01—Abstract
Summary
Summary of the 10-K filed March 27, 1996. Cited figures are marked; the original filing is the authoritative source.
Chevron Corporation's 1995 Form 10-K shows a company whose earnings were sharply reduced by one-time charges even as its underlying operations improved.
Reported net income fell to $930 milliona ($1.43 per share) from $1.693 billion in 1994, driven by $1.032 billion of after-tax special items, most notably a $659 million non-cash charge from adopting SFAS 121 on long-lived asset impairment. Excluding special items, operating earnings rose 17% to $1.962 billion from $1.671 billion (the report's own figure, which excludes the SFAS 121 effect and special items). Sales and other operating revenues rose 3% to $36.3 billion, and the dividend was raised to $1.925 per share from $1.85.
The operating picture was mixed by segment. Chemicals reported record operational earnings of $524 millionb, and international upstream posted record earnings, with international oil and gas production up about 4% and the company replacing roughly 138% of worldwide production through reserve additions. U.S. downstream was the weak spot: U.S. refining and marketing earnings excluding special items fell 77% on heavy refinery turnaround downtime, weak margins, and the Richmond, California, upgrade.
U.S. natural gas prices fell to $1.51c per MCF, which weighed on U.S. upstream results. Management expects improved U.S. refining results in 1996, expects chemicals to be weaker in 1996, and plans to merge certain U.S. natural gas and NGL operations with NGC Corporation for a roughly 28% stake in the combined company. Balance sheet and cash flow were stable.
Cash from operations was $4.1 billiond, the company's debt-to-capital ratio was 36.7%, and its senior debt was rated AA by S&P and Aa2 by Moody's. Capital and exploratory spending was $4.8 billion in 1995, with about $5.3 billion planned for 1996, including $3.0 billion for exploration and production, roughly 65% of it international. Key risks disclosed include the Cities Service litigation, the EPA penalty matters, Superfund exposure, and political uncertainty in Nigeria, Angola, and Zaire.
02—Key points
Key Highlights
- Reported net income fell 45% to $930 million ($1.43/share) from $1.693 billion ($2.60/share) in 1994, mainly due to $1.032 billion in after-tax special items, including a $659 million SFAS 121 impairment charge.
- Excluding special items, operating earnings rose 17% to $1.962 billion, supported by record chemicals earnings of $524 million and record international upstream earnings.
- U.S. refining and marketing earnings excluding special items fell 77% to $75 million on heavy turnaround downtime, weak margins, and the Richmond refinery upgrade; management expects improvement in 1996.
- Sales and other operating revenues rose 3% to $36.3 billion, and the annual dividend was raised to $1.925 per share from $1.85.
- Strategy is shifting toward international upstream growth: international share of E&P capital spending reached 68% in 1995 and is estimated at 65% for 1996, and the company is exiting non-core real estate.
- Pending transactions include a merger of certain U.S. natural gas and NGL operations with NGC Corporation (about 28% stake for Chevron) and the sale of Caltex's 50% interest in Nippon Petroleum Refining for about $2 billion, expected to produce a gain of roughly $650 million after tax in 1996.
- Balance sheet remains investment grade (AA/Aa2) with total debt at 36.7% of total capital, and 1995 operating cash flow was $4.1 billion.
03—Questions
Frequently Asked Questions
Why did Chevron's net income drop so sharply in 1995?
Net income fell to $930 million from $1.693 billion mainly because of $1.032 billion in after-tax special items. The largest was a $659 million non-cash charge from adopting SFAS 121 on impairment of long-lived assets, mostly U.S. oil and gas properties. Other charges included a $168 million loss from exiting real estate development, $90 million in environmental provisions, and $50 million in restructuring costs.
How did Chevron's core businesses perform in 1995?
Results were uneven. International upstream and chemicals had record earnings, and international production grew about 4%. U.S. upstream held up despite low gas prices, though U.S. natural gas realizations fell to $1.51 per MCF. U.S. downstream was the weak spot, with earnings excluding special items down 77% because of refinery maintenance and weak margins.
What is the outlook for 1996?
Management expects U.S. refining and marketing to improve as refinery utilization recovers and the California refinery upgrades are complete. It expects chemicals results to be weaker than in 1995. Capital and exploratory spending is planned at about $5.3 billion, up roughly 10%, with about $3.0 billion for exploration and production and about 65% of that for international projects.
Is Chevron's dividend secure?
The dividend was increased to $1.925 per share in 1995 from $1.85 in 1994, and dividends have been paid for 84 consecutive years. The company states there are no restrictions on its ability to pay dividends. Dividends paid in 1995 totaled about $1.255 billion, which was covered by operating cash flow of $4.1 billion, though the company's debt ratio rose slightly during the year.
What are the main legal and environmental risks?
The main legal exposure is the Cities Service tender offer litigation, with damage claims originally of $2.7 billion and a trial expected to start in March 1996. Other matters include a DOE Tertiary Incentive Program claim of up to $442 million, EPA penalties, and Superfund exposure at 251 sites, with a reserve of about $60 million for Superfund sites. Management does not expect these to have a material effect on consolidated financial position, although they could affect earnings in a given period.
04—Continue