-----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, ERJhYdlahi77vm35nQBynUc//D5uYRPFe6Mnlb2VyD//LQh/rGBZQhZi/R7CXxg1 YZ0v1Slox5ermV815GTvLw== 0000775483-96-000006.txt : 19961108 0000775483-96-000006.hdr.sgml : 19961108 ACCESSION NUMBER: 0000775483-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961107 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: 96655627 BUSINESS ADDRESS: STREET 1: 515 S FLOWER ST CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 2134863511 10-Q 1 ARCO 3RD 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 September 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 September 30, 1996: 160,819,021. PART I. FINANCIAL INFORMATION
ATLANTIC RICHFIELD COMPANY AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) CONSOLIDATED STATEMENT OF INCOME Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- (Millions except per share amounts) 1996 1995 1996 1995 ---- ---- ---- ---- Revenues Sales and other operating revenues, including excise taxes . . . . . . $5,149 $4,277 $14,643 $12,944 Income from equity investments . . . 31 68 59 223 Interest . . . . . . . . . . . . . . 46 48 147 162 Other revenues . . . . . . . . . . . 53 121 264 327 ----- ----- ------ ------ 5,279 4,514 15,113 13,656 ----- ----- ------ ------ Expenses Trade purchases. . . . . . . . . . . 2,009 1,494 5,549 4,616 Operating expenses . . . . . . . . . 798 775 2,292 2,230 Selling, general and administrative expenses . . . . . . . . . . . . . 433 456 1,327 1,308 Depreciation, depletion and amortization . . . . . . . . . . . 399 386 1,202 1,205 Exploration expenses (including undeveloped leasehold amortization) 101 138 308 333 Excise taxes . . . . . . . . . . . . 401 405 1,180 1,132 Taxes other than excise and income taxes. . . . . . . . . . . . . . . 187 168 598 557 Interest . . . . . . . . . . . . . . 160 181 500 581 Unusual items. . . . . . . . . . . . - - 26 - ----- ----- ------ ------ 4,488 4,003 12,982 11,962 ----- ----- ------ ------ Income before income taxes and minority interest. . . . . . . . . 791 511 2,131 1,694 Provision for taxes on income. . . . 287 172 768 584 Minority interest in earnings of subsidiaries . . . . . . . . . . . 25 24 80 82 ----- ----- ------ ------ Net Income . . . . . . . . . . . . . . $ 479 $ 315 $ 1,283 $ 1,028 ===== ===== ====== ====== Earned per Share . . . . . . . . . . . $ 2.94 $ 1.93 $ 7.86 $ 6.29 ===== ===== ====== ====== Cash Dividends Paid per Share of Common Stock . . . . . . . . . . . . $1.375 $1.475* $ 4.125 $ 4.225* ===== ===== ====== ====== - ----------------- * Dividends include a $.10 per share redemption payment for Common Stock purchase rights.
The accompanying notes are an integral part of these statements. - 1 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET September 30, December 31, 1996 1995 ---- ---- (Millions) Assets Current assets: Cash and cash equivalents . . . . . . . . . . . . $ 1,375 $ 1,537 Short-term investments. . . . . . . . . . . . . . 1,419 1,569 Accounts receivable . . . . . . . . . . . . . . . 1,711 1,684 Inventories . . . . . . . . . . . . . . . . . . . 865 877 Prepaid expenses and other current assets . . . . 319 221 ------ ------ Total current assets. . . . . . . . . . . . . . . 5,689 5,888 ------ ------ Investments and long-term receivables: Investments accounted for on the equity method. . 753 711 Other investments and long-term receivables . . . 888 550 ------ ------ 1,641 1,261 ------ ------ Fixed assets: Property, plant and equipment . . . . . . . . . . 33,669 32,544 Less accumulated depreciation, depletion and amortization . . . . . . . . . . . . . . . . 18,082 17,189 ------ ------ 15,587 15,355 ------ ------ Deferred charges and other assets . . . . . . . . . 1,600 1,495 ------ ------ Total assets. . . . . . . . . . . . . . . . . . . . $24,517 $23,999 ====== ======
The accompanying notes are an integral part of these statements. - 2 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED BALANCE SHEET September 30, December 31, 1996 1995 ---- ---- (Millions) Liabilities and Stockholders' Equity Current liabilities: Notes payable . . . . . . . . . . . . . . . . . $ 878 $ 1,174 Accounts payable. . . . . . . . . . . . . . . . 1,147 1,145 Long-term debt due within one year. . . . . . . 1,089 184 Taxes payable, including excise taxes . . . . . 458 303 Accrued interest. . . . . . . . . . . . . . . . 111 153 Other . . . . . . . . . . . . . . . . . . . . . 886 1,004 ------ ------ Total current liabilities . . . . . . . . . . . 4,569 3,963 ------ ------ Long-term debt. . . . . . . . . . . . . . . . . . 5,663 6,708 Deferred income taxes . . . . . . . . . . . . . . 2,715 2,637 Other deferred liabilities and credits. . . . . . 3,552 3,456 Minority interest . . . . . . . . . . . . . . . . 574 477 Stockholders' equity: Preference stocks . . . . . . . . . . . . . . . 1 1 Common stock. . . . . . . . . . . . . . . . . . 402 402 Capital in excess of par value of stock . . . . 605 632 Retained earnings . . . . . . . . . . . . . . . 6,433 5,816 Pension liability adjustment. . . . . . . . . . (60) (60) Foreign currency translation. . . . . . . . . . (39) (17) Net unrealized gain (loss) on investments . . . 109 (11) Treasury stock, at cost . . . . . . . . . . . . (7) (5) ------ ------ Total stockholders' equity. . . . . . . . . . . 7,444 6,758 ------ ------ Total liabilities and stockholders' equity. . . . $24,517 $23,999 ====== ======
The accompanying notes are an integral part of these statements. - 3 -
ATLANTIC RICHFIELD COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS Nine Months Ended September 30, ----------------- 1996 1995 ---- ---- (Millions) Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . $1,283 $1,028 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization . . . . . . . 1,202 1,205 Dry hole expense and undeveloped leasehold amortization 157 185 Minority interest in earnings of subsidiaries. . . . . 80 82 Net gain on asset sales. . . . . . . . . . . . . . . . (42) (12) Income from equity investments . . . . . . . . . . . . (59) (223) Dividends from equity investments. . . . . . . . . . . 56 67 Cash payments greater than noncash provisions. . . . . (182) (171) Deferred income taxes. . . . . . . . . . . . . . . . . 37 51 Changes in accounts receivable, inventories and accounts payable. . . . . . . . . . . . . . . . . 85 (76) Changes in other working capital accounts. . . . . . . (67) (164) Other. . . . . . . . . . . . . . . . . . . . . . . . . (16) (70) ----- ----- Net cash provided by operating activities. . . . . . 2,534 1,902 ----- ----- Cash flows from investing activities: Additions to fixed assets (including dry hole costs) . (1,617) (1,233) Net cash provided by short-term investments. . . . . . 135 1,113 Investment in LUKoil convertible bonds . . . . . . . . (89) (250) Proceeds from asset sales. . . . . . . . . . . . . . . 49 61 Other. . . . . . . . . . . . . . . . . . . . . . . . . (14) (100) ----- ----- Net cash used by investing activities. . . . . . . . (1,536) (409) ----- ----- Cash flows from financing activities: Repayments of long-term debt . . . . . . . . . . . . . (236) (1,085) Proceeds from issuance of long-term debt . . . . . . . 111 150 Net cash used by notes payable . . . . . . . . . . . . (302) (372) Dividends paid . . . . . . . . . . . . . . . . . . . . (666) (681) Treasury stock purchases . . . . . . . . . . . . . . . (57) (36) Other. . . . . . . . . . . . . . . . . . . . . . . . . (10) (17) ----- ----- Net cash used by financing activities. . . . . . . . (1,160) (2,041) ----- ----- Effect of exchange rate changes on cash. . . . . . . . . - 2 ----- ----- Net decrease in cash and cash equivalents. . . . . . . . (162) (546) Cash and cash equivalents at beginning of period . . . . 1,537 1,394 ----- ----- Cash and cash equivalents at end of period . . . . . . . $1,375 $ 848 ===== =====
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 Atlantic Richfield Company ("ARCO" or 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 September 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 September 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 as a separate component of stockholders' equity. The following summarizes investments in securities, principally debt securities, as of September 30:
1996 1995 --------- ---------------- Millions AFS AFS HTM --- --- --- Aggregate fair value . . . . . . . . $2,173 $1,953 $ 215 Gross unrealized holding losses. . . 14 22 - Gross unrealized holding gains . . . (195) (15) - ----- ----- ----- Amortized cost . . . . . . . . . . . $1,992 $1,960 $ 215
Investment activity for the nine-month periods ended September 30 was as follows:
1996 1995 --------- ----------------- Millions AFS AFS HTM --- --- --- Gross purchases . . . . . . . . . . . $3,635 $2,605 $1,293 Gross sales . . . . . . . . . . . . . 1,405 1,901 - Gross maturities. . . . . . . . . . . 2,680 751 2,320
For the three-and nine-month periods ended September 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 September 30, 1996 and December 31, 1995 comprised the following:
September 30, December 31, 1996 1995 ---- ---- (Millions) Crude oil and petroleum products. . . . . . . . $ 177 $ 184 Chemical products . . . . . . . . . . . . . . . 400 423 Other products. . . . . . . . . . . . . . . . . 40 32 Materials and supplies. . . . . . . . . . . . . 248 238 ------- ------- Total . . . . . . . . . . . . . . . . . . . . $ 865 $ 877 ======= =======
NOTE D. Capital Stock. Detail of the Company's capital stock was as follows:
September 30, December 31, 1996 1995 ---- ---- (Thousands) $3.00 Cumulative convertible preference stock, par $1 . . . . . . . . . . . . . . . . . . . $ 62 $ 66 $2.80 Cumulative convertible preference stock, par $1 . . . . . . . . . . . . . . . . . . . 684 731 Common stock, par $2.50. . . . . . . . . . . . 402,199 402,199 ------- ------- Total. . . . . . . . . . . . . . . . . . . . $402,945 $402,996 ======= =======
NOTE E. Capitalization of Interest. Interest expense excluded capitalized interest of $9 million and $14 million, respectively, for the three-month periods ended September 30, 1996 and 1995, and $21 million and $39 million, respectively, for the nine-month periods ended September 30, 1996 and 1995. - 6 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE F. Income Taxes. Provision for taxes on income:
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 ---- ---- ---- ---- (Millions) Federal: Current . . . . . . . . . . . . . . $189 $114 $526 $387 Deferred. . . . . . . . . . . . . . 19 14 29 37 --- --- --- --- 208 128 555 424 --- --- --- --- Foreign: Current . . . . . . . . . . . . . . 41 27 106 83 Deferred. . . . . . . . . . . . . . 1 (3) 8 6 --- --- --- --- 42 24 114 89 --- --- --- --- State: Current . . . . . . . . . . . . . . 37 17 99 63 Deferred. . . . . . . . . . . . . . - 3 - 8 --- --- --- --- 37 20 99 71 --- --- --- --- Total . . . . . . . . . . . . . . $287 $172 $768 $584 === === === ===
- 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 September 30, ------------------------------------ 1996 1995 ----------------- ---------------- Percent Percent of of Pretax Pretax Amount Income Amount Income ------ ------- ------ ------- (Millions) Income before income taxes and minority interest. . . . . . . . . . $ 791 100.0 $ 511 100.0 ==== ===== ==== ===== Tax at federal statutory rate. . . . . $ 277 35.0 $ 179 35.0 Increase (reduction) in taxes resulting from: Dividend exclusion . . . . . . . . (5) (0.6) (14) (2.7) Taxes on foreign income in excess of statutory rate. . . . . . . . 22 2.8 23 4.5 State income taxes (net of federal effect). . . . . . . . . . . . . 24 3.0 13 2.5 Tax credits. . . . . . . . . . . . (23) (2.9) (19) (3.7) Other. . . . . . . . . . . . . . . (8) (1.0) (10) (1.9) ---- ----- ---- ----- Provision for taxes on income. . . . . $ 287 36.3 $ 172 33.7 ==== ===== ==== =====
Nine Months Ended September 30, -------------------------------------- 1996 1995 ------------------ ---------------- Percent Percent of of Pretax Pretax Amount Income Amount Income ------ ------ ------ ------ (Millions) Income before income taxes and minority interest. . . . . . . . . . $2,131 100.0 $1,694 100.0 ===== ===== ===== ===== Tax at federal statutory rate. . . . . $ 746 35.0 $ 593 35.0 Increase (reduction) in taxes resulting from: Dividend exclusion . . . . . . . . (10) (0.5) (51) (3.0) Taxes on foreign income in excess of statutory rate. . . . . . . . 45 2.1 62 3.7 State income taxes (net of federal effect). . . . . . . . . . . . . 64 3.0 46 2.7 Tax credits. . . . . . . . . . . . (69) (3.2) (54) (3.2) Other. . . . . . . . . . . . . . . (8) (0.4) (12) (0.7) ---- ----- ----- ----- Provision for taxes on income. . . . . $ 768 36.0 $ 584 34.5 ==== ===== ===== =====
- 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 September 30, ------------------ 1996 1995 ---- ---- (Millions of Shares) Average number of common shares outstanding. . . . 160.8 160.8 Common stock equivalents . . . . . . . . . . . . . 2.5 2.6 ----- ----- Total. . . . . . . . . . . . . . . . . . . . . . 163.3 163.4 ===== ===== Nine Months Ended September 30, ----------------- 1996 1995 ---- ---- (Millions of Shares) Average number of common shares outstanding. . . . 160.8 160.8 Common stock equivalents . . . . . . . . . . . . . 2.5 2.6 ----- ----- Total. . . . . . . . . . . . . . . . . . . . . . 163.3 163.4 ===== =====
NOTE H. Supplemental Income Statement Information. Taxes other than excise and income taxes comprised the following:
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 ---- ---- ---- ---- (Millions) Production/severance . . . . . . . . $108 $ 81 $316 $264 Property . . . . . . . . . . . . . . 38 45 131 138 Other. . . . . . . . . . . . . . . . 41 42 151 155 --- --- --- --- Total. . . . . . . . . . . . . . . $187 $168 $598 $557 === === === ===
- 9 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE I. Supplemental Cash Flow Information. Following is supplemental cash flow information for the nine months ended September 30, 1996 and 1995:
Nine Months Ended September 30, ----------------- 1996 1995 ---- ---- (Millions) Gross sales and maturities of short-term investments . $2,289 $3,388 Gross purchases of short-term investments. . . . . . . (2,154) (2,275) ----- ----- Net cash provided by short-term investments. . . . . . $ 135 $1,113 ===== ===== Gross proceeds from issuance of notes payable. . . . . $4,603 $6,267 Gross repayments of notes payable. . . . . . . . . . . (4,905) (6,639) ----- ----- Net cash used by notes payable . . . . . . . . . . . . $ (302) $ (372) ===== ===== Gross noncash provisions charged to income . . . . . . $ 231 $ 332 Cash payments of previously accrued items. . . . . . . (413) (503) ----- ----- Cash payments greater than noncash provisions. . . . . $ (182) $ (171) ===== =====
Interest paid during the nine-month periods ended September 30, 1996 and 1995 was $542 million and $642 million, respectively. Income taxes paid during the nine-month periods ended September 30, 1996 and 1995 were $648 million and $614 million, respectively. - 10 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED NOTE J. Summarized Financial Information. Summarized financial information for Lyondell Petrochemical Company ("Lyondell"), a company in which ARCO owned a 49.9% interest at September 30, 1996, was as follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------ ----------------- 1996 1995 1996 1995 ---- ---- ---- ---- (Millions) Revenues (including sales to ARCO and ARCO Chemical Company). . . . . $1,247 $1,249 $3,651 $3,793 Sales to ARCO and ARCO Chemical Company . . . . . . . . . . . . . . 68 81 205 270 Operating income . . . . . . . . . . 71 183 177 642 Income before income taxes . . . . . 55 159 116 576 Net income . . . . . . . . . . . . . 35 100 74 362 --------------------- ARCO's equity in net income of Lyondell. . . . . . . . . . . . . . 18 49 37 180 Cash dividends received from Lyondell. . . . . . . . . . . . . . 9 9 27 27
________________________
September 30, December 31, 1996 1995 ---- ---- (Millions) Current assets. . . . . . . . . . . . . . . . . $ 716 $ 678 Noncurrent assets . . . . . . . . . . . . . . . 2,355 1,928 Current liabilities . . . . . . . . . . . . . . 684 750 Long-term debt. . . . . . . . . . . . . . . . . 1,177 807 Other liabilities . . . . . . . . . . . . . . . 244 210 Minority interest . . . . . . . . . . . . . . . 569 459 Stockholders' equity. . . . . . . . . . . . . . 397 380
- 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 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 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 September 30, 1996, the environmental remediation accrual was $613 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 K. Other Commitments and Contingencies (Continued). 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 does not represent a relevant measure of liability, because the nature and extent of environmental concerns varies from site to 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 accrual. ARCO's future costs at these sites could exceed the amount accrued by as much as $700 million. 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 Third Quarter 1996 vs. Third Quarter 1995 Consolidated Earnings The earnings increase in 1996 primarily reflected higher crude oil and natural gas prices, higher refining and marketing margins and volumes, growing natural gas production and lower exploration and interest expense. These combined improvements more than offset lower earnings from ARCO's chemical interests. In the 1995 third quarter, income benefits associated with insurance litigation settlements were offset by charges for tax issues and future environmental remediation. Revenues
Millions 1996 1995 ---- ---- Sales and other operating revenues Upstream . . . . . . . . . . . . . . . . . . $2,346 $2,157 Downstream. . . . . . . . . . . . . . . . . 3,499 3,048 Intersegment eliminations. . . . . . . . . . (696) (928) ----- ----- Total. . . . . . . . . . . . . . . . . . . $5,149 $4,277 ===== =====
Higher crude oil and natural gas prices, increased natural gas marketing activity and higher natural gas production volumes were partially offset by decreased crude oil trading activity. Third party sales of petroleum liquids (both produced and purchased volumes) were down 97,300 barrels per day, compared to the 1995 third quarter. Third-party sales of natural gas (produced and purchased volumes) increased to 4.1 billion cubic feet per day in the 1996 third quarter, up from 2.5 billion cubic feet per day in the 1995 third quarter. The majority of the increase was generated by Vastar Resources, Inc. ("Vastar"), where natural gas revenues increased from $260 million in the third quarter 1995 to $613 million in the third quarter 1996. The remainder of the increase came from international production in the North Sea, South China Sea and offshore Indonesia. In downstream businesses, higher refined products prices and volumes and higher chemical products volumes were partially offset by a net decline in chemical products prices. Jet fuel and gasoline sales increased by 24,400 barrels per day in the third quarter of 1996, compared to the same period in 1995. The decrease in 1996 income from equity investments primarily reflected a decline in earnings from ARCO's 49.9% equity interest in Lyondell Petrochemical Company ("Lyondell"). The decrease in 1996 other revenues primarily reflected the recording of insurance settlements in the third quarter 1995. Expenses Trade purchases were higher primarily as a result of increased natural gas marketing activity and higher third-party purchases of refined products. The increased third-party purchases primarily resulted from higher natural gas volumes in the 1996 third quarter, - 14 - compared to the 1995 third quarter. Natural gas marketing purchases increased to 2.4 billion cubic feet a day in the 1996 third quarter, up from 1.2 billion cubic feet per day in the same period in 1995. In addition, prices for purchased volumes of refined products and natural gas were also higher in 1996. These increased trade purchases were partially offset by decreased crude oil trading activity. Worldwide exploration expense totaled $101 million before tax, down from $138 million in the 1995 third quarter. The decline in 1996 exploration expenses reflected lower dry hole costs in ARCO's international oil and gas operations, compared to the same period in 1995. Upstream Earnings
Millions (after tax) 1996 1995 ---- ---- Oil and Gas. . . . . . . . . . . . . . . . . . . . $285 $116 Coal . . . . . . . . . . . . . . . . . . . . . . . $ 22 $ 10
Oil and Gas ARCO's earnings from worldwide oil and gas exploration and production operations in 1996 benefited from higher crude oil and natural gas prices, growth in natural gas volumes and lower exploration expense. Included in the 1995 third quarter results was an unfavorable $9 million adjustment for tax-related issues. Average Oil and Gas Prices
1996 1995 ---- ---- U.S. Crude oil - per barrel (bbl) Alaska . . . . . . . . . . . . . . . . . . . $15.23 $10.70 Lower 48, including Vastar . . . . . . . . . $18.25 $16.18 Composite average price. . . . . . . . . . . $16.10 $12.23 Natural gas - per thousand cubic feet (mcf). . $ 1.71 $ 1.25 International Crude oil - per bbl. . . . . . . . . . . . . . $19.13 $15.43 Natural gas - per mcf. . . . . . . . . . . . . $ 2.52 $ 2.52
Petroleum Liquids and Natural Gas Production
1996 1995 ---- ---- Net Production Petroleum liquids - bbl/day . . . . . . . . 548,200 564,200 Natural gas - mcf/day . . . . . . . . . . . 1,032,900 949,300 Barrels of oil equivalent (BOE)/day* . . . 720,300 722,400 International Petroleum liquids - bbl/day . . . . . . . . 72,700 71,600 Natural gas - mcf/day . . . . . . . . . . . 637,100 459,500 BOE/day . . . . . . . . . . . . . . . . . . 178,900 148,200 ------------- * Natural gas converted at the ratio of 6 mcf to 1 barrel of liquid.
- 15 - The reduction in U.S. petroleum liquids production resulted from natural field declines in Alaska, where declines at the Prudhoe Bay and Kuparuk River fields were only partially offset by increased production from the Greater Point McIntyre Area. The small increase in international petroleum liquids volumes reflected new production from Algeria, substantially offset by natural field declines in the U.K. and the impact of higher crude oil prices on production-sharing contracts in Indonesia. Increases in U.S. natural gas production resulted from continuing growth in the 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% interest. The growth in international natural gas volumes in 1996 came from the North Sea, including new production from the Gawain field, from ARCO's Yacheng 13 natural gas field in the South China Sea, and from ARCO's natural gas fields offshore Indonesia. The North Sea natural gas fields increased production by approximately 82 million cubic feet per day and the Yacheng 13 field and offshore Indonesia natural gas fields increased production by 62 and 38 million cubic feet per day, respectively. Coal Operations ARCO's worldwide coal operating results improved in the 1996 third quarter, compared to the 1995 third quarter. The improved earnings resulted from higher U.S. and Australian volumes partially offset by volume- related operating costs, higher maintenance expense and the exchange rate effect of a stronger Australian currency. U.S. volumes increased 17% and Australian volumes increased 8%. Due to the increasing geological complexity of ARCO's Curragh mine in Australia, the coal currently being recovered is costing significantly more than anticipated. Therefore, the Company is currently studying several options which may include scaling back the level of operations at the mine. The 1995 third quarter included $10 million in after-tax charges primarily related to the impact of an Australian tax rate increase on deferred taxes. Downstream Earnings
Millions (after tax) 1996 1995 ---- ---- Refining and marketing . . . . . . . . . . . . . $133 $ 75 Transportation . . . . . . . . . . . . . . . . . $ 44 $ 50 Intermediate chemicals and specialty products. . $ 87 $107
Refining and Marketing Operations The higher earnings in the 1996 third quarter resulted from higher refined product margins and sales volumes, partially offset by the impact of higher crude oil prices and increased operating costs. Gasoline, jet fuel and diesel margins were higher in the third quarter of 1996, compared to the same period in 1995. Inventories of jet fuel and gasoline available for sale were lower as a result of industry refinery production problems, particularly in California. The favorable impact of supply tightness on margins was partially offset by higher crude oil prices. Because of production problems at a competitor's refinery, demand for jet fuel was particularly strong in the 1996 third quarter. ARCO was able to operate its refineries to produce incremental jet fuel volumes to take advantage of these favorable market conditions. The volume increase in other sales reflected the sale of intermediate product as a result of turnarounds in 1996. The higher operating costs related primarily to increased volumes and refinery maintenance expenditures. - 16 - West Coast Petroleum Products Sales
Volumes (Barrels/day) 1996 1995 ---- ---- Gasoline . . . . . . . . . . . . . . . . . . . 271,900 266,000 Jet. . . . . . . . . . . . . . . . . . . . . . 131,000 112,500 Distillate . . . . . . . . . . . . . . . . . . 69,900 71,700 Other. . . . . . . . . . . . . . . . . . . . . 97,500 73,800 ------- ------- Total. . . . . . . . . . . . . . . . . . . 570,300 524,000 ======= =======
Transportation Operations The 1996 results were negatively impacted by lower Trans Alaska Pipeline System (TAPS) tariff revenues and a 4% decrease in TAPS volumes compared to the third quarter of 1995. Intermediate Chemical and Specialty Products For the intermediate chemicals and specialty products segment, reflecting ARCO's 82.7% interest in ARCO Chemical Company, the decline in 1996 third quarter earnings primarily reflected lower styrene monomer (SM) margins, and to a lesser extent, lower propylene oxide (PO) derivative margins compared to the third quarter of 1995. The lower margins were partially offset by higher volumes for most products and a lower provision for environmental clean-up costs. SM selling prices were substantially lower due to increased industry supply. PO derivative prices were lower as a result of increased price competition. SM volumes were up 19% and PO volumes were up 4% in the 1996 third quarter, compared to the 1995 third quarter. Higher SM volumes resulted from increased contractual offtakes by SM equity partners and higher export volumes. PO and derivative volumes increased as a result of customers building their inventories in anticipation of future price increases. Equity Affiliate ARCO earned $18 million from its 49.9% equity interest in Lyondell in the third quarter of 1996. This compared to $49 million in the third quarter of 1995. The decline in earnings resulted primarily from lower petrochemicals margins as a result of higher feedstock costs. Earnings were also affected by a decline in aromatics prices and the impact of a fire in a pipe line connected to Lyondell's production facility. Tax Provision The effective tax rate was 36.3% in the 1996 third quarter, compared to 33.7% in the third quarter of 1995. The higher 1996 effective tax rate primarily resulted from a decrease in the dividends received tax deduction. - 17 - Nine-Month Period Ended September 30, 1996 vs. Same Nine-Month Period 1995 Consolidated Earnings The earnings increase in the first nine 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 and third quarters of 1996. Refining and marketing margins declined towards the end of the third quarter and into the fourth quarter. The 1995 results included a net after-tax benefit of $10 million associated with insurance litigation settlements after partial offsets for environmental and other charges. Revenues
Millions 1996 1995 ---- ---- Sales and other operating revenues Upstream . . . . . . . . . . . . . . . . . . $ 6,788 $ 6,597 Downstream. . . . . . . . . . . . . . . . . 9,952 9,066 Intersegment eliminations. . . . . . . . . . (2,097) (2,719) ------ ------ Total. . . . . . . . . . . . . . . . . . . $14,643 $12,944 ====== ======
For the first nine 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 94,200 barrels per day in the first nine months of 1996, compared to the same period in 1995. Third-party sales of natural gas (produced and purchased volumes) increased to 3.6 billion cubic feet per day for the first nine months of 1996, up from 2.7 billion cubic feet per day in the same period in 1995. The majority of the increase was generated by Vastar, where natural gas revenues increased from $851 million in the first nine months of 1995 to $1,640 million in the same period in 1996. For the first nine 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 $3,289 million for the first nine months of 1995 to $2,976 million for the same period in 1996. The decrease in income from equity investments for the first nine months of 1996 primarily reflected a decline in earnings from ARCO's 49.9% equity interest in Lyondell. The decrease in other revenues for the first nine months of 1996 primarily reflected the recording of insurance settlements in the second and third quarters of 1995. - 18 - Expenses Trade purchases were higher for the first nine months of 1996 primarily as a result of increased natural gas marketing activity and third-party purchases of refined products. The increased third-party purchases primarily resulted from higher natural gas volumes in the 1996 second and third quarters, compared to the same periods in 1996. Natural gas marketing purchases increased to 1.9 billion cubic feet a day for the first nine months in 1996, up from 1.2 billion cubic feet per day in the same period in 1995. In addition, prices for purchased volumes of natural gas and refined products were also higher in 1996. These increased trade purchases were partially offset by decreased crude oil trading activity in 1996. The lower interest expense reflected lower average long-term debt balances outstanding in 1996. The first nine months of 1996 included unusual items of $26 million before tax related to final charges for previously reported personnel reductions. Average Oil & Gas Prices
1996 1995 ---- ---- U.S. Crude oil - per bbl Alaska. . . . . . . . . . . . . . . . . . . $14.77 $11.13 Lower 48, including Vastar. . . . . . . . . $18.12 $16.25 Composite average price . . . . . . . . . . $15.69 $12.49 Natural gas - per mcf. . . . . . . . . . . . $ 1.65 $ 1.29 International Crude oil - per bbl . . . . . . . . . . . . . $18.39 $16.31 Natural gas - per mcf . . . . . . . . . . . . $ 2.53 $ 2.56
Financial Position and Liquidity
Millions 1996 ---- Cash flow provided (used) by: Operations. . . . . . . . . . . . . . . . . . . $ 2,534 Investing activities. . . . . . . . . . . . . . (1,536) Financing activities. . . . . . . . . . . . . . $(1,160)
The net cash used by investing activities in the first nine months of 1996 primarily included expenditures for additions to fixed assets of $1,617 million. The net cash used in financing activities in the first nine months of 1996 primarily included dividend payments of $666 million, a decrease of $302 million in the Company's short-term debt position and repayments of long-term debt of $236 million. Cash and cash equivalents and short-term investments totaled $2.8 billion, and short-term borrowings were $900 million at the end of the third 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. - 19 - 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. - 20 - PART II. OTHER INFORMATION Item 1. Legal Proceedings. 1. Reference is made to the disclosure on page 16 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 plant, formerly owned by ARCO Chemical, located in Monaca, Pennsylvania (Beaver Valley). ARCO Chemical sold the plant assets to NOVA Chemicals Inc. ("NOVA") as of September 30, 1996, but retained ownership of the land on which the plant is located, substantial portions of which are being leased to NOVA. NOVA will assume ownership of such portions of the site after the occurrence of certain defined events. ARCO Chemical has retained responsibility for the work plan and for certain additional remediation of the land that may be required by PADEP pursuant to the Pennsylvania Land Recycling and Environmental Remediation Standards Act. 2. Reference is made to the Company's 1995 Form 10-K Report for information on other legal proceedings matters reported therein. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27 Financial Data Schedule (b) Reports on Form 8-K. No Current Report on Form 8-K was filed during the quarter ended September 30, 1996 and through the date hereof. - 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: November 6, 1996 _______________________________ (signature) Allan L. Comstock Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer) - 22 - EX-27 2 FINANCIAL DATA SCHEDULE 9-MONTHS SEP 1996
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 9-MOS DEC-31-1996 SEP-30-1996 $ 1,375 1,419 1,711 0 865 5,689 33,669 18,082 24,517 4,569 5,663 0 1 402 7,041 24,517 14,643 15,113 10,821 11,129 26 0 500 2,131 768 1,283 0 0 0 1,283 $7.86 $7.86
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