================================================================================
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 September 30, 1999 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
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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 October 29, 1999, there were outstanding 553,059,992 shares of Texaco
Inc. Common Stock - par value $3.125.
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
TEXACO INC.
STATEMENT OF CONSOLIDATED INCOME
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
---------------------------------------------------------------
(Millions of dollars, except as noted)
<TABLE>
<CAPTION>
(Unaudited)
-------------------------------------------------
For the nine months For the three months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Sales and services $24,502 $23,132 $ 9,472 $ 7,481
Equity in income of affiliates, interest,
asset sales and other 634 766 205 226
------- ------- ------- -------
25,136 23,898 9,677 7,707
------- ------- ------- -------
DEDUCTIONS
Purchases and other costs 19,254 17,922 7,448 5,836
Operating expenses 1,653 1,818 544 593
Selling, general and administrative expenses 871 862 270 290
Exploratory expenses 282 324 72 93
Depreciation, depletion and amortization 1,082 1,172 356 409
Interest expense 369 355 124 121
Taxes other than income taxes 211 328 63 103
Minority interest 62 43 27 13
------- ------- ------- -------
23,784 22,824 8,904 7,458
------- ------- ------- -------
Income before income taxes and cumulative
effect of accounting change 1,352 1,074 773 249
Provision for income taxes 493 258 386 34
------- ------- ------- -------
Income before cumulative effect of
accounting change 859 816 387 215
Cumulative effect of accounting change - (25) - -
NET INCOME $ 859 $ 791 $ 387 $ 215
======= ======= ======= =======
Preferred stock dividend requirements $ 26 $ 40 $ 3 $ 13
------- ------- ------- -------
Net income available for common stock $ 833 $ 751 $ 384 $ 202
======= ======= ======= =======
Per common share (dollars)
Basic net income $ 1.56 $ 1.42 $ 0.71 $ 0.38
Diluted net income $ 1.56 $ 1.42 $ 0.71 $ 0.38
Cash dividends paid $ 1.35 $ 1.35 $ 0.45 $ 0.45
Average shares outstanding for computation
of earnings per share (thousands)
Basic 532,534 529,433 543,671 525,836
Diluted 535,208 548,575 546,343 526,382
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 1 -
<PAGE>
<TABLE>
<CAPTION>
TEXACO INC.
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
----------------------------------------------
(Millions of dollars)
September 30, December 31,
1999 1998
------------- -----------
(Unaudited)
-----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 193 $ 249
Short-term investments - at fair value 26 22
Accounts and notes receivable, less allowance for doubtful
accounts of $27 million in 1999 and $28 million in 1998 4,150 3,955
Inventories 1,380 1,154
Deferred income taxes and other current assets 224 256
------- -------
Total current assets 5,973 5,636
Investments and Advances 6,773 7,184
Properties, Plant and Equipment - at cost 35,870 35,494
Less - accumulated depreciation, depletion and amortization 20,875 20,733
------- -------
Net properties, plant and equipment 14,995 14,761
Deferred Charges 1,037 989
------- -------
Total $28,778 $28,570
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 665 $ 939
Accounts payable and accrued liabilities
Trade liabilities 2,643 2,302
Accrued liabilities 1,003 1,368
Estimated income and other taxes 883 655
------- -------
Total current liabilities 5,194 5,264
Long-Term Debt and Capital Lease Obligations 6,626 6,352
Deferred Income Taxes 1,556 1,644
Employee Retirement Benefits 1,251 1,248
Deferred Credits and Other Noncurrent Liabilities 1,480 1,550
Minority Interest in Subsidiary Companies 711 679
------- -------
Total 16,818 16,737
Stockholders' Equity
Market Auction Preferred Shares 300 300
ESOP Convertible Preferred Stock - 428
Unearned employee compensation and benefit plan trust (332) (334)
Common stock (authorized: 700,000,000 shares, $3.125 par value;
567,576,504 shares issued in 1999; 567,606,290 shares issued in 1998) 1,774 1,774
Paid-in capital in excess of par value 1,304 1,640
Retained earnings 9,677 9,561
Other accumulated nonowner changes in equity
Currency translation adjustment (97) (107)
Minimum pension liability adjustment (24) (24)
Unrealized net gain on investments 3 30
------- -------
Total other accumulated nonowner changes in equity (118) (101)
------- -------
12,605 13,268
Less - Common stock held in treasury, at cost 645 1,435
------- -------
Total stockholders' equity 11,960 11,833
------- -------
Total $28,778 $28,570
======= =======
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
TEXACO INC.
CONDENSED STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
-----------------------------------------------------
(Millions of dollars)
(Unaudited)
-------------------
For the nine months
ended September 30,
-------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 859 $ 791
Reconciliation to net cash provided by (used in)
operating activities
Cumulative effect of accounting change - 25
Depreciation, depletion and amortization 1,082 1,172
Deferred income taxes 3 (36)
Exploratory expenses 282 324
Minority interest in net income 62 43
Dividends from affiliates, greater (less) than
equity in income 25 (30)
Gains on asset sales (70) (61)
Changes in working capital (290) (164)
Other - net (66) 14
------ ------
Net cash provided by operating activities 1,887 2,078
INVESTING ACTIVITIES
Capital and exploratory expenditures (1,729) (2,226)
Proceeds from asset sales 306 130
Purchases of investment instruments (406) (809)
Sales/maturities of investment instruments 685 806
Collection of note/formation payments from U.S. affiliate 101 612
Other - net (23) 25
------ ------
Net cash used in investing activities (1,066) (1,462)
FINANCING ACTIVITIES
Borrowings having original terms in excess
of three months
Proceeds 2,086 1,028
Repayments (763) (493)
Net increase (decrease) in other borrowings (1,395) 166
Purchases of common stock - (579)
Dividends paid to the company's stockholders
Common (719) (716)
Preferred (26) (31)
Dividends paid to minority stockholders (31) (45)
------ ------
Net cash used in financing activities (848) (670)
CASH AND CASH EQUIVALENTS
Effect of exchange rate changes (29) (7)
------ ------
Decrease during period (56) (61)
Beginning of year 249 311
------ ------
End of period $ 193 $ 250
======= =======
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
TEXACO INC.
CONDENSED STATEMENT OF CONSOLIDATED NONOWNER CHANGES IN EQUITY
FOR THE NINE AND THRE MONTHS ENDED SEPTEMBER 30,1999 AND 1998
-------------------------------------------------------------
(Millions of dollars)
(Unaudited)
------------------------------------------------
For the nine months For the three months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 859 $ 791 $ 387 $ 215
Other nonowner changes in equity (net of tax)
Currency translation adjustment 10 (2) 10 -
Minimum pension liability adjustment - 2 - -
Unrealized net gain (loss) on investments (27) 2 (5) (5)
------- ------- ------- --------
(17) 2 5 (5)
------- ------- ------- --------
Total nonowner changes in equity $ 842 $ 793 $ 392 $ 210
======= ======= ======= ========
</TABLE>
TEXACO INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Segment Information
- ---------------------------
<TABLE>
<CAPTION>
For the nine months ended September 30,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- -------------------------------------
Sales and Services Sales and Services
------------------ After ------------------ After
Inter- Tax Inter- Tax
Outside Segment Total Profit (Loss) Outside Segment Total Profit (Loss)
------- ------- ----- ------------- ------- ------- ----- -------------
(Millions of dollars)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploration and production
United States $ 1,434 $1,100 $ 2,534 $ 444 $ 1,330 $1,293 $ 2,623 $ 301
International 1,770 605 2,375 189 1,518 467 1,985 166
Refining, marketing and distribution
United States 2,461 12 2,473 204 1,982 100 2,082 233
International 15,761 137 15,898 377 14,700 74 14,774 414
3,068 82 3,150 13 3,555 68 3,623 (9)
Global gas and power ------- ------ ------- ------ ------- ------ ------- ------
Segment totals $24,494 $1,936 26,430 1,227 $23,085 $2,002 25,087 1,105
======= ====== ======= ======
Other business units 27 (3) 73 (1)
Corporate/Non-operating 5 (365) 3 (288)
Intersegment eliminations (1,960) -- (2,031) --
Consolidated, before ------- ------ ------- ------
cumulative effect of
accounting change $24,502 $ 859 $23,132 $ 816
======= ====== ======= ======
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
For the three months ended September 30,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- -------------------------------------
Sales and Services Sales and Services
------------------ After ------------------ After
Inter- Tax Inter- Tax
Outside Segment Total Profit (Loss) Outside Segment Total Profit (Loss)
------- ------- ----- ------------- ------- ------- ----- -------------
(Millions of dollars)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exploration and production
United States $ 608 $434 $ 1,042 $258 $ 404 $388 $ 792 $ 93
International 748 307 1,055 129 491 170 661 53
Refining, marketing and distribution
United States 1,021 5 1,026 118 624 22 646 124
International 5,905 63 5,968 6 4,817 48 4,865 38
Global gas and power 1,189 35 1,224 6 1,125 24 1,149 (8)
------ ---- ------ --- ------ ---- ----- ---
Segment totals $9,471 $844 10,315 517 $7,461 $652 8,113 300
====== ==== ====== ====
Other business units 7 (1) 29 (1)
Corporate/Non-operating 1 (129) 1 (84)
Intersegment eliminations (851) -- (662) --
------- ---- ------ ----
Consolidated $ 9,472 $387 $7,481 $215
======= ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Assets as of
----------------------------------------------
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
(Millions of dollars)
<S> <C> <C>
Exploration and production
United States $ 8,871 $ 8,699
International 4,600 4,349
Refining, marketing and distribution
United States 3,780 4,095
International 8,829 8,210
Global gas and power 1,314 1,088
------- -------
Segment totals 27,394 26,441
Other business units 388 384
Corporate/Non-operating 1,264 1,945
Intersegment eliminations (268) (200)
------- -------
Consolidated $28,778 $28,570
======= =======
</TABLE>
During the third quarter of 1999, responsibility for the global gas marketing
segment and our cogeneration, gasification, hydrocarbons-to-liquids and fuel
cell technology units was combined under a single senior executive, creating the
Global Gas and Power segment. Prior period information has been restated to
reflect this change.
- 5 -
<PAGE>
Note 2. Inventories
- -------------------
The inventory accounts of Texaco are presented below (in millions of dollars):
<TABLE>
<CAPTION>
As of
--------------------------------------
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Crude oil $ 260 $ 116
Petroleum products and petrochemicals 887 799
Other merchandise 46 40
Materials and supplies 187 199
------ ------
Total $1,380 $1,154
====== ======
</TABLE>
Note 3. Redemption of Series B and Series F ESOP Convertible Preferred Stock
- ----------------------------------------------------------------------------
On June 30, 1999, after having called the Series B ESOP Convertible Preferred
Stock for redemption, each share of Series B was converted into 25.736 shares,
or 15.1 million shares in total, of Common Stock of Texaco Inc.
On February 16, 1999, after having called the Series F ESOP Convertible
Preferred Stock for redemption, each share of Series F was converted into 20
shares, or 1.1 million shares in total, of Common Stock of Texaco Inc.
These noncash financing activities for the first nine months of 1999 resulted in
reductions of $391 million in preferred stock outstanding and $308 million in
paid-in capital. This was offset by a $699 million reduction in the cost of
shares held in treasury.
Note 4. Other Financial Information, Commitments and Contingencies
- ------------------------------------------------------------------
Information relative to commitments and contingent liabilities of Texaco is
presented in Note 16, pages 67 and 68, of our 1998 Annual Report and in Note 4,
pages 5 and 6, of our first quarter, 1999 Form 10-Q.
It is impossible for us to ascertain the ultimate legal and financial liability
with respect to contingencies and commitments. However, we do not anticipate
that the aggregate amount of such liability in excess of accrued liabilities
will be materially important in relation to our consolidated financial position
or results of operations.
Note 5. Investments in Significant Equity Affiliates
- ----------------------------------------------------
U.S. Downstream Alliances
Summarized unaudited financial information for Equilon, formed January 1, 1998
and jointly owned 44% by Texaco and 56% by Shell Oil Company, is presented below
on a 100% Equilon basis (in millions of dollars):
<TABLE>
<CAPTION>
For the nine months For the three months
ended September 30, ended September 30,
----------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross revenues $19,955 $18,195 $8,501 $6,100
Income before income taxes $ 378 $ 542 $ 330 $ 232
</TABLE>
- 6 -
Summarized unaudited financial information for Motiva, formed July 1, 1998 and
jointly owned 32.5% each by Texaco and Saudi Refining, Inc. (a corporate
affiliate of Saudi Aramco) and 35% by Shell Oil Company, is presented below on a
100% Motiva basis (in millions of dollars):
<TABLE>
<CAPTION>
For the three
For the nine months ended September 30,
months ended --------------------------
September 30, 1999 1999 1998
------------------ ---- ----
<S> <C> <C> <C>
Gross revenues $8,432 $3,416 $2,877
Income before income taxes $ 65 $ 45 $ 59
</TABLE>
We account for our interests in Equilon and Motiva using the equity method of
accounting. Under this method, we record our share of Equilon's and Motiva's
results of operations on a one-line basis to Equity in Income of Affiliates in
the Statement of Consolidated Income. Additionally, since Equilon and Motiva are
limited liability companies, we record the provision and related liability for
income taxes applicable to our share of Equilon's and Motiva's pre-tax income in
our consolidated financial statements.
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):
<TABLE>
<CAPTION>
For the nine months For the three months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross revenues $15,617 $12,407 $6,951 $3,852
Income before income taxes and cumulative
effect of accounting change $ 666 $ 606 $ 148 $ 16
Income (loss) before cumulative effect
of accounting change $ 378 $ 369 $ 35 $ (58)
Net income (loss) $ 378 $ 319 $ 35 $ (58)
</TABLE>
Effective January 1, 1998, Caltex adopted a new accounting standard, Statement
of Position 98-5, "Reporting on the Costs of Start-Up Activities," issued by the
American Institute of Certified Public Accountants. This resulted in a change in
accounting for start-up costs at Caltex' Thailand refinery. Caltex' first
quarter 1998 results included a $50 million charge (no tax benefit) associated
with this accounting change.
On September 22, 1999, Caltex sold 97.2% of its 50% equity interest (70.6
million shares) in Koa Oil Co. Ltd. to Nippon Mitsubishi Oil Corporation in
response to their public tender offer. In late October 1999, Caltex sold its
remaining 1,977,000 shares of Koa to Mitsubishi Corporation in a private
transaction. Caltex recorded a loss of $63 million in the third quarter of 1999,
resulting from the U.S. tax consequences of the sale.
* * * * * * * * * * *
We have consistently applied the accounting policies we used in preparing the
financial statements we issued in our 1998 Annual Report to our unaudited
financial statements for the nine and three month periods ended September 30,
1999 and 1998. 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 1999.
* * * * * * * * * * *
- 7 -
<PAGE>
SUPPLEMENTAL MARKET RISK DISCLOSURES
We are exposed to the following types of market risks:
o The price of crude oil, natural gas and petroleum products
o The value of foreign currencies in relation to the U.S. dollar
o Interest rates
We use derivative financial instruments, such as futures, forwards, options and
swaps, in managing these risks. There were no material changes during the first
nine months of 1999 in our exposure to losses from possible future changes in
the price of crude oil, natural gas and petroleum products, or from possible
future changes in the value of foreign currencies in relation to the U. S.
dollar.
The Liquidity and Capital Resources section of the MD&A appearing on page 15 of
this Form 10-Q describes financing and related hedging transactions we entered
into during the first nine months of 1999. As a result of those transactions,
our variable rate debt, before the effects of interest rate swaps, now totals
$2.1 billion, as compared with $2.7 billion at year-end 1998. The notional
amount of interest rate swaps increased $850 million and now totals $1.6
billion. Based on our present interest rate exposure on variable rate debt and
interest rate swaps, a hypothetical increase or decrease in interest rates of
200 basis points would not materially affect our consolidated financial
position, net income or cash flows.
- 8 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
The following table provides a summary of Texaco's net income and income before
special items for the third quarter and first nine months of 1999 and 1998:
<TABLE>
<CAPTION>
For the nine months For the three months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(Millions of dollars, except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C>
Income before special items $ 844 $ 802 $ 453 $ 208
Per share $1.53 $1.44 $0.83 $0.37
Net income $ 859 $ 791 $ 387 $ 215
Per share $1.56 $1.42 $0.71 $0.38
</TABLE>
Boosted by significantly higher crude oil and natural gas prices, our third
quarter results improved dramatically from the first half of the year to their
highest quarterly level since 1997. Cutbacks in OPEC and non-OPEC production,
plus improving global economies pushed benchmark crude oil prices over $20 a
barrel. But, prices remain volatile. Operationally, we had strong production
during September in the North Sea, led by record production in the Captain
field. In addition, we are benefiting significantly from synergy capture and
expense reductions as our $650 million global target will be realized by year
end, a full year ahead of schedule. In the downstream, our refineries ran well
and sales volumes increased. However, these businesses, already burdened by
generally low refining margins, were further hampered by the higher crude costs
which could not be fully recovered in product prices.
Looking ahead, our recent acquisition of a 45 percent interest in the Malampaya
Deep Water Natural Gas Project in the Philippines exemplifies our strategy of
pursuing projects that will provide for long-term growth and strong near-term
earnings and cash flow. We also continue to execute our long-term strategy of
reducing refining exposure through the completion of Caltex' sale of its
interest in Koa Oil Co. Ltd. and the anticipated sales by Equilon of its Wood
River and El Dorado refineries.
Results for 1999 and 1998 are summarized in the table on the following page.
Details on special items are included in the segment analysis which follows this
table. The following discussion of operating earnings is presented on an
after-tax basis.
- 9 -
<PAGE>
<TABLE>
<CAPTION>
For the nine months For the three months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(Millions of dollars)
(Unaudited)
<S> <C> <C> <C> <C>
Income before special items $ 844 $ 802 $ 453 $ 208
------- ------- ------ ----
Inventory valuation adjustments 152 - 14 -
Write-down of assets (76) - - -
Tax issues 65 44 - 25
Gains (losses) on major asset sales (59) 20 (80) -
Reorganization, restructuring and employee separation costs (67) (50) - (18)
------- ------- ------ ----
Special items 15 14 (66) 7
------- ------- ------ ----
Adoption of new accounting standard
Cumulative effect of accounting change - (25) - -
------- ------- ------ ----
Net income $ 859 $ 791 $ 387 $215
======= ======= ====== ====
</TABLE>
Effective January 1, 1998, our affiliate, Caltex, adopted a new accounting
standard, Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," issued by the American Institute of Certified Public Accountants.
This resulted in a change in accounting for start-up costs at its Thailand
refinery. Our first quarter 1998 results included a $25 million charge
associated with this accounting change.
OPERATING RESULTS
EXPLORATION AND PRODUCTION
United States
Exploration and production earnings in the U.S. for the third quarter of 1999
were $258 million, as compared with $93 million for the third quarter of 1998.
For the first nine months of 1999 and 1998, earnings were $444 million and $301
million. Results for 1999 included a second quarter special gain of $21 million
from the sale of our interest in six California onshore and offshore fields, and
a special charge of $11 million for employee separation costs. See the section
entitled, Reorganizations, Restructurings and Employee Severance Programs
beginning on page 15 of this Form 10-Q for additional information. Results for
1999 also included a first quarter special benefit of $11 million for a
production tax refund. Excluding these special items, results for the first nine
months of 1999 totaled $423 million.
U.S. exploration and production earnings for the third quarter and nine months
of 1999 were above last year's levels due to higher crude oil and natural gas
prices and lower expenses. Prices continued to rise in the third quarter as
production cutbacks by OPEC and several non-OPEC countries, coupled with
increasing demand in improving global economies, led to a decline in worldwide
inventory levels. Average realized crude oil prices for the third quarter and
nine months of 1999 were $16.65 and $12.81 per barrel, 66 percent and 18 percent
higher than the 1998 levels. For the third quarter and nine months of 1999,
average natural gas prices were $2.44 and $2.09 per MCF, 29 percent and three
percent above last year's periods.
Production decreased 11 percent for both the third quarter and nine months of
1999 due to natural field declines and asset sales. Capital expenditures for
developmental activities, such as infill drilling, recompletions and secondary
recovery projects, normally undertaken to offset production declines within
mature fields were reduced as Texaco and its operating partners concentrated on
maximizing capital efficiency.
- 10 -
<PAGE>
Operating expenses declined significantly for the first nine months of 1999 as a
result of cost savings from the restructuring of our worldwide upstream
organization. Exploratory expenses for the third quarter and first nine months
of 1999 were $12 million and $104 million before tax, $36 million and $91
million below the same periods of 1998.
International
Exploration and production earnings outside the U.S. for the third quarter of
1999 were $129 million, as compared with $53 million for the third quarter of
1998. For the first nine months of 1999 and 1998, earnings were $189 million and
$166 million. Results for 1999 included a second quarter special charge of $2
million for employee separation costs. See the section entitled,
Reorganizations, Restructurings and Employee Severance Programs beginning on
page 15 of this Form 10-Q for additional information. Excluding the special
charge, results for the first nine months of 1999 totaled $191 million.
International exploration and production operating results for the third quarter
and nine months of 1999 improved over last year's levels as crude oil prices
continued to rise throughout the third quarter due to worldwide production
cutbacks and improving demand. Average realized crude oil prices for the third
quarter and nine months of 1999 were $16.96 and $13.36 per barrel, 53 percent
and 16 percent above the 1998 periods. For the third quarter and first nine
months of 1999, average natural gas prices were $1.35 and $1.36 per MCF, nine
percent and 13 percent below last year.
Daily production in the third quarter and first nine months of 1999 was slightly
below last year's levels. Third quarter production declines in the U.K. North
Sea due to temporary operating problems early in the quarter and in Indonesia
due to lower volumes as a result of higher prices were offset by increased
production in the Partitioned Neutral Zone as a result of increased drilling
activity. Year-to-date production declines in the U.K. North Sea and lower gas
production in Latin America were offset by increased production in the
Partitioned Neutral Zone.
Expenses were lower for the third quarter of 1999 as a result of continued cost
savings from the restructuring of our worldwide upstream organization.
Exploratory expenses for the third quarter of 1999 were $60 million before
taxes, $15 million higher than last year. Exploratory expenses for the first
nine months of 1999 were $178 million before taxes, $49 million higher than last
year.
Looking Forward in the Worldwide Upstream
We intend to continue to cost-effectively explore for, develop and produce crude
oil and natural gas reserves. In an effort to boost long-term upstream
profitability, we are planning to sell producing properties that no longer fit
our business strategy. Specifically, we plan to sell selected producing assets
totaling about 100,000 barrels per day in the United States, offshore Trinidad
and in the North Sea. As a result, we now anticipate that worldwide production
will increase by one-to-two percent annually over the next three-to-five years.
Our growth areas of focus include the U.S. Gulf of Mexico, Kazakhstan, Brazil,
Venezuela and West Africa. Earlier this year, we announced two major oil
discoveries offshore Nigeria. We recently signed an agreement to acquire a 45
percent interest in the Malampaya Deep Water Natural Gas Project in the
Philippines. Malampaya is on schedule to deliver first gas by the end of 2001,
and is expected to achieve gas production rates of 360 million cubic feet per
day by the year 2002. We expect at year-end 1999 this project will add 140
million barrels of oil equivalent to our proved reserve base and increase our
international gas reserves by 30 percent.
Our expense reduction program is also showing success. We are well on our way to
capturing the expected $200 million in annual pre-tax cash expense savings from
our worldwide upstream restructuring program announced in November, 1998. The
program is designed to place greater emphasis on our long-term production and
reserve growth, and to address the need for streamlining costs and improving
competitiveness. These savings include lower people-related and operating
expenses.
- 11 -
<PAGE>
REFINING, MARKETING AND DISTRIBUTION
United States
We conduct our U.S. downstream activities primarily through Equilon, our western
alliance with Shell Oil Company, and Motiva, our eastern alliance with Shell Oil
Company and Saudi Refining, Inc.
Our share of refining, marketing and distribution earnings in the U.S. for the
third quarter of 1999 was $118 million, as compared with $124 million for the
third quarter of 1998. For the first nine months of 1999 and 1998, earnings were
$204 million and $233 million. Results for 1999 included second quarter special
charges of $76 million for the write-down of assets to their estimated sales
values due to the pending sales by Equilon of its El Dorado and Wood River
refineries and $11 million for alliance reorganization, restructuring and
employee separation costs. Results for 1999 also included a first quarter
special benefit of $8 million due to higher inventory values on March 31, 1999.
This follows a fourth-quarter 1998 charge of $34 million to reflect lower prices
on December 31, 1998 for inventories of crude oil and refined products. We value
inventories at the lower of cost or market, after initial recording at cost.
Inventory valuation adjustments are reversed when the associated physical units
of inventory are sold. Excluding these special items, results for the first nine
months of 1999 were $283 million.
Results for the third quarter of 1998 included a net special gain of $25 million
for U.S. alliance formation issues. This included gains of $73 million for the
Federal Trade Commission-mandated sales of the Anacortes refinery and Plantation
pipeline. Also included were charges of $9 million for alliance employee
separation costs and $39 million for asset write-downs of closed facilities and
surplus equipment to their net realizable values. These facilities included a
refinery in Texas, research labs located in Texas and New York and a lube plant
in Virginia. Results for 1998 also included a second quarter special charge of
$32 million, mainly for alliance employee separation costs. Excluding these
special items, results for the third quarter and first nine months of 1998 were
$99 million and $240 million.
U.S. refining, marketing and distribution earnings before special items were
higher than last year for the third quarter and nine months 1999. During these
periods, Equilon's earnings benefited from improved West Coast refining margins
and improved utilization at the Martinez refinery, although operational problems
at the Puget Sound refinery earlier this year had a negative impact on earnings.
Refining margins on the West Coast benefited from industry refinery outages
which caused market supply disruptions. Marketing margins were weak for the
quarter as gasoline pump prices lagged increases in spot prices.
Motiva's earnings for the nine months were affected by weak refining margins on
the East and Gulf Coasts due to high industry-wide refined product inventory
levels. These effects were mitigated by higher gasoline sales volumes and
improved refinery utilization in 1999.
The third quarter and first nine months of 1999 also benefited from the
realization of synergies for Equilon and Motiva, including re-engineering of
work processes, leveraging economies of scale to reduce supply costs, sharing
best practices and capitalizing on logistical and trading opportunities
including higher utilization of proprietary pipelines and other assets.
<PAGE>
- 12 -
International
Refining, marketing and distribution earnings outside the U.S. for the third
quarter of 1999 were $6 million, as compared with $38 million for the third
quarter of 1998. For the first nine months of 1999 and 1998, earnings were $377
million and $414 million. Results for each of the first three quarters of 1999
included special benefits of $75 million, $55 million and $14 million,
respectively, to reflect higher prices for crude oil and refined products. This
follows a fourth-quarter 1998 special charge of $108 million to reflect lower
prices on December 31, 1998, as well as additional charges previously recorded.
We value inventories at the lower of cost or market, after initial recording at
cost. Inventory valuation adjustments are reversed when the associated physical
units of inventory are sold. Results for the third quarter of 1999 also included
special charges of $32 million for our 50 percent share of Caltex' loss on the
sale of its equity interest in Koa Oil Co. Ltd. and $48 million for related
deferred currency translation amounts. Additionally, our results for the second
quarter of 1999 included a Korean tax benefit of $54 million, as well as a $25
million charge for our share of Caltex' restructuring charges and $9 million for
employee separation costs in Europe and Latin America. See the section entitled,
Reorganizations, Restructurings and Employee Severance Programs beginning on
page 15 of this Form 10-Q for additional information. Excluding these special
items, results for the third quarter and first nine months of 1999 were $72
million and $293 million.
Our results for 1998 included a third quarter net special charge of $43 million
for a reorganization program in Caltex. This charge results from their decision
to structure their organization along functional lines and to reduce costs by
establishing a shared service center in the Philippines. In implementing this
change, Caltex relocated its headquarters from Dallas to Singapore. About $35
million of the charge relates to severance and other retirement benefits for
about 200 employees who have not relocated, write-downs of surplus furniture and
equipment and other costs. The balance of the charge is for severance costs in
other affected areas and amounts spent in relocating employees to the new shared
service center. Excluding this special charge, results for the third quarter and
first nine months of 1998 were $81 million and $457 million.
Lower international refining and marketing results in 1999 reflected the squeeze
on margins as escalating crude costs have outpaced product price increases. This
pressure on refining margins impacted all major operating areas. Results were
also adversely impacted by depressed marketing margins and lower volumes in
Brazil due to poor economic conditions and related currency devaluation. In the
Caltex region, results benefited from reduced currency volatility as economic
conditions improved. The third quarter also included gains from the sales of
marketable securities.
Looking Forward in the Worldwide Downstream
Our U.S. joint ventures with Shell and Saudi Refining, Inc. should continue to
achieve lower costs and capture synergies. We expect that our share of these
annual pre-tax cost reductions will be over $300 million, and we are well on our
way to capturing these savings. These savings include lower people-related
expenses and reductions in cash operating expenses due to efficiencies. We have
already captured about $35 million in annual pre-tax cost savings from our
international downstream operations' announced restructuring, representing lower
people-related expenses. In addition, we have already realized our share of the
previously-announced $25 million of annual pre-tax cost savings from the Caltex
reorganization. These savings represent lower people-related expenses. We now
anticipate that we will capture by the end of this year an additional $10
million in annual pre-tax cost savings from the Caltex reorganization. We are
also well on our way to capturing $25 million in annual pre-tax cost reductions
from our worldwide Fuel and Marine Marketing joint venture with Chevron,
representing our share of reductions in cash operating expenses due to
efficiencies.
- 13 -
<PAGE>
GLOBAL GAS AND POWER
During the third quarter of 1999, responsibility for the global gas marketing
segment and our cogeneration, gasification, hydrocarbons-to-liquids and fuel
cell technology units was combined under a single senior executive, creating the
Global Gas and Power segment. Prior period information has been restated to
reflect this change.
Global gas and power earnings for the third quarter of 1999 were $6 million, as
compared with a loss of $8 million for the third quarter of 1998. Earnings for
the first nine months of 1999 were $13 million, as compared with a loss of $9
million for the comparable period of 1998. Results for 1999 included a second
quarter special charge of $3 million for employee separation costs. See the
section entitled, Reorganizations, Restructurings and Employee Severance
Programs beginning on page 15 of this Form 10-Q for additional information.
Excluding this special charge, results for the first nine months of 1999 were
$16 million. Results for 1998 included a second quarter special gain of $20
million from the sale of a partial interest in a pipeline. Excluding this
special gain, results for the first nine months of 1998 were a loss of $29
million.
Gas marketing operating results for the third quarter and first nine months of
1999 benefited from the continued improvement of natural gas margins. Results
for the first nine months of 1999 reflected gains on normal asset sales,
including our interest in a U.K. retail gas marketing operation and the sale of
a U.S. gas gathering pipeline, as well as lower operating expenses.
Operating results for the power related activities in the third quarter and
first nine months of 1999 reflected lower margins from Indonesian geothermal
activities, due to higher costs and lower revenues caused by the currency
devaluation, non-recurring recoupment of development costs in 1998 and lower
gasification licensing revenues.
We have already captured the previously-announced $20 million in annual pre-tax
cost savings from the global gas marketing restructuring announced in November
1998. We now anticipate that we will capture by the end of this year an
additional $10 million in annual pre-tax cost savings. These savings include
lower people-related expenses and benefits from our exiting the United Kingdom
gas marketing business.
OTHER BUSINESS UNITS
Results for both the third quarter of 1999 and 1998 were losses of $1 million.
Results for the first nine months of 1999 were a loss of $3 million, as compared
with a loss of $1 million for the comparable period in 1998. Other business
units include our insurance activity.
CORPORATE/NON-OPERATING
Corporate/Non-operating charges for the third quarter of 1999 were $129 million,
as compared with charges of $84 million for the third quarter of 1998. For the
first nine months of 1999 and 1998, charges were $365 million and $288 million.
Results for 1999 included a second quarter special charge of $6 million for
employee separation costs. See the section entitled, Reorganizations,
Restructurings and Employee Severance Programs beginning on page 15 of this Form
10-Q for additional information. Excluding this special charge, charges for the
first nine months of 1999 were $359 million. Results for 1998 included a third
quarter special benefit of $25 million to adjust for prior years' federal tax
liabilities and a second quarter special tax benefit of $19 million attributable
to the sale of an interest in a subsidiary. Excluding these special gains,
charges for the third quarter and first nine months of 1998 were $109 million
and $332 million.
Corporate/Non-operating results for the third quarter and first nine months of
1999 reflected higher interest expense from increases in interest rates and debt
levels. Additionally, third quarter 1998 results included gains from the sale of
securities by a subsidiary.
- 14 -
<PAGE>
We are well on our way to capturing the expected $60 million in annual pre-tax
cost savings as a result of the fourth quarter 1998 corporate center
reorganization and other cost-cutting initiatives, mainly lower operating
expenses and people-related expenses.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Our cash, cash equivalents and short-term investments were $219 million at
September 30, 1999, as compared with $271 million at year-end 1998.
During 1999, our operations provided cash of $1,887 million. We also had cash
inflows of $306 million from asset sales and $279 million from net sales of
investment instruments. Early collection of a note receivable from our affiliate
Equilon provided another $101 million. We spent $1,729 million on our capital
and exploratory program and paid $776 million in common, preferred and minority
interest dividends.
At September 30, 1999, our ratio of total debt to total borrowed and invested
capital was 36.5%, as compared with 36.8% at year-end 1998. At September 30,
1999, our long-term debt included $2.05 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 nine months of 1999, we reduced our commercial
paper by $1,158 million, to $458 million at September 30, 1999. We issued $1,268
million under our medium-term note program and borrowed $400 million due 2009.
In addition, we reduced other debt obligations by $582 million. During the first
nine months of 1999, we entered into $850 million of floating rate pay interest
rate swaps. All floating rate swaps entered into during 1999 are indexed to
LIBOR. We maintain $2.05 billion in revolving credit facilities, which were
unused at September 30, 1999, to provide additional support for liquidity and
our commercial paper program.
During the third quarter of 1999, we established a new "shelf" registration for
$1.5 billion of combined debt and equity securities, bringing our total capacity
under this program to $1.975 billion.
We consider our financial position to be sufficiently strong to meet our
anticipated future financial requirements.
REORGANIZATIONS, RESTRUCTURINGS AND EMPLOYEE SEVERANCE PROGRAMS
- ---------------------------------------------------------------
In the fourth quarter of 1998, we announced that we were reorganizing several of
our operations and implementing other cost-cutting initiatives. The principal
units affected were our worldwide upstream operations; our international
downstream operations, principally our marketing operations in the United
Kingdom and Brazil and our refining operations in Panama; our global gas
marketing operations, now included as part of our global gas and power operating
segment; and our corporate center. The reorganizations were substantially
completed by the end of the first quarter of 1999. We accrued $115 million ($80
million, net of tax) for employee separations, curtailment costs and special
termination benefits associated with these announced restructurings in the
fourth quarter of 1998. During the second quarter of 1999, we expanded the
employee severance programs and recorded an additional provision of $48 million
($31 million, net of tax). For the most part, severance accruals are shown as
operating expenses in the Statement of Consolidated Income.
The table on the following page, which identifies each of our four restructuring
initiatives, provides the provision recorded in the fourth quarter of 1998 and
the additional provision recorded in the second quarter of 1999, along with the
payments made through September 30, 1999 and the remaining obligations as of
September 30, 1999. We will pay the remaining obligations in future periods in
accordance with plan provisions.
- 15 -
<PAGE>
<TABLE>
<CAPTION>
Provision Recorded in the
------------------------- Payments Remaining
Fourth Quarter, Second Quarter, Made Through Obligations as of
1998 1999 September 30, 1999 September 30, 1999
--------------- --------------- ------------------ ------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
Worldwide upstream $ 56 $20 $(50) $26
International downstream 25 13 (22) 16
Global gas and power 5 4 (5) 4
Corporate center 29 11 (19) 21
---- --- ---- ---
Total $115 $48 $(96) $67
==== === ==== ===
At the time we initially announced these programs, we estimated that over 1,400
employee reductions would result. Employee reductions of 800 in our worldwide
upstream operations, 300 in our international downstream areas, 100 in our
global gas and power operations and 200 in our corporate center were expected.
During the second quarter of 1999, we expanded the program by almost 1,100
employees, comprised of 600 employees in our worldwide upstream operations, 250
employees in our international downstream areas, 100 employees in our global gas
and power operations and 150 employees in our corporate center. Through
September 30, 1999, employee reductions totaled 1,334 in our worldwide upstream
operations, 426 in our international downstream areas, 163 in our global gas and
power operations and 398 in our corporate center. Almost all of the remaining
reductions, representing about 6% of the total reductions, will occur prior to
the end of this year.
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Capital and exploratory expenditures were $2,176 million for the first nine
months of 1999, compared with $2,769 million for the same period in 1998.
In our U.S. upstream, expenditures for developmental activities dropped
significantly and platform construction activity slowed in the deepwater Gulf of
Mexico. Spending increased for enhanced oil recovery projects in California
which continues to be an area of focus. Internationally, spending rose slightly
as compared to the prior year as development work continued on the Captain B
project in the U.K. North Sea. Also, 1999 levels reflect higher spending for
lease acquisitions offshore Nigeria and increased ownership in the Venezuelan
Hamaca project. Project completions during 1998 in other U.K. North Sea fields
led to comparatively lower spending in 1999.
In our downstream, spending declines reflected the completion last year of
refinery upgrade projects in the United States and abroad. Also, poor economic
conditions in international areas and globally depressed downstream returns
resulted in deferrals of selected refinery and marketing expansion projects.
Global gas and power continues to invest in cogeneration projects in California
and in Indonesia, while spending on natural gas transportation is down due to
pipeline completions last year.
NEW ACCOUNTING STANDARDS
- ------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new accounting rules
and disclosure requirements for most derivative instruments and hedge
transactions. In July 1999, the FASB issued SFAS 137, which deferred the
effective date of SFAS 133. We will adopt SFAS 133 effective January 1, 2001 and
are currently assessing the initial effects of adoption.
- 16 -
<PAGE>
EURO CONVERSION
- ---------------
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing legacy currencies and
one common currency--the euro. The euro began trading on world currency
exchanges and may be used in business transactions. On January 1, 2002, new
euro-denominated bills and coins will be issued, and legacy currencies will be
completely withdrawn from circulation by June 30 of that year.
Prior to introduction of the euro, our operating subsidiaries affected by the
euro conversion completed computer systems upgrades and fiscal and legal due
diligence to ensure our euro readiness. Computer systems have been adapted to
ensure that all our operating subsidiaries have the capability to comply with
necessary business requirements and customer/supplier preferences. Legal due
diligence was conducted to ensure post-euro continuity of contracts, and fiscal
reviews were completed to ensure compatibility with our banking relationships.
We, therefore, experienced no major impact to our current business operations.
We continue to review our marketing and operational policies and procedures to
ensure our ability to continue to successfully conduct all aspects of our
business in this new, price-transparent market. We believe that the euro
conversion will not have a material adverse impact on our financial condition or
results of operations.
YEAR 2000
- ---------
On pages 39 and 40 of our 1998 Annual Report, we discussed our state of
readiness and our costs, risks and contingency plans for dealing with potential
Year 2000 (Y2K) date change problems. We reported that approximately 95% of the
computers and computer software involved in corporate financial applications,
and about 5% of our industrial automation systems used in refineries, lubricant
and gas plants and oil well operations needed modification or upgrade. Since
that time, we have not identified any additional material Y2K risks. We continue
to believe that the worst case scenario we described in our 1998 Annual Report
is not likely to occur. However, if it occurs, Y2K failures, if not corrected on
a timely basis or otherwise mitigated by our contingency plans, could have a
material adverse effect on our results of operations, liquidity and overall
financial condition.
We identified over 45,000 systems for assessment of potential Y2K issues. These
were categorized as: Applications, Telecommunications, Computer Systems or
Embedded Systems (Industrial Automation). We assessed each system and
prioritized them as Critical, Essential or Important. Critical systems are those
related to safety, health and environment, including monitoring and regulatory
reporting systems. Essential systems are those required to accomplish business
objectives. Important systems are those used in a support role and are not
required for day-to-day operations.
As of the end of the third quarter of 1999, we completed modifying or upgrading
all of our Critical and Essential systems that required such work, with the
exception of one Essential system. In October, we successfully implemented a
workaround for this one system.
We completed our review of our critical suppliers and customers and developed
contingency plans. If we were not satisfied that these critical suppliers and
customers will be able to operate in 2000, we have established alternatives
and/or developed contingency plans.
As part of our contingency planning, we have completed evaluating the business
resumption plans of all our business units for any Y2K issues, and we have
completed end-of-year rollover plans. During the fourth quarter, we will be
coordinating tests of our Early Alert System, which we will use for monitoring
the Y2K status of our key facilities around the world. We will be testing our
procedures to manage both the information flows and our responses to different
situations.
- 17 -
<PAGE>
During the third quarter of 1999, we spent $6 million in readying our systems
for Y2K, bringing our total spent through September 30, 1999 to $55 million. We
estimate that we will spend an additional $10 million on Y2K-related activities.
The majority of these future expenditures will be incurred during the fourth
quarter, with some expenditures in 2000.
FORWARD-LOOKING STATEMENTS
- --------------------------
Portions of the foregoing discussion of RESULTS OF OPERATIONS; REORGANIZATIONS,
RESTRUCTURINGS AND EMPLOYEE SEVERANCE PROGRAMS; EURO CONVERSION; and, YEAR 2000
contain "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These statements are based on our current expectations, estimates and
projections. Therefore, they could ultimately prove to be inaccurate. Factors
which could affect our expectations for worldwide crude oil production, upstream
earnings and downstream margins in 1999 are changes in business conditions, such
as energy prices, world economic conditions, demand growth and inventory levels.
The extent and timing of our anticipated cost savings and reorganization
programs will depend upon worldwide and industry economic conditions. Factors
that could alter the financial impact of our euro conversion include: changes in
current governmental regulations and interpretations of such regulations;
unanticipated implementation costs; and the effect of the euro conversion on
product prices and margins. Factors that could affect our ability to be Year
2000 compliant by the end of 1999 include: the failure of our customers,
suppliers, governmental entities and others to achieve compliance and the
inaccuracy of certifications received from them; our inability to identify and
remediate every possible problem; and a shortage of necessary programmers,
hardware and software. For a further discussion of additional factors that could
cause actual results to materially differ from those in the forward-looking
statements, please refer to the section entitled "Forward-Looking Statements and
Factors That May Affect Our Business" in our 1998 Annual Report on Form 10-K.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
We have provided information about legal proceedings pending against Texaco
in Note 4 to the Consolidated Financial Statements of this Form 10-Q, in Item 1
of our first and second quarter, 1999 Form 10-Qs and in Item 3 of our 1998
Annual Report on Form 10-K. Note 4 of this Form 10-Q, Item 1 of our first and
second quarter 1999 Form 10-Qs and Item 3 of our 1998 Form 10-K are incorporated
here by reference.
The Securities and Exchange Commission ("SEC") requires us to report
proceedings that were instituted or contemplated by governmental authorities
against us under laws or regulations relating to the protection of the
environment. None of these proceedings is material to our business or financial
condition. Following is a brief description of notices of violation that we
received and settled during the third quarter of 1999.
o In August 1999, California's San Joaquin Valley Unified Air Pollution
Control District ("SJVUAPCD") issued 13 notices of violation to Texaco
California Inc. related to storage of organic material in tanks having a
true vapor pressure in excess of 1.5 psia without vapor control. The agency
has not made a penalty demand, but it is possible that the agency will seek
penalties in excess of $100,000.
o On August 30, 1999, Texaco Exploration and Production Inc. and Texaco
California Inc. settled a series of notices of violation filed by the
SJVUAPCD in 1997-1999. The notices alleged improper permitting and
inadequate maintenance at facilities in California. Under the settlement,
we paid a fine of $500,000, retired some emission reduction credits, and
agreed to install vapor control equipment and implement an enhanced
environmental management plan.
- 18 -
<PAGE>
Item 5. Other Information
- -------------------------
</TABLE>
<TABLE>
<CAPTION>
For the nine months For the three months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(Millions of dollars)
(Unaudited)
<S> <C> <C> <C> <C>
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Exploration and production
United States $ 623 $1,142 $ 162 $ 328
International 865 812 304 276
------ ------ ----- ------
Total 1,488 1,954 466 604
------ ------ ----- ------
Refining, marketing and distribution
United States 243 298 85 116
International 294 355 118 127
------ ------ ----- ------
Total 537 653 203 243
------ ------ ----- ------
Global gas and power 129 141 43 39
------ ------ ----- ------
Total operating segments 2,154 2,748 712 886
Other business units 22 21 6 2
------ ------ ----- ------
Total $2,176 $2,769 $ 718 $ 888
====== ====== ===== =====
Exploratory expenses included above
United States $ 104 $ 195 $ 12 $ 48
International 178 129 60 45
------ ------ ----- ------
Total $ 282 $ 324 $ 72 $ 93
====== ====== ===== ======
</TABLE>
- 19 -
<PAGE>
<TABLE>
<CAPTION>
For the nine months For the three months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING DATA
- --------------
Exploration and Production
- --------------------------
United States
- -------------
Net production of crude oil and natural
gas liquids (000 BPD) 400 443 395 432
Net production of natural gas - available
for sale (000 MCFPD) 1,460 1,694 1,416 1,641
------ ------ ------ ------
Total net production (000 BOEPD) 643 726 631 706
Natural gas sales (000 MCFPD) 3,284 3,926 3,263 3,963
Average U.S. crude (per bbl) $12.81 $10.87 $16.65 $10.06
Average U.S. natural gas (per mcf) $ 2.09 $ 2.03 $ 2.44 $ 1.89
Average WTI (Spot) (per bbl) $17.58 $14.89 $21.71 $14.16
Average Kern (Spot) (per bbl) $11.49 $ 8.43 $15.38 $ 8.65
International
- -------------
Net production of crude oil and natural
gas liquids (000 BPD)
Europe 142 157 152 163
Indonesia 156 159 141 168
Partitioned Neutral Zone 122 106 127 104
Other 65 66 60 59
------ ------ ------ ------
Total 485 488 480 494
Net production of natural gas - available
for sale (000 MCFPD)
Europe 261 255 252 261
Colombia 158 185 161 165
Other 105 108 91 87
------ ------ ------ ------
Total 524 548 504 513
------ ------ ------ ------
Total net production (000 BOEPD) 573 579 564 580
Natural gas sales (000 MCFPD) 551 692 539 633
Average International crude (per bbl) $13.36 $11.55 $16.96 $11.05
Average International natural gas (per mcf) $ 1.36 $ 1.57 $ 1.35 $ 1.49
Average U.K. natural gas (per mcf) $ 2.37 $ 2.53 $ 2.34 $ 2.34
Average Colombia natural gas (per mcf) $ 0.64 $ 0.88 $ 0.67 $ 0.79
Worldwide
- ---------
Total worldwide net production (000 BOEPD) 1,216 1,305 1,195 1,286
</TABLE>
- 20 -
<PAGE>
<TABLE>
<CAPTION>
For the nine months For the three months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING DATA
- --------------
Refining, marketing and distribution
- ------------------------------------
United States
- -------------
Refinery input (000 BPD)
Equilon area 376 388 390 410
Motiva area 307 316 307 301
----- ----- ----- -----
Total 683 704 697 711
Refined product sales (000 BPD)
Equilon area 697 579 752 616
Motiva area 376 366 371 421
Other 296 228 290 216
----- ----- ----- -----
Total 1,369 1,173 1,413 1,253
International
- -------------
Refinery input (000 BPD)
Europe 356 356 331 326
Caltex area 411 417 381 397
Latin America/West Africa 71 64 68 66
----- ----- ----- -----
Total 838 837 780 789
Refined product sales (000 BPD)
Europe 609 567 585 547
Caltex area 663 580 654 563
Latin America/West Africa 485 455 479 474
Other 90 53 86 56
----- ----- ----- -----
Total 1,847 1,655 1,804 1,640
</TABLE>
- 21 -
<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, 1998 (including portions of
Texaco Inc.'s Annual Report to Stockholders for the year 1998)
and a copy of Texaco Inc.'s Quarterly Reports on Form 10-Q for
the quarterly periods ended March 31, 1999 and June 30, 1999,
as previously filed by the Registrant with the Securities and
Exchange Commission, File No. 1-27.
-- (27) Financial Data Schedule.
(b) Reports on Form 8-K:
During the third quarter of 1999, the Registrant filed Current Reports on
Form 8-K for the following events:
1. July 26, 1999
Item 5. Other Events -- reported that Texaco issued an Earnings Press
Release for the second quarter 1999.
2. August 3, 1999
Item 5. Other Events -- provided a description of an Officers'
Certificate dated August 3, 1999 executed by Texaco Capital Inc., a
wholly-owned subsidiary of the Registrant, which established the terms
and provisions of a series of securities designated "Second Series
1999 Medium-Term Notes," for up to $2 billion.
3. September 27, 1999
Item 5. Other Events -- reported that Texaco's 50%-owned affiliate,
Caltex Corporation, sold 97.2% of its 50% equity interest in Koa Oil
Co. Ltd. to Nippon Mitsubishi Oil Corporation in response to their
public tender offer.
- 22 -
<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: G.J. Batavick
---------------------
(Comptroller)
By: R.E. Koch
---------------------
(Assistant Secretary)
Date: November 12, 1999
-----------------
- 23 -
EXHIBIT 11
<TABLE>
<CAPTION>
TEXACO INC.
COMPUTATION OF CONSOLIDATED EARNINGS PER SHARE OF COMMON STOCK
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
---------------------------------------------------------------
(Millions of dollars, except as noted)
For the nine months For the three months
ended September 30, ended September 30,
------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Basic Earnings Per Common Share:
Income before cumulative effect of accounting change
less preferred stock dividend requirements $ 833 $ 776 $ 384 $ 202
======= ======= ======= =======
Average shares outstanding (thousands) 532,534 529,433 543,671 525,836
======= ======= ======= =======
Basic income before cumulative effect of accounting
change per common share (dollars) $ 1.56 $ 1.47 $ 0.71 $ 0.38
======= ======= ======= =======
Diluted Earnings Per Common Share:
Income before cumulative effect of accounting change
less preferred stock dividend requirements $ 833 $ 776 $ 384 $ 202
Adjustments, mainly ESOP preferred stock dividends
in 1998 3 25 1 -
------- ------- ------- -------
Income before cumulative effect of accounting change
for diluted earnings per share $ 836 $ 801 $ 385 $ 202
======= ======= ======= =======
Average shares outstanding (thousands) 532,534 529,433 543,671 525,836
Adjustments, mainly ESOP preferred stock in 1998 2,674 19,142 2,672 546
------- ------- ------- -------
Shares outstanding for diluted computation (thousands) 535,208 548,575 546,343 526,382
======= ======= ======= =======
Diluted income before cumulative effect of accounting
change per common share (dollars) $ 1.56 $ 1.46 $ 0.71 $ 0.38
======= ======= ======= =======
</TABLE>
EXHIBIT 12
<TABLE>
<CAPTION>
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
OF TEXACO ON A TOTAL ENTERPRISE BASIS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR EACH OF THE FIVE YEARS ENDED DECEMBER 31, 1998
--------------------------------------------------
(Millions of dollars)
Years Ended December 31,
For the Nine ------------------------
Months Ended
September 30, 1999 1998 1997 1996 1995 1994
------------------ ---- ---- ---- ---- ----
<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 1-1-98 and 1-1-95............................. $1,488 $ 892 $3,514 $3,450 $1,201 $1,409
Dividends from less than 50% owned companies
more or (less) than equity in net income................ 70 -- (11) (4) 1 (1)
Minority interest in net income............................ 62 56 68 72 54 44
Previously capitalized interest charged to
income during the period................................ 11 22 25 27 33 29
------ ------ ------ ------ ------ ------
Total earnings..................................... 1,631 970 3,596 3,545 1,289 1,481
------ ------ ------ ------ ------ ------
Fixed charges Items charged to income:
Interest charges...................................... 432 664 528 551 614 594
Interest factor attributable to operating
lease rentals.................................... 66 120 112 129 110 118
Preferred stock dividends of subsidiaries
guaranteed by Texaco Inc......................... 31 33 33 35 36 31
------ ------ ------ ------ ------ ------
Total items charged to income...................... 529 817 673 715 760 743
Interest capitalized.................................... 21 26 27 16 28 21
Interest on ESOP debt guaranteed by Texaco Inc.......... - 3 7 10 14 14
------ ------ ------ ------ ------ ------
Total fixed charges................................ 550 846 707 741 802 778
------ ------ ------ ------ ------ ------
Earnings available for payment of fixed charges............ $2,160 $1,787 $4,269 $4,260 $2,049 $2,224
(Total earnings + Total items charged to income) ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges of Texaco
on a total enterprise basis............................. 3.93 2.11 6.04 5.75 2.55 2.86
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TEXACO INC.'S 1999 QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> SEP-30-1999
<CASH> 193
<SECURITIES> 26
<RECEIVABLES> 4,177
<ALLOWANCES> 27
<INVENTORY> 1,380
<CURRENT-ASSETS> 5,973
<PP&E> 35,870
<DEPRECIATION> 20,875
<TOTAL-ASSETS> 28,778
<CURRENT-LIABILITIES> 5,194
<BONDS> 6,626
0
263
<COMMON> 2,138
<OTHER-SE> 9,559
<TOTAL-LIABILITY-AND-EQUITY> 28,778
<SALES> 24,502
<TOTAL-REVENUES> 25,136
<CGS> 19,254
<TOTAL-COSTS> 20,907
<OTHER-EXPENSES> 2,508
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 369
<INCOME-PRETAX> 1,352
<INCOME-TAX> 493
<INCOME-CONTINUING> 859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 859
<EPS-BASIC> 1.56<F1>
<EPS-DILUTED> 1.56
<FN>
<F1>EPS-PRIMARY REPRESENTS BASIC EARNINGS PER SHARE IN ACCORDANCE WITH STATEMENT
OF FINANCIAL ACCOUNTING STANDARD 128.
</FN>
</TABLE>
