Under the 20-year contract, the
Union Texas group will produce oil from Boqueron on behalf of Lagoven SA, a
subsidiary of Petroleos de Venezuela SA which currently serves as operator, and
will receive a service fee for the production of a "baseline" production
profile of approximately 24 million barrels of oil and a sliding scale
incentive fee for production above this baseline level and for the recovery of
costs. The Company anticipates recording approximately 40 million net barrels
in proved reserves from Boqueron during 1997 with additional reserves expected
to be recorded in the future as the field is further developed. The group must
invest at least $13 million over the next three years and expects to spend
between $250 million to $300 million in the area over the next five years. With
this additional development spending, the Company expects to increase current
production at Boqueron from 10,000 gross barrels of oil a day to 50,000 -
60,000 barrels within three to five years.
Financing Activities: The Company had two unsecured credit facilities (the
"Credit Facilities") at September 30, 1997. One of the Credit Facilities is a
$100 million revolver that provides for conversion of amounts outstanding on
March 10, 1998 to a one-year term loan maturing March 9, 1999. At September 30,
1997, no amounts were outstanding under the $100 million revolver. The other
Credit Facility is a dual currency (U.S. dollars and pounds sterling) $450
million revolver that reduces quarterly by $35 million beginning June 30, 2001,
with a final maturity of March 31, 2002. At September 30, 1997, $75 million was
outstanding under the $450 million facility bearing interest at a weighted
average rate of 5.9% per annum. The Credit Facilities contain restrictive
covenants and require maintenance of stockholders' equity, as adjusted, at $350
million. At September 30, 1997, the Company's adjusted stockholders' equity was
approximately $707 million.
The Company has uncommitted and unsecured lines of credit with several banks in
both U.S. dollars and pounds sterling. At September 30, 1997, $11 million was
outstanding under these money market lines. As of September 30, 1997, the
Company had $464 million of available financing under 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. At
September 30, 1997, 81 million pounds sterling ($131 million) was outstanding
under UTBL's financing which bore interest at a weighted average rate of 8.0%
per annum.
In July 1997, the Company filed a shelf registration statement with the SEC,
covering the issuance of up to $500 million of several types of securities,
including debt securities, common stock, preferred stock and warrants to
purchase securities in any combination that the Company may elect to offer from
time to time on such terms as the Company deems appropriate. The Company
believes the shelf registration provides additional financing flexibility to
meet future funding requirements and to take advantage of potentially
attractive capital market conditions. The Company intends to use the net
proceeds from any offering for general corporate purposes, which may include
the repayment of outstanding indebtedness, working capital increases, capital
expenditures and acquisitions. No securities have yet been issued.
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In 1994, the Company's Board of Directors authorized the repurchase of up to
2,000,000 shares of the Company's stock, all of which were repurchased by the
end of 1996. In October, 1996, the Company's Board of Directors authorized the
repurchase of up to an additional 2,000,000 shares of the Company's common
stock, all of which were repurchased by March 31, 1997. The repurchased stock
will be used for general corporate purposes, including fulfilling employee
benefit program obligations. At September 30, 1997, 2,844,431 shares of common
stock were held, at cost, as treasury shares.
Financial condition: In the third quarter of 1997, the Company declared and
paid a dividend of approximately $4.3 million on its common stock. On October
15, 1997, the Company announced a dividend on its common stock of $.05 per
share to stockholders of record as of October 31, 1997, payable on November 14,
1997.
As a result of reserve engineering analysis and subsequent development plans
for the Company's reserves in the Alpine field in Alaska as well as
expectations for its U.S. petrochemical business, the Company now expects to
utilize the AMT credit and a portion of the NOL carryforwards. Consequently, in
the third quarter of 1997 the Company adjusted the valuation allowance
previously provided against these carryforwards, resulting in deferred tax
assets of approximately $43 million, representing the $24 million AMT credit
and $19 million (after-tax) of NOL carryforwards. Changes in the Company's
actual or anticipated income subject to U.S. taxes, changes in U.S. tax laws or
changes in U.S. tax rates may give rise to adjustments to the Company's
deferred tax assets or liabilities, including the valuation allowance, in the
future. The offset to the deferred tax assets was a $43 million credit to tax
expense (see Note 3).
In the third quarter of 1997, the British government enacted changes in the
U.K. corporate tax laws which affect the Company's U.K. operations. The ACT
credit on dividends paid by U.K. companies has been substantially reduced and
the U.K. corporate tax rate was lowered from 33% to 31%. The reduction in the
ACT credit will be effective for dividends paid on or after April 6, 1999 while
the lowering of the corporate tax rate is effective April 1, 1997. In the third
quarter of 1997, the Company recorded a one-time, non-cash charge to deferred
tax expense of approximately $14 million, primarily related to the reduction of
the ACT credit on future dividends. The tax law changes are not anticipated to
have a material impact on the Company's current tax expense (the net effective
U.K. corporation tax rate increases from 27.5% to 31% after April 6, 1999) nor
is it expected to have a material impact on the standardized measure of
discounted future net cash flows (see Note 4).
The foregoing contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act that involve risks and uncertainties,
including price volatility, exploration, development, operational, marketing,
reserve estimates, implementation and opportunity risks, changes to tax laws
and rates and other factors described from time to time in the Company's
publicly available SEC reports, which could cause actual results to differ
materially.
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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 position of the Company. (See Item 3 in the Company's 1996 annual
report on Form 10-K.)
ITEM 5 - OTHER INFORMATION
Tunisia: In October 1997, the Company announced that it acquired a 25% working
interest in an exploration venture in the Ghadames Basin in southwestern
Tunisia. The Company acquired its interest in the Borj El Khadra block from
Phillips Petroleum Company Tunisia, which serves as operator and has a 25%
interest in the block. Lasmo Tunisia B.V. is also a partner in the venture with
a 50% working interest. In the event that a discovery is developed, L'
Enterprise Tunisienne d' Activites Petrolieres (ETAP), the Tunisian national
oil company, has the right to participate for up to a 50% working interest,
thereby reducing each co-venturer's working interest in half, assuming full
participation by ETAP. The Borj El Khadra block comprises a total of
approximately 1.44 million acres. About 1,500 kilometers of 2-D seismic data
have been acquired over the block, where the venture plans to drill an
exploration well in 1999. The first of two exploration wells on the Bordj
Messouda blocks in Algeria, in which the Company has a 30% working interest and
is adjacent to the Borj El Khadra block, began drilling in October 1997. The
Borj El Khadra block represents Union Texas' third concession in Tunisia.
Offshore Tunisia in the Gulf of Gabes, Union Texas operates and has a 50%
working interest in the Ramla block, where an exploration well is expected to
be drilled in late 1997 or early 1998. Union Texas also operates and has a 65%
working interest in the Jeffara block onshore southeastern Tunisia, where an
unsuccessful exploration well was drilled in the third quarter of 1997.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1 Bylaws of Union Texas Petroleum
Holdings, Inc., as amended
September 15, 1997.
3.2 Specimen of Certificate evidencing
the Common Stock with Rights
attached.
4.1 Rights Agreement dated as of
September 12, 1997 between the
Company and First Chicago Trust
Company of New York, as Rights
Agent, which includes as Exhibit A
the Form of Right Certificate and
as Exhibit B the Summary of Rights
to Purchase Common Stock (filed as
Exhibit 1 to the Company's Form
8-A Registration Statement filed
September 15, 1997 (Commission
File No. 1-9019) and incorporated
herein by reference).
10.1 Third Amendment to Union Texas
Petroleum Salaried Employees'
Pension Plan.
10.2 Ninth Amendment to Union Texas
Petroleum Holdings, Inc. Executive
Severance Plan.
10
12
15 Independent Accountants' Awareness
Letter.
27.1 Financial Data Schedule for the
nine-month period ended September
30, 1997.
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K since the
quarterly period ended June 30, 1997:
The Company filed a Form 8-K dated July 23, 1997 to attach a press
release announcing the Company's second quarter earnings.
The Company filed a Form 8-K dated September 15, 1997 to declare a
dividend as of September 12, 1997 of one Common Stock Purchase
Right for each outstanding share of Common Stock, payable to
stockholders of record as of September 23, 1997, and to incorporate
the Rights Agreement dated as of September 12, 1997.
The Company filed a Form 8-K dated October 22, 1997 to attach a
press release announcing the Company's third quarter earnings.
11
13
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: October 27, 1997 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)
12
14
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Bylaws of Union Texas Petroleum Holdings, Inc., as amended
September 15, 1997.
3.2 Specimen of Certificate evidencing the Common Stock with
Rights attached.
4.1 Rights Agreement dated as of September 12, 1997 between the
Company and First Chicago Trust Company of New York, as
Rights Agent, which includes as Exhibit A the Form of Right
Certificate and as Exhibit B the Summary of Rights to
Purchase Common Stock (filed as Exhibit 1 to the Company's
Form 8-A Registration Statement filed September 15, 1997
(Commission File No. 1-9019) and incorporated herein by
reference).
10.1 Third Amendment to Union Texas Petroleum Salaried Employees'
Pension Plan.
10.2 Ninth Amendment to Union Texas Petroleum Holdings, Inc.
Executive Severance Plan.
15 Independent Accountants' Awareness Letter.
27.1 Financial Data Schedule for the nine-month period ended
September 30, 1997.