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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, 2000 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 28, 2000, there were outstanding 552,040,470 shares of Texaco
Inc. Common Stock - par value $3.125.
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
TEXACO INC.
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Millions of dollars, except as noted)
<TABLE>
<CAPTION>
(Unaudited)
--------------------
For the three months
ended March 31,
--------------------
2000 1999
---- ----
REVENUES
<S> <C> <C>
Sales and services $11,086 $ 6,914
Equity in income of affiliates,
interest, asset sales and other 185 276
------- -------
11,271 7,190
------- -------
DEDUCTIONS
Purchases and other costs 8,630 5,450
Operating expenses 590 559
Selling, general and administrative expenses 325 290
Exploratory expenses 53 130
Depreciation, depletion and amortization 484 361
Interest expense 122 121
Taxes other than income taxes 103 76
Minority interest 27 19
------- -------
10,334 7,006
------- -------
Income before income taxes 937 184
Provision for (benefit from) income taxes 363 (15)
------- -------
NET INCOME $ 574 $ 199
======= =======
Per common share (dollars)
Basic net income $ 1.05 $ .35
Diluted net income $ 1.05 $ .35
Cash dividends paid $ .45 $ .45
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 1 -
<PAGE>
TEXACO INC.
CONSOLIDATED BALANCE SHEETS
---------------------------
(Millions of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
-----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 594 $ 419
Short-term investments - at fair value 44 29
Accounts and notes receivable, less allowance for doubtful
accounts of $26 million in 2000 and $27 million in 1999 4,165 4,060
Inventories 1,509 1,182
Deferred income taxes and other current assets 309 273
------- -------
Total current assets 6,621 5,963
Investments and Advances 6,547 6,426
Properties, Plant and Equipment - at cost 34,634 36,527
Less - Accumulated Depreciation, Depletion and Amortization 19,401 20,967
------- -------
Net properties, plant and equipment 15,233 15,560
Deferred Charges 1,014 1,023
------- -------
Total $29,415 $28,972
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 825 $ 1,041
Accounts payable and accrued liabilities
Trade liabilities 2,710 2,585
Accrued liabilities 1,055 1,203
Estimated income and other taxes 1,241 839
------- -------
Total current liabilities 5,831 5,668
Long-Term Debt and Capital Lease Obligations 6,590 6,606
Deferred Income Taxes 1,364 1,468
Employee Retirement Benefits 1,169 1,184
Deferred Credits and Other Non-current Liabilities 1,378 1,294
Minority Interest in Subsidiary Companies 709 710
------- -------
Total 17,041 16,930
Stockholders' Equity
Market auction preferred shares 300 300
Common stock (authorized: 850,000,000 shares, $3.125 par value;
567,576,504 shares issued in 2000 and 1999) 1,774 1,774
Paid-in capital in excess of par value 1,289 1,287
Retained earnings 10,072 9,748
Unearned employee compensation and benefit plan trust (298) (306)
Accumulated other comprehensive income (loss)
Currency translation adjustment (99) (99)
Minimum pension liability adjustment (27) (23)
Unrealized net gain on investments 9 3
------- -------
Total (117) (119)
------- -------
13,020 12,684
Less - Common stock held in treasury, at cost 646 642
------- -------
Total stockholders' equity 12,374 12,042
------- -------
Total $29,415 $28,972
======= =======
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
-2-
<PAGE>
TEXACO INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Millions of dollars)
<TABLE>
<CAPTION>
(Unaudited)
-----------------------
For the three months
ended March 31,
-----------------------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 574 $ 199
Reconciliation to net cash provided by (used in)
operating activities
Depreciation, depletion and amortization 484 361
Deferred income taxes (103) (83)
Exploratory expenses 53 130
Minority interest in net income 27 19
Dividends from affiliates, less than equity
in income (21) (71)
Gains on asset sales (22) (22)
Changes in operating working capital (35) (377)
Other - net 96 6
----- -----
Net cash provided by operating activities 1,053 162
INVESTING ACTIVITIES
Capital and exploratory expenditures (630) (529)
Proceeds from asset sales 271 46
Purchases of investment instruments (112) (178)
Sales/maturities of investment instruments 95 504
Collection of note from affiliate -- 101
----- -----
Net cash used in investing activities (376) (56)
FINANCING ACTIVITIES
Borrowings having original terms in excess
of three months
Proceeds 555 837
Repayments (731) (243)
Net decrease in other borrowings (42) (419)
Purchases of common stock (1) --
Dividends paid to the company's stockholders
Common (245) (237)
Preferred (5) (3)
Dividends paid to minority shareholders (28) (8)
----- -----
Net cash used in financing activities (497) (73)
CASH AND CASH EQUIVALENTS
Effect of exchange rate changes (5) (19)
----- -----
Increase during period 175 14
Beginning of year 419 249
----- -----
End of period $ 594 $ 263
===== =====
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
-3-
<PAGE>
TEXACO INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
---------------------------------------------------------
(Millions of dollars)
<TABLE>
<CAPTION>
(Unaudited)
-----------------------
For the three months
ended March 31,
-----------------------
2000 1999
---- ----
<S> <C> <C>
NET INCOME $ 574 $ 199
Other comprehensive income (loss), net of tax
Minimum pension liability adjustment (4) --
Unrealized net gain (loss) on investments 6 (20)
-------- --------
2 (20)
-------- --------
COMPREHENSIVE INCOME $ 576 $ 179
======== ========
</TABLE>
TEXACO INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Note 1. Basis of Preparing Interim Financial Statements
- -------------------------------------------------------
The consolidated interim financial statements of Texaco Inc. included herein are
unaudited and have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission. Accordingly, we have condensed or
omitted from these financial statements certain footnotes and other information
included in our 1999 Annual Report on Form 10-K. Therefore, you should read
these unaudited condensed financial statements in conjunction with our 1999
Annual Report. Certain prior period amounts have been reclassified to conform to
current year presentation.
We have consistently applied the accounting policies described in our 1999
Annual Report on Form 10-K in preparing the unaudited financial statements for
the three-month periods ended March 31, 2000 and 1999. In our opinion, we have
made all adjustments and disclosures necessary to present fairly our results of
operations, financial position and cash flows for such periods. These
adjustments include normal recurring adjustments. The information is subject to
year-end audit by independent public accountants.
The results for the interim periods are not necessarily indicative of trends or
future financial results.
- 4 -
<PAGE>
Note 2. Net Income Per Common Share
- -----------------------------------
<TABLE>
<CAPTION>
For the three months
ended March 31,
------------------------
2000 1999
---- ----
(Millions of dollars, except as noted)
(Unaudited)
<S> <C> <C>
Basic Net Income Per Common Share:
Net income $ 574 $ 199
Less: Preferred stock dividends 3 13
------- -------
Net income available for common stock $ 571 $ 186
======= =======
Weighted average shares outstanding (thousands) 543,899 526,230
======= =======
Basic net income per common share (dollars) $ 1.05 $ 0.35
======= =======
Diluted Net Income Per Common Share:
Net income available for common stock $ 571 $ 186
======= =======
Weighted average shares outstanding (thousands) 543,899 526,230
Dilutive effect of stock-based compensation (thousands) 1,579 662
------- -------
Weighted average shares outstanding for diluted computation (thousands) 545,478 526,892
======= =======
Diluted net income per common share (dollars) $ 1.05 $ 0.35
======= =======
</TABLE>
Note 3. Segment Information
- ---------------------------
<TABLE>
<CAPTION>
Sales and Services
------------------------------ After Assets
Inter- Tax at
Quarter Ended March 31, 2000 Outside Segment Total Profit (Loss) Quarter-End
- ---------------------------- ------- ------- ----- ------------- -----------
(Millions of dollars)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Exploration and production
United States $ 823 $ 430 $ 1,253 $ 294 $ 8,359
International 873 411 1,284 293 5,518
Refining, marketing and distribution
United States 1,380 24 1,404 18 3,512
International 6,721 95 6,816 51 9,079
Global gas and power 1,285 35 1,320 20 1,241
------- ------- ------- ------- -------
Segment totals $11,082 $ 995 12,077 676 27,709
======= =======
Other business units 10 -- 383
Corporate/Non-operating 1 (102) 1,685
Intersegment eliminations (1,002) -- (362)
------- ------- -------
Consolidated $11,086 $ 574 $29,415
======= ======= =======
</TABLE>
- 5 -
<PAGE>
<TABLE>
<CAPTION>
Sales and Services
--------------------------- After Assets
Inter- Tax at
Quarter Ended March 31, 1999 Outside Segment Total Profit (Loss) December 31, 1999
- ---------------------------- ------- ------- ----- ------------- -----------------
(Millions of dollars) (Millions of dollars)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Exploration and production
United States $ 349 $296 $ 645 $ 38 $ 8,696
International 445 110 555 (18) 5,333
Refining, marketing and distribution
United States 611 3 614 62 3,714
International 4,546 3 4,549 220 8,542
Global gas and power 960 23 983 6 1,297
------- ---- ------ ---- -------
Segment totals $ 6,911 $435 7,346 308 27,582
======= ====
Other business units 11 (1) 365
Corporate/Non-operating 1 (108) 1,430
Intersegment eliminations (444) -- (405)
------ ---- -------
Consolidated $6,914 $199 $28,972
====== ==== =======
</TABLE>
Note 4. Inventories
- -------------------
The inventory accounts of Texaco are presented below (in millions of dollars):
<TABLE>
<CAPTION>
As of
-------------------------------------
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Crude oil $ 193 $ 141
Petroleum products and other 1,124 857
Materials and supplies 192 184
------ ------
Total $1,509 $1,182
====== ======
</TABLE>
Note 5. Investments in Significant Equity Affiliates
- ----------------------------------------------------
U.S. Downstream Alliances
Summarized unaudited financial information for Equilon, 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 three months
ended March 31,
--------------------
2000 1999
---- ----
<S> <C> <C>
Gross revenues $9,957 $5,601
Income (loss) before income taxes $ (31) $ 171
</TABLE>
- 6 -
<PAGE>
The following table presents summarized unaudited financial information for
Motiva, in millions of dollars, on a 100% Motiva basis. Motiva is owned by
Texaco, Saudi Refining, Inc. (a corporate affiliate of Saudi Aramco) and Shell
Oil Company. Under the terms of the Limited Liability Agreement for Motiva, the
ownership in Motiva is subject to annual adjustment through year-end 2005, based
on the performance of the assets contributed to Motiva. Accordingly, the initial
ownership in Motiva was adjusted effective as of January 1, 2000, so that
currently, Texaco and Saudi Refining, Inc. each own just under 31% and Shell
owns just under 39% of Motiva. These ownership percentages will be effective
through year-end 2000. The Agreement provides that a final ownership percentage
will be calculated at the end of 2005.
<TABLE>
<CAPTION>
For the three months
ended March 31,
--------------------
2000 1999
---- ----
<S> <C> <C>
Gross revenues $4,391 $2,150
Income before income taxes $ 63 $ 41
</TABLE>
We record income tax effects applicable to our share of Equilon's and Motiva's
pre-tax results in our consolidated financial statements, since Equilon and
Motiva are limited liability companies.
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 three months
ended March 31,
--------------------
2000 1999
---- ----
<S> <C> <C>
Gross revenues $4,110 $2,890
Income before income taxes $ 219 $ 289
Net income $ 102 $ 203
</TABLE>
Note 6. Other Financial Information, Commitments and Contingencies
- ------------------------------------------------------------------
Information relative to commitments and contingent liabilities of Texaco is
presented in Note 15, pages 54-55, of our 1999 Annual Report.
It is impossible for us to determine 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.
- 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
quarter of 2000 in our exposures to loss from possible future changes in the
price of crude oil, natural gas and petroleum products, from possible future
changes in the value of foreign currencies in relation to the U. S. dollar, or
from possible future changes in interest rates.
-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 first quarter of 2000 and 1999:
<TABLE>
<CAPTION>
For the three months
ended March 31,
----------------------------------------------
2000 1999
------- -------
(Millions of dollars, except per share amounts)
(Unaudited)
<S> <C> <C>
Income before special items $ 602 $105
Per share $1.10 $.18
Net income $ 574 $199
Per share $1.05 $.35
</TABLE>
Reacting to OPEC production cuts, lower inventory levels and increased demand,
crude oil prices more than doubled from a year ago. Increased demand and lower
inventory levels pushed U.S. natural gas prices 44 percent higher than last
year. Both of these factors significantly increased upstream earnings. Natural
gas prices remained strong into the second quarter, while recent OPEC actions to
increase production caused crude oil prices to fall, leveling-off in the mid-$20
per-barrel range.
While the higher crude oil prices benefited our upstream operations, for the
downstream they meant higher costs which were not fully recovered in the
marketplace. As a result, downstream earnings this year were 62 percent below
last year's levels. However, with the recent leveling-off of crude oil prices
and lower product inventory levels, downstream margins began to improve in the
latter part of the quarter, and this trend is expected to continue in the
upcoming months.
In the upstream, we are upgrading our portfolio by divesting non-strategic
assets while focusing investment on high return, high impact opportunities like
our Agbami project in offshore Nigeria, the Malampaya gas project in the
Philippines and our Karachaganak project in Kazakhstan. During the first
quarter, we received $263 million from the sale of non-core U.S. producing
properties and we will have additional upstream property sales in the second
quarter. These proceeds will help fund our capital spending program.
Further, we are moving to capture the potential of the "new economy" by
investing in a number of e-business ventures including TradeCapture.com,
Petrocosm and OceanConnect.com. Coupled with our recently announced technology
partnership with Dell Computer, we are well positioned to harness the Internet
to capture cost reductions, enhance our existing business and develop new
revenue streams. The future execution of these strategies, combined with our
continued cost discipline and operational focus, should signal strong results
throughout the year and in the new century.
Results for the first quarter of 2000 and 1999 are summarized in the following
table. 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 three months
ended March 31,
------------------------
2000 1999
---- ----
(Millions of dollars)
(Unaudited)
<S> <C> <C>
Income before special items $602 $105
Gains (losses) on major asset sales (67) -
Tax issue 46 -
Inventory valuation adjustments - 83
Employee benefits revision 18 -
Employee separation costs (12) -
Litigation issue (13) -
Production tax refund - 11
---- ----
Special items (28) 94
---- ----
Net income $574 $199
==== ====
</TABLE>
OPERATING RESULTS
Exploration and Production
<TABLE>
<CAPTION>
For the three months
United States ended March 31,
----------------------
2000 1999
---- ----
(Millions of dollars)
<S> <C> <C>
Operating income before special items $361 $27
Special items (67) 11
---- ---
Operating income $294 $38
==== ===
</TABLE>
U.S. exploration and production earnings for the first quarter of 2000 were
significantly greater than last year due to higher crude oil and natural gas
prices. Our average realized crude oil price more than doubled to $24.46 per
barrel. Our average natural gas price was $2.45 per MCF, 37 percent higher than
last year. Natural gas prices strengthened due to increased demand and lower
than normal inventory levels.
Daily production for the first quarter of 2000 was 604,000 barrels of oil
equivalent per day, eight percent lower than last year. Natural field declines
and asset sales caused this expected reduction.
Our operating expenses were eight percent higher for the first quarter due to
higher utilities and production taxes, both related to higher crude oil and
natural gas prices. Exploratory expenses for the first quarter were $19 million
before tax, $35 million lower than last year due to a strategy shift to high
impact international opportunities.
Results for the first quarter of 2000 included a special charge of $67 million
for net losses on the sales of low-margin producing assets. This charge was
comprised of write-downs of assets sold to their sales prices and related
disposal costs, partially offset by gains on the sale of certain other assets.
The special benefit for 1999 of $11 million was for a production tax refund.
- 10 -
<PAGE>
<TABLE>
<CAPTION>
For the three months
International ended March 31,
---------------------
2000 1999
---- ----
(Millions of dollars)
<S> <C> <C>
Operating income (loss) $293 $(18)
==== ====
</TABLE>
International exploration and production operating results for the first quarter
of 2000 were significantly higher than last year due mostly to higher crude oil
prices. Crude oil prices rose throughout most of the first quarter, more than
doubling versus last year. Our average realized crude oil price this year was
$23.32 per barrel, 136 percent higher than last year. Our average natural gas
price was $1.48 per MCF, two percent lower than 1999.
Daily production for the first quarter of 2000 was 581,000 barrels of oil
equivalent per day, slightly lower than last year. The slight decrease was due
to lower lifting entitlements for cost recovery in Indonesia as a result of
higher crude oil prices. Excluding Indonesia, production increased in the first
quarter. Areas of increase included the Partitioned Neutral Zone and the
Karachaganak field in the Republic of Kazakhstan. Additionally, production
increased in the U.K. North Sea at the Captain field, which experienced
operational problems last year.
Operating expenses were seven percent lower for the first quarter of 2000.
Exploratory expenses for the first quarter were $34 million before taxes, $42
million lower than last year which included an unsuccessful exploratory well in
a new offshore area of Trinidad.
Refining, Marketing and Distribution
<TABLE>
<CAPTION>
For the three months
United States ended March 31,
---------------------
2000 1999
---- ----
(Millions of dollars)
<S> <C> <C>
Operating income before special items $13 $54
Special items 5 8
--- ---
Operating income $18 $62
=== ===
</TABLE>
U.S. refining, marketing and distribution earnings were lower than last year. We
conduct our U.S. downstream activities primarily through Equilon Enterprises
LLC, our western alliance with Shell Oil Company, and Motiva Enterprises LLC,
our eastern alliance with Shell Oil Company and Saudi Refining, Inc.
Equilon's earnings were lower for the quarter due to increased refinery
maintenance and weak marketing margins. During this year's first quarter,
Equilon had scheduled and unscheduled maintenance activity at the Wood River,
Martinez and Puget Sound refineries. Marketing margins were depressed because
pump prices lagged increases in supply costs, lubricant margins were weak and
trading results were lower.
Motiva's results for the quarter benefited from improved East and Gulf Coast
refining margins. Lower gasoline and distillate inventory levels, combined with
a high level of industry refinery maintenance and unscheduled downtime, helped
product prices. While marketing margins were negatively impacted by higher spot
prices and competitive market conditions, they began to improve during March.
- 11 -
<PAGE>
Results for the first quarter of 2000 included net special benefits of $5
million comprised of a benefit of $18 million for an employee benefits revision
and a charge of $13 million for a patent litigation issue. Results for the first
quarter of 1999 included a 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.
<TABLE>
<CAPTION>
For the three months
International ended March 31,
---------------------
2000 1999
---- ----
(Millions of dollars)
<S> <C> <C>
Operating income before special items $63 $145
Special items (12) 75
--- ----
Operating income $51 $220
=== ====
</TABLE>
International refining and marketing earnings for the first quarter of 2000
declined from 1999 levels. The decline was due to operating losses experienced
by our Caltex affiliate. Marketing margins suffered in Korea and the Southeast
Asian region as a result of high product inventories and aggressive competitor
pricing. Refining margins were also weak throughout most of the period.
Operating results for the first quarter of 2000 in Europe improved over last
year due to higher refining margins and more efficient refinery operations in
the U.K. and the Netherlands. However, lower marketing margins in Europe
negatively impacted earnings. In contrast to European results, Latin America
experienced lower refining margins, while marketing operations in Latin America
improved over last year, as a result of the ongoing economic recovery and
currency stabilization in Brazil.
Results for the first quarter of 2000 included special charges of $12 million
for employee separation costs. See the section entitled, Reorganizations,
Restructurings and Employee Separation Programs on page 14 of this Form 10-Q for
additional information. Results for the first quarter of 1999 included a special
benefit of $75 million due to higher inventory values at March 31, 1999. This
follows a fourth-quarter 1998 charge of $108 million to reflect lower prices on
December 31, 1998 for inventories of crude oil and refined products.
Global Gas and Power
<TABLE>
<CAPTION> For the three months
ended March 31,
---------------------
2000 1999
---- ----
(Millions of dollars)
<S> <C> <C>
Operating income $ 20 $ 6
===== =====
</TABLE>
Global gas and power earnings for the first quarter of 2000 benefited from the
recovery of natural gas liquids prices. Our results for 1999 included gains from
several asset sales, including our 50 percent interest in a U.K. retail gas
marketing operation and the sale of a U.S. gas gathering pipeline.
- 12 -
<PAGE>
Other Business Units
<TABLE>
<CAPTION>
For the three months
ended March 31,
---------------------
2000 1999
---- ----
(Millions of dollars)
<S> <C> <C>
Operating loss $ -- $ (1)
==== =====
</TABLE>
Our other business units mainly include our insurance operations. There were no
significant items in either quarter's results.
CORPORATE/NON-OPERATING
<TABLE>
<CAPTION> For the three months
ended March 31,
---------------------
2000 1999
---- ----
(Millions of dollars)
<S> <C> <C>
Results before special items $(148) $(108)
Special items 46 --
----- -----
Total Corporate/non-operating $(102) $(108)
===== =====
</TABLE>
Corporate and non-operating results for the first quarter of 2000 included
expenses for our Olympic sponsorship program and higher other corporate
expenses. Results in 1999 benefited from a $21 million gain on the sale of
marketable securities.
Results for the first quarter of 2000 included special benefits of $46 million
for favorable income tax settlements in the quarter.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Our cash, cash equivalents and short-term investments were $638 million at March
31, 2000, compared with $448 million at year-end 1999.
During 2000, strong earnings from our operations provided cash of $1.1 billion.
We also had cash inflows of $271 million from assets sales, including $263
million from the sale of non-core U.S. producing properties. We spent $630
million on our capital and exploratory program, paid $278 million in common,
preferred and minority interest dividends and used $218 million to reduce debt.
At March 31, 2000, our ratio of total debt to total borrowed and invested
capital was 36.1%, compared with 37.5% at year-end 1999. At March 31, 2000, 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 quarter of 2000, we reduced our commercial paper by $669
million, to $430 million at quarter end. In consideration of payment from the
swap counterparties, we terminated fixed-pay interest rate swaps having an
aggregate notional principal amount of $300 million. We initiated floating-pay
interest rate swaps having an aggregate notional principal amount of $530
million in connection with the first quarter issuance of medium-term notes for
this amount. A $50 million notional floating-pay swap matured in March. In
addition, we reduced other debt obligations by $79 million.
We maintain $2.05 billion in revolving credit facilities to provide liquidity
and to support our commercial paper program. We had nothing outstanding at March
31, 2000. As of March 31, 2000, the total dollar amount of securities remaining
available for issuance and sale under our "shelf" registration statement is
$1,445 million, covering possible future issuances of both debt and equity
securities.
- 13 -
<PAGE>
On March 20, 2000, we announced the resumption of our $1 billion common stock
repurchase program, initially announced in March of 1998. During the last week
of the first quarter of 2000, we purchased less than $1 million of common stock
under this program. During April 2000, we purchased an additional $45 million of
our common stock. This brings our total purchases under this program, including
$474 million purchased during 1998, to $520 million. No shares were purchased
under this program in 1999. We will continue to repurchase shares of common
stock, subject to market conditions, through open market purchases or privately
negotiated transactions.
We consider our financial position to be sufficiently strong to meet our
anticipated future financial requirements.
REORGANIZATIONS, RESTRUCTURINGS AND EMPLOYEE SEPARATION PROGRAMS
- ----------------------------------------------------------------
On pages 26 and 27 of our 1999 Annual Report, we discussed our fourth quarter
1998 reorganizations, restructurings and employee separation programs. In 1998,
we accrued $115 million ($80 million, net of tax) for employee separations,
curtailment costs and special termination benefits. During the second quarter of
1999, we expanded the employee separation programs and recorded an additional
provision of $48 million ($31 million, net of tax). Through December 31, 1999,
cash payments totaled $124 million and transfers to long-term obligations
totaled $12 million. During the first quarter of 2000, we made additional cash
payments of $18 million. We will pay the remaining obligations of $9 million in
future periods in accordance with plan provisions. Refer to our 1999 Annual
Report for a further discussion of these programs.
During the first quarter of 2000, we announced an additional employee separation
program for our international downstream, primarily our marketing operations in
Brazil and Ireland. We accrued $17 million ($12 million, net of tax) for
employee separations, curtailment costs and special termination benefits for
about 200 employees. These separation accruals are shown as selling, general and
administrative expenses in the Consolidated Statement of Income. Through March
31, 2000, employee reductions totaled 84. The remaining reductions will occur
during the second quarter of this year. During the first quarter, we made cash
payments of $1 million and transfers to long-term obligations of $8 million. We
will pay the remaining obligations of $8 million in future periods in accordance
with plan provisions.
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Capital and exploratory expenditures were $724 million for the first quarter of
2000, compared with $669 million for the same period in 1999.
Led by a 60 percent increase in our international segment, total upstream
expenditures increased 11 percent as a result of our strategy shift to high
margin, high impact projects. This shift includes our continued investment in
the Malampaya natural gas project in the Philippines, the Venezuelan Hamaca
project and the Karachaganak field in Kazakhstan. In addition to spending on
these high impact projects, expenditures for development work continued on the
Captain B project in the U.K. North Sea. In the United States, upstream spending
decreased by 32 percent due to prior year project completions in the Deepwater
Gulf of Mexico.
In the United States downstream, refinery expenditures declined due to the sale
of the El Dorado refinery in November of 1999 and the planned sale of the Wood
River refinery. This decline is consistent with our strategy of reducing our
exposure to the refining business. Internationally, marketing expenditures
increased due to the rebranding of service stations recently acquired in the
Poland/U.K. asset swap with Shell and additional service station investments in
Central America.
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 project completions in 1999.
- 14 -
<PAGE>
FORWARD-LOOKING STATEMENTS
- --------------------------
Portions of the foregoing discussion of RESULTS OF OPERATIONS and
REORGANIZATIONS, RESTRUCTURINGS AND EMPLOYEE SEPARATION PROGRAMS 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 upstream earnings, downstream margins, non-strategic
asset sales and investments in e-business ventures are changes in business
conditions, such as energy prices, world economic conditions, demand growth, and
inventory levels, or if anticipated upstream property sales or the benefits to
be realized from investments in e-business ventures are not as projected. The
extent and timing of our anticipated cost savings and reorganization programs
will depend upon worldwide and industry economic conditions. 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 1999 Annual Report on Form 10-K.
- 15 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
We have provided information about legal proceedings pending against Texaco in
Note 6 to the Consolidated Financial Statements of this Form 10-Q and in Item 3
of our 1999 Annual Report on Form 10-K. Note 6 of this Form 10-Q and Item 3 of
our 1999 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 an investigation that could lead to a reportable
proceeding.
o The U.S. Department of Justice (DOJ) is conducting an investigation into
possible civil or criminal violations at the refinery in Los Angeles
formerly owned and operated by Texaco Refining and Marketing Inc. The
investigation involves alleged violations of the Clean Water Act, the Clean
Air Act, the Emergency Planning and Community Right to Know Act and the
False Statements statute, by Texaco Refining and Marketing Inc. and certain
of its employees. If an indictment or complaint is filed, the DOJ is
expected to seek more than $100,000 in penalties. We are contesting
liability.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
We held our Annual Meeting of Stockholders on April 26, 2000, for the purpose of
(1) electing four directors, (2) approving the appointment of auditors for 2000,
(3) acting on a stockholder proposal relating to classification of our Board of
Directors, and (4) acting on a stockholder proposal relating to a code of
conduct on worker rights. The following summarizes the voting results:
Item (1). Stockholders elected A. Charles Baillie, Edmund M. Carpenter, Franklyn
G. Jenifer and Thomas A. Vanderslice, each for a three-year term expiring at the
2003 Annual Meeting. The vote for each director was as follows:
<TABLE>
<CAPTION>
Director Votes For % of Vote Votes Withheld
--------------------- ------------- --------- --------------
<S> <C> <C> <C> <C>
A. Charles Baillie 467,381,657 97.1% 14,129,273
Edmund M. Carpenter 468,345,420 97.3% 13,165,510
Franklyn G. Jenifer 467,855,090 97.2% 13,655,840
Thomas A. Vanderslice 467,909,398 97.2% 13,601,532
</TABLE>
Directors continuing in office were Peter I. Bijur, Mary K. Bush, Michael C.
Hawley, Sam Nunn, Charles H. Price, II, Charles R. Shoemate, Robin B. Smith and
William C. Steere, Jr.
Item (2). The appointment of Arthur Andersen LLP to audit the accounts of the
company and its subsidiaries for the fiscal year 2000 was approved.
<TABLE>
<CAPTION>
Votes For (% of shares represented) Votes Against Votes Abstained
----------------------------------- ------------- ---------------
<S> <C> <C> <C>
474,913,977 (98.6%) 4,331,664 2,265,282
</TABLE>
Item (3). The stockholder proposal relating to the classification of the Board
of Directors was defeated.
<TABLE>
<CAPTION>
Votes For (% of shares represented) Votes Against Votes Abstained Broker Non-Votes
----------------------------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
204,549,142 (49.4%) 201,294,665 7,728,385 67,938,738
</TABLE>
- 16 -
<PAGE>
Item (4). The stockholder proposal relating to a code of conduct on worker
rights was defeated.
<TABLE>
<CAPTION>
Votes For (% of shares represented) Votes Against Votes Abstained Broker Non-Votes
----------------------------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
50,565,844 (12.2%) 338,831,578 24,110,001 68,003,507
</TABLE>
Item 5. Other Information
- -------------------------
<TABLE>
<CAPTION>
For the three months
ended March 31,
----------------------
2000 1999
---- ----
(Millions of dollars)
(Unaudited)
<S> <C> <C>
CAPITAL AND EXPLORATORY EXPENDITURES
- ------------------------------------
Exploration and production
United States $175 $256
International 353 221
---- ----
Total 528 477
---- ----
Refining, marketing and distribution
United States 65 73
International 100 77
---- ----
Total 165 150
---- ----
Global gas and power 28 35
---- ----
Total operating segments 721 662
Other business units 3 7
---- ----
Total $724 $669
==== ====
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
For the three months
ended March 31,
--------------------
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
OPERATING DATA
- --------------
Exploration and Production
- --------------------------
United States
- -------------
Net production of crude oil and natural
gas liquids (MBPD) 377 406
Net production of natural gas - available
for sale (MMCFPD) 1,361 1,487
------ ------
Total net production (MBOEPD) 604 654
Natural gas sales (MMCFPD) 3,394 3,579
Average U.S. crude (per bbl) $24.46 $ 9.11
Average U.S. natural gas (per mcf) $ 2.45 $ 1.79
Average WTI (Spot) (per bbl) $28.91 $13.15
Average Kern (Spot) (per bbl) $22.84 $ 7.65
International
- -------------
Net production of crude oil and natural
gas liquids (MBPD)
Europe 144 130
Indonesia 124 180
Partitioned Neutral Zone 135 116
Other 70 67
------ ------
Total 473 493
Net production of natural gas - available
for sale (MMCFPD)
Europe 289 286
Colombia 208 153
Other 152 111
------ ------
Total 649 550
------ ------
Total net production (MBOEPD) 581 585
Natural gas sales (MMCFPD) 685 565
Average International crude (per bbl) $23.32 $ 9.88
Average International natural gas (per mcf) $ 1.48 $ 1.51
Average U.K. natural gas (per mcf) $ 2.63 $ 2.64
Average Colombia natural gas (per mcf) $ .94 $ .65
Worldwide
- ---------
Total worldwide net production (MBOEPD) 1,185 1,239
</TABLE>
- 18 -
<PAGE>
<TABLE>
<CAPTION>
For the three months
ended March 31,
--------------------
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
OPERATING DATA
- --------------
Refining, Marketing and Distribution
- ------------------------------------
United States
- -------------
Refinery input (MBPD)
Equilon area 277 365
Motiva area 265 302
----- -----
Total 542 667
Refined product sales (MBPD)
Equilon area 690 572
Motiva area 341 379
Other operations 292 307
----- -----
Total 1,323 1,258
International
- -------------
Refinery input (MBPD)
Europe 364 368
Caltex area 346 438
Latin America/West Africa 52 71
----- -----
Total 762 877
Refined product sales (MBPD)
Europe 635 638
Caltex area 613 672
Latin America/West Africa 448 479
Other 95 103
----- -----
Total 1,791 1,892
</TABLE>
- 19 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
-- (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, 1999 (including portions of
Texaco Inc.'s Annual Report to Stockholders for the year 1999),
dated March 24, 2000, incorporated herein by reference, SEC
File No. 1-27.
-- (22) Information relative to the various matters submitted to a
vote of security holders are described on pages 9 through 16 of
the 2000 Proxy Statement of Texaco Inc., dated March 14, 2000,
relating to the Annual Meeting of Stockholders held on April
26, 2000, incorporated herein by reference, SEC File No. 1-27.
-- (27) Financial Data Schedule (included only in the electronic filing
of this document).
b) Reports on Form 8-K:
During the first quarter of 2000, we filed a Current Report on Form 8-K for
the following event:
1. January 26, 2000
Item 5. Other Events -- reported that Texaco issued an Earnings Press
Release for the fourth quarter and year 1999.
- 20 -
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: George J. Batavick
----------------------
(Comptroller)
By: Michael H. Rudy
----------------------
(Secretary)
Date: May 8, 2000
-----------
-21 -
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, 2000 AND
FOR EACH OF THE FIVE YEARS ENDED DECEMBER 31, 1999
--------------------------------------------------
(Millions of dollars)
For the Three
Months Ended Years Ended December 31,
March 31, 2000 1999 1998 1997 1996 1995
-------------- ---- ---- ---- ---- ----
<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.......... $ 984 $1,955 $ 892 $3,514 $3,450 $1,201
Dividends from less than 50% owned companies
more or (less) than equity in net income................ 6 189 -- (11) (4) 1
Minority interest in net income............................ 27 83 56 68 72 54
Previously capitalized interest charged to
income during the period................................ 4 14 22 25 27 33
------ ------ ------ ------ ------ ------
Total earnings..................................... 1,021 2,241 970 3,596 3,545 1,289
------ ------ ------ ------ ------ ------
Fixed charges
Items charged to income
Interest charges...................................... 147 587 664 528 551 614
Interest factor attributable to operating
lease rentals.................................... 21 90 120 112 129 110
Preferred stock dividends of subsidiaries
guaranteed by Texaco Inc......................... 28 55 33 33 35 36
------ ------ ------ ------ ------ ------
Total items charged to income...................... 196 732 817 673 715 760
Interest capitalized.................................... 13 28 26 27 16 28
Interest on ESOP debt guaranteed by Texaco Inc.......... -- -- 3 7 10 14
------ ------ ------ ------ ------ ------
Total fixed charges................................ 209 760 846 707 741 802
------ ------ ------ ------ ------ ------
Earnings available for payment of fixed charges............ $1,217 $2,973 $1,787 $4,269 $4,260 $2,049
(Total earnings + Total items charged to income) ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges of Texaco
on a total enterprise basis............................. 5.82 3.91 2.11 6.04 5.75 2.55
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TEXACO INC.'S 2000 QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 2000 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> MAR-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 594
<SECURITIES> 44
<RECEIVABLES> 4,191
<ALLOWANCES> 26
<INVENTORY> 1,509
<CURRENT-ASSETS> 6,621
<PP&E> 34,634
<DEPRECIATION> 19,401
<TOTAL-ASSETS> 29,415
<CURRENT-LIABILITIES> 5,831
<BONDS> 6,590
0
300
<COMMON> 2,119
<OTHER-SE> 9,955
<TOTAL-LIABILITY-AND-EQUITY> 29,415
<SALES> 11,086
<TOTAL-REVENUES> 11,271
<CGS> 8,630
<TOTAL-COSTS> 9,220
<OTHER-EXPENSES> 992
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122
<INCOME-PRETAX> 937
<INCOME-TAX> 363
<INCOME-CONTINUING> 574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 574
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.05
</TABLE>
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