-----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, AvBpWVlAHN6ccd7q49j7kdZLOf5PYm93S0qcUSU85VVygPNQ9XGCE8v9fwIiYNLm 30PoI7wMD4r6xiNPyHsAzg== 0000775483-97-000007.txt : 19970508 0000775483-97-000007.hdr.sgml : 19970508 ACCESSION NUMBER: 0000775483-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970507 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: 97596921 BUSINESS ADDRESS: STREET 1: 515 S FLOWER ST CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134863511 10-Q 1 ARCO 1ST QT 1997 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 March 31, 1997 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 March 31, 1997: 161,090,496. PART I. FINANCIAL INFORMATION
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENT OF INCOME Three Months Ended March 31, ------------------ (Millions except per share amounts) 1997 1996 ---- ---- Revenues Sales and other operating revenues . . . . . . . . . . $5,044 $4,156 Other revenues . . . . . . . . . . . . . . . . . . . . 139 226 ----- ----- 5,183 4,382 ----- ----- Expenses Trade purchases. . . . . . . . . . . . . . . . . . . . 2,232 1,674 Operating expenses . . . . . . . . . . . . . . . . . . 1,010 930 Selling, general and administrative expenses . . . . . 251 238 Depreciation, depletion and amortization . . . . . . . 427 404 Exploration expenses (including undeveloped leasehold amortization). . . . . . . . . . . . . . . 126 100 Taxes other than income taxes. . . . . . . . . . . . . 231 217 Interest . . . . . . . . . . . . . . . . . . . . . . . 166 173 Unusual items. . . . . . . . . . . . . . . . . . . . . - 26 ----- ----- 4,443 3,762 ----- ----- Income before income taxes and minority interest . . . . 740 620 Provision for taxes on income. . . . . . . . . . . . . . 236 220 Minority interest in earnings of subsidiaries. . . . . . 21 30 ----- ----- Net Income . . . . . . . . . . . . . . . . . . . . . . . $ 483 $ 370 ===== ===== Earned per Share . . . . . . . . . . . . . . . . . . . . $ 2.95 $ 2.26 ===== ===== Cash Dividends Paid per Share of Common Stock. . . . . . $1.375 $1.375 ===== =====
The accompanying notes are an integral part of these statements. -1-
ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET March 31, December 31, 1997 1996 ---- ---- (Millions) Assets Current assets: Cash and cash equivalents . . . . . . . . . . . . $ 1,449 $ 1,460 Short-term investments. . . . . . . . . . . . . . 805 784 Accounts receivable . . . . . . . . . . . . . . . 1,749 1,936 Inventories . . . . . . . . . . . . . . . . . . . 992 995 Prepaid expenses and other current assets . . . . 287 258 ------ ------ Total current assets. . . . . . . . . . . . . . . 5,282 5,433 ------ ------ Investments and long-term receivables: Investments accounted for on the equity method. . 855 764 Other investments and long-term receivables . . . 1,652 1,598 ------ ------ 2,507 2,362 ------ ------ Net property, plant and equipment . . . . . . . . . 16,137 16,195 Deferred charges and other assets . . . . . . . . . 1,720 1,725 ------ ------ Total assets. . . . . . . . . . . . . . . . . . . . $25,646 $25,715 ====== ======
The accompanying notes are an integral part of these statements. - 2 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET March 31, December 31, 1997 1996 ---- ---- (Millions) Liabilities and Stockholders' Equity Current liabilities: Notes payable . . . . . . . . . . . . . . . . . . $ 1,142 $ 1,157 Accounts payable. . . . . . . . . . . . . . . . . 1,148 1,443 Long-term debt due within one year. . . . . . . . 1,111 1,102 Taxes payable . . . . . . . . . . . . . . . . . . 616 438 Other . . . . . . . . . . . . . . . . . . . . . . 1,060 1,163 ------ ------ Total current liabilities . . . . . . . . . . . . 5,077 5,303 ------ ------ Long-term debt. . . . . . . . . . . . . . . . . . . 5,407 5,593 Deferred income taxes . . . . . . . . . . . . . . . 2,864 2,884 Other deferred liabilities and credits. . . . . . . 3,504 3,450 Minority interest . . . . . . . . . . . . . . . . . 717 684 Stockholders' equity: Preference stocks . . . . . . . . . . . . . . . . 1 1 Common stock. . . . . . . . . . . . . . . . . . . 403 403 Stock dividends issuable. . . . . . . . . . . . . 403 - Capital in excess of par value of stock . . . . . 634 628 Retained earnings . . . . . . . . . . . . . . . . 6,458 6,592 Equity adjustments. . . . . . . . . . . . . . . . 178 177 ------ ------ Total stockholders' equity. . . . . . . . . . . . 8,077 7,801 ------ ------ Total liabilities and stockholders' equity. . . . . $25,646 $25,715 ====== ======
The accompanying notes are an integral part of these statements. - 3 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS Three Months Ended March 31, ------------------ 1997 1996 ---- ---- (Millions) Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . $ 483 $ 370 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization . . . . . . . 427 404 Dry hole expense and undeveloped leasehold amortization. . . . . . . . . . . . . . . . . . . . . 50 48 Net gain on asset sales. . . . . . . . . . . . . . . . (8) (26) Income from equity investments . . . . . . . . . . . . (35) (17) Dividends from equity investments. . . . . . . . . . . 13 27 Minority interest in earnings of subsidiaries. . . . . 21 30 Cash payments (greater) less than noncash provisions . 19 (27) Deferred income taxes. . . . . . . . . . . . . . . . . (19) 7 Changes in working capital accounts. . . . . . . . . . (78) 1 Other. . . . . . . . . . . . . . . . . . . . . . . . . 32 23 ----- ----- Net cash provided by operating activities. . . . . . 905 840 ----- ----- Cash flows from investing activities: Additions to fixed assets (including dry hole costs) . (504) (352) Net cash used by short-term investments . . . . . . . (29) (218) Proceeds from asset sales. . . . . . . . . . . . . . . 9 26 Investments and long-term receivables. . . . . . . . . (5) (21) Other. . . . . . . . . . . . . . . . . . . . . . . . . 11 17 ----- ----- Net cash used by investing activities. . . . . . . . (518) (548) ----- ----- Cash flows from financing activities: Repayments of long-term debt . . . . . . . . . . . . . (393) (79) Proceeds from issuance of long-term debt . . . . . . . 233 45 Net cash provided by notes payable . . . . . . . . . . 18 72 Dividends paid . . . . . . . . . . . . . . . . . . . . (223) (222) Treasury stock purchases . . . . . . . . . . . . . . . (17) (14) Other. . . . . . . . . . . . . . . . . . . . . . . . . (5) (5) ----- ----- Net cash used by financing activities. . . . . . . . (387) (203) ----- ----- Effect of exchange rate changes on cash. . . . . . . . . (11) (2) ----- ----- Net increase (decrease) in cash and cash equivalents . . (11) 87 Cash and cash equivalents at beginning of period . . . . 1,460 1,537 ----- ----- Cash and cash equivalents at end of period . . . . . . . $1,449 $1,624 ===== =====
The accompanying notes are an integral part of these statements. - 4 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE A. Accounting Policies. 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 1997. 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. Environmental Remediation Effective January 1, 1997, the Company adopted Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities," issued by the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants. The provisions include standards affecting the measurement, recognition and disclosure of environmental remediation liabilities. The effect of adopting the provisions of SOP 96-1 in the first quarter of 1997 was a decrease in the Company's net income of $30 million, or $.18 per share. NOTE B. Investments. At March 31, 1997 and 1996, investments were primarily composed of U.S. Treasury securities and corporate debt instruments and were principally included in short-term investments. Maturities generally ranged from one day to 20 months. At March 31, 1997, all investments were classified as available-for-sale ("AFS"); there were no investments considered held-to-maturity. 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 at March 31:
Millions 1997 1996 ------ ------ AFS AFS --- --- Aggregate fair value . . . . . . . . . . . $1,842 $2,174 Gross unrealized holding losses. . . . . . 7 19 Gross unrealized holding gains . . . . . . (478) (12) ----- ----- Amortized cost . . . . . . . . . . . . . . $1,371 $2,181 ===== =====
Investment activity for the three months ended March 31 was as follows:
Millions 1997 1996 ------ ------ AFS AFS --- --- Gross purchases. . . . . . . . . . . . . . $2,641 $1,321 Gross sales. . . . . . . . . . . . . . . . 592 531 Gross maturities . . . . . . . . . . . . . 2,551 1,050 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 March 31, 1997 and December 31, 1996 comprised the following:
March 31, December 31, 1997 1996 ---- ---- (Millions) Crude oil and petroleum products. . . . . . $194 $204 Chemical products . . . . . . . . . . . . . 484 488 Other products. . . . . . . . . . . . . . . 53 48 Materials and supplies. . . . . . . . . . . 261 255 --- --- Total . . . . . . . . . . . . . . . . . . $992 $995 === ===
NOTE D. Capital Stock. Detail of the Company's capital stock was as follows:
March 31, December 31, 1997 1996 ---- ---- (Thousands) $3.00 Cumulative convertible preference stock, par $1 . . . . . . . . . . . . . . . . . . . . $ 60 $ 61 $2.80 Cumulative convertible preference stock, par $1 . . . . . . . . . . . . . . . . . . . . 660 674 Common stock, par $2.50. . . . . . . . . . . . . 402,995 402,715 ------- ------- Total . . . . . . . . . . . . . . . . . . . . $403,715 $403,450 ======= =======
NOTE E. Stockholders' Equity Adjustments. Adjustments to stockholders' equity at March 31, 1997 and December 31, 1996 were as follows:
March 31, December 31, 1997 1996 ---- ---- (Millions) Minimum pension liability . . . . . . . . . . $(28) $(28) Treasury stock, at cost . . . . . . . . . . . (14) (1) Net unrealized gain on investments. . . . . . 290 225 Foreign currency translation. . . . . . . . . (70) (19) --- --- Total . . . . . . . . . . . . . . . . . . . $178 $177 === ===
- 6 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE F. Capitalization of Interest. Interest expense excludes capitalized interest of $3 million and $5 million for the three-month periods ended March 31, 1997 and 1996, respectively. NOTE G. Income Taxes. Provision for taxes on income:
Three Months Ended March 31, ------------------ 1997 1996 ---- ---- (Millions) Federal: Current . . . . . . . . . . . . . . . . . . $169 $147 Deferred. . . . . . . . . . . . . . . . . . (13) 5 --- --- 156 152 --- --- Foreign: Current . . . . . . . . . . . . . . . . . . 52 39 Deferred. . . . . . . . . . . . . . . . . . (6) 2 --- --- 46 41 --- --- State: Current . . . . . . . . . . . . . . . . . . 34 27 Deferred. . . . . . . . . . . . . . . . . . - - --- --- 34 27 --- --- Total . . . . . . . . . . . . . . . . . . $236 $220 === ===
- 7 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE G. Income Taxes (Continued). Reconciliation of provision for taxes on income with tax at federal statutory rate:
Three Months Ended March 31, ---------------------------------------- 1997 1996 ------------------ ------------------ Percent Percent of of Pretax Pretax Amount Income Amount Income ------ ------- ------ ------- (Millions) Income before income taxes and minority interest . . . . . . . $740 100.0 $620 100.0 === ===== === ===== Tax at federal statutory rate . . $259 35.0 $217 35.0 Increase (reduction) in taxes resulting from: Dividend exclusion. . . . . . . (8) (1.1) (3) (.5) Subsidiary stock transaction. . (22) (3.0) - - Taxes on foreign income in excess of statutory rate. . . 14 1.9 17 2.7 State income taxes (net of federal effect) . . . . . . . 22 3.0 18 2.9 Tax credits . . . . . . . . . . (25) (3.4) (22) (3.5) Other . . . . . . . . . . . . . (4) (0.5) (7) (1.1) --- ----- --- ----- Provision for taxes on income . . $236 31.9 $220 35.5 === ===== === =====
NOTE H. 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 March 31, ------------------ 1997 1996 ---- ---- (Millions of shares) Average number of common shares outstanding . . . 161.1 160.8 Common stock equivalents. . . . . . . . . . . . . 2.8 2.5 ----- ----- Total . . . . . . . . . . . . . . . . . . . . . 163.9 163.3 ===== =====
- 8 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE H. Earned Per Share (Continued). In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 requires companies to adopt its provisions for fiscal years ending after December 15, 1997 and requires restatement of all prior period earnings per share ("EPS") data presented. Earlier application is not permitted. However, a company is permitted to disclose pro forma EPS amounts computed using SFAS No. 128 in the notes to the financial statements in periods prior to required adoption. Accordingly, the pro forma EPS data for the three months ended March 31, 1997 and 1996 is as follows (in millions, except per share amounts):
Three Months Ended March 31, --------------------------------- 1997 1996 ------------- ------------- Shares EPS Shares EPS ------ --- ------ --- Basic EPS. . . . . . . . . . . 161.1 $2.99 160.8 $2.30 Diluted EPS. . . . . . . . . . 163.5 $2.95 163.2 $2.27
NOTE I. Supplemental Income Statement Information. Taxes other than income taxes comprised the following:
Three Months Ended March 31, ------------------ 1997 1996 ---- ---- (Millions) Production/severance. . . . . . . . . . . . . . . $123 $103 Property. . . . . . . . . . . . . . . . . . . . . 45 47 Other . . . . . . . . . . . . . . . . . . . . . . 63 67 --- --- Total . . . . . . . . . . . . . . . . . . . . . $231 $217 === ===
- 9 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE J. Supplemental Cash Flow Information. Following is supplemental cash flow information for the three months ended March 31, 1997 and 1996:
Three Months Ended March 31, ------------------ 1997 1996 ---- ---- (Millions) Gross sales and maturities of short-term investments. $ 611 $ 702 Gross purchases of short-term investments . . . . . . (640) (920) ------ ------ Net cash used by short-term investments . . . . . . . $ (29) $ (218) ===== ====== Gross proceeds from issuance of notes payable . . . . $ 1,797 $ 1,472 Gross repayments of notes payable . . . . . . . . . . (1,779) (1,400) ------ ------ Net cash provided by notes payable. . . . . . . . . . $ 18 $ 72 ====== ====== Gross noncash provisions charged to income. . . . . . $ 100 $ 132 Cash payments of previously accrued items . . . . . . (81) (159) ------ ------ Cash payments (greater) less than noncash provisions. $ 19 $ (27) ====== ======
Interest paid during the three-month periods ended March 31, 1997 and 1996 was $186 million and $191 million, respectively. Income taxes paid during the three-month periods ended March 31, 1997 and 1996 were $109 million and $47 million, respectively. Changes in working capital accounts for the three-month periods ended March 31, 1997 and 1996 were as follows:
Three Months Ended March 31, ------------------ 1997 1996 ---- ---- (Millions) Increase (decrease) to cash Accounts receivable. . . . . . . . . . . . $ 180 $ 17 Inventories. . . . . . . . . . . . . . . . 3 (58) Accounts payable . . . . . . . . . . . . . (295) (17) Other working capital. . . . . . . . . . . 34 59 ---- ---- Total. . . . . . . . . . . . . . . . . . $ (78) $ 1 ==== ====
- 10 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE K. Summarized Financial Information. Summarized financial information for Lyondell Petrochemical Company ("Lyondell"), a company in which Atlantic Richfield owned a 49.9% interest at March 31, 1997, was as follows:
Three Months Ended March 31, ------------------ Pro forma* 1997 1996 ---- ---- (Millions) Revenues (including sales to ARCO and ARCO Chemical Company). . . . . . . . . . . . $755 $579 Sales to ARCO and ARCO Chemical Company . . . . 67 64 Operating income. . . . . . . . . . . . . . . . 79 30 Income from equity investment in LYONDELL-CITGO Refining Co. ("LCR") . . . . . 6 26 Net income. . . . . . . . . . . . . . . . . . . 40 24 ___________ * Effective January 1, 1997, Lyondell began accounting for its investment in LCR under the equity method of accounting. Pro forma financial information for the three months ended March 31, 1996 presents Lyondell's results of operations as if the change from consolidation of LCR to accounting for Lyondell's investment in LCR under the equity method of accounting had been effective January 1, 1996.
_____________________________ ARCO's equity in net income of Lyondell . . . . $ 30 $ 12 Cash dividends received from Lyondell . . . . . 9 9
______________________________
Pro forma** March 31, December 31, 1997 1996 ---- ---- (Millions) Current assets. . . . . . . . . . . . . . . . $ 618 $ 619 Noncurrent assets . . . . . . . . . . . . . . 1,305 1,271 Current liabilities . . . . . . . . . . . . . 488 485 Long-term debt. . . . . . . . . . . . . . . . 742 744 Other liabilities . . . . . . . . . . . . . . 236 227 Minority interest . . . . . . . . . . . . . . 4 3 Stockholders' equity. . . . . . . . . . . . . 453 431 __________ **Pro forma December 31, 1996 information reflects the accounting for Lyondell's investment in LCR under the equity method as if the change from consolidation to equity accounting had been effective December 31, 1996.
- 11 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE L. 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 22%). 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 the liability for the spill remain unresolved between the Exxon companies, on the one hand, and Alyeska and its owner companies. 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. The State of Montana is seeking recovery from ARCO of $764 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. 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 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 wherewithal of the other responsible parties. At March 31, 1997, the environmental remediation accrual was $616 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. - 12 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE L. Other Commitments and Contingencies (Continued). ARCO's environmental remediation accrual 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 117 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 PRP sites, along with other sites as to which no claims have been asserted, in estimating the amount of the accrual. ARCO's future costs at these sites could exceed the amount accrued by as much as $600 million. Approximately 45% 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 third parties. Many 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 year, 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 First Quarter 1997 vs. First Quarter 1996 Consolidated Earnings The earnings increase in 1997 primarily reflected higher crude oil and natural gas prices, partially offset by a decline in earnings from ARCO Chemical Company ("ARCO Chemical"). In addition, refining margins and volumes improved compared to first quarter 1996. For the first quarter of 1997, charges for future environmental remediation, primarily related to implementation of a new accounting standard, were offset by benefits from deferred taxes and changes in certain reserves. The 1996 first quarter included a net benefit from special items of approximately $28 million after tax. Benefits from insurance settlements and the sale of an interest in a crude oil pipeline were partially offset by final charges for previously reported personnel reductions and by other remediation-related charges. Upstream Earnings
Millions (after tax) 1997 1996 ---- ---- Exploration & Production . . . . . . . . . . . . $452 $293 Coal . . . . . . . . . . . . . . . . . . . . . . $ 23 $ 5
ARCO's earnings from worldwide oil and gas exploration and production operations benefited from higher crude oil and natural gas prices. A $26 million increase in exploration expense in the 1997 first quarter was primarily dry hole and seismic expenses associated with Vastar Resources, Inc.'s ("Vastar") operations. The increased dry hole expense primarily reflected the writeoff of Vastar's Ship Shoal 357 sub-salt well. The increase in seismic expense was in support of Vastar's efforts in the most recent federal Gulf of Mexico lease sale. Average Oil & Gas Prices
1997 1996 ---- ---- U.S. Petroleum liquids - per barrel (bbl) Alaska . . . . . . . . . . . . . . . . . . . $18.56 $13.12 Lower 48, including Vastar . . . . . . . . . $19.29 $16.48 Composite average price. . . . . . . . . . . $18.79 $14.08 Natural gas - per thousand cubic feet (mcf). . $ 2.32 $ 1.58 International Petroleum liquids - per bbl. . . . . . . . . . $20.79 $17.33 Natural gas - per mcf. . . . . . . . . . . . . $ 2.64 $ 2.60
- 14 - Petroleum Liquids and Natural Gas Production
1997 1996 ---- ---- Net Production U.S. Petroleum liquids-bbl/day. . . . . . . . . . 562,300 579,700 Natural gas mcf/day. . . . . . . . . . . . . 1,049,200 1,055,400 Barrels of oil equivalent (BOE)/day* . . . . 737,200 755,500 International Petroleum liquids-bbl/day. . . . . . . . . . 68,100 64,900 Natural gas mcf/day. . . . . . . . . . . . . 878,400 792,500 BOE/day. . . . . . . . . . . . . . . . . . . 214,500 197,100 Total net production BOE/day . . . . . . . . . 951,700 952,600 ____________ * 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 the Prudhoe Bay and Kuparuk River fields in Alaska. Increased international production resulted from production from the Rhourde El Baguel field in Algeria, partially offset by the impact of higher crude oil prices on production-sharing contracts in Indonesia. The decrease in U.S. natural gas production resulted from a decline in Vastar's production. Natural field declines at Mustang Island 805, High Island 177 and Wilburton were partially offset by production growth in the San Juan Basin and redevelopment efforts at several offshore fields. ARCO holds an 82.3% interest in Vastar. The record international natural gas volumes in 1997 reflected increased production from Yancheng 13, ARCO's South China Sea natural gas field, and ARCO's offshore Indonesia gas fields, partially offset by the effects of warmer weather on gas takes in the United Kingdom. Production from Yacheng 13 increased by approximately 90 million cubic feet per day and production from the Indonesian natural gas fields increased by approximately 20 million cubic feet per day. Coal Operations The earnings increase in 1997 reflected higher average U.S. and Australian coal prices and volumes. U.S. sales volumes increased by approximately 1,098,000 tons and Australian sales volumes increased by approximately 380,000 tons. Average U.S. prices for ARCO Coal were up 6% in the first quarter 1997, compared to first quarter 1996. Average Australian coal prices were up approximately 3% in the first quarter 1997. The increase in average U.S. prices resulted from the product mix of coal sold in 1997, compared to 1996. In April 1997, ARCO announced it is evaluating a likely withdrawal from its worldwide coal business through the disposition of coal-mining operations in the United States and Australia because they are no longer considered part of the Company's core business. The method of disposition is currently under study. Downstream Earnings
Millions (after tax) 1997 1996 ---- ---- Refining and marketing . . . . . . . . . . . . . $ 44 $ 28 Chemicals . . . . . . . . . . . . . . . . . . . $ 50 $ 97
- 15 - Refining and Marketing Operations The refining and marketing results reflected the benefits of increased products sales prices and volumes and lower operating costs partially offset by higher crude oil costs and higher prices for purchased refined products. ARCO's refining and marketing margins improved from weak fourth quarter 1996 levels. The lower operating costs in 1997 reflected the absence of turnaround costs and an after-tax charge of approximately $8 million related to environmental and other remediation recorded in the first quarter of 1996. In the 1997 first quarter ARCO announced plans to lease more than 260 California service stations from Thrifty Oil Co. West Coast Petroleum Products Sales
Volumes (barrels/day) 1997 1996 ---- ---- Gasoline . . . . . . . . . . . . . . . . . . . . 265,000 261,300 Jet. . . . . . . . . . . . . . . . . . . . . . . 118,900 106,100 Distillate . . . . . . . . . . . . . . . . . . . 77,700 75,000 Other. . . . . . . . . . . . . . . . . . . . . . 61,600 67,300 ------- ------- Total. . . . . . . . . . . . . . . . . . . . . 523,200 509,700 ======= =======
Chemicals For the chemicals segment, reflecting ARCO's 82.6 interest in ARCO Chemical, the 1997 earnings decline primarily reflected lower margins for most products. First quarter 1997 margins were lower as a result of higher worldwide feedstock costs and generally lower sales prices. Sales prices in the first quarter of 1997 were impacted by a weak economy in Europe, the effect of a stronger U.S. dollar, the expiration of ARCO Chemical's long-term methyl tertiary butyl ether sales contracts, and concerns over styrene monomer capacity additions in Asia. Equity Affiliate ARCO earned $30 million from its 49.9% equity interest in Lyondell Petrochemical Company ("Lyondell") in the first quarter of 1997, compared to $12 million in the first quarter of 1996. The increase in earnings reflected improved results from Lyondell's petrochemical operations partially offset by lower earnings from Lyondell's equity interest in the LYONDELL-CITGO Refining Co. ARCO announced on March 24, 1997, its intention to settle all its 9% Exchangeable Notes due September 15, 1997 with Lyondell stock currently owned by ARCO. If market conditions remain unchanged from that date, ARCO will realize a gain in excess of $300 million after tax upon the exchange of its shares of Lyondell stock. The decision to settle the Notes with Lyondell shares can still be affected by a material change in market conditions. - 16 - Consolidated Revenues
Millions 1997 1996 Sales and other operating revenues Upstream . . . . . . . . . . . . . . . . . . . . $3,040 $2,291 Downstream . . . . . . . . . . . . . . . . . . . 2,768 2,518 Intersegment eliminations. . . . . . . . . . . . (764) (653) ----- ----- Total. . . . . . . . . . . . . . . . . . . . . $5,044 $4,156 ===== =====
The increase in upstream sales and other operating revenues resulted primarily from higher crude oil and natural gas prices and increased natural gas marketing activity. Natural gas marketing sales volumes increased to 3.7 billion cubic feet per day in the 1997 first quarter, up from 2.5 billion cubic feet per day in the 1996 first quarter. While ARCO realized higher average crude oil and natural gas prices in the first quarter of 1997, compared to the first quarter of 1996, crude oil and natural gas prices were at their highest at the beginning of the quarter and then declined throughout the quarter and into April. The price for West Texas Intermediate crude oil was above $25 a barrel in January 1997 and declined to less than $20 a barrel in April 1997. Downstream sales and other operating revenues increased primarily because of higher refined products prices and volumes and higher chemical products volumes. The decrease in 1997 Other Revenues primarily reflected the absence of insurance settlements recorded in the first quarter of 1996. Consolidated Expenses Trade purchases were higher primarily as a result of higher natural gas marketing activity and higher crude oil prices. The higher operating expenses in 1997 primarily reflected charges for future environmental remediation related to the adoption of a new accounting standard and to a much lesser extent higher volume-related tolling costs at ARCO Chemical and higher lease operating costs associated with production from the Rhourde El Baguel field. The higher tolling volumes at ARCO Chemical related to a plant in France that was under repair and operated at restricted rates in the 1996 first quarter. Unusual items in 1996 consisted of final charges for previously reported personnel reductions. Income Taxes The Company's effective tax rate was 31.9% in the 1997 first quarter, compared to 35.5% in the 1996 first quarter. The lower effective tax rate in 1997 primarily reflected the partial elimination of deferred taxes which were provided in a prior year upon the sale of stock of a subsidiary but which are no longer required. Elimination of such taxes is expected to continue in future periods. Including the first quarter amount, the potential maximum elimination of deferred taxes would be $186 million. - 17 - Liquidity and Capital Resources
Millions 1997 ---- Cash flow provided (used) by: Operations . . . . . . . . . . . . . . . . . . . $ 905 Investing activities . . . . . . . . . . . . . . $(518) Financing activities . . . . . . . . . . . . . . $(387)
The net cash used by investing activities in the first quarter 1997 included expenditures for additions to fixed assets of $504 million. The Company expects total capital expenditures for additions to fixed assets to approximate $3.4 billion for the full year 1997. The net cash used in financing activities in the first quarter of 1997 included repayments of long-term debt of $393 million and dividend payments of $223 million, partially offset by proceeds of $233 million from the issuance of long-term debt. Cash and cash equivalents and short-term investments totaled $2.3 billion, and short-term borrowings were $1.1 billion at the end of the first quarter of 1997. During the first quarter of 1997, ARCO purchased 130,000 shares of its common stock and contributed them to treasury in order to satisfy ARCO's obligations upon conversion of the $3.00 and $2.80 Preference Stocks and upon exercise of stock options. ARCO's Board of Directors announced a 2-for-1 stock split by means of a 100% stock dividend and a 4% increase in the regular quarterly dividend, both effective June 13, 1997, to stockholders of record on May 16, 1997. 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. Statements of Financial Accounting Standards Not Yet Adopted In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 requires companies to adopt its provisions for fiscal years ending after December 15, 1997 and requires restatement of all prior period earnings per share ("EPS") data presented. Earlier application is not permitted. SFAS No. 128 specifies the computation, presentation and disclosure requirements for EPS. The implementation of SFAS No. 128 is not expected to have a material effect on the EPS data presented by the Company. See Note H of notes to the consolidated financial statements. ____________________ 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. - 18 - PART II. OTHER INFORMATION Item 1. Legal Proceedings. 1. Reference is made to the disclosure on page 13 of the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (hereinafter, the "1996 Form 10-K Report") regarding Montana v. ARCO, ex rel. (Case No. CV-83-317-HLN-PGH). On March 3, 1997, trial commenced and is continuing. 2. Reference is made to the disclosure on page 14 of the 1996 Form 10-K Report regarding In re Hanford Nuclear Reservation Litigation (CY-91- 3015-AAM). On April 4, 1997, ARCO was served with a new complaint, filed by six individual Native Americans, purportedly on behalf of classes of Native Americans living near the Hanford Nuclear Reservation. The Department of Energy has indicated that it will indemnify ARCO and ARHCO with respect to this new action as well. 3. Reference is made to the disclosure on page 15 of the 1996 Form 10-K Report regarding Jefferson v. Lead Industries Association, Inc. (Case No. 95-2885). On March 12, 1997, the United States Court of Appeals for the Fifth Circuit affirmed the trial court's decision. 4. Reference is made to the disclosure on page 15 of the 1996 Form 10-K Report regarding Tesch, et al. v. ARCO Alaska, Inc. (Case No. 3AN-95- 3320-CI). On March 7, 1997, the court denied the plaintiffs' renewed motion for class certification and granted ARCO's motion for partial summary judgment as to the "salary test" issues in this case. The plaintiffs have filed a motion for reconsideration. 5. Reference is made to the disclosure on pages 15-16 of the 1996 Form 10-K Report regarding Aguilar, et al. v. Atlantic Richfield, et al. (Case No. 700810). On May 1, 1997, the court certified a class of California residents who bought CARB gasoline after March 1, 1996 other than for resale. 6. Reference is made to the disclosure on page 16 of the 1996 Form 10-K Report regarding the Beaver Valley plant formerly owned by ARCO Chemical. ARCO Chemical and Beazer East, Inc. have reached an agreement with the U.S. government pursuant to which the government will pay 28.5% of the costs incurred by them for remediation of substantial portions of the Beaver Valley site. 7. Reference is made to the disclosure on page 16 of the 1996 Form 10-K Report regarding the southern California earthquake on January 17, 1994. A settlement has been reached. The United States of America, the State of California acting by and through the Department of Fish and Game, the California Regional Water Quality Control Board, Los Angeles Region, The People of The State of California in and for the County of Los Angeles, ARCO, and ARCO Pipe Line Company, executed an Agreement and Consent Decree that was entered March 19, 1997 in the United States District Court for the Central District of California. Pursuant to the Agreement and Consent Decree numerous payments that included $7,100,000 for natural resource damages related to the crude oil spills, and $125,000 denominated as civil penalties were made to various governmental entities. 8. Reference is made to the disclosure on pages 16-17 of the 1996 Form 10-K Report regarding the PSD permit program. The terms of the settlement have been finalized, and on March 4, 1997, ARCO was dismissed from the lawsuit. 9. Reference is made to the Company's 1996 Form 10-K Report for information on other legal proceeding matters reported therein. - 19 - Item 4. Submission of Matters to a Vote of Security Holders. The Company's annual meeting of stockholders was held on May 5 1997 The stockholders elected all the Company's nominees for director, authorized amendment of the 1985 Executive Long-Term Incentive Plan, and approved the appointment of Coopers & Lybrand L.L.P. as the Company's independent auditors for 1997. The votes were as follows: 1. Election of Directors.
Votes Votes For Withheld ----------- --------- Frank D. Boren 137,028,161 2,388,523 Mike R. Bowlin 137,013,693 2,402,991 Lodwrick M. Cook 136,198,163 3,218,521 Richard H. Deihl 136,908,655 2,508,029 Anthony G. Fernandes 136,930,878 2,485,806 John Gavin 136,825,786 2,590,898 Hanna H. Gray 136,880,276 2,536,408 Philip M. Hawley 136,814,462 2,602,222 Marie L. Knowles 136,930,998 2,485,686 Kent Kresa 137,080,251 2,336,433 David T. McLaughlin 136,976,357 2,440,327 John B. Slaughter 136,934,311 2,482,373 William E. Wade, Jr. 136,966,366 2,450,318 Henry Wendt 137,055,745 2,360,939
2. Amendment of the 1985 Executive Long-Term Incentive Plan. For 118,898,869 Against 9,287,447 Abstain 2,415,418 Broker Non-Votes 8,814,950
3. Appointment of Coopers & Lybrand L.L.P. For 136,664,088 Against 1,980,925 Abstain 771,671
4. Stockholders' proposal requesting the review and development of guidelines for country selection and report to stockholders. For 11,805,035 Against 109,270,550 Abstain 9,526,149 Broker Non-Votes 8,814,950
- 20 - Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27 Financial Data Schedule. (b) Reports on Form 8-K. The following Current Reports on Form 8-K were filed during the quarter ended March 31, 1997 and through the date hereof.
Date of Report Item No. Financial Statements March 24, 1997 5 None March 24, 1997 5 None March 31, 1997 5 None April 1, 1997 5 None
- 21 - 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: May 6, 1997 _______________________________ ALLAN L. COMSTOCK Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer) - 22 - EX-27 2 FINANCIAL DATA SCHEDULE 3-MONTHS MAR 1997
5 This schedule contains summary financial information extracted from the Consolidated Statement of Income and the Consolidated Balance Sheet and is qualified in its entirety by reference to such financial statements. 1,000,000 3-MOS DEC-31-1997 MAR-31-1997 $1,449 805 1,749 0 992 5,282 34,966 18,829 25,646 5,077 5,407 0 1 403 7,673 25,646 5,044 5,183 3,900 4,026 0 0 166 740 236 483 0 0 0 483 $2.95 $2.95
-----END PRIVACY-ENHANCED MESSAGE-----