<PAGE> 1
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, 1996
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 18, 1996, there were 86,776,447 shares of Union Texas Petroleum
Holdings, Inc. $.05 par value Common Stock issued and outstanding.
<PAGE> 2
FORM 10-Q
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---------- --------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,886 $ 11,069
Accounts and notes receivable, less allowance for doubtful accounts . . . . . 88,645 77,517
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,240 42,764
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . 42,417 27,924
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 187,188 159,274
Equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,642 108,476
Property, plant and equipment, at cost, less accumulated
depreciation, depletion and amortization* . . . . . . . . . . . . . . . . . . 1,543,256 1,551,198
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,604 17,870
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,850,690 $1,836,818
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . $ 2,292 $ 2,292
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,021 95,768
Taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,980 55,779
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 52,979 41,704
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 218,272 195,543
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 627,442 712,132
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374,692 395,289
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,511 110,064
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,337,917 1,413,028
---------- ----------
Stockholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,391 4,391
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,969 19,405
Cumulative foreign exchange translation adjustment and other . . . . . . . . (68,605) (75,077)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 578,408 479,620
Common stock held in treasury, at cost:
1,065,272 shares at September 30, 1996 and 247,145 shares at
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . (20,390) (4,549)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 512,773 423,790
---------- ----------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $1,850,690 $1,836,818
========== ==========
</TABLE>
* 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.
1
<PAGE> 3
FORM 10-Q
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales and operating revenues . . . . . . . . . . . . . $227,284 $197,255 $708,654 $637,237
Interest income and other revenues . . . . . . . . . . 644 82 1,709 412
Net earnings of equity investee . . . . . . . . . . . 7,645 6,387 22,516 17,328
-------- -------- -------- --------
235,573 203,724 732,879 654,977
Costs and other deductions:
Product costs and operating expenses . . . . . . . . . 81,016 71,111 242,338 224,674
Exploration expenses . . . . . . . . . . . . . . . . . 8,834 22,256 33,299 59,905
Depreciation, depletion and amortization . . . . . . . 48,628 51,998 152,436 136,645
Selling, general and administrative expenses . . . . . 6,516 5,362 18,691 17,643
Interest expense . . . . . . . . . . . . . . . . . . . 5,582 9,106 20,092 19,616
-------- -------- -------- --------
Income before income taxes . . . . . . . . . . . . . . . . 84,997 43,891 266,023 196,494
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 51,476 32,168 154,104 117,993
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 33,521 $ 11,723 $111,919 $ 78,501
======== ======== ======= ========
Earnings per share of common stock . . . . . . . . . . . . $ .39 $ .13 $ 1.28 $ .89
======== ======== ======== ========
Dividends per share of common stock . . . . . . . . . . . . $ .05 $ .05 $ .15 $ .15
======== ======== ======== ========
Weighted average number of shares outstanding (000s) . . . 86,996 87,763 87,379 87,712
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE> 4
FORM 10-Q
UNION TEXAS PETROLEUM HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 111,919 $ 78,501
Adjustment to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . 152,436 136,645
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (23,061) (7,234)
Net income of equity investee . . . . . . . . . . . . . . . . . . . . . . (22,516) (17,328)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,449 3,431
--------- ---------
Net cash provided by operating activities before changes in other
assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . 221,227 194,015
Increase in accounts and notes receivable . . . . . . . . . . . . . . . . (10,821) (7,106)
Decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . 1,641 3,666
Increase in prepaid expenses and other assets . . . . . . . . . . . . . . (13,870) (16,225)
Increase in accounts payable and other liabilities . . . . . . . . . . . 167 748
(Decrease) Increase in income taxes payable . . . . . . . . . . . . . . . 23,077 (11,551)
--------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . . 221,421 163,547
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . (127,483) (369,436)
Cash provided by equity investee . . . . . . . . . . . . . . . . . . . . . 27,350 19,300
Net cash required by sale of businesses . . . . . . . . . . . . . . . . . . (798)
--------- ---------
Net cash required by investing activities . . . . . . . . . . . . . . . . (100,133) (350,934)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt . . . . . . . . . . . . . . . . 46,696 218,406
Payments to settle long-term debt . . . . . . . . . . . . . . . . . . . . . (1,146) (1,146)
Net payments under the credit facilities . . . . . . . . . . . . . . . . . . (42,000) (35,503)
Net (payments)/proceeds on money market lines of credit . . . . . . . . . . (89,380) 31,512
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,131) (13,155)
Proceeds from issuance of treasury stock . . . . . . . . . . . . . . . . . . 1,577 1,035
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . (20,087) (498)
--------- ---------
Net cash (required) provided by financing activities . . . . . . . . . . (117,471) 200,651
--------- ---------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . 3,817 13,264
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . 11,069 8,389
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . $ 14,886 $ 21,653
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) . . . . . . . . . . . . . . . . . . $ 15,714 $ 19,048
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,944 136,435
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE> 5
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. ("UTPH") and its consolidated subsidiaries (referred
to herein individually and collectively as the "Company") at September 30,
1996, and the results of operations and cash flows for the three and nine
months ended September 30, 1996 and 1995. The results of operations for the
nine months ended September 30, 1996, should not necessarily be taken as
indicative of the results of operations that may be expected for the entire
year 1996.
NOTE 2 -VOLUNTARY RETIREMENT PROGRAM - During the third quarter of 1996, the
Company offered a Voluntary Retirement Program for 77 of its 1,100 employees
who met certain criteria and were either nearing retirement eligibility or
were already eligible, providing such employees the special one-time
opportunity to retire with enhanced benefits. A total of 47 employees elected
to participate in the program. Consequently in the third quarter of 1996, the
Company accrued a total of approximately $9 million related to the cost of the
program.
NOTE 3 -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 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 and
other risk management activities, such as swaps or fixed price contracts, in
order to minimize the impact of adverse price fluctuation. Gains or losses on
these activities are recognized in sales revenues when the underlying exposed
hedged production is sold. During the first nine months of 1996, the Company
entered into financial hedging futures contracts to offset a portion of its
North Sea crude oil. As of September 30, 1996, the Company had open contracts
for 360,000 barrels of oil at an average Brent price of $17.16 per barrel which
will be settled at various times from October through December 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.
4
<PAGE> 6
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, 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 October 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 September 30, 1996
and the related consolidated statements of operations for the three and nine
month periods ended September 30, 1996 and 1995 and of cash flows for the nine
month periods ended September 30, 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
October 23, 1996
5
<PAGE> 7
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 SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net income for the three months ended September 30, 1996, was $34 million, or
$.39 per share, as compared to net income of $12 million, or $.13 per share,
reported for the same period in 1995. The current quarter was favorably
impacted by higher worldwide oil prices, higher LNG sales prices and volumes
and lower exploration expense, partially offset by lower U.K. oil volumes,
lower U.S. ethylene margins and the cost of the Voluntary Retirement Program
(see footnote 2).
Sales and operating revenues for the three months ended September 30, 1996,
were $227 million, $30 million higher than the third quarter of 1995.
International revenues totaled $178 million as compared to $149 million for the
third quarter of 1995. In the U.K., sales and operating revenues increased by
$1 million due to higher oil prices which were largely offset by lower crude
oil sales volumes and lower natural gas prices. The lower crude oil sales
volumes in the U.K. were due to scheduled down time for maintenance and
development activity, the timing of deliveries and the normal decline in Piper
field volumes. In Indonesia, sales increased $23 million due to higher LNG
volumes and prices and higher crude oil sales prices. In Pakistan, sales
were $5 million above 1995 due to higher gas and oil prices.
Average prices received and volumes sold by the Company's major operations
during the third quarter of 1996 and 1995, respectively, were as follows:
<TABLE>
<CAPTION>
PRICES VOLUMES
(000S PER DAY)
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Crude oil (barrels):
U.K. $20.11 $15.16 37 47
Pakistan 17.32 13.77 6 6
Indonesia 18.63 16.39 6 5
Indonesian LNG (Mcf) 3.47 2.92 222 191
Pakistan natural gas (Mcf) 2.36 1.37 41 45
U.K. natural gas (Mcf) 2.21 2.74 18 18
U.S. ethylene (pounds) .23 .25 1,385 1,180
</TABLE>
Petrochemical revenues totaled $48 million for the current period, essentially
level with 1995, while operating profit was $9 million as compared to $17
million in the prior period. The decreased operating profit was primarily due
to lower ethylene sales prices and increased feedstock costs, resulting in an
average ethylene margin of 8 cents per pound in 1996 vs. 14 cents per pound in
1995. Partially offsetting the reduced ethylene margins were higher ethylene
sales volumes.
Exploration expenses decreased by $13 million due to lower new venture
exploratory drilling. Included in product cost and operating expenses for the
third quarter of 1996 is $9 million related to the cost of the Voluntary
Retirement Program (see footnote 2). The program is expected to result in
lower operating expenses in future periods. Third quarter 1996 interest
expense is lower than the same period of 1995 due to a reduction in the
Company's level of debt. The effective tax rate decreased from the prior year
due to reduced new venture exploration expenses, most of which generate no tax
benefits.
6
<PAGE> 8
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Net income for the nine months ended September 30, 1996, was $112 million, or
$1.28 per share, as compared to net income of $79 million, or $.89 per share,
reported for the same period in 1995. The current period was favorably
impacted by higher worldwide oil prices, higher sales volumes in the U.K.,
higher Indonesian LNG sales prices and volumes and lower exploration expenses,
partially offset by lower ethylene margins and the cost of the Voluntary
Retirement Program (see footnote 2).
Sales and operating revenues for the nine months ended September 30, 1996, were
$709 million, up from $637 million in the prior year. International revenues
totaled $566 million as compared to $478 million for the first nine months of
1995. In the U.K., sales and operating revenues increased by $43 million due
to higher crude oil prices and increased sales volumes, primarily as a result
of the July 1995 acquisition of an interest in the Alba field. In Indonesia,
sales increased $39 million as compared to 1995 due to higher LNG sales prices
and volumes and higher crude oil prices. In Pakistan, sales were $6 million
above 1995 due to higher crude oil and gas prices, partially offset by lower
gas volumes.
Average prices received and volumes sold by the Company's major operations
during the first nine months of 1996 and 1995, respectively, were as follows:
<TABLE>
<CAPTION>
PRICES VOLUMES
(000S PER DAY)
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Crude oil (barrels):
U.K. $18.76 $16.22 41 37
Pakistan 16.58 14.41 6 6
Indonesia 18.59 17.19 6 6
Indonesian LNG (Mcf) 3.39 3.06 225 212
Pakistan natural gas (Mcf) 1.64 1.32 42 45
U.K. natural gas (Mcf) 2.39 2.91 33 29
U.S. ethylene (pounds) .21 .27 1,381 1,271
</TABLE>
Petrochemical revenues totaled $141 million as compared to $158 million in the
first nine months of 1995, while operating profit was $20 million as compared
to $55 million in the prior period. The decreased operating profit was
primarily due to lower ethylene sales prices and increased feedstock costs,
resulting in an average ethylene margin of 6 cents per pound in 1996 vs. 16
cents per pound in 1995.
Exploration expenses decreased by $27 million due to lower new venture
exploratory drilling. Depreciation, depletion and amortization expense (DD&A)
increased by $16 million due to higher volumes of U.K. crude oil and Indonesian
LNG. Included in product cost and operating expenses for 1996 is $9 million
related to the cost of the Voluntary Retirement Program (see footnote 2). The
program is expected to result in lower operating expenses in future periods.
7
<PAGE> 9
FINANCIAL CONDITION
Cash flow from operations: Net cash provided by operating activities was $221
million in the first nine months of 1996, an increase of $57 million from the
same period in the prior year. The increase was primarily the result of
improved worldwide oil prices, higher sales volumes in the U.K. and higher
Indonesian LNG sales prices and volumes, partially offset by lower ethylene
margins.
Capital resources: Capital expenditures for the first nine months of 1996 were
$144 million including capitalized interest of $19 million. Capital
expenditures for the first nine months of 1995 were $144 million including
capitalized interest of $17 million. 1996 includes higher development capital
related to the Britannia field in the U.K. North Sea, offset by reduced
exploratory drilling in new venture areas.
Financing activities: The Company had two unsecured credit facilities (the
"Credit Facilities") at September 30, 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. At September
30, 1996, no amounts were outstanding under the $100 million revolver. 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. 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
September 30, 1996, the Company's adjusted stockholders' equity was
approximately $581 million. At September 30, 1996, $90 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 September 30, 1996, $58
million was outstanding under these money market lines which bore interest at
weighted average rates of 6.3% per annum. As of September 30, 1996, the
Company had approximately $400 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. The
financing is used to fund the Company's share of the cost of developing the
Britannia field to production. At September 30, 1996, 49 million pounds
sterling ($77 million) was outstanding under UTBL's financing which bore
interest at a weighted average rate of 6.8% per annum.
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 1,601,236 shares as of September 30, 1996,
including 655,000 shares repurchased in the third quarter of 1996. The
repurchased stock will be used for general corporate purposes, including
fulfilling employee benefit program obligations. As of September 30, 1996,
1,065,272 shares of common stock were held, at cost, as treasury shares. On
October 24, 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.
Financial condition: In the first, second and third quarters of 1996, the
Company declared and paid a dividend of approximately $4.4 million on its
common stock. On October 17, 1996, the Company announced a dividend on its
common stock of $.05 per share to stockholders of record as of October 31,
1996, payable on November 15, 1996.
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
8
<PAGE> 10
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 and other risk management
activities, such as swaps or fixed price contracts in order to minimize the
impact of adverse price fluctuations. Gains or losses on these activities are
recognized in sales revenues when the underlying exposed hedged production is
sold. During the first nine months of 1996, the Company entered into financial
hedging futures contracts to offset a portion of its North Sea crude. During
the third quarter of 1996 and the first nine months of 1996, the Company
settled crude oil hedging contracts of 414,000 barrels and 1,128,000 barrels at
average Brent prices of $17.49 and $17.23 per barrel, respectively. As of
September 30, 1996, the Company had open contracts of 360,000 barrels at an
average price of $17.16 per barrel which will be settled from October through
December 1996.
9
<PAGE> 11
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 1995
annual report on Form 10-K.)
ITEM 5 - OTHER INFORMATION
Western Colville. The Company reports plans to develop the Alpine oil field in
the western Colville area on Alaska's North Slope 34 miles west of the Kuparuk
River oil field. ARCO Alaska, Inc., the operator ("ARCO Alaska") has a 56%
working interest, Anadarko Petroleum has a 22% working interest and Union Texas
Petroleum Alaska has a 22% working interest in Alpine. Pending issuance of
local, state and federal permits, field construction and development would begin
in the winter of 1997 - 1998 with production expected to commence in early 2000.
Development of the Alpine field is expected to cost $700 to $800 million gross.
In addition, the three companies were the high bidders on five new leases in the
Colville area at the State Lease Sale 86A in October 1996.
Petrochemicals. The Company plans to construct a new thirteenth ethylene
furnace at its jointly owned olefins plant at Geismar, Louisiana. As part of
the construction project, the Company also will upgrade nine of the facility's
furnaces. Construction of the new furnace and upgrading of the nine original
furnace units are expected to begin in May 1997 and be completed in February
1999. The new furnace is scheduled to commence start-up operations in the
fourth quarter of 1997. The additional furnace is expected to increase its
annual production capacity by about 26 million gross pounds, or 2%, to
approximately 1.275 billion gross pounds. The total cost of the new furnace
and upgrading project is estimated to be approximately $27.8 million gross
($11.6 million net to the Company). The Company serves as operator and has a
41.7% interest in the jointly owned Geismar olefins facility.
The foregoing contains forward-looking statements within the meaning of the
Securities Litigation Reform Act that involve risks and uncertainties,
including price volatility, development, operational and implementation risks,
and other factors described from time to time in the Company's publicly
available SEC reports, which could cause actual results to differ materially.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
10.1 First Amendment to Supplemental Non-Qualified
Savings Plan for Executive Employees.
10.2 Second Amendment to the Salaried Employees' Pension Plan.
15 Independent Accountants' Awareness Letter.
27 Financial Data Schedule for the nine-month period ended
September 30, 1996.
(b) Reports on Form 8-K
The Company filed the following report on Form 8-K since the
quarterly period ended June 30, 1996:
The Company filed a Form 8-K dated August 20, 1996 to attach a press
release announcing the Company's second quarter earnings and to
announce a Voluntary Retirement Program.
10
<PAGE> 12
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 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)
11
<PAGE> 13
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 First Amendment to Supplemental Non-Qualified
Savings Plan for Executive Employees.
10.2 Second Amendment to the Salaried Employees' Pension Plan.
15 Independent Accountants' Awareness Letter.
27 Financial Data Schedule for the nine-month period ended
September 30, 1996.
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO
SUPPLEMENTAL NON-QUALIFIED SAVINGS PLAN
FOR EXECUTIVE EMPLOYEES OF
UNION TEXAS PETROLEUM HOLDINGS, INC.
AND ITS SUBSIDIARIES
WHEREAS, Union Texas Petroleum Holdings, Inc. (the "Company") has
adopted the Supplemental Non-Qualified Savings Plan for Executive Employees of
Union Texas Petroleum Holdings, Inc. and its Subsidiaries (the "Plan"); and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan is amended as follows, effective September 1,
1995:
1. The second sentence of Section 5 of the Plan shall be deleted and
the following shall be submitted therefore:
"Amounts credited to the Participant's Account shall accrue amounts
equal to interest, commencing on the date credited to the Participant's
Account, at a variable rate equal to the rate credited from time to
time to amounts in the fixed income fund under the Qualified Savings
Plan; provided, however, in the event that there shall be more than one
fixed income fund under the Qualified Plan, the rate shall equal the
rate credited from time to time to amounts in the fixed income fund
selected by the Committee and designated by the Committee as the fixed
income fund upon which the rate shall be used."
2. AS AMENDED HEREBY, the Plan is specifically ratified and
reaffirmed.
EXECUTED effective as of the 1st day of September, 1995
UNION TEXAS PETROLEUM HOLDINGS, INC.
By: /s/ J. L. Whitmire
--------------------------------
<PAGE> 1
EXHIBIT 10.2
SECOND AMENDMENT TO
UNION TEXAS PETROLEUM
SALARIED EMPLOYEES' PENSION PLAN
WHEREAS, Union Texas Petroleum Holding, Inc. (the "Company") and other
Employing Companies have heretofore adopted and maintain the Union Texas
Petroleum Salaries Employees' Pension Plan (the "Plan") for the benefit of
their eligible employees; and
WHEREAS, the Company has adopted the Union Texas Petroleum Holdings,
Inc. 1996 Voluntary Retirement Program (the "Voluntary Retirement Program") for
the purpose of providing additional benefits to certain eligible employees who
elect to terminate their employment pursuant to the terms of the Voluntary
Retirement Program; and
WHEREAS, the employees eligible for the Voluntary Retirement Program
are employees of the Company and any Employing Company who (i) are paid on a
salaries basis and are in salary grade 14 or below; (ii) are on the United
States payroll of the Company or an Employing Company, (iii) are not stationed
outside of Houston, Texas, (iv) have attained or will attain the age of
forty-eight (48) on or before October 31, 1996, (v) have completed or will
complete at least five (5) full years of Vesting Service under the terms of the
Plan on or before October 31, 1996, and (vi) will attain on or before October
31, 1996 the sum of fifty-four (54) when the employee's age and years of
Accrual Service under the Plan are added together; and
WHEREAS, an employee must elect during the period beginning on
September 1, 1996 and ending at 4:30 p.m. (Houston, Texas time) on October 1,
1996 to terminate their employment with the Company or an Employing Company,
effective as of October 31, 1996 in order to receive the benefits of the
Voluntary Retirement Program; and
WHEREAS, certain Plan Members may elect to participate in the Voluntary
Retirement Program and the Company desires to amend the Plan to provide for
additional benefits under the Plan for the Plan Members who elect to
participate in the Voluntary Retirement Program (the "Voluntary Retirement
Members");
NOW, THEREFORE, the Plan is hereby amended effective as of August 1,
1996 as follows:
1. In calculating the Voluntary Retirement Members' benefits under
the Plan, three years shall be added to their Accrual Service
effective as of their termination of employment.
2. For purposes of determining (i) the Voluntary Retirement Members'
eligibility for Early Retirement and the type of Early Retirement,
i.e., Regular Early Retirement or Eight Point Early Retirement,
under the Plan, (ii) timing of commencement of the
<PAGE> 2
benefit, and (iii) the number of years of actuarial reduction
under the applicable actuarial reduction factor for early
commencement of the benefit, but not for the purpose of
determining the Actuarial Equivalent of different forms of benefit
under the Plan, three years shall be added to the age of the
Voluntary Retirement Members effective as of their termination of
employment.
3. The lump sum payment made to a Voluntary Retirement Member by the
Company pursuant to Paragraph 3(B) of the Voluntary Retirement
Program shall not (i) be included as Compensation under the terms
of the Plan, (ii) be included in determining the Average Monthly
Compensation of a Voluntary Retirement Member, or (iii) result in
any additional Accrual Service being credited to a Voluntary
Retirement Member due to such payment.
4. The terms used in this document with initial capitalization shall
have the same meaning as are ascribed to such terms under the Plan,
except as otherwise specifically indicated herein.
5. As amended hereby, the Plan is specifically ratified and
reaffirmed.
Executed this 1st day of August 1996.
UNION TEXAS PETROLEUM HOLDINGS, INC.
By: /s/ J. L. WHITMIRE
---------------------------------
<PAGE> 1
Exhibit 15
INDEPENDENT ACCOUNTANTS' AWARENESS LETTER
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs:
We are aware that Union Texas Petroleum Holdings, Inc. has included our report
dated October 23, 1996 (issued pursuant to the provisions of Statement on
Auditing Standards No. 71) in the following registration statements:
Registration Statement on Form S-8 (No. 33-26105) filed on December 21, 1988
Registration Statement on Form S-8 (No. 33-13575) filed on April 29, 1991
Registration Statement on Form S-8 (No. 33-21684) filed on April 29, 1991
Registration Statement on Form S-8 (No. 33-44045) filed on November 19, 1991
Registration Statement on Form S-8 (No. 33-64928) filed on June 24, 1993
Registration Statement on Form S-8 (No. 33-59213) filed on May 10, 1995
We are also aware of our responsibilities under the Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP
Houston, Texas
October 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SEC FORM 10-Q FOR THE PERIOD ENDING SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,886
<SECURITIES> 0
<RECEIVABLES> 88,722
<ALLOWANCES> 77
<INVENTORY> 41,240
<CURRENT-ASSETS> 187,188
<PP&E> 3,000,443
<DEPRECIATION> 1,457,187
<TOTAL-ASSETS> 1,850,690
<CURRENT-LIABILITIES> 218,272
<BONDS> 627,442
4,391
0
<COMMON> 0
<OTHER-SE> 508,381
<TOTAL-LIABILITY-AND-EQUITY> 1,850,690
<SALES> 708,654
<TOTAL-REVENUES> 732,879
<CGS> 242,338
<TOTAL-COSTS> 413,465
<OTHER-EXPENSES> 33,299
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,092
<INCOME-PRETAX> 266,023
<INCOME-TAX> 154,104
<INCOME-CONTINUING> 111,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111,919
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 0
</TABLE>
