-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R4uaq08YMwHrYEwqts8QrLleqSAhZm6iS1F/dHjwNkO8FZe7FPUQLdww+wgKbPqY 6iimOkzf28lMZPgPj1DBFA== 0000775483-96-000005.txt : 19960808 0000775483-96-000005.hdr.sgml : 19960808 ACCESSION NUMBER: 0000775483-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960807 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC RICHFIELD CO /DE CENTRAL INDEX KEY: 0000775483 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 230371610 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01196 FILM NUMBER: 96605374 BUSINESS ADDRESS: STREET 1: 515 S FLOWER ST CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134863511 10-Q 1 ARCO 2ND QT 1996 10-Q 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 June 30, 1996 Commission file number 1-1196 ________________ ATLANTIC RICHFIELD COMPANY (Exact name of registrant as specified in its charter) _________________ Delaware 23-0371610 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 515 South Flower Street Los Angeles, California 90071 (Address of principal executive offices) (Zip code) __________________ (213) 486-3511 (Registrant's telephone number, including area code) __________________ Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of Common Stock, $2.50 par value, outstanding as of June 30, 1996: 160,833,020. PART I. FINANCIAL INFORMATION
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENT OF INCOME Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- (Millions except per share amounts) 1996 1995 1996 1995 ---- ---- ---- ---- Revenues Sales and other operating revenues, including excise taxes . . . . . . $4,960 $4,423 $9,494 $8,667 Income from equity investments . . . 11 81 28 155 Interest . . . . . . . . . . . . . . 49 55 101 114 Other revenues . . . . . . . . . . . 54 126 211 206 ----- ----- ----- ----- 5,074 4,685 9,834 9,142 ----- ----- ----- ----- Expenses Trade purchases. . . . . . . . . . . 1,866 1,554 3,540 3,122 Operating expenses . . . . . . . . . 751 758 1,494 1,455 Selling, general and administrative expenses . . . . . . . . . . . . . 469 443 894 852 Depreciation, depletion and amortization . . . . . . . . . . . 399 407 803 819 Exploration expenses (including undeveloped leasehold amortization) 107 105 207 195 Excise taxes . . . . . . . . . . . . 401 377 779 727 Taxes other than excise and income taxes . . . . . . . . . . . . . . 194 195 411 389 Interest . . . . . . . . . . . . . . 167 197 340 400 Unusual items. . . . . . . . . . . . - - 26 - ----- ----- ----- ----- 4,354 4,036 8,494 7,959 ----- ----- ----- ----- Income before income taxes and minority interest. . . . . . . . . . 720 649 1,340 1,183 Provision for taxes on income. . . . . 261 227 481 412 Minority interest in earnings of subsidiaries . . . . . . . . . . . . 25 31 55 58 ----- ----- ----- ----- Net Income . . . . . . . . . . . . . . $ 434 $ 391 $ 804 $ 713 ===== ===== ===== ===== Earned per Share . . . . . . . . . . . $ 2.66 $ 2.39 $ 4.92 $ 4.36 ===== ===== ===== ===== Cash Dividends Paid per Share of Common Stock . . . . . . . . . . . . $1.375 $1.375 $ 2.75 $ 2.75 ===== ===== ===== =====
The accompanying notes are an integral part of these statements. - 1 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET June 30, December 31, 1996 1995 ---- ---- (Millions) Assets Current assets: Cash and cash equivalents . . . . . . . . . . . $ 1,633 $ 1,537 Short-term investments. . . . . . . . . . . . . 1,476 1,569 Accounts receivable . . . . . . . . . . . . . . 1,554 1,684 Inventories . . . . . . . . . . . . . . . . . . 975 877 Prepaid expenses and other current assets . . . 383 221 ------ ------ Total current assets. . . . . . . . . . . . . . 6,021 5,888 ------ ------ Investments and long-term receivables: Investments accounted for on the equity method. 733 711 Other investments and long-term receivables . . 703 550 ------ ------ 1,436 1,261 ------ ------ Fixed assets: Property, plant and equipment . . . . . . . . . 33,367 32,544 Less accumulated depreciation, depletion and amortization . . . . . . . . . . . . . . . 17,824 17,189 ------ ------ 15,543 15,355 ------ ------ Deferred charges and other assets . . . . . . . . 1,580 1,495 ------ ------ Total assets. . . . . . . . . . . . . . . . . . . $24,580 $23,999 ====== ======
The accompanying notes are an integral part of these statements. -2-
ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET June 30, December 31, 1996 1995 ---- ---- (Millions) Liabilities and Stockholders' Equity Current liabilities: Notes payable . . . . . . . . . . . . . . . . $ 1,106 $ 1,174 Accounts payable. . . . . . . . . . . . . . . 1,193 1,145 Long-term debt due within one year. . . . . . 97 184 Taxes payable, including excise taxes . . . . 435 303 Accrued interest. . . . . . . . . . . . . . . 159 153 Other . . . . . . . . . . . . . . . . . . . . 1,162 1,004 ------ ------ Total current liabilities . . . . . . . . . . 4,152 3,963 ------ ------ Long-term debt. . . . . . . . . . . . . . . . . 6,619 6,708 Deferred income taxes . . . . . . . . . . . . . 2,628 2,637 Other deferred liabilities and credits. . . . . 3,540 3,456 Minority interest . . . . . . . . . . . . . . . 564 477 Stockholders' equity: Preference stocks . . . . . . . . . . . . . . 1 1 Common stock. . . . . . . . . . . . . . . . . 402 402 Capital in excess of par value of stock . . . 612 632 Retained earnings . . . . . . . . . . . . . . 6,176 5,816 Pension liability adjustment. . . . . . . . . (60) (60) Foreign currency translation. . . . . . . . . (40) (17) Net unrealized loss on investments. . . . . . (8) (11) Treasury stock, at cost . . . . . . . . . . . (6) (5) ------ ------ Total stockholders' equity. . . . . . . . . . 7,077 6,758 ------ ------ Total liabilities and stockholders' equity. . . $24,580 $23,999 ====== ======
The accompanying notes are an integral part of these statements. -3-
ATLANTIC RICHFIELD COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Ended June 30, ---------------- 1996 1995 ---- ---- (Millions) Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . $ 804 $ 713 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization . . . . . . . 803 819 Dry hole expense and undeveloped leasehold amortization 108 92 Net gain on asset sales. . . . . . . . . . . . . . . . (40) (11) Income from equity investments . . . . . . . . . . . . (28) (155) Dividends from equity investments. . . . . . . . . . . 42 38 Minority interest in earnings of subsidiaries. . . . . 55 58 Cash payments greater than noncash provisions. . . . . (120) (205) Deferred income taxes. . . . . . . . . . . . . . . . . 17 37 Changes in accounts receivable, inventories and accounts payable. . . . . . . . . . . . . . . . . 83 (117) Changes in other working capital accounts. . . . . . . (38) (137) Other. . . . . . . . . . . . . . . . . . . . . . . . . (14) (61) ----- ----- Net cash provided by operating activities. . . . . . 1,672 1,071 ----- ----- Cash flows from investing activities: Additions to fixed assets (including dry hole costs) . (873) (752) Net cash provided by short-term investments. . . . . . 76 792 Investment in LUKoil convertible bonds . . . . . . . . (89) - Proceeds from asset sales. . . . . . . . . . . . . . . 43 54 Other. . . . . . . . . . . . . . . . . . . . . . . . . (12) (89) ----- ----- Net cash provided (used) by investing activities . . (855) 5 ----- ----- Cash flows from financing activities: Repayments of long-term debt . . . . . . . . . . . . . (208) (573) Proceeds from issuance of long-term debt . . . . . . . 46 149 Net cash used by notes payable . . . . . . . . . . . . (69) (283) Dividends paid . . . . . . . . . . . . . . . . . . . . (444) (443) Treasury stock purchases . . . . . . . . . . . . . . . (39) (24) Other. . . . . . . . . . . . . . . . . . . . . . . . . (5) (8) ----- ----- Net cash used by financing activities. . . . . . . . (719) (1,182) ----- ----- Effect of exchange rate changes on cash. . . . . . . . . (2) - ----- ----- Net increase (decrease) in cash and cash equivalents . . 96 (106) Cash and cash equivalents at beginning of period . . . . 1,537 1,394 ----- ----- Cash and cash equivalents at end of period . . . . . . . $1,633 $1,288 ===== =====
The accompanying notes are an integral part of these statements. -4- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE A. Basis of Presentation. The foregoing financial information is unaudited and has been prepared from the books and records of the Company. Certain previously reported amounts have been restated to conform to classifications adopted in 1996. In the opinion of the Company, the financial information reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations in conformity with generally accepted accounting principles. NOTE B. Investments. At June 30, 1996 and 1995, investments were primarily composed of U.S. Treasury securities, corporate debt instruments, and municipal securities and were principally included in short-term investments. Maturities generally ranged from one day to 23 months. At June 30, 1996, all investments were classified as available-for-sale ("AFS"); there were no investments considered held-to-maturity ("HTM"). AFS investments were reported at fair value, with unrealized holding gains and losses, net of tax, reported in a separate component of stockholders' equity. The following summarizes investments in securities, principally debt securities, as of June 30:
1996 1995 -------- ---------------- Millions AFS AFS HTM --- --- --- Aggregate fair value . . . . . . . . . . $1,644 $1,900 $400 Gross unrealized holding losses. . . . . 12 24 - Gross unrealized holding gains . . . . . (4) (17) - ----- ----- --- Amortized cost . . . . . . . . . . . . . $1,652 $1,907 $400 ===== ===== ===
Investment activity for the six-month periods ended June 30 was as follows:
1996 1995 ------ ----------------- Millions AFS AFS HTM --- --- --- Gross purchases. . . . . . . . . . . . . $2,561 $1,701 $1,293 Gross sales. . . . . . . . . . . . . . . 973 1,447 - Gross maturities . . . . . . . . . . . . 2,035 349 2,123
For the three and six-month periods ended June 30, 1996 and 1995 gross realized gains and losses were insignificant and were determined by the specific identification method. -5- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE C. Inventories. Inventories at June 30, 1996 and December 31, 1995 comprised the following:
June 30, December 31, 1996 1995 ---- ---- (Millions) Crude oil and petroleum products. . . . . . . $ 235 $ 184 Chemical products . . . . . . . . . . . . . . 455 423 Other products. . . . . . . . . . . . . . . . 37 32 Materials and supplies. . . . . . . . . . . . 248 238 ---- ---- Total. . . . . . . . . . . . . . . . . . . $ 975 $ 877 ==== ====
NOTE D. Capital Stock. Detail of the Company's capital stock was as follows:
June 30, December 31, 1996 1995 ---- ---- (Thousands) $3.00 Cumulative convertible preference stock, par $1 . . . . . . . . . . . . . . . . . . . . $ 64 $ 66 $2.80 Cumulative convertible preference stock, par $1 . . . . . . . . . . . . . . . . . . . . 696 731 Common stock, par $2.50. . . . . . . . . . . . . 402,199 402,199 ------- ------- Total. . . . . . . . . . . . . . . . . . . . . $402,959 $402,996 ======= =======
NOTE E. Capitalization of Interest. Interest expense excluded capitalized interest of $7 million and $13 million, respectively, for the three-month periods ended June 30, 1996 and 1995, and $12 million and $25 million, respectively, for the six-month periods ended June 30, 1996 and 1995. -6- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE F. Income Taxes. Provision for taxes on income:
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- (Millions) Federal: Current . . . . . . . . . . . . $190 $133 $337 $273 Deferred. . . . . . . . . . . . 5 25 10 23 --- --- --- --- 195 158 347 296 --- --- --- --- Foreign: Current . . . . . . . . . . . . 26 34 65 56 Deferred. . . . . . . . . . . . 5 8 7 9 --- --- --- --- 31 42 72 65 --- --- --- --- State: Current . . . . . . . . . . . . 35 19 62 46 Deferred. . . . . . . . . . . . - 8 - 5 --- --- --- --- 35 27 62 51 --- --- --- --- Total. . . . . . . . . . . . $261 $227 $481 $412 === === === ===
-7- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED Note F. Income Taxes (Continued). Reconciliation of provision for taxes on income with tax at federal statutory rate:
Three Months Ended June 30, -------------------------------------- 1996 1995 ----------------- ---------------- Percent Percent of of Pretax Pretax Amount Income Amount Income ------ ------- ------ ------- (Millions) Income before income taxes and minority interest . . . . . . . . . $ 720 100.0 $ 649 100.0 === ===== === ===== Tax at federal statutory rate . . . . $ 252 35.0 $ 227 35.0 Increase (reduction) in taxes resulting from: Dividend exclusion . . . . . . . . (2) (0.3) (19) (2.9) Taxes on foreign income in excess of statutory rate . . . . . . . . 6 0.8 23 3.5 State income taxes (net of federal effect) . . . . . . . . . . . . . 22 3.1 17 2.6 Tax credits. . . . . . . . . . . . (24) (3.3) (17) (2.6) Other. . . . . . . . . . . . . . . 7 1.0 (4) (0.6) --- ----- --- ----- Provision for taxes on income . . . . $ 261 36.3 $ 227 35.0 === ===== === =====
Six Months Ended June 30, --------------------------------------- 1996 1995 ------------------ ----------------- Percent Percent of of Pretax Pretax Amount Income Amount Income ------ ------ ------ ------- (Millions) Income before income taxes and minority interest. . . . . . . . . . $1,340 100.0 $1,183 100.0 ===== ===== ===== ===== Tax at federal statutory rate . . . . $ 469 35.0 $ 414 35.0 Increase (reduction) in taxes resulting from: Dividend exclusion . . . . . . . . (5) (0.4) (37) (3.1) Taxes on foreign income in excess of statutory rate . . . . . . . . 23 1.7 39 3.3 State income taxes (net of federal effect) . . . . . . . . . . . . . 40 3.0 33 2.8 Tax credits. . . . . . . . . . . . (46) (3.4) (35) (3.0) Other. . . . . . . . . . . . . . . - - (2) (0.2) --- ----- --- ----- Provision for taxes on income . . . . $ 481 35.9 $ 412 34.8 === ===== === =====
-8- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE G. Earned Per Share. Earned per share is based on the average number of common shares outstanding during each period, including common stock equivalents that consist of certain outstanding options and all outstanding convertible securities. The information necessary for the calculation of earned per share is as follows:
Three Months Ended June 30, -------------------- 1996 1995 ---- ---- (Millions of Shares) Average number of common shares outstanding. . . . . 160.8 160.8 Common stock equivalents . . . . . . . . . . . . . . 2.5 2.7 ----- ----- Total . . . . . . . . . . . . . . . . . . . . . . 163.3 163.5 ===== =====
Six Months Ended June 30, ------------------- 1996 1995 ---- ---- (Millions of Shares) Average number of common shares outstanding. . . . . 160.8 160.8 Common stock equivalents . . . . . . . . . . . . . . 2.5 2.7 ----- ----- Total . . . . . . . . . . . . . . . . . . . . . . 163.3 163.5 ===== =====
NOTE H. Supplemental Income Statement Information. Taxes other than excise and income taxes comprised the following:
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- (Millions) Production/severance . . . . . . . . $105 $ 94 $208 $183 Property . . . . . . . . . . . . . . 46 45 93 93 Other. . . . . . . . . . . . . . . . 43 56 110 113 --- --- --- --- Total. . . . . . . . . . . . . . . $194 $195 $411 $389 === === === ===
-9- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE I. Supplemental Cash Flow Information. Following is supplemental cash flow information for the six months ended June 30, 1996 and 1995:
Six Months Ended June 30, ---------------- 1996 1995 ---- ---- (Millions) Gross sales and maturities of short-term investments . $ 1,618 $ 2,524 Gross purchases of short-term investments. . . . . . . (1,542) (1,732) ------ ------ Net cash provided by short-term investments. . . . . . $ 76 $ 792 ====== ====== Gross proceeds from issuance of notes payable. . . . . $ 3,028 $ 4,670 Gross repayments of notes payable. . . . . . . . . . . (3,097) (4,953) ------ ------ Net cash used by notes payable . . . . . . . . . . . . $ (69) $ (283) ====== ====== Gross noncash provisions charged to income . . . . . . $ 206 $ 212 Cash payments of previously accrued items. . . . . . . (326) (417) ------ ------ Cash payments greater than noncash provisions. . . . . $ (120) $ (205) ====== ======
Interest paid during the six-month periods ended June 30, 1996 and 1995 was $334 million and $392 million, respectively. Income taxes paid during the six-month periods ended June 30, 1996 and 1995 were $395 million and $475 million, respectively. Excluded from the Consolidated Statement of Cash Flows for the six months ended June 30, 1996 was the accrual (in other accrued liabilities) of a signing bonus due a foreign state owned oil company of $225 million. -10- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE J. Summarized Financial Information. Summarized financial information for Lyondell Petrochemical Company ("Lyondell"), a company in which Atlantic Richfield owned a 49.9 percent interest at June 30, 1996, was as follows:
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- (Millions) Revenues (including sales to ARCO and ARCO Chemical Company). . . . $1,239 $1,370 $2,404 $2,544 Sales to ARCO and ARCO Chemical Company. . . . . . . . . 73 99 137 189 Operating income. . . . . . . . . . 45 237 106 459 Net income. . . . . . . . . . . . . 15 135 39 262 ________________________ ARCO's equity in net income of Lyondell. . . . . . . . . . . . . 7 67 19 131 Cash dividends received from Lyondell. . . . . . . . . . . . . 9 9 18 18
________________________
June 30, December 31, 1996 1995 ---- ---- (Millions) Current assets. . . . . . . . . . . . . . . . $ 766 $ 678 Noncurrent assets . . . . . . . . . . . . . . 2,242 1,928 Current liabilities . . . . . . . . . . . . . 718 750 Long-term debt. . . . . . . . . . . . . . . . 1,134 807 Other liabilities . . . . . . . . . . . . . . 233 210 Minority interest . . . . . . . . . . . . . . 542 459 Stockholders' equity. . . . . . . . . . . . . 381 380
-11- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE K. Other Commitments and Contingencies. ARCO has commitments, including those related to the acquisition, construction and development of facilities, all made in the normal course of business. Following the March 1989 EXXON VALDEZ oil spill, numerous lawsuits seeking compensatory and punitive damages and injunctions were filed by the state of Alaska, the United States and private plaintiffs against Exxon, Alyeska Pipeline Service Company ("Alyeska") and Alyeska's owner companies (including ARCO, which owns approximately 21%). Alyeska and its owner companies have settled the civil damage claims by federal and state governments and the lawsuits by private plaintiffs. Certain issues relating to liability for the spill remain unresolved between the Exxon companies, on the one hand, and Alyeska and its owner companies, on the other hand. ARCO and former producers of lead pigments have been named as defendants in cases filed by a municipal housing authority, three purported classes and several individuals seeking damages and injunctive relief as a consequence of the presence of lead-based paint in certain housing units. ARCO is also the subject of or party to a number of other pending or threatened legal actions. In October 1995, the State of Montana presented to ARCO a second revised demand for damages of $713 million based on alleged injuries to natural resources resulting from ARCO's mining and mineral processing businesses formerly operated by Anaconda, ARCO's predecessor, in Montana. ARCO is contesting this demand. ARCO is subject to other loss contingencies pursuant to federal, state and local environmental laws and regulations. These include possible obligations to remove or mitigate the effects on the environment of the disposal or release of certain chemical, mineral and petroleum substances at various sites, including the restoration of natural resources located at these sites and damages for loss of use and non-use values. ARCO is currently participating in environmental assessments and cleanups under these laws at federal Superfund and state-managed sites, as well as other clean-up sites. ARCO may in the future be involved in additional environmental assessments and cleanups, including the restoration of natural resources and damages for loss of use and non-use values. The amount of such future costs will depend on such factors as the unknown nature and extent of contamination, the unknown timing, extent and method of the remedial actions which may be required and the determination of ARCO's liability in proportion to other responsible parties. In addition, environmental loss contingencies include claims for personal injuries allegedly caused by exposure to toxic materials manufactured or used by ARCO. ARCO continues to estimate the amount of these costs in periodically establishing reserves based on progress made in determining the magnitude of remediation costs, experience gained from sites on which remediation has been completed, the timing and extent of remedial actions required by the applicable governmental authorities and an evaluation of the amount of ARCO's liability considered in light of the liability and financial where withal of the other responsible parties. At June 30, 1996, the environmental remediation reserve was $643 million. As the scope of ARCO's obligations becomes more clearly defined, there may be changes in these estimated costs, which might result in future charges against ARCO's earnings. ARCO's environmental remediation reserve covers federal Superfund and state-managed sites as well as other clean-up sites, including service stations, refineries, terminals, chemical facilities, third-party landfills, former nuclear processing facilities, sites associated with discontinued operations and sites formerly owned by ARCO. ARCO has been named a potentially responsible party ("PRP") for 113 sites. The number of PRP sites in and of itself is not a relevant measure of liability, because the nature and extent of environmental concerns varies by site and ARCO's share of responsibility varies from sole responsibility to very little responsibility. ARCO reviews all of the PRP sites, along with other sites as to which no claims have been asserted, in estimating the amount of the reserve. ARCO's future costs at these sites could exceed the amount accrued by as much as $700 million. -12- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE K. Other Commitments and Contingencies (Continued). Approximately 40% of the reserve related to sites associated with ARCO's discontinued operations, primarily mining activities in the states of Montana, Utah and New Mexico. Another significant component related to currently and formerly owned chemical, nuclear processing, and refining and marketing facilities, and other sites which received wastes from these facilities. The remainder related to other sites with reserves ranging from $1 million to $10 million per site. No one site represents more than 10% of the total reserve. Substantially all amounts accrued are expected to be paid out over the next five to six years. Claims for recovery of remediation costs already incurred and to be incurred in the future have been filed against various insurance companies and other third parties. Most of these claims have been resolved. ARCO has neither recorded any asset nor reduced any liability in connection with unresolved claims. Although any ultimate liability arising from any of the matters described herein could result in significant expenses or judgments that, if aggregated and assumed to occur within a single fiscal period, would be material to ARCO's results of operations, the likelihood of such occurrence is considered remote. On the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on ARCO's consolidated financial statements. The operations and consolidated financial position of ARCO continue to be affected from time to time in varying degrees by domestic and foreign political developments as well as legislation, regulations and litigation pertaining to restrictions on production, imports and exports, tax increases, environmental regulations, cancellation of contract rights and expropriation of property. Both the likelihood of such occurrences and their overall effect on ARCO vary greatly and are not predictable. These uncertainties are part of a number of items that ARCO has taken and will continue to take into account in periodically establishing reserves. -13- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Second Quarter 1996 vs. Second Quarter 1995 Consolidated Earnings The earnings increase in 1996 primarily reflected higher refining and marketing margins and volumes, higher crude oil and natural gas prices, increased natural gas volumes and lower interest expense. These combined improvements more than offset lower earnings from ARCO's chemical interests. The 1996 second quarter results included a net charge of $6 million after tax, primarily associated with future environmental remediation costs. The 1995 second quarter included a net benefit of $10 million after tax associated with insurance litigation settlements, partially offset by environmental and other charges. Revenues
Millions 1996 1995 ---- ---- Sales and other operating revenues Upstream . . . . . . . . . . . . . . . . $2,231 $2,284 Downstream . . . . . . . . . . . . . . . 3,477 3,077 Intersegment eliminations. . . . . . . . (748) (938) ----- ----- Total. . . . . . . . . . . . . . . . . $4,960 $4,423 ===== =====
Upstream sales and other operating revenues declined slightly as higher crude oil and natural gas prices, increased natural gas marketing activity and higher natural gas produced volumes were offset by decreased crude oil trading activity. Third party sales of petroleum liquids (both produced and purchased volumes) declined by 70,200 barrels per day in the 1996 second quarter, compared to the 1995 second quarter. Third-party sales of natural gas (produced and purchased volumes) increased to 3.3 billion cubic feet per day in the 1996 second quarter, up from 2.8 billion cubic feet per day in the 1995 second quarter. The majority of the increase was generated by Vastar Resources, Inc. ("Vastar"), where revenues increased from $493 million in second quarter 1995 to $668 million in second quarter 1996. Downstream sales and other operating revenues increased because of higher refined products prices and volumes, partially offset by a net decline in chemical products prices and volumes. Revenues of ARCO Chemical Company ("ARCO Chemical") decreased from $1,149 million in the 1995 second quarter to $959 million in the 1996 second quarter. The decrease in 1996 income from equity investments primarily reflected a decline in earnings from ARCO's 49.9 percent equity interest in Lyondell Petrochemical Company ("Lyondell"). The decrease in 1996 other revenues primarily reflected the recording of insurance settlements in the second quarter of 1995. Expenses Trade purchases were higher primarily as a result of third-party purchases of crude oil and refined products and increased natural gas marketing activity. The higher third-party purchases of crude oil and refined products represented the combined effect of both higher prices and purchased volumes of crude oil and refined products in the 1996 second quarter, compared to the 1995 second quarter. These increased trade purchases were partially offset - 14 - by decreased crude oil trading activity and lower trade purchases of chemical feedstocks due to lower chemical products production levels. The lower interest expense reflected lower average long-term debt balances outstanding in 1996. Upstream Earnings
Millions (after tax) 1996 1995 ---- ---- Oil and Gas . . . . . . . . . . . . . . . . . $305 $209 Coal. . . . . . . . . . . . . . . . . . . . . $ 22 $ 28
ARCO's earnings from worldwide oil and gas exploration and production operations benefited from higher crude oil and natural gas prices and growth in natural gas volumes. Included in the 1996 second quarter results was a benefit of $15 million after tax related to a Trans Alaska Pipeline System ("TAPS") tariff refund. Average Oil and Gas Prices
1996 1995 ---- ---- U.S. Crude oil - per barrel (bbl) Alaska . . . . . . . . . . . . . . . . . . $16.08 $12.07 Lower 48, including Vastar . . . . . . . . $18.93 $16.92 Composite average price . . . . . . . . . . $16.86 $13.34 Natural gas - per thousand cubic feet (mcf) . $ 1.67 $ 1.38 International Crude Oil - per bbl . . . . . . . . . . . . . $18.29 $17.23 Natural gas - per mcf . . . . . . . . . . . . $ 2.46 $ 2.58
Petroleum Liquids and Natural Gas Production
Net Production 1996 1995 ---- ---- U.S. Petroleum liquids - bbl/day . . . . . . . . 556,100 585,600 Natural gas - mcf/day . . . . . . . . . . . 1,043,000 986,800 Barrels of oil equivalent (BOE)/day*. . . . 729,900 750,100 International Petroleum liquids - bbl/day . . . . . . . . 60,800 68,400 Natural gas - mcf/day . . . . . . . . . . . 651,500 535,300 BOE/day . . . . . . . . . . . . . . . . . . 169,400 157,600
__________ * Natural gas converted at the ratio of 6 mcf to 1 barrel of liquid. The reduction in U.S. petroleum liquids production primarily resulted from natural field declines in Alaska, where natural field declines in the Prudhoe Bay and Kuparuk River fields were only partially offset by increased production from the Point McIntyre Area. The decline in international petroleum liquids production resulted from the impact of crude oil prices on production sharing contracts in Indonesia. The increase in U.S. natural gas production resulted from continuing growth in San Juan Basin production and offshore production in the Gulf of Mexico. Most of ARCO's U.S. natural gas reserves are owned and produced by Vastar Resources, Inc., in which ARCO holds an 82.3 percent interest. The higher international natural gas volumes in 1996 reflected ARCO's new South China Sea gas field and increased production from Indonesia gas fields. The South China Sea gas field increased production by approximately 61 million cubic feet per day and the Indonesia gas - 15 - fields increased production by approximately 46 million cubic feet per day compared to the 1995 second quarter. Coal Operations The earnings decline in 1996 reflected primarily lower earnings from Australian operations, caused by lower volumes and the exchange rate effect of a stronger Australian currency. A decrease of 12% in Australian volumes compared to second quarter 1995 resulted from equipment downtime and strikes. In the U.S., earnings were up slightly due to the net effect of volume expansions at all mines totaling 18% compared to second quarter 1995 offset by lower average prices. Downstream Earnings
Millions (after tax) 1996 1995 ---- ---- Refining and marketing . . . . . . . . . . . . $120 $ 27 Transportation . . . . . . . . . . . . . . . . $ 29 $ 45 Intermediate chemicals and specialty products. $ 75 $134
Refining and Marketing Operations The results in 1996 reflected higher refined product prices and sales volumes, partially offset by the impact of higher crude oil prices and increased operating costs. The volume increase was in gasoline sales and was partially offset by declines in jet fuel and distillate sales. The volume increase in other sales reflected the sale of intermediate product as a result of turnarounds in 1996. A majority of the increase in operating costs was associated with turnaround maintenance. The refining and marketing results in 1995 included $5 million after tax for environmental and litigation-related charges. Sales prices for the company's refined products were higher in the second quarter of 1996, compared to the second quarter of 1995, particularly in California, as a result of higher prices for crude oil and increases in retail gasoline prices reflecting increased costs to produce specially formulated gasoline required by new clean-air standards. In addition, gasoline prices were higher as a result of tighter supplies of gasoline available for sale because of production problems at refineries serving California. West Coast Petroleum Products Sales
Volumes (Barrels/day) 1996 1995 ---- ---- Gasoline . . . . . . . . . . . . . . . . . . 262,700 249,800 Jet. . . . . . . . . . . . . . . . . . . . . 111,800 114,400 Distillate . . . . . . . . . . . . . . . . . 64,700 70,000 Other. . . . . . . . . . . . . . . . . . . . 93,100 55,600 ------- ------- Total. . . . . . . . . . . . . . . . . . . . 532,300 489,800 ======= =======
Transportation Operations The 1996 transportation results were negatively impacted by an after-tax charge of $14 million associated with a TAPS tariff refund reflected as a benefit in ARCO's oil and natural gas operations. Additionally, tariff revenues were lower, while TAPS volumes also decreased 8% compared with second quarter 1995. -16- Intermediate Chemical and Specialty Products For the intermediate chemicals and specialty products segment, reflecting ARCO's 82.8% interest in ARCO Chemical Company, the 1996 earnings decline primarily reflected lower styrene monomer ("SM") margins compared to the second quarter of 1995. SM margins were significantly lower as SM prices decreased substantially more than raw material costs. SM prices declined from last year's levels as weaker demand for styrene in Europe and Asia and increased worldwide capacity resulted in lower selling prices. Lower methyl tertiary butyl ether ("MTBE") margins and sales volumes also contributed to the earnings decline in 1996. The impact of lower propylene oxide ("PO") and derivatives volumes was substantially offset by higher PO and derivatives margins. PO and derivatives margins improved primarily as a result of lower raw materials costs. Equity Affiliate ARCO earned $7 million from its 49.9 percent equity interest in Lyondell in the second quarter of 1996. This compared to $67 million in the second quarter of 1995. The decline in earnings resulted primarily from lower petrochemicals margins as feedstock costs increased and prices dropped. The lower prices in the 1996 second quarter reflected a softer market, compared to the tighter market conditions for Lyondell's products in the 1995 second quarter. Six-Month Period Ended June 30, 1996 vs. Same Six-Month Period 1995 Consolidated Earnings The earnings increase in the first six months of 1996 primarily reflected higher crude oil and natural gas prices, higher refining and marketing margins and volumes, increased natural gas volumes and lower interest expense. These combined improvements more than offset lower earnings from ARCO's chemical interests. The impact of higher refining and marketing margins primarily occurred in the second quarter 1996. Revenues
Millions 1996 1995 ---- ---- Sales and other operating revenues Upstream . . . . . . . . . . . . . . . . . . $4,442 $4,440 Downstream . . . . . . . . . . . . . . . . . 6,453 6,018 Intersegment eliminations. . . . . . . . . . (1,401) (1,791) ----- ----- Total . . . . . . . . . . . . . . . . . . . $9,494 $8,667 ===== =====
For the first six months of 1996 upstream sales and other operating revenues reflected higher crude oil and natural gas prices, increased natural gas marketing activity and higher natural gas produced volumes offset by decreased crude oil trading activity. Third party sales of petroleum liquids (both produced and purchased volumes) declined by 95,200 barrels per day in the first half of 1996, compared to the same period in 1995. Third-party sales of natural gas (produced and purchased volumes) increased to 3.4 billion cubic feet per day in the first half of 1996, up from 2.8 billion cubic feet per day in the same period in 1995. The majority of the increase was generated by Vastar, where revenues increased from $982 million in the first half of 1995 to $1.4 billion in the first half of 1996. For the first six months of 1996 downstream sales and other operating revenues increased because of higher refined products prices and volumes, partially offset by a net decline in chemical products prices and volumes. Revenues of ARCO Chemical decreased from $2,290 million in the first half of 1995 to $1,941 million in the first half of 1996. - 17 - The decrease in income from equity investments for the first six months of 1996 primarily reflected a decline in earnings from ARCO's 49.9 percent equity interest in Lyondell. Expenses Trade purchases were higher primarily as a result of third-party purchases of crude oil and refined products and increased natural gas marketing activity. The higher third-party purchases of crude oil and refined products primarily represented the combined effect of both higher prices and purchased volumes of crude oil and refined products in the 1996 second quarter, compared to the 1995 second quarter. These increased trade purchases were partially offset by decreased crude oil trading activity and lower trade purchases of chemical feedstocks due to lower chemical products production levels. The lower interest expense reflected lower average long-term debt balances outstanding in 1996. The first six months of 1996 included unusual items of $26 million before tax related to final charges for previously reported personnel reductions. Average Oil and Gas Prices
Six Months Ended June 30, ---------------- 1996 1995 ---- ---- U.S. Crude oil - per bbl Alaska . . . . . . . . . . . . . . . . . $14.55 $11.34 Lower 48, including Vastar. . . . . . . . $18.05 $16.28 Composite average price . . . . . . . . . $15.49 $12.61 Natural gas - per mcf . . . . . . . . . . . $ 1.62 $ 1.30 International Crude Oil - per bbl . . . . . . . . . . . . $18.00 $16.80 Natural gas - per mcf . . . . . . . . . . . $ 2.54 $ 2.58
Financial Position and Liquidity
Millions 1996 ---- Cash flow provided (used) by: Operations. . . . . . . . . . . . . . . . . . $1,672 Investing activities. . . . . . . . . . . . . $ (855) Financing activities. . . . . . . . . . . . . $ (719)
The net cash used by investing activities in the first six months of 1996 primarily included expenditures for additions to fixed assets of $873 million. The net cash used in financing activities in the first six months of 1996 primarily included dividend payments of $444 million, repayments of long-term debt of $208 million and a decrease of $69 million in the Company's short-term debt position. Cash and cash equivalents and short-term investments totaled $3.1 billion, and short-term borrowings were $1.1 billion at the end of the second quarter of 1996. It is expected that future cash requirements for capital expenditures, dividends and debt repayments will come from cash generated from operating activities, existing cash balances, and future financings. -18- Statements of Financial Accounting Standards Not Yet Adopted In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards("SFAS") No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires companies to adopt its provisions for fiscal years beginning after December 15, 1995. SFAS No. 123 encourages a fair value-based method of accounting for an employee stock option or similar equity instrument, but allows continued use of the intrinsic value-based method of accounting prescribed by Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees." Companies electing to continue to use APB No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value- based method of accounting had been applied. ARCO will continue to follow the provisions of APB No. 25 and accordingly, will make the pro forma disclosures, if material, required by SFAS No. 123 in its financial statements for the year ended December 31, 1996. _______________________________ Management cautions against projecting any future results based on present earnings levels because of economic uncertainties, the extent and form of existing or future governmental regulations and other possible actions by governments. -19- PART II. OTHER INFORMATION Item 1. Legal Proceedings. 1. Reference is made to the disclosure on page 15 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (hereinafter, the "1995 Form 10-K Report") regarding the suit brought by the City of New York and the New York City Housing Authority against former lead pigment manufacturers. Plaintiffs appealed the dismissal of their claims for restitution and indemnification and on June 27, 1996, the court of appeals unanimously reversed the trial court's order. 2. Reference is made to the disclosure on page 15 of the Company's 1995 Form 10-K Report regarding the German, et al. v. Federal Home Loan Mortgage Corp., et al. (Case No. 93 Civ 8941) matter. The City of New York, its Housing Authority, and the owner of the building where plaintiffs reside have filed cross-claims against ARCO, the other alleged former processors of lead pigment and paint, and the LIA seeking indemnification against or contribution toward any liability they (cross-claimants) may have to plaintiffs. 3. Reference is made to the disclosure on page 15 of the Company's 1995 Form 10-K Report regarding Jefferson v. Lead Industries Association, Inc. (Case No. 95-2885). On June 3, 1996, the trial court dismissed the case. The plaintiff has appealed the decision. 4. Reference is made to the disclosure on pages 15-16 of the Company's 1995 Form 10-K Report regarding Tesch v. ARCO Alaska, Inc. (Case No. 3AN-95- 3320-CI). On May 7, 1996, the court denied plaintiffs' motion for class certification and ordered further discovery with respect to the claims of the individual plaintiffs. The plaintiffs are not precluded from filing another motion for class certification. 5. On June 7, 1996, the case of Aguilar, et al. v. Atlantic Richfield, et al. (Case No 700810) was brought in the Superior Court of California for the County of San Diego against ARCO and eight other refiner-marketers of California Air Resources Board ("CARB") reformulated gasoline. The plaintiffs allege that the defendants conspired to restrict the supply, and thereby to raise the price, of CARB gasoline in violation of California state antitrust and unfair competition law. The plaintiffs seek to recover treble damages, restitution, attorneys fees, and injunctive relief on behalf of themselves and a purported class of California residents who bought CARB gasoline after March 1, 1996 other than for resale. 6. Reference is made to the Company's 1995 Form 10-K Report for information on other legal proceedings matters reported herein. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 27 Financial Data Schedule. (b) Reports on Form 8-K The following Current Report on Form 8-K was filed during the quarter ended June 30, 1996 and through the date hereof. Date of Report Item No. Financial Statements -------------- -------- -------------------- July 22, 1996 5 None -20- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ATLANTIC RICHFIELD COMPANY (Registrant) /s/ ALLAN L. COMSTOCK Dated: August 6, 1996 ______________________________ (signature) Allan L. Comstock Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer) -21- EX-27 2 FINANCIAL DATA SCHEDULE 6-MONTHS JUN 1996
5 This schedule contains summary financial information extracted from the Consolidated Statement of Income and the Consolidated Balance Sheet and qualified in its entirety by reference to such financial statements. 0000775483 ATLANTIC RICHFIELD COMPANY 1,000,000 6-MOS DEC-31-1996 JUN-30-1996 1,633 1,476 1,554 0 975 6,021 33,367 17,824 24,580 4,152 6,619 0 1 402 6,674 24,580 9,494 9,834 7,027 7,234 26 0 340 1,340 481 804 0 0 0 804 $4.92 $4.92
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