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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
----------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998 Commission file number 1-27
TEXACO INC.
(Exact name of the registrant as specified in its charter)
Delaware 74-1383447
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2000 Westchester Avenue
White Plains, New York 10650
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 253-4000
----------
Texaco Inc. (1) HAS FILED all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) HAS BEEN subject to such filing requirements for the past 90 days.
As of April 30, 1998, there were outstanding 541,115,315 shares of Texaco
Inc. Common Stock - par value $3.125.
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<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
TEXACO INC. AND SUBSIDIARY COMPANIES
STATEMENT OF CONSOLIDATED INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
--------------------------------------------------
(Millions of dollars, except as noted)
(Unaudited)
--------------------
For the three months
ended March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
REVENUES
Sales and services $ 7,922 $11,813
Equity in income of affiliates,
interest, asset sales and other 225 216
-------- -------
8,147 12,029
-------- -------
DEDUCTIONS
Purchases and other costs 6,114 9,298
Operating expenses 580 781
Selling, general and administrative expenses 276 419
Exploratory expenses 141 99
Depreciation, depletion and amortization 388 385
Interest expense 118 101
Taxes other than income taxes 116 139
Minority interest 15 21
-------- -------
7,748 11,243
-------- -------
Income before income taxes 399 786
Provision for (benefit from) income taxes 140 (194)
-------- -------
NET INCOME $ 259 $ 980
======== =======
Preferred stock dividend requirements $ 14 $ 14
-------- -------
Net income available for common stock $ 245 $ 966
======== =======
Per common share (dollars)
Basic net income $ .46 $ 1.86
Diluted net income $ .46 $ 1.80
Cash dividends paid $ .45 $ .425
Average shares outstanding for computation of
earnings per share (thousands)
Basic 531,914 519,282
Diluted 551,421 540,063
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 1 -
<PAGE>
<TABLE>
<CAPTION>
TEXACO INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998 AND DECEMBER 31, 1997
------------------------------------------
(Millions of dollars)
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
-----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 335 $ 311
Short-term investments - at fair value 86 84
Accounts and notes receivable, less allowance for doubtful
accounts of $20 million in 1998 and $22 million in 1997 4,021 4,230
Inventories 1,160 1,483
Deferred income taxes and other current assets 290 324
------- -------
Total current assets 5,892 6,432
Investments and Advances 7,574 5,097
Properties, Plant and Equipment - at cost 34,821 38,956
Less - accumulated depreciation, depletion and amortization 20,226 21,840
------- -------
Net properties, plant and equipment 14,595 17,116
Deferred Charges 810 955
------- -------
Total $28,871 $29,600
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 889 $ 885
Accounts payable and accrued liabilities
Trade liabilities 1,946 2,669
Accrued liabilities 1,195 1,480
Estimated income and other taxes 899 960
------- -------
Total current liabilities 4,929 5,994
Long-Term Debt and Capital Lease Obligations 5,927 5,507
Deferred Income Taxes 1,846 1,825
Employee Retirement Benefits 1,213 1,224
Deferred Credits and Other Noncurrent Liabilities 1,572 1,639
Minority Interest in Subsidiary Companies 652 645
------- -------
Total 16,139 16,834
Stockholders' Equity
Market Auction Preferred Shares 300 300
ESOP Convertible Preferred Stock 448 457
Unearned employee compensation and benefit plan trust (372) (389)
Common stock (authorized: 700,000,000 shares, $3.125 par
value; 567,606,290 shares issued) 1,774 1,774
Paid-in capital in excess of par value 1,682 1,688
Retained earnings 10,002 9,987
Other accumulated nonowner changes in equity
Currency translation adjustment (107) (105)
Minimum pension liability adjustment (14) (16)
Unrealized net gain on investments 31 26
------- -------
Total other accumulated nonowner changes in equity (90) (95)
------- -------
13,744 13,722
Less - Common stock held in treasury, at cost 1,012 956
------- -------
Total stockholders' equity 12,732 12,766
------- -------
Total $28,871 $29,600
======= =======
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
TEXACO INC. AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
--------------------------------------------------
(Millions of dollars)
(Unaudited)
--------------------
For the three months
ended March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 259 $ 980
Reconciliation to net cash provided by (used in)
operating activities
Receivable for refund of IRS deposits - (700)
Depreciation, depletion and amortization 388 385
Deferred income taxes 56 100
Exploratory expenses 141 99
Minority interest in net income 15 21
Dividends from affiliates, less than equity
in income (130) (40)
Gains on asset sales (5) (19)
Changes in operating working capital (242) 257
Other - net 175 (49)
----- -----
Net cash provided by operating activities 657 1,034
INVESTING ACTIVITIES
Capital and exploratory expenditures (784) (678)
Proceeds from asset sales 42 140
Purchases of investment instruments (256) (349)
Sales/maturities of investment instruments 247 389
Other - net - (57)
----- -----
Net cash used in investing activities (751) (555)
FINANCING ACTIVITIES
Borrowings having original terms in excess
of three months
Proceeds 396 150
Repayments (277) (75)
Net increase (decrease) in other borrowings 363 (174)
Purchases of common stock (105) (31)
Dividends paid to the company's stockholders
Common (239) (221)
Preferred (5) (4)
Dividends paid to minority shareholders (9) (10)
----- -----
Net cash provided by (used in) financing activities 124 (365)
CASH AND CASH EQUIVALENTS
Effect of exchange rate changes (6) (6)
----- -----
Increase during period 24 108
Beginning of year 311 511
----- -----
End of period $ 335 $ 619
===== =====
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
TEXACO INC. AND SUBSIDIARY COMPANIES
CONDENSED STATEMENT OF CONSOLIDATED NONOWNER CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
--------------------------------------------------
(Millions of dollars)
(Unaudited)
--------------------
For the three months
ended March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
NET INCOME $259 $980
Other nonowner changes in equity (net of tax)
Currency translation adjustment (2) (30)
Minimum pension liability adjustment 2 -
Unrealized net gain (loss) on investments 5 (11)
---- ----
5 (41)
---- ----
TOTAL NONOWNER CHANGES IN EQUITY $264 $939
==== ====
</TABLE>
TEXACO INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note 1. Formation of Equilon Enterprises LLC
- --------------------------------------------
On January 15, 1998, Texaco and Shell Oil Company reached agreement on the
formation and operational start up, effective January 1, 1998, of Equilon
Enterprises LLC (Equilon), a Delaware limited liability company. Equilon is a
joint venture that combines major elements of the companies' western and
midwestern U.S. refining and marketing businesses and their nationwide trading,
transportation and lubricants businesses. Texaco owns 44 percent and Shell owns
56 percent of Equilon.
Beginning January 1, 1998, we are accounting for our interest in Equilon using
the equity method. Under this method, we record our share of Equilon's results
of operations on a one-line basis to Equity in Income of Affiliates in the
Consolidated Statement of Income. We reclassified the net amount of assets and
liabilities of the businesses contributed to Equilon to Investments and Advances
in the Consolidated Balance Sheet. Additionally, we now record transactions
between Texaco and Equilon as outside third-party transactions. The foregoing
results in significant variances between the 1998 and 1997 periods in the
individual line captions appearing in our financial statements.
The carrying amounts at January 1, 1998, of the principal assets and liabilities
of the businesses we contributed to Equilon were $.3 billion of net working
capital assets, $2.8 billion of net properties, plant and equipment and $.2
billion of debt.
Summarized unaudited financial information for Equilon, for the three month
period ended March 31, 1998, is presented below on a 100% Equilon basis (in
millions of dollars):
<TABLE>
<S> <C>
Gross revenues $6,360
Income before income taxes $ 112
</TABLE>
We record provision for income taxes and related liability applicable to our
share of Equilon's income in our consolidated financial statements.
At March 31, 1998, we had a note receivable from Equilon of $463 million,
representing reimbursement of certain capital expenditures incurred prior to the
formation of the joint venture. These proceeds were received in April, 1998.
- 4 -
<PAGE>
In April, 1998, Shell Oil Company entered into an agreement to sell its
Anacortes refinery to Tesoro Petroleum Corporation as part of an agreement with
the Federal Trade Commission (FTC). Equilon is entitled to the net proceeds of
the sale and any gain or loss which may result from the disposition of the
refinery. Tesoro will acquire the refinery for $237 million plus a working
capital adjustment. Subject to final FTC approval, the transaction is expected
to close during the summer of 1998.
Texaco, Shell and Saudi Refining, Inc. are working to finalize agreements for a
separate joint venture involving their eastern United States and Gulf Coast
refining and marketing businesses. Initially, Texaco and Saudi Refining, Inc.
will each own 32.5 percent and Shell will own 35 percent of the joint venture.
Note 2. Inventories
- -------------------
The inventory accounts of Texaco Inc. and consolidated subsidiary companies are
presented below (in millions of dollars):
<TABLE>
<CAPTION>
As of
--------------------------------------
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Crude oil $ 169 $ 308
Petroleum products and petrochemicals 768 893
Other merchandise 39 59
Materials and supplies 184 223
------ ------
Total $1,160 $1,483
====== ======
Note 3. Contingent Liabilities
- ------------------------------
Information relative to commitments and contingent liabilities of Texaco Inc.
and subsidiary companies is presented in Notes 16 and 18, pages 57-58 and 61,
respectively, of Texaco Inc.'s 1997 Annual Report to Stockholders.
----------
In the company's opinion, while it is impossible to ascertain the ultimate legal
and financial liability with respect to contingent liabilities and commitments,
the aggregate amount of such liability in excess of financial reserves is not
anticipated to be materially important in relation to the consolidated financial
position or results of operations of Texaco.
- 5 -
<PAGE>
Note 4. Caltex Group of Companies
- ---------------------------------
Summarized unaudited financial information for the Caltex Group of Companies,
owned 50% by Texaco and 50% by Chevron Corporation, is presented below on a 100%
Caltex Group basis (in millions of dollars):
For the three months
ended March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Gross revenues $4,306 $4,694
Income before income taxes $ 319 $ 320
Net income $ 204 $ 186
</TABLE>
Effective October 1, 1997, Caltex changed the functional currency used to
account for operations in its Korean and Japanese affiliates to the U.S. dollar.
Effective April 1, 1997, Caltex' 40% interest in its Bahrain refining joint
venture (Bapco) was sold to the Government of the State of Bahrain at
approximately net book value.
* * * * * * * * * * *
In the determination of preliminary and unaudited financial statements for the
three-month periods ended March 31, 1998 and 1997, our accounting policies have
been applied on a basis consistent with the application of such policies in our
financial statements issued in our 1997 Annual Report to Stockholders. In our
opinion, we have made all adjustments and disclosures necessary to present
fairly our results of operations for such periods. These adjustments include
normal recurring adjustments. The information is subject to year-end audit by
independent public accountants. We make no forecasts or representations with
respect to the level of net income for the year 1998.
- 6 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Texaco's net income for the first quarter of 1998 was $259 million ($.46 per
share). This compares with net income for the first quarter of 1997 of $980
million ($1.80 per share), including a special item. Net income for the first
quarter of 1997, before a special benefit of $488 million associated with a tax
settlement, was $492 million ($.90 per share).
In the first quarter of 1998:
o Worldwide daily production rose 16 percent;
o Cash operating expenses per barrel dropped more than five
percent, aided by lower energy costs and higher volumes;
o Capital and exploratory expenditures grew 21 percent; and
o Equilon Enterprises LLC, a joint venture combining Texaco's and
Shell's western and midwestern U.S. downstream assets, began
commercial operations.
Our first quarter 1998 results were marked by increases in production, improved
downstream results and tight controls on cash operating expenses. However, these
positive factors could not overcome the decline in worldwide crude oil and
natural gas prices. Operationally, we experienced a very good first quarter.
Production increases were on target toward achieving our planned double-digit
growth for the year; however, total earnings were significantly impacted by the
drop in worldwide crude oil and natural gas prices.
The first quarter of 1998 included a full quarter of production from the Captain
and Erskine fields, both in the U.K. North Sea. Production increased in the
Partitioned Neutral Zone (between Saudi Arabia and Kuwait), Colombia, and in the
U.S. as a result of the November, 1997 acquisition of Monterey Resources.
Additionally, first quarter production included the recently acquired 20 percent
interest in the Karachaganak field in Kazakhstan.
Our worldwide downstream operations benefited from higher gasoline sales volumes
and higher margins. In the U.S., margins improved over last year's depressed
levels but weakened during the quarter due to oversupply. Equilon, our U.S.
downstream alliance with Shell Oil Company, recently began operations and
agreements are being finalized by Texaco, Shell and Saudi Refining, Inc. for a
separate joint venture involving the Eastern and Gulf Coast refining and
marketing businesses.
- 7 -
<PAGE>
OPERATING EARNINGS
PETROLEUM AND NATURAL GAS
EXPLORATION AND PRODUCTION
United States
First quarter 1998 earnings were $107 million, compared to $311 million for the
first quarter of 1997. The decline was a result of lower crude oil and natural
gas prices. Average realized crude oil prices were $11.78 per barrel, $7.84
below 1997. Crude oil prices have plummeted due to rising oil stocks and slowing
of world demand growth. Average natural gas prices were $2.14 per thousand cubic
feet (MCF), $.52 below 1997. Prices for natural gas decreased due to mild
weather as well as increased inventory levels.
Production increased more than 12 percent; however, earnings did not
significantly benefit from this increase due to low heavy crude oil prices.
Higher volumes included production from the acquired Monterey properties and
continued development of natural gas opportunities in Texas and Louisiana.
We continued to aggressively pursue producing opportunities in the Gulf of
Mexico leading to higher exploration expenses this year. Exploration expenses
for the first quarter were $96 million before tax versus $42 million last year.
Operationally, cash operating expenses on a per barrel basis were lower than the
first quarter of 1997.
International
First quarter 1998 earnings were $40 million, compared to $156 million for the
first quarter of 1997. The decline in earnings was the result of lower crude oil
prices. Average realized crude oil prices were $11.95 per barrel for the
quarter, $7.53 below 1997. At these depressed prices, earnings did not
significantly benefit from a daily production increase of 20 percent. The
increase was from a full quarter of Captain and Erskine production in 1998, both
of which are in the U.K. North Sea. Production also increased in the Partitioned
Neutral Zone and Colombia, and as a result of our recently acquired 20 percent
interest in the Karachaganak field in Kazakhstan.
Operating results for the first quarter 1998 included a non-cash currency charge
of $4 million related to deferred income taxes denominated in British pounds.
This compares to a benefit of $19 million for the first quarter of 1997.
MANUFACTURING, MARKETING AND DISTRIBUTION
United States
First quarter 1998 earnings were $47 million and include results from the
recently formed Equilon, our downstream alliance with Shell Oil Company.
Earnings for the first quarter of 1997 were $6 million.
Earnings in 1998 included the impact of overall lower crude costs that
temporarily improved margins. However, weather conditions weakened demand for
heating oil and West Coast gasoline. Gasoline prices, adjusted for inflation,
hit their lowest levels in 25 years. Additionally, refinery results included
scheduled downtime at several plants within our system.
Earnings for 1997 included the adverse effects of intense competition that
squeezed margins in the West Coast marketplace. Refinery fires late in 1996 and
early in 1997 negatively affected product yields and caused casualty loss
expenses during 1997.
- 8 -
<PAGE>
International
First quarter 1998 earnings were $182 million, compared to $104 million for the
first quarter of 1997. The international refining and marketing businesses in
Europe, Latin America and our affiliate Caltex, reported higher 1998 earnings.
Our refining operations in Europe and Latin America experienced improved margins
from lower crude costs in 1998. Improved European marketing results were due to
increased sales volumes and higher retail margins primarily in the United
Kingdom. The recovery from the 1997 Scandinavian price war also contributed to
the higher earnings. Improved margins and higher sales volumes in Central
America, the Caribbean, and Brazil drove stronger marketing results in Latin
America.
In the Caltex area, margins in Korea improved due to decreased crude costs and
partial recovery of local fourth quarter 1997 currency losses. The Caltex area
also experienced a modest increase in refined product sales volumes. Although
inland sales volumes were lower due to the economic crisis in Southeast Asia,
higher trading volumes led to the overall volume improvement. Included in 1998
earnings were unfavorable net currency-related effects of $16 million; primarily
tax charges on local currency gains on U.S. obligations resulting from the
strengthening of the Korean won. Last year's results included Korean currency
losses of $21 million.
Results for 1998 included a non-cash currency charge of $3 million for the first
quarter related to deferred income taxes denominated in British pounds. This
compares to a benefit of $5 million for the first quarter of 1997.
NONPETROLEUM
Nonpetroleum earnings for the first quarter of 1998 were $2 million, compared
with $12 million for the first quarter of 1997.
CORPORATE/NONOPERATING
Corporate and nonoperating results for the first quarter of 1998 were charges of
$119 million, compared to $97 million for the first quarter of 1997, excluding
special items. The change was due principally to increased interest expense on
higher debt levels and Texaco's corporate advertising campaign introduced in the
second half of 1997.
Including a special benefit of $488 million associated with an IRS settlement,
corporate/nonoperating earnings for the first quarter of 1997 totaled $391
million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Our cash, cash equivalents and short-term investments were $421 million at March
31, 1998, as compared with $395 million at year-end 1997.
During 1998, our operations provided cash of $657 million. We raised an
additional $482 million from net borrowings. We spent $784 million on our
capital and exploratory program and paid $253 million in common, preferred and
minority interest dividends.
At March 31, 1998, our ratio of total debt to total borrowed and invested
capital was 33.7%, as compared with 32.3% at year-end 1997. At March 31, 1998,
our long-term debt included $1.7 billion of debt scheduled to mature within one
year which we have both the intent and ability to refinance on a long-term
basis. During the first quarter of 1998, we issued $83 million under our
Medium-Term Note Program and borrowed $150 million at 5.92% for seven years to
cover expenditures at our Erskine field in the U.K. North Sea. Commercial paper
at March 31, 1998 totaled $1,245 million, as compared with $892 million at
December 31, 1997. We maintained revolving credit facilities with commitments of
$1.7 billion, which were unused at March 31, 1998.
- 9 -
<PAGE>
During the first quarter of 1998, we purchased about $100 million of common
stock in the open market. This completed a program under which we purchased $650
million of our common stock during the last two years. On March 30, 1998, we
announced that we will purchase up to an additional $1 billion of our common
stock, subject to market conditions, through open market purchases or privately
negotiated transactions.
In April ,1998, we received $463 million from Equilon, representing
reimbursement of certain capital expenditures incurred prior to the formation of
Equilon. Also in April, 1998, we received a cash distribution from Equilon of
$83 million.
During April, 1998, we repurchased approximately $200 million of 10.61% notes
which we assumed in connection with the November, 1997 acquisition of Monterey
Resources. We funded the repurchase by issuing commercial paper.
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Capital and exploratory expenditures were $967 million for the first quarter of
1998, compared to $799 million for the same period in 1997.
In the United States upstream, offshore development continued in the deepwater
Gulf of Mexico where Texaco holds a strong lease-acreage position. Work
continued during the quarter on the fabrication and installation of the
Petronius compliant tower. Also, subsea development work moved forward on the
Gemini field, a major gas reserve with production expected during 1999.
Expenditures in 1998 increased for enhanced oil recovery projects using advanced
thermal recovery techniques to increase production from the acquired Monterey
properties and other core producing fields. Exploratory expenses in the United
States increased as we aggressively pursued our program to grow oil and gas
production and reserves.
Internationally, higher upstream expenditures include our investment in
discovered reserve opportunities, such as the Karachaganak venture. Development
work continued in the U.K. North Sea, Indonesia and other promising areas.
In the downstream operations, through domestic and international alliances and
subsidiaries, Texaco continues to invest in projects that enhance brand loyalty
and increase market share.
- 10 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Reference is made to the discussion of Contingent Liabilities in Note 5 to the
Consolidated Financial Statements of this Form 10-Q and to Item 3 of Texaco
Inc.'s 1997 Annual Report on Form 10-K, which are incorporated herein by
reference.
Environmental Matters
As of March 31, 1998, Texaco Inc. and/or its subsidiaries were parties to
various proceedings, instituted by governmental authorities arising under the
provisions of applicable laws or regulations relating to the discharge of
materials into the environment or otherwise relating to the protection of the
environment, none of which is material to the business or financial condition of
the company. The following is a brief description of a new proceeding which,
because of the amount involved, requires disclosure under applicable Securities
and Exchange Commission regulations:
On March 26, 1998, the Department of Justice and the U.S. Environmental
Protection Agency sued Texaco Exploration and Production Inc. (TEPI)
alleging that TEPI violated the Clean Water Act and the Oil Pollution
Act due to leaks and spills at the Aneth unit, located in southeastern
Utah. The complaint seeks $2.3 million and unspecified injunctive
relief for spills between December 6, 1991 and the time of the
complaint.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The Annual Meeting of the Stockholders of Texaco Inc. was held on April 28,
1998, for the purpose of (1) electing five directors, (2) approving the
appointment of auditors for the year 1998, (3) approval of an amendment to the
Stockholder Rights Plan and (4) acting on two stockholder proposals relating to
an independent chairperson and classification of the Board of Directors. The
following summarizes the stockholder voting results:
Stockholders elected Peter I. Bijur, John Brademas, Mary K. Bush, Sam Nunn and
Charles H. Price, II, each for a three-year term expiring at the 2001 Annual
Meeting. The vote tabulation for each individual director was as follows:
<TABLE>
<CAPTION>
Director Shares Voted for % of Vote Shares Withheld
-------- ---------------- --------- ---------------
<S> <C> <C> <C>
Peter I. Bijur 477,015,808 97.7% 11,212,699
John Brademas 478,602,997 98.0% 9,625,510
Mary K. Bush 478,489,714 98.0% 9,738,793
Sam Nunn 478,865,062 98.1% 9,363,445
Charles H. Price, II 478,979,573 99.1% 9,248,934
</TABLE>
Directors continuing in office were Willard C. Butcher, Edmund M. Carpenter,
Michael C. Hawley, Franklyn G. Jenifer, Robin B. Smith, William C. Steere, Jr.,
Thomas A. Vanderslice and William Wrigley.
The appointment of Arthur Andersen LLP to audit the accounts of the company and
its subsidiaries for the fiscal year 1998 was approved. Of those shares voted,
483,830,368 shares, or 99.4%, voted in favor, 2,829,316 shares, or .6% voted
against, and 1,568,421 shares abstained.
- 11 -
<PAGE>
The proposal to approve an amendment to the Stockholder Rights Plan as set forth
in Item 3 of the 1998 Proxy Statement was approved. Of those shares voted,
281,120,105 shares, or 65.6%, voted in favor, 147,633,897 shares, or 34.4% voted
against, and 3,326,210 shares abstained.
Stockholders rejected the two stockholder proposals. The proposal relating to an
independent chairperson, as set forth in Item 4 of the 1998 Proxy Statement, was
rejected by a vote of 315,507,089 shares, or 74.3%. Shares voting for the
proposal totaled 109,171,418 shares, or 25.7%, and 7,395,177 shares abstained.
The proposal relating to the classification of the Board of Directors, as set
forth in Item 5 of the 1998 Proxy Statement, was rejected by a vote of
240,083,047 shares, or 56.5%. Shares voting for the proposal totaled 184,737,419
shares, or 43.5%, and 7,234,521 shares abstained.
- 12 -
<PAGE>
Item 5. Other Information
- -------------------------
<TABLE>
<CAPTION>
(Unaudited)
--------------------
For the three months
ended March 31,
--------------------
1998 1997
---- ----
(Millions of dollars)
<S> <C> <C>
FUNCTIONAL NET INCOME
- ---------------------
Operating earnings
Petroleum and natural gas
Exploration and production
United States $ 107 $ 311
International 40 156
----- -----
Total 147 467
----- -----
Manufacturing, marketing and distribution
United States 47 6
International 182 104
----- -----
Total 229 110
----- -----
Total petroleum and natural gas 376 577
Nonpetroleum 2 12
----- -----
Total operating earnings 378 589
Corporate/Nonoperating (119) 391
----- -----
Total net income $ 259 $ 980
===== =====
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Exploration and production
United States $ 476 $ 352
International 290 282
----- -----
Total 766 634
----- -----
Manufacturing, marketing and distribution
United States 88 60
International 99 101
----- -----
Total 187 161
----- -----
Other 14 4
----- -----
Total $ 967 $ 799
===== =====
</TABLE>
- 13 -
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
--------------------
For the three months
ended March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING DATA
- --------------
Exploration and Production
- --------------------------
United States
- -------------
Net production of crude oil and natural
gas liquids (000 BPD) 452 384
Net production of natural gas - available
for sale (000 MCFPD) 1,738 1,656
Total net production (000 BOEPD) 742 660
Natural gas sales (000 MCFPD) 3,882 3,841
Average U.S. crude (per bbl) $11.78 $19.62
Average U.S. natural gas (per mcf) $ 2.14 $ 2.66
Average WTI (Spot) (per bbl) $15.92 $22.76
Average Kern (Spot) (per bbl) $ 8.89 $15.98
International
- -------------
Net production of crude oil and natural
gas liquids (000 BPD)
Europe 158 114
Indonesia 155 140
Partitioned Neutral Zone 108 90
Other 70 69
------ ------
Total 491 413
Net production of natural gas - available
for sale (000 MCFPD)
Europe 258 241
Colombia 208 132
Other 123 102
------ ------
Total 589 475
Total net production (000 BOEPD) 589 492
Natural gas sales (000 MCFPD) 777 620
Average International crude (per bbl) $11.95 $19.48
Average U.K. natural gas (per mcf) $ 2.65 $ 2.85
Average Colombia natural gas (per mcf) $ .91 $ 1.05
Worldwide
- ---------
Total worldwide net production (MBOEPD) 1,331 1,152
</TABLE>
- 14 -
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
--------------------
For the three months
ended March 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING DATA
- --------------
Manufacturing, Marketing and Distribution
- -----------------------------------------
United States
- -------------
Refinery input (000 BPD)
Western U.S. 358 409
Eastern U.S. 313 336
------ ------
Total 671 745
Refined product sales (000 BPD)
Gasolines 492 497
Avjets 163 89
Middle Distillates 180 214
Residuals 96 85
Other 120 120
------ ------
Total 1,051 1,005
International
Refinery input (000 BPD)
Europe 374 348
Affiliate - Caltex 437 407
Latin America/West Africa 57 62
------ ------
Total 868 817
Refined product sales (000 BPD)
Europe 564 495
Affiliate - Caltex 593 586
Latin America/West Africa 428 366
Other 49 44
------ ------
Total 1,634 1,491
</TABLE>
- 15 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
-- (11) Computation of Earnings Per Share of Common Stock.
-- (12) Computation of Ratio of Earnings to Fixed Charges of Texaco on a
Total Enterprise Basis.
-- (20) Copy of Texaco Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (including portions of Texaco
Inc.'s Annual Report to Stockholders for the year 1997), as
previously filed by the Registrant with the Securities and
Exchange Commission, File No. 1-27.
-- (22) Information relative to the various matters submitted to a
vote of security holders are described on pages 9 through 28 of
the 1998 Proxy Statement of Texaco Inc., relating to the Annual
Meeting of Stockholders held on April 28, 1998, as previously
filed by the Registrant with the Securities and Exchange
Commission, File No. 1-27.
-- (27.1) Financial Data Schedule for the three months ended March 31,
1998.
-- (27.2) Financial Data Schedules for periods ended March 31, 1996, June
30, 1996, September 30, 1996, and December 31, 1996, restated
from previous filings to report basic and diluted Earnings per
Share in accordance with FASB Statement No. 128, "Earnings per
Share."
-- (27.3) Financial Data Schedules for periods ended March 31, 1997, June
30, 1997, and September 30, 1997, restated from previous filings
to report basic and diluted Earnings per Share in accordance with
FASB Statement No. 128, "Earnings per Share."
(b) Reports on Form 8-K:
During the first quarter of 1998, the Registrant filed Current Reports on
Form 8-K for the following events:
1. January 23, 1998 (date of earliest event reported: January 22, 1998)
Item 5. Other Events -- reported that Texaco issued an Earnings Press
Release for the fourth quarter and year 1997.
2. January 30, 1998 (date of earliest event reported: January 15, 1998)
Item 2. Acquisition or Disposition of Assets -- reported that Texaco
and Shell Oil Company reached agreement on the formation and
operational start up of Equilon Enterprises LLC, a newly formed
Delaware limited liability company. Equilon is a joint venture that
combines major elements of the companies' western and mid-western U.S.
refining and marketing businesses and their nationwide trading,
transportation and lubricants businesses; and Item 7(b), Proforma
Financial Information, provided applicable unaudited proforma
financial statements.
- 16 -
<PAGE>
3. March 5, 1998 (date of earliest event reported: March 4, 1998)
Item 5. Other Events -- provided a description of an Officer's
Certificate executed by Texaco Capital Inc., a wholly-owned subsidiary
of the Registrant, which established the terms and provisions of a
series of securities designated "Series 1998 Medium-Term Notes," for
up to $500 million.
4. April 1, 1998 (date of earliest event reported: March 30, 1998)
Item 5. Other Events -- reported that Texaco announced a stock
repurchase program for up to $1 billion.
- 17 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Texaco Inc.
--------------------------------
(Registrant)
By: R.C. Oelkers
--------------------------------
(Vice President and Comptroller)
By: R.E. Koch
--------------------------------
(Assistant Secretary)
Date: May 13, 1998
------------
- 18 -
EXHIBIT 11
TEXACO INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
--------------------------------------------------
(Millions of dollars, except as noted)
<TABLE>
<CAPTION>
(Unaudited)
--------------------
For the three months
ended March 31,
--------------------
1998 1997(a)
---- -------
<S> <C> <C>
Basic Net Income Per Common Share:
- ----------------------------------
Net income less preferred stock dividend requirements $ 245 $ 966
======= =======
Average shares outstanding (thousands) 531,914 519,282
======= =======
Basic net income per common share (dollars) $ 0.46 $ 1.86
======= =======
Diluted Net Income Per Common Share:
- ------------------------------------
Net income less preferred stock dividend requirements $ 245 $ 966
Adjustments, mainly ESOP preferred stock dividends 9 9
------- -------
Net income for diluted net income per share $ 254 $ 975
======= =======
Average shares outstanding (thousands) 531,914 519,282
Adjustments, mainly ESOP preferred stock 19,507 20,781
------- -------
Shares outstanding for diluted computation (thousands) 551,421 540,063
======= =======
Diluted net income per common share (dollars) $ 0.46 $ 1.80
======= =======
<FN>
(a) Reflects two-for-one stock split, effective September 29, 1997.
</FN>
</TABLE>
EXHIBIT 12
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
OF TEXACO ON A TOTAL ENTERPRISE BASIS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
FOR EACH OF THE FIVE YEARS ENDED DECEMBER 31, 1997
--------------------------------------------------
(Millions of dollars)
For the Three Years Ended December 31,
Months Ended ----------------------------------------------
March 31, 1998 1997 1996 1995 1994(a) 1993(a)
-------------- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations, before provision or
benefit for income taxes and cumulative effect of
accounting changes effective 1-1-95..................... $ 458 $3,514 $3,450 $1,201 $1,409 $1,392
Dividends from less than 50% owned companies
more or (less) than equity in net income................ (2) (11) (4) 1 (1) (8)
Minority interest in net income............................ 15 68 72 54 44 17
Previously capitalized interest charged to
income during the period................................ 6 25 27 33 29 33
------- ------ ------ ------ ------ ------
Total earnings..................................... 477 3,596 3,545 1,289 1,481 1,434
------- ------ ------ ------ ------ ------
Fixed charges
Items charged to income:
Interest charges...................................... 162 528 551 614 594 546
Interest factor attributable to operating
lease rentals.................................... 23 112 129 110 118 91
Preferred stock dividends of subsidiaries
guaranteed by Texaco Inc......................... 9 33 35 36 31 4
------- ------ ------ ------ ------ ------
Total items charged to income...................... 194 673 715 760 743 641
Interest capitalized.................................... 6 27 16 28 21 57
Interest on ESOP debt guaranteed by Texaco Inc.......... 1 7 10 14 14 14
------- ------ ------ ------ ------ ------
Total fixed charges................................ 201 707 741 802 778 712
------- ------ ------ ------ ------ ------
Earnings available for payment of fixed charges............ $ 671 $4,269 $4,260 $2,049 $2,224 $2,075
(Total earnings + Total items charged to income) ======= ====== ====== ====== ====== ======
Ratio of earnings to fixed charges of Texaco
on a total enterprise basis............................. 3.34 6.04 5.75 2.55 2.86 2.91
======= ====== ====== ====== ====== ======
<FN>
(a) Excludes discontinued operations.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TEXACO INC.'S FIRST QUARTER 1998 FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 335
<SECURITIES> 86
<RECEIVABLES> 4,041
<ALLOWANCES> 20
<INVENTORY> 1,160
<CURRENT-ASSETS> 5,892
<PP&E> 34,821
<DEPRECIATION> 20,226
<TOTAL-ASSETS> 28,871
<CURRENT-LIABILITIES> 4,929
<BONDS> 5,927
0
651
<COMMON> 2,169
<OTHER-SE> 9,912
<TOTAL-LIABILITY-AND-EQUITY> 28,871
<SALES> 7,922
<TOTAL-REVENUES> 8,147
<CGS> 6,114
<TOTAL-COSTS> 6,694
<OTHER-EXPENSES> 936
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118
<INCOME-PRETAX> 399
<INCOME-TAX> 140
<INCOME-CONTINUING> 259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 259
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FRO TEXACO
INC.'S BALANCE SHEET AT MARCH 31 1996, JUNE 30, 1996, SEPTEMBER 30, 1996,
AND DECEMBER 31 1996, AND INCOME STATEMENTS FOR THE PERIODS ENDED MARCH 31,
1996, JUNE 30, 1996, SEPTEMBER 30, 1996, AND DECEMBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THEIR
RELATED FOOTNOTES. THIS SCHEDULE IS A RESTATEMENT OF SCHEDULES FROM PREVIOUS
FILINGS TO INCORPORATE THE PROVISIONS OF SFAS NO. 128 - EARNINGS PER SHARE.
IN ADDITION, THE EARNINGS PER SHARE (EPS) INFORMATION REFLECTS THE IMPACT OF
THE TWO-FOR-ONE SPLIT OF THE COMPANY'S COMMON STOCK, EFFECTIVE SEPTEMBER 29,
1997.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 468 724 903 511
<SECURITIES> 34 98 42 41
<RECEIVABLES> 3,831 4,061 4,055 5,229
<ALLOWANCES> 28 28 36 34
<INVENTORY> 1,361 1,478 1,526 1,460
<CURRENT-ASSETS> 5,897 6,561 6,694 7,665
<PP&E> 31,186 31,666 32,143 33,988
<DEPRECIATION> 18,558 18,805 19,097 20,577
<TOTAL-ASSETS> 24,639 25,241 25,696 26,963
<CURRENT-LIABILITIES> 4,979 5,206 5,319 6,184
<BONDS> 5,129 5,159 5,044 5,125
0 0 0 0
576 613 611 629
<COMMON> 1,637 1,595 1,590 1,483
<OTHER-SE> 7,440 7,818 8,035 8,260
<TOTAL-LIABILITY-AND-EQUITY> 24,639 25,241 25,696 26,963
<SALES> 10,059 20,876 31,777 44,561
<TOTAL-REVENUES> 10,271 21,532 32,629 45,500
<CGS> 7,782 16,127 24,526 34,643
<TOTAL-COSTS> 8,466 17,511 26,631 37,621
<OTHER-EXPENSES> 1,028 2,105 3,193 4,462
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 113 221 328 434
<INCOME-PRETAX> 664 1,695 2,477 2,983
<INCOME-TAX> 278 620 968 965
<INCOME-CONTINUING> 386 1,075 1,509 2,018
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 386 1,075 1,509 2,018
<EPS-PRIMARY> .71 2.01 2.82 3.77
<EPS-DILUTED> .70 1.96 2.75 3.68
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEXACO
INC.'S BALANCE SHEET AT MARCH 31, 1997, JUNE 30, 1997 AND SEPTEMBER 30,
1997 AND INCOME STATEMENTS FOR THE PERIODS ENDED MARCH 31, 1997, JUNE 30,
1997 AND SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS AND THEIR RELATED FOOTNOTES. THIS SCHEDULE IS A
RESTATEMENT OF SCHEDULES FROM PREVIOUS FILINGS TO INCORPORATE THE PROVISIONS OF
SFAS NO. 128 - EARNINGS PER SHARE. IN ADDITION, THE EARNINGS PER SHARE (EPS)
INFORMATION REFLECTS THE IMPACT OF THE TWO-FOR-ONE SPLIT OF THE COMPANY'S
COMMON STOCK, EFFECTIVE SEPTEMBER 29, 1997.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 619 564 451
<SECURITIES> 18 46 48
<RECEIVABLES> 4,708 4,546 4,021
<ALLOWANCES> 34 22 22
<INVENTORY> 1,677 1,632 1,537
<CURRENT-ASSETS> 7,361 7,055 6,318
<PP&E> 34,166 34,462 35,291
<DEPRECIATION> 20,764 20,878 21,198
<TOTAL-ASSETS> 27,008 27,041 26,815
<CURRENT-LIABILITIES> 5,742 5,431 5,544
<BONDS> 5,029 5,067 5,116
0 0 0
628 633 631
<COMMON> 1,459 1,454 1,420
<OTHER-SE> 8,975 9,328 9,566
<TOTAL-LIABILITY-AND-EQUITY> 27,008 27,041 26,815
<SALES> 11,813 22,796 33,630
<TOTAL-REVENUES> 12,029 23,525 34,618
<CGS> 9,298 17,796 26,324
<TOTAL-COSTS> 10,014 19,413 28,508
<OTHER-EXPENSES> 1,128 2,217 3,349
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 101 203 309
<INCOME-PRETAX> 786 1,692 2,452
<INCOME-TAX> (194) 141 411
<INCOME-CONTINUING> 980 1,551 2,041
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 980 1,551 2,041
<EPS-PRIMARY> 1.86 2.93 3.84
<EPS-DILUTED> 1.80 2.85 3.75
</TABLE>
